As countries closed their borders to slow the spread of COVID-19, a second passport became an ever-more-desirable commodity, for those who could afford it. While not a new phenomenon— several countries have adopted “golden passport” programs over the years—the onset of the pandemic generated renewed interest. Price tags for a second citizenship—sometimes in only 30 days— range from $100,000 to $2.5 million. Antigua and Barbuda, Cyprus, Grenada, Jordan, Malta, St Kitts and Nevis, and Vanuatu are among the many countries that have offered such deals.
There are few figures about the trade in passports given the overall opacity of these programs. Nevertheless, firms that offer such services reported increasing demand for second passports in the midst of the pandemic. Requests from high-net-worth individuals in advanced economies have skyrocketed. The demand has been further fuelled by discounts offered by some countries.
A second passport has many benefits, such as the ability to travel freely without visas and flee political persecution, conflict, or civil unrest. It can offer attractive tax and wealth management benefits, too. Usually citizens from autocratic countries, where the rule of law is weak, are the most anxious to obtain a golden passport.
But as the coronavirus threatened to overwhelm health services before vaccines became available, wealthy individuals from developed democracies also looked for an escape route. For countries seeking to rebuild pandemic-stricken economies, the sale of passports can seem an easy way to secure revenue and investment. In the past, such arrangements have generated large inflows, which can have a significant economic and fiscal impact—consider, for example, revenue generated by such programs in the Caribbean (see IMF Working Paper No. 20/8). Some countries have used these programs to replenish their coffers after natural disasters (for example, a decline in tax revenue after Hurricane Maria hit Dominica was partly offset by golden passport revenue).
Ultimately the bestowal of citizenship is a government’s sovereign decision. However, the risks of selling citizenship can be high. Abuses are widely documented, including enabling corruption, money laundering, tax evasion, and other crimes. If the risks are not properly managed, countries that offer these programs can suffer reputational damage, affecting their economic and financial stability and worsening inequality.
New citizenship can disguise a higher risk profile. Criminals and terrorists may shop around for a country that offers a safe haven from law enforcement or extradition. They might hide behind alternative identities to gain access to financial products or evade sanctions and watch lists. They could use secondary citizenship to conceal a bank account that would otherwise require declaration under international tax rules, or they might seek citizenship in a country that has not agreed to such tax information exchange.
The risks from these programs can spill over to other countries, too. Members of organized crime may use their newly acquired passports to move freely between countries and establish illegal enterprises. The European Commission has launched legal proceedings against two member states (Cyprus and Malta) for offering golden passports to people without a “genuine link” to the bloc; it says they threaten the integrity of EU citizenship as a whole, since a citizen of one EU member state has the right to move, live, and work freely in the other 26 members.
Citizenship by investment can lead to corruption and rent-seeking. Without proper oversight, public officials may accept bribes or pocket the fees. Programs linked to specific sectors can cause overdependence that leads to economic imbalances. Some countries, for example, offer citizenship to investors who purchase an expensive property. Foreign money can drive up local property prices and give rise to real estate bubbles.
What are golden passports?
Golden passport programs allow individuals and their families to buy new citizenship through targeted investments or contributions.
Investments and contributions: These include direct monetary contributions, the purchase of government debt instruments (for example, investment in government stocks, bonds, securities), investment in specific sectors (for example, real estate, construction), and the establishment of businesses. Qualifying amounts typically range from $100,000 to $2.5 million (excluding fees) and have various financing terms (for example, up-front payments, installments, bank loans).
Administration: Typically, a government agency oversees the program, and may rely on third parties to market the program, facilitate application submissions, and carry out due diligence. Some programs have statutory quotas that limit the number of applications.
Application process: The application process usually requires some background checks (for example, criminal background checks, vetting by third parties), though requirements differ. Processing applications can take from 30 days to more than a year—many offer fast-track options in exchange for higher contribution amounts.
Countries that offer these programs can suffer reputational damage, with impacts on their economic and financial stability.
In reaction to countries that sell passports without proper vetting, other governments may respond with countermeasures such as enhanced checking of regular passport holders from these countries. In some cases, countries could be labeled as high risk. The Organisation for Economic Co-operation and Development, for instance, publishes a list of high-risk programs it suspects allow people to hide their taxable assets abroad. Foreign banks can react to these negative risk perceptions, putting pressure on correspondent banking relationships. This can have far-reaching implications for financial stability.