Citizenship Sale: The “lifesaver” in this crisis?
By Glenda Willie and Gene Wong
At the recent Business Forum, representatives from the Vanuatu Government and the Reserve bank gave presentations on the current fiscal outlook of the Country. One of the key points that was mentioned was the strong fiscal position of the government, and the operating surpluses, due mainly to revenues from the sale of passports. The importance of this revenue stream for the country in the current economic situation, cannot be overstated enough, as it has enabled the Vanuatu Government to implement an economic stimulus package to assist the business sector, without seriously affecting the overall debt of the Country. In fact, in 2019, the Government was able to retire significant amounts of overseas debt.
In this article, the Vanuatu Business Review will provide some background of the Country’s Citizenship by Investment programs or “Sale of Passports” from our archives.
The Citizenship By Investment (CBI) involved two concurrent programs, the Development Support Program (DSP) and the Vanuatu Citizenship Contribution Program (VCP) and has been the government’s main revenue stream during this economic crisis.
In 2019, vt6b in revenues from passport Sales had already exceeded VAT as the main source of Government revenue, and this trend has continued in to 2020. In an exclusive interview with the Chairman of the Citizenship Program, Ronald Warsal said an amount of Vt 7.5 billion was projected to be generated through the sale of citizenships this year. This target was reached within just half of the year. By August these programs collected more than vt9 billion. Over 100 interested applicants were reportedly being granted citizenships each month
and the scheme continues to grow. The chart below shows revenue from this program since March 2017 and shows a steady increase.
Earlier this year, as Vanuatu encountered the impact of Covid-19, the Vanuatu Government allocated Vt4 billion towards the Economic Stimulus package. It was made known publicly that the funding was sourced from the CBI schemes.
According to records, the citizenship for sale scheme was first operated in the 1990s, but was later discontinued. The government reviewed the economic programs and in 2014, it operated the citizenship scheme, known as the Capital Investment Immigration Plan (CIIP). This was created during Moana Carcasses’ term as Prime Minister. When the Vanua’aku Pati (VP) held the position of the prime minister under the leadership of Joe Natuman, he conveyed their intention to review CIIP. Post Cyclone Pam, the government introduced the Vanuatu Economic
Rehabilitation Program. The aim was to boost revenue for the government and financially assist with the recovery phase of TC Pam. CIIP however was replaced by the Vanuatu Real Estate Option Program in 2016.
The two existing programs, DSP and VCP came about in 2018. Initially, DSP offered honorary citizenship whereas individuals under VCP had restricted privileges including no voting rights. Subsequently, Prime Minister, Charlot Salwai made an order, amending section 3 of the Honorary Citizenship-Development Support Program (DSP) Regulation.
As per new amendments in 2019, honorary terminology is cancelled from the citizenship certificates as both passports are same. In July 2019, four Chinese nationals who became Vanuatu citizens after obtaining their status through the DSP were stripped of their citizenship for alleged crimes involving cryto-currency. Those Chinese were among six Chinese nationals who were deported out from Vanuatu following their involvement in the crime in China. The matter has had the relevant authorities tightened the DSP citizenship scheme with more regulations.
Initially, the retail price for a single applicant was US$220,000. This was reduced in May 2018 to US$150,000 and then further reduced to US$130,000 in November 2019. Of this amount, the Government received US$80,000 with the difference to be retained by Agents to cover costs of sub agent fees, and other expenses.
Applicants are required to apply through designated agents, who are appointed by the Citizenship Commission. Currently there are over 80 designated agents based in Vanuatu. Chairman Warsal confirmed these authorized licensees were selected following proper procedures and approved by the Citizenship Commission. By October 2020, roughly 5000 interested individuals have been granted citizenship, most of whom are Chinese nationals.
The Financial Intelligence Unit (FIU) has increased its price from US$ 2000 to US$ 5000 to cover due diligence costs vetted through third party Global due diligence firm. Usually an officer of the Vanuatu Immigration Service (VIS) would travel overseas to deliver the passports to the applicants. Currently, given the covid 19 crisis, the Vanuatu Government accepts the applications of interested applicants electronically through email.
Since the re-introduction of this revenue generating program, the previous and current government, were widely criticized for “selling the country’s identity.” Renowned names and founding fathers including the first Head of State of Vanuatu, Ati George Sokomanu, former Prime Minister, Barak Sope and former Head of State, Kalokot Mataskelkele, who spoke out against the idea. These leaders argued that this program contradicts the whole idea of the fight for the identity and sovereignty of this nation. Former Member of Parliament, Vincent Lunabek also expressed his disagreement with the scheme and warned leaders not to accept money in exchange for the country’s integrity.
Concerns have been raised that people who have purchased passports may be able to get involved in Vanuatu Politics. However, the Constitution of Vanuatu explicitly states that holders of Dual Citizenship must not:
(a) hold or serve in any public office; and
(b) be involved in Vanuatu politics; and
(c) fund activities that would cause political instability in Vanuatu; and
(d) affiliate with or form any political parties in Vanuatu;
(e) stand as a candidate and vote at any of the following elections:
(i) general election for Members to Parliament; and
(ii) provincial election for members to a Provincial Government Council; and
(iii) municipal election for members to a Municipal Council.
To avoid doubt, the constitution further states that the above does not apply to an indigenous citizen or a person who has gained Vanuatu citizenship by naturalization, who may hold dual citizenship. The granting of Citizenship through naturalization requires that a person reside in Vanuatu for more than 10 years.
Six years have passed since CIIP was replaced and VP’s Bob Loughman is the head of the government. When taking up the chairmanship position with the Citizenship Commission in May this year, Warsal was urged by PM Loughman to review the program. Loughman appealed for a transparent roll-out of the citizenship programs. The scheme remains. With the border closures due to the COVID-19 crisis, the tourism sector, which was also a main contributor to the overall GDP was adversely affected and the economy has experienced a large downturn. This has affected VAT revenues which are a reflection of the level of economic activity in the Country.
Despite the criticism, the Sale for citizenship programs could become the core revenue earner for the government in the immediate future as the country’s leaders try to chart the course for the next few years. It remains to see whether these CBI programs are sustainable as the country becomes more and more reliant on this revenue source that has become so controversial.
In July 2019, the Daily Post reported that the Vanua-aku Pati, then led by the current PM Bob Loughman criticized the passport sales program due to the ongoing saga of the four Chinese nationals who had been given Vanuatu citizenship but were deported in their role involving crypto currency crimes.
In a statement, the current PM said that the 2019 deportation of the four people who were allegedly given citizenship under the program raised serious questions about the Government’s inability to protect those who have been granted citizenship. Due to its integral part of the government’s revenue, it remains to be seen what efforts are being made to review the Citizenship Program which is now a vital part of the Vanuatu Government’s long term plan for economic recovery