Ius Doni: Citizenship-by-Investment

by Dr. Christian H. Kälin, Chairman, Henley & Partners

The meaning, structure, and scope of citizenship are evolving, as social, cultural, economic, geographic, and political norms adapt and respond to modern times. By contrast, the actual legal mechanisms through which individuals can become citizens of one country or another have been surprisingly constant over time, and categorizing them is relatively straightforward. This article distinguishes ius doni, or citizenship-by-investment, from ius soli (citizenship-by-birth) and ius sanguinis (citizenship-by-bloodline) and provides an overview of the vibrant industry that has sprung up around citizenship-by-investment in recent decades. It concludes with a statement about the industry’s current direction and future prospects.

1. Ius soli, ius sanguinis, ius doni

There are three keys mechanisms by which citizenship is conferred upon individuals. The first is ius soli, which is citizenship on the basis of one’s birth in a particular jurisdiction. This citizenship principle prevails throughout most of the Americas, but it is rare elsewhere. In Europe, for example, there is no country that unconditionally grants citizenship on the basis of birth alone, although conditional or partial forms of ius soli — for example, where citizenship is granted at birth only to the children of specific immigrants — do exist.

The second mechanism is ius sanguinis, which is citizenship on the basis of bloodline or heritage. Ius sanguinis is the most common mode of citizenship acquisition today, with children granted citizenship because one or both of their parents are nationals of a particular state. Ius sanguinis also allows children whose parents belong to a country’s diaspora, as well as those with ethnic, cultural, or other ties to a country, to claim citizenship. In cases where national borders have shifted over time and ethnic groups have been scattered across multiple countries, international treaties often decide where ius sanguinis applies.

The third main mechanism by which citizenship is granted is naturalization. Naturalization allows non- citizens to acquire a particular nationality either by virtue of a statute being passed or by way of a detailed application process. Typically, the criteria for naturalization include a minimum residence requirement and minimum knowledge of the local language and customs, but they differ from jurisdiction to jurisdiction. In rare instances, such as the case recently witnessed in France of the undocumented Malian immigrant who saved a child’s life, naturalization can be set into motion for exceptional, heroic service to the country.

A sub-type of naturalization is ius doni, or citizenship-by-investment — the focus of this article. Citizenship-by-investment denotes the legal process whereby individuals are granted citizenship on account of an extraordinary economic contribution to the country in question. While the first modern citizenship programs were established by the Caribbean island-nations of St. Kitts and Nevis and Dominica in the 1980s and 1990s, respectively, the principle of granting citizenship on an economic basis goes back to Roman times, when citizenship was extended to neighboring and conquered peoples and individuals (often in exchange for money), in order to ‘Romanize’ them and strengthen the empire.

2. A brief history of citizenship

The origins of the Western concept of citizenship itself can also be traced back to the Roman Empire. Buoyed by the need to include diverse people in their expanding empire, Roman jurists developed ‘citizenship’ as a legal status with various public and private rights and obligations attached to it that could be conferred on particular individuals or groups. In ancient Roman political theory, the state was understood as a community of citizens whose identities, in turn, became no longer necessarily linked to their place of residence. The Roman Republic also began to develop a relatively flexible naturalization process, so that individuals in newly conquered territories could be easily integrated into the Roman federation and rapidly loyalized as colonial subjects.

During the Imperial Era, this cosmopolitan character of Roman civil rights was further extended, with Roman emperors assuming the right to bestow citizenship on non-citizens for exemplary acts of value to the state.

The Constitutio Antoniniana of 212 AD was a pioneering development for the modern concept of citizenship. According to this law, Roman civil liberties were extended and granted to all free residents of the Roman Empire. Roman citizenship could therefore be bestowed on anybody, regardless of their origin or culture, and without them being bound by conditions or obligations to Rome. For all intents and purposes, this legislation represented a high-water mark in the cosmopolitan character of Roman citizenship law and marked the beginning of ‘extensive’ citizenship.

Following the fall of the Roman Empire, the concept of citizenship changed dramatically. Our modern understanding of the term properly emerged again only in the 19th century along with the concept of the nation-state, and it has persisted ever since. During this period there was a proliferation of newly formed European states, which led to the creation of new national identities. “We have made Italy; now we must make Italians,” Massimo d’Azeglio, a pioneer of Italian unification, boldly declared in 1861. In other words, national identity is a social construct par excellence. Its construction goes hand-in-hand with keeping residents bound to a particular notion of communal statehood.

Once the modern idea of citizenship and nationhood stuck, it stuck fast, and the accompanying categories of ius soli, ius sanguinis, and naturalization became equally entrenched. Until the Naturalization Act of 1870, the assets of a foreign citizen were subject to approval by the Crown. Understandably, then, after the Act, many an affluent foreigner made the decision to naturalize, mostly as a means of retaining autonomy over their wealth. In 18th-and 19th-century England, there were a large number of German, German-Russian, and Italian merchants who acquired citizenship for merely economic reasons, rather than with the intention of settling in England. Anyone familiar with modern- day citizenship-by-investment will recognize that this Victorian era practice bears a very close resemblance to what happens across the globe today.

The British Empire was built with the significant help of economic citizens from continental Europe, who were attracted to the UK by the possibility of acquiring citizenship through investment. A special citizenship-by-investment program prevailed in Scotland, which continued long after the Union with England in the 18th century: an investment of GBP 83 in the Royal Bank of Scotland allowed a foreign citizen to become a citizen of Scotland and, by extension, the UK.

Naturalization through the acquisition of shares in the Royal Bank of Scotland was not only cheaper and economically more advantageous than traditional naturalization, but it was also not subject to the political, economic, and religious restrictions imposed by private naturalization acts. Moreover, while this route to citizenship granted investors full political rights, it did not require any oath of allegiance from them. The relevant charter of the Bank of Scotland was confirmed several times by the British Parliament.

3. The emergence of global citizenship

Seven decades of rapid globalization have put serious pressure on traditionalist and nationalist conceptions of citizenship. According to the latest UN figures, 258 million people are living in a country other than their country of birth, which is a greater global immigrant population than ever before in history. Among the wealthy, multinationalism defines everything from asset management to business operations to familial networks to identity. There are currently more mobile phones than people on the planet, and the digital world is a largely borderless terrain, where internet users can access and produce information from and for any corner of the world. Citizenship and nationhood are, quite simply, not what they used be.

Polling data supports these conclusions. A Pew Research Center poll of more than 14,500 people in 14 countries found that people generally place a low premium on a person’s nation of birth. Only 13% of Australians, 21% of Canadians, 32% of Americans, and 33% of Europeans believe a person’s birthplace

determines whether or not they ‘belong’ in a particular nation, according to the poll, which was published last year. Similarly, a BBC World Service poll conducted in 2016 found that more than half (51%) of the 20,000 people surveyed across 18 countries consider themselves to be more ‘global citizens’ than citizens of a specific country.

4. Ius doni today

Certainly, some governments are resisting this globalist view of identity, instead reinforcing 19th-century understandings of citizenship and riding a populist wave to become more insular. Yet the proliferation of investment migration programs in recent years makes it clear that just as many nations are embracing the idea that it is well worth bestowing citizenship on carefully vetted individuals who bring benefits that include — but are not limited to — capital, connections, and talent.

Today, citizenship-by-investment has grown into a roughly USD 3 billion industry, while the adjacent residence-by-investment industry, whose size is more difficult to approximate, most likely exceeds tens of billions of dollars each year.

There are currently around 10 active citizenship-by-investment programs available worldwide (of which seven are really relevant and credible), and there are many more in the pipeline. Demand for alternative citizenship is now driving thousands of individuals to these programs each year.

Looking ahead, the International Monetary Fund expects continued growth in the investment migration industry: “These programs are increasingly being mainstreamed, as high-net-worth individuals consider citizenship/residency as a means to improving international mobility, tax planning, and family security while also seeking investment opportunities.”

5. The rationale behind modern-day ius doni

It is worth noting that the expansion of the citizenship-by-investment industry in recent years stems directly from the incontrovertible value provided by this naturalizing mechanism, not only to the individuals receiving second passports but, crucially, to the states issuing them as well. If the benefits were not as reciprocal and widespread as they indeed are, citizenship-by-investment would not be as successful as it is.

For high- and ultra-high-net-worth individuals, the benefits of alternative citizenship are manifold, but they generally involve a combination of increased travel freedom and improved safety and security. A second or third passport grants holders the right to travel, trade, and settle in an expanded set of countries and regions, as well as access to all the benefits enjoyed by other citizens of the state in question (education, health care, and so on). It also eliminates a great deal of the inconvenience and waiting time surrounding visa applications and passport renewal or replacement processes. Finally, and most importantly for some, an additional passport can quite literally save a person’s life in times of political unrest, civil war, and heightened risk of terrorism and in other delicate situations.

For states that administer citizenship-by-investment programs, the primary benefit is significant financial investment in their domestic economies. The cost and design of each program vary according to the issuing country’s requirements, but most programs involve an upfront investment in the public or the private sector, combined with application fees and a fixed amount to cover due diligence costs.

Since the inflows of funds from citizenship programs are considerable, the macroeconomic implications for smaller states can be extensive. Foreign direct investment brings in capital to both the public sector — in the form of donations to the government, tax payments, or treasury bond investments — and the private sector, in the form of investments in businesses or real estate.

More generally, countries are able to use citizenship-by-investment inflows to finance infrastructure development, and those that save their inflows may be able to improve their fiscal performance, minimize their dependence on international aid, and reduce national debt. Precisely such a pattern has

emerged in Malta, where the country has, for example, moved into budget surplus since the launch of its highly successful citizenship program.

Apart from these economic gains, successful applicants also bring intangible benefits to receiving countries, such as skills and rich global networks. As the number of successful applicants increases each year, host countries often grow in prominence in the international arena, on account of their increased competitiveness.

6. Modern examples of ius doni

6.1. St. Kitts and Nevis

St. Kitts and Nevis introduced its citizenship-by-investment program (formerly known as the Economic Citizenship Programme) in 1984, a year after gaining its independence from the UK. Worldwide, this is the first modern-day citizenship-by-investment program. In 2007, the program was substantially reformed, optimized, and made scalable, allowing hundreds of applications to be processed.

6.2. Austria

Austria was also among the first countries in recent times to introduce a modern ius doni provision into its citizenship law. The relevant amendments to its Citizenship Act (§10 [6]) were made in 1986. Austria has never had a structured or formalized citizenship-by-investment program. Rather, it has developed a number of structures for granting citizenship to suitable foreign investors.

6.3. Malta

Malta introduced the first EU-approved citizenship-by-investment program in 2014. The Malta Individual Investor Program enforces the most stringent due diligence process of any program in the world, requiring a four-tier due diligence check and a one-year application period, during which prospective citizens have to fulfil a number of strict requirements. The Malta Individual Investor Program is widely regarded in governmental and professional circles as the most sophisticated and reputable program in operation today.

7. The future of ius doni

As the industry grows in visibility and breadth, so too does a cloud of public dissent and some opposition regarding the perceived ‘marketization’ of citizenship, as well as concern about the alleged possible abuse of investment migration programs. Accordingly, a strong culture of self-regulation and due diligence is essential to the industry’s continued success and sustainability.

In an important step in this direction, the leading firms in the industry joined forces in 2015 to form the Investment Migration Council (IMC), a professional association that establishes and maintains standards and codes of conduct, while also interacting with other professional associations, governments, and international organizations in relation to investment migration. The IMC comprises currently about 400 members from over 50 different jurisdictions in Europe, the Middle East, Asia, the Caribbean and the Americas.

As the sector continues to expand rapidly, and as the reciprocal advantages become increasingly self- evident, we are going to see citizenship-by-investment becoming a simple fact of modern life, something accepted around the world as a significant benefit for individuals and countries alike.