In 1984, the government of the small Caribbean island state of Saint Kitts and Nevis had a bright idea for attracting foreign capital: the country would grant permanent resident status to any foreign national who invested a sufficient amount in the country. The idea caught on, and now dozens of countries around the world—including not only small island states, but also major developed economies like the United States and the United Kingdom—have so-called “golden visa” programs. Golden visa programs have proven especially attractive during times of economic hardship, as demonstrated by the spread of these programs across Europe in the wake of the 2008 recession. These European programs are especially notable, as getting a visa in one country in the Schengen visa zone provides access to the other 25 as well. Some states—including EU members Austria, Bulgaria, Cyprus, and Malta—even offer investors outright citizenship, rather than simply residency status, in exchange for sufficiently large investments. And due to pre-existing visa waiver agreements, these “golden passports” may allow access to other countries as well. Those with Maltese passports, for example, can travel to the US visa-free.
According to a recent Transparency International-Global Witness report, in the last decade alone, countries with these sorts of programs have “sold” (that is, traded for investment) more than 6,000 passports and nearly 100,000 residency permits. Yet these policies have always been controversial, and are becoming more so. Canada terminated its golden visa program in 2014 (though it continues in Quebec). Last June, the Trump Administration demanded that Congress either terminate or reform the US investor visa program. And the UK abruptly announced it would suspend its program on December 6th, although it reversed course six days later.
Part of the reason for the growing disillusionment with golden visa programs is that their supposed economic benefits haven’t lived up to expectations. Rather than stimulate economic growth and job creation, the investments used to qualify for golden visas are often passive, such as government bonds or real estate. In Portugal, for example, 95% of total investment has been in real estate—6,141 investments compared to just 12 in employment creation. Real estate investments not only offer limited benefits, but may also distort housing markets. In the US, investments have been, in the words of US Senator Chuck Grassley, funneled towards “big moneyed Manhattan interests” rather than “direct investment to rural and high unemployment areas.” Hungary even managed to lose money on its program—$221 million—as it offered investors discounted bonds that were then fully repaid after five years with an additional 2% interest.
But the bigger problem with golden visa programs is their potential to both facilitate and stimulate corruption and money laundering. This problem, which was highlighted both by the TI-Global Witness report mentioned above, as well as another report from the European Commission, takes several forms.
- First, golden visa and golden passport programs provide safe havens for the corrupt and other criminal actors. For example, Russian oligarchs like Oleg Deripaska (who has close ties to Vladimir Putin and employed Paul Manafort) have sought refuge in the UK and Cyprus. Montenegro, currently seeking EU membership, granted citizenship to Thailand’s former Prime Minister, Thaskin Shinawatra, who has been convicted of corruption offenses and is wanted in his home country, and to former Palestinian Minister of Security Mohammed Dahlan, charged with embezzling $18 million. While some countries, including Cyprus and Montenegro, do not permit those with criminal records or subject to a criminal investigation to avail themselves of the program, enforcement of such requirements is evidently imperfect, and in some countries, such as Malta, the government has discretion to waive the exclusion of criminals in “special circumstances.” Relatedly, golden passport programs may provide foreign nationals refuge from sanctions: Russian oligarchs can conveniently become Maltese oligarchs to whom the sanctions against Russia do not apply.
- Second, not only can foreign nationals escape prosecution, but they can also use their golden visas (or passports) to launder their illicit wealth. Governments themselves rarely investigate the sources of applicants’ money, instead counting on banks to perform due diligence. The EU’s Fifth Anti-Money Laundering Directive requires banks to consider golden visa applicants to be “high risk,” but banks must rely on voluntary disclosure of the client that he or she applied for one of these visa/passport programs—governments will not disclose applicants’ names. As a result, applicants can be passed through without ever being fully and properly screened. They may then use ill-gotten wealth to fund the investments in the country that grants them a visa or passport. They may also move money to the new country of residence/citizenship in order to shield their assets from seizure.
- Third, golden visa programs not only facilitate money laundering and evasion of prosecution, but also lead to corruption in the programs themselves. Public officials take bribes to register properties as having been bought for the minimum investment to obtain a visa when they were actually bought for much less. Bribes are also frequently paid to expedite the actual visa applications. And these concerns about bribery in golden visa/passport programs are not hypothetical. For example, aides to Malta’s Prime Minister have been accused of funneling application fees and kickbacks from Russian applicants to the Prime Minister’s private coffers through companies registered in Panama and the British Virgin Islands. The programs also open the door to conflicts of interest. Hungary’s golden visa program was shut down in 2017 after the exposure of a scheme in which applicants invested not in government bonds, but instead in offshore intermediaries linked to the country’s political elite. In the US, Nicole Kushner Meyer, Jared Kushner’s sister, appeared to be using her brother’s position in the White House to drum up investment in the family business when she promoted the US golden visa program (the EB-5 investor visa) to potential Chinese investors. Without greater transparency and audits in the programs, these sorts of corruption will continue unchecked.
While investor visa programs don’t necessarily need to be terminated outright, the corruption and money laundering risks are sufficiently serious to warrant substantial reforms. Applicants should be properly vetted and the sources of their income independently verified by the government, rather than by the banks. Furthermore, the benefits offered to applicants should be limited to residency, not citizenship. While there may be plausible justification for golden visas under some circumstances, there is no good argument for golden passports. And the processes as a whole need to be more transparent, so those misusing the programs can be more easily held accountable. An additional challenge here is the tendency toward a “race to the bottom” in which countries vie to attract investors by lowering their due diligence standards. This is particularly true in the EU, as member states are essentially offering a shared asset. For reforms to be truly effective, countries may need to coordinate practices for due diligence and transparency.
The UK might be on the right track. As noted above, the UK announced a decision to suspend its golden visa program while a series of reforms were enacted, but then quickly reversed course, leaving the program in place. The fate of the proposed reforms is not clear. However, if enacted, they would make the program both more effective economically and less susceptible to corruption. The UK already does not permit real estate investments to qualify towards meeting the minimum investment threshold under the program, but proposed rules would also prevent investors from buying government bonds, instead requiring qualifying investments to be made in “active and trading UK companies” and projects that provide “clear economic benefit to the UK,” for example by supporting small and medium-sized businesses. Additional changes would require that golden visa applicants provide independent audits of all business and financial interests and prove control of their funds for the last two years. For those countries that determine that the benefits of golden visa programs are high enough to justify the risks, the UK’s reforms suggest practical ways those risks could be mitigated.
Natalie, thanks for this fascinating post. I’m wondering if you have thoughts on the structure of the U.S. EB-5 program, as currently administered. My understanding is that the program grants a provisional green card to investors (and their families) who invest $1 million (or $500,000 in certain economically-depressed areas) in businesses that generate or save ten jobs. The program also requires that the invested money be from “legal sources,” and I believe that USCIS conducts its own investigations as to the source of funds. (Though I think it’s hard to know how effective those investigations are). My impression of these requirements is that they seem to, at least partially, address concerns you’ve raise about, say, Portugal’s program where most of the investments are passive, and Malta’s program, where due diligence was outsourced to a firm that represented clients who were applying for the very same Maltese visas. That said, I know the program has been controversial in the U.S., with a number of scandals emerging in recent years in USCIS itself and in the “regional centers” that provide investment vehicles to wealthy foreigners. Senator Grassley proposed reforms to the EB-5 program a number of years ago, but they weren’t passed by Congress. All this said, I guess what I’m wondering is, would you advocate reforms of the U.S. program, perhaps along the lines of those proposed by Senator Grassley (increasing USCIS investigatory powers, raising the capital threshhold), or is the problem a broader one (the idea that selling visas to rich people when so many others have to wait in line) such that we’d be better scrapping the program altogether rather than reforming a misconceived idea. Thanks!
I have been wanting to research all the corruption risks related to this and never had a chance – and you offer a great and condensed overview. Thank you!
Maybe you (or other readers who will understand this) could clarify one point which I am not sure I fully understood. I am not surprised by the fact that the governments rarely investigate the sources of applicants’ money – the modern AML framework is basically built on the premise that banks and other financial institutions will be acting as “gate keepers” (which in itself may be ripe for a review, in my opinion). The applicants will have to inevitably open a bank account in the country in which they are applying for a golden visa – and the banks should conduct all KYC procedures when onboarding – including continuous monitoring of the account activity later on. Such applicants should also be subject to the real estate agents scrutiny (at least in the EU) when purchasing real estate. All of this I get.
But you also mention banks must rely on voluntary disclosure of the client that he or she applied for one of these visa/passport programs. Does this mean that banks will not always know the REAL NAME of the person who applied for a golden visa and is opening a bank account? This is the first time I am hearing this and if I understood this correctly, I am very surprised. I could not imagine any bank (at least in the EU) opening a bank account for an anonymous client, even for a golden visa… This would make complying with AML laws completely impossible in the future. Or am I unaware of some sort of exception (or maybe I got something very wrong?)?
Hi Natalie, this is such an interesting post! I had no idea this existed. I was wondering what the average amount of investments is required for Golden Visas? or at least in the U.S. how much money would someone need to invest to get a U.S. residency visa? I also find it interesting that they would allow a resident visa rather than a mere work-type visa. I would think an investment visa where they get to live here for a short period of time as long as there investment continues, with a requirement for re-approval every two years or something, would make a lot more sense than selling off permanent residencies.
Natalie, what an interesting read! I completely agree with you on the need for greater oversight and checks on golden passport / residency schemes. There is undoubtedly much room for corruption and abuse. However, I disagree that there is no good argument for golden passports. Consider the case of the US. Getting just a green card through normal channels can take well over 10 years for people from countries like India. Immigrants from certain countries are therefore at a very serious disadvantage. Set aside the distributional concerns associated with being able to purchase citizenship. Being able to buy citizenship, or buy a green card, allows high-income immigrants to secure a place in the country they chose to move to. Not only does the “golden passport” scheme bring in revenue for the government, it can also spur additional investment, from people erstwhile unsure of their long term place in the country. My takeaway, as an immigrant myself, is not that such a scheme is always bad, but rather that more checks and balances are needed. To take just one example, demonstration of extended residence in the US could address some of the very real concerns about large amounts of money being parked in expensive Manhattan real estate.