The Citizenship by Investment Program

April 15, 2023 1:19 am | Posted in Features | Share now TwitterFacebook

Is Vanuatu killing the Goose that lays the Golden Egg?

Recently, Vanuatu’s Citizenship by Investment programs have faced increased scrutiny due to negative publicity in the international media. Specifically, concerns have been raised over the granting of Vanuatu citizenship to the Gupta Brothers, who are wanted by South African authorities on corruption charges, and allegations that Chinese spies with Vanuatu passports have entered the UK. These programs, which include the Development Support Program (DSP) and the Vanuatu Citizenship Contribution Program (VCP), have been the government’s primary source of revenue during the COVID-19 economic crisis.

Vanuatu’s citizenship-for-sale scheme was first implemented in the 1990s but was later discontinued. In 2014, the Capital Investment Immigration Plan (CIIP) was introduced during Moana Carcasses’ term as Prime Minister. However, the program was reviewed during Joe Natuman’s time as Prime Minister, and following Cyclone Pam, it was replaced by the Vanuatu Real Estate Option Program in 2016. The current programs, DSP and VCP, were established in 2018, with the former initially offering honorary citizenship and the latter granting restricted privileges. However, in 2019, Prime Minister Charlot Salwai amended the Honorary Citizenship Development Support Program (DSP) Regulation to remove the honorary terminology from citizenship certificates.

Despite generating significant revenue for the government,
revenues from passport sales have been declining since reaching a record high of VT14,351.8 million in 2020.

There have been a number of factors contributing to the revenue decline. On a macro level, the COVID pandemic which affected the world economy and recently the suspension of
free visa travel to Schengen countries have had an effect on
passport sales.

The VISA Waiver Agreement

On 28 May 2015, the EU signed short-stay visa waiver agreement with the Republic of Vanuatu at a ceremony that took place in Brussels, Belgium. Similar agreements were signed with six other African, Caribbean and Pacific (ACP) countries: St Lucia, the Commonwealth of Dominica, Grenada, St Vincent and the Grenadines, the independent State of Samoa and the Republic of Trinidad and Tobago.

The new visa regime provided for visa-free travel for EU citizens when travelling to the territory of these countries and for citizens of these countries when travelling to the EU, for a period of stay of 90 days in any 180-day period. This agreement paved the way for the success of the CBI programs in Vanuatu.

In January 2022, the EU put on notice to the Vanuatu Government that they had concerns about its citizenship program. The European Commission had proposed the temporary ban of its visa-free travel agreement with Vanuatu following concerns about the country’s controversial “golden passports” schemes.

In a statement, the EU Commission said the schemes “present serious deficiencies and security failures”. and a few months later, partially suspended the VISA waiver agreement.

According to the EU online press statement at the time, any passports sold from May 25, 2015 would now have to apply for a visa when entering any European country, even for only a few days.

The reasons for the suspension as stated in the press release
were as follows:

1. The extremely low rejection rate, which raises doubts as to the reliability of the security and due diligence screening
2. he absence of physical presence or residence requirements, short processing periods and lack of information exchange with applicants’ countries of origin or residence
3. The granting of citizenship to applicants listed in Interpol databases
4. The nationalities of origin of successful applicants, which include several countries whose nationals require a visa to enter the EU

Following the October 2023 snap elections and the election of the new Government, the newly elected Prime Minister, Ishmael Kalsakau led a delegation to Brussels to renegotiate the VISA Waiver suspension. During his discussions with EU officials, the Prime Minister (PM) Ishmael Kalsakau requested from the European Union (EU) a window period until March 2023, for Vanuatu to sort out issues that led to the EU’s decision to suspend visa-free travel into EU countries. To date, it is not clear if these issues have been resolved.

The Gupta Brothers and other Negative Publicity

In early April news reports surfaced in South Africa that the Gupta Brothers, who were wanted for questioning by South African police had acquired Vanuatu Citizenship. The Indianborn brothers had left the country for Dubai after being sought in South Africa to face criminal charges on the allegations
concerning the dealings of their companies and government under the then Prime Minister Zuma, who described them as family friends. The news of this broke in Vanuatu. At the time, there were rumours that the Gupta Brothers were actually in Vanuatu. Attempts to contact the immigration department were unable to confirm this.

Serious questions were then raised as to how the Gupta Brothers were able to obtain Vanuatu Passports with the controversy and question marks about their background. In response Vanuatu’s Financial Intelligence Unit (FIU) issued a statement that they had advised Vanuatu’s Citizenship Office of the hostile information against corruption-accused fugitive Gupta brothers – Atul and Rajesh – on two separate occasions in 2018. The statement read.

“This Office identified adverse information against the brothers and informed the Citizenship Office accordingly on 4th and 27th of February 2018,” the FIU revealed.

“On around 5th of July 2018, a fresh application for the same clients was received, and this Office issued the same response to the Citizenship Office. After numerous meetings and correspondences on this matter, on around 2nd April 2019, this Office issued another letter to the Citizenship Office maintaining its position of adverse information identified against the Gupta brothers.

“This stated clearly that the brothers were subject to criminal investigations in South Africa. The onus was placed on the discretionary authority of the Citizenship Office and the Citizenship Screening Committee. Thereafter, FIU was unaware of the Gupta brothers’ citizenship application nor received a request for a fresh review of their applications. Nonetheless, our formal position remains unchanged.”

Despite this, the Citizenship office proceeded to grant citizenship to the Gupta Brothers. How and why they were granted passport is now part of an enquiry in to the Citizenship Office.

Then further adverse publicity on the international press surface on the front page of the UK times which stated that Chinese Spies had been entering the UK with Vanuatu passports.

The Prime Ministers immediate response was to summon the UK High Commissioner, Ms Nicolette Brent to his office on Saturday 16 April 2023, and in a strongly worded letter, demanded proof of the allegations and an apology for spoiling the name of Vanuatu, to be placed on the front page of the
same newspaper. The ultimatum issued was for Tuesday the following week. It was not clear if the apology was to be from the Times itself or from the UK Government who through MI5 had clearly leaked this information to the Times. The UK High Commissioner subsequently met with the Prime Minister to resolve the issue and gave a feathered mat in the process. The meeting appeared to have diffused the situation and, no apology was placed on the front page of the Times.

The CIIP and Bond Programs

While all the negative publicity in international news was circulating, reports emerged that the Vanuatu Government was launching 2 new CBI programs. These were the CIIP program which had been in place prior to the DSP and the VCP in 2014, and the Bond Program. Serious concerns were raised about how these programs would be administered and the effect they would have on revenues. In a series of Policy papers analyzing both programs, serious questions were asked about the legality of how these programs would be administered, the question of the appointment of master agents and whether the process of appointing master agents had followed proper policy procedures through the Central Tenders Board.

Of greater concerns was how these new programs would affect revenues from DSP and VCP. In the policy papers, covering both program, these policy papers have concluded that both programs would result in a serious loss in revenue to Vanuatu government as it offered a more affordable option for investors compared to the DSP.

In the Policy Papers, an analysis was conducted on the revenues achievable under the Bond Program, and the conclusion was that the government was at risk of losing AUD 91,000 (VT7,200,00) per single applicant to AUD121,000 (VT9,600,000) for a family of four in revenue.

To better understand the financial implications of the DSP, the CIIP and the Bond Program, the below tables outline the contributions to government revenue, VAT implications, and their impact on the local economy.

The Bond Program

The Bond Program would result in a revenue loss of VT5,400,000,000 for the Government.

The CIIP program will result in revenue loss of VT6,600,000 for the Government.

The logic behind the launch of these new programs have yet to be explained by the current government. The Minister of Finance in a recent interview with Kizzy Kalsakau on Buzz FM96.3 had advised that a “taskforce” had been established to review the new proposals.

The Commission of Enquiry

Amidst all the adverse publicity, the EU VISAS Waiver Suspension and criticism of the way the CBI program has been managed, the Vanuatu Government announced that there would be a Commission of Enquiry in to the Matters relating to the Affairs of the Vanuatu Citizenship Office and its related programs.
The COI would be chaired by Colin Leo and with 4 other fellow commissioners.

The terms of reference for this enquiry were as follows.

The Aim

The Commission aims to investigate the functions of the citizenship commission along with the all-government department activities related to citizenship by investment programs and to identify any corruption or failures in the State administration.

Objectives

The objectives of the Commission of Inquiry are to ascertain the functions, activities and actions of the key government stakeholders involved in the process of managing the citizenship by investment programs along with the integrity of Vanuatu citizenships issued since 2018.

The stakeholders include, but not limited to the Department of Finance, Approved Citizenship Program Agents, the Financial Intelligence Unit, The Vanuatu Citizenship Commission and the Department of Immigration.

Based on its findings it must make recommendations of any officials, persons, and citizenships issued for potential further investigation. It must make recommendations, based on its findings to strengthen the programs with the ultimate goal of satisfying the EU Council and having the EU Visa Waiver agreement reinstated.

The Scope

The scope of the enquiry would be quite extensive covering all financial records of the Citizenship Commission, processes, policies and procedures, records of correspondence, background checks of applicants including any complaints made against approved agents of the programs. The Duration of the Enquiry would be for a period of 3 months.

What Next?

The establishment of the COI is a step in the right direction for the Vanuatu Government. The CBI programs for the 4 years 2019 – 2022 contributed VT48.3b to government revenues. In comparison, VAT collection for the same 4 year period was VT31,190 making passport Sales the single largest source of
revenue for the Vanuatu Government In addition to this, it also earned program agents huge sums of income which directly contributed to the broader economy. The fact that revenues are on the decline point to a fundamental flaw in the way the CBI programs have been managed in the past.

The report that will come out the COI will no doubt point to problems in the CBI programs and the recommendations to address these problems. Whether the will is there to implement is the big question and will have long term consequences for Vanuatu.