Dec 19 (Reuters) - Last month, Antigua and Barbuda announced it would offer wealthy foreigners citizenship in exchange for a substantial financial investment starting in 2013. For as little as $250,000 plus fees for processing and due diligence, foreign investors will be able to become Antiguan citizens with full rights to vote, start businesses, and eventually even run for office.
Equally important for the Chinese, Russians, or Middle Easterners who may be attracted by such a deal is the ability to travel freely to 140 countries that have no visa restrictions for citizens of these tiny Caribbean islands.
Call it citizenship tourism, passport peddling, or the latest frontier of global capitalism: In the wake of the 2008 financial crisis, cash-for-citizenship programs and investor visas have become an appealing gambit for strapped economies.
The Bulgarian Parliament is reviewing a law passed in November but vetoed by the president that would allow foreigners who invest at least $650,000 in local businesses to become citizens. Neighboring Macedonia announced a similar intention to local newspapers just weeks later.
Also in November, Australia said it would unveil its own investor program in the coming months, with the aim of attracting Indian capital, Reuters reported.
And debt-stricken Spain recently announced plans to offer permanent residency to investors who buy real estate worth 160,000 euros, or about $200,000.
"There's a certain trendiness in this," said Muzaffar Chishti, the director of the Migration Policy Institute in New York. "Countries don't want to miss out. It's the flavor of the month in the immigration debate, but flavor of the month doesn't build long-term economies."
Eric Major, chief executive of Henley & Partners, a firm that helps rich people relocate and advises countries on their immigrant investor programs, disagrees. Well-managed citizenship programs "ought to be a win-win for the investors and governments alike," he said.
"There's the initial payment, but also a secondary and tertiary effect that these individuals bring by virtue of their consumption and the ties and the roots they establish."
Four countries currently allow citizenship by investment: Antigua and Barbuda, St. Kitts and Nevis, the Commonwealth of Dominica and, in a more limited capacity, Austria. At least 20 other countries, including Canada, the U.S., and Ireland, offer foreigners residency status and, if they meet the normal requirements, eventual citizenship, in return for a substantial payment or local investment, sometimes tied to job creation.
Over the years, however, such programs have raised some red flags within the diplomatic community. For example, the Commonwealth of Dominica's 20-year-old program is known for its lax background checks (and low prices: Passports cost just $100,000).
In a 2006 diplomatic cable obtained via Wikileaks, a U.S. consular officer in Bridgetown, Barbados, noted that Dominican authorities had "taken criticism in the past for failing to adequately screen those to whom it grants economic citizenship, which is often sought by individuals attempting to avoid financial obligations or even criminal charges."
Canada has deported several Chinese who entered the country on Dominican passports and overstayed their tourist visas. Among them was Hany Zeng, who spent 10 years on China's Most Wanted list for alleged stock fraud. He was sent back to China.
Grenada shut down its passports-for-cash scheme shortly after 9/11. Ireland scrapped its passport-for-investment program in 1998, in part because it was regarded by the media and some members of Parliament as unfair, and now offers only residence permits. And Montenegro ran a short-lived scheme that ended in 2010 when it was revealed that ousted Thai Prime Minister Thaksin Shinawatra, whose government was criticized for human rights violations and corruption, was among its beneficiaries.
Antigua and Barbuda says it will take due diligence seriously. Investors "must have an impeccable record," said Fitzmaurice Christian, the chairman of the new program.
Eric Major explains that Antigua will also bar Iranian, Syrian and North Korean citizens, in part because trade sanctions make financial transactions difficult, but also to remain in the good graces of the international community.
Christian expects his country will be naturalizing around 450 new Antiguans per year by 2016. Aspiring citizens can qualify by making a $250,000 cash contribution to the country's National Development Fund, buying real estate worth $400,000 or investing $1,250,000 in a local business. There's also a 35-day per year residence requirement.
The $185 million Antigua hopes to make over the next three years in citizenship fees will be a substantial boon to a country of barely 90,000 people with a GDP of $1.1 billion.
The model for the Antigua program is St. Kitts and Nevis, where some 300 people apply to become citizens each year. The processing fees raised by the program add up to $22 million a year, according to the St. Kitts government, and in 2010, the total contributions from new citizens reached almost $58 million. This revenue sustains the island's Sugar Industry Diversification Fund, which was set up to benefit the island's former sugar industry workers and now finances development, education and the arts.
"Citizenship by investment is by far the most important economic development in that country," said Major. "In Caribbean terms, St. Kitts is the happening place right now, and that's why Antigua looks forward to emulating their success."
Christian says he's received encouraging signs that his program will succeed as well: A hotel developer has approached him, and investors and relocation agents have been calling from all around the world.
Major says his clients typically look at five factors: security, quality of life, a better education for their children, increased mobility and sometimes tax breaks.
Antigua, St. Kitts and Dominica tout low or no income, wealth and death taxes for anyone who makes the islands their primary residence. As with most countries, citizens are not taxed on income earned abroad.
"It used to be that people wanted to escape the physical threats of wars, but now it's more of an economic incentive," said Bob Bauman, a consultant who runs The Sovereign Society, a newsletter and international relocation service. "It's mostly people with economic standing compared to their countrymen who want to secure and increase that status abroad."
But well-heeled newcomers aren't always welcome. Dominica's opposition party has always been staunchly opposed to the citizenship program, and criticism is popping up in the local blogs and newspapers in St. Kitts and Antigua as well.
One newcomer in particular, Allen Stanford, saddled Antigua with a reputation it will need to overcome as a tax and regulatory haven. Stanford is the American financier who was convicted last summer of running a massive Ponzi scheme out of his Antiguan bank.
Major said the Stanford debacle will help the island stay diligent. "They're looking to not make those mistakes again," he said.
"We do not want to be a part of any tax evasion scheme," Christian said. "It's all about looking for creative investment opportunities that will help the development of the country - and doing it in a very cautious way." (Editing by Lee Aitken and Prudence Crowther)