Who is really the client?

This article was published in The Times on Friday 29.11.2013

A lot has been said about the citizenship scheme, technically known as Individual Investor Programme (IIP). Critics have divided themselves in two camps. Those who oppose the scheme as a matter of principle, whatever the terms, whatever the conditions and those who seem to oppose whatever innovations come from the government’s side but are quite willing to support the scheme on the lines proposed by the Nationalist Opposition.

For those who oppose the scheme as a matter of principle I have nothing but respect. My only addendum would be that if they think that citizenship should be strictly reserved for people born in Malta and their offspring, they should also oppose current schemes offering citizenship to foreigners who marry Maltese citizens and reside here for five years and other such schemes that extend citizenship to people other than those with Maltese blood in their veins.

As to the others who would not oppose the scheme on principle but feel that the government’s model is too lax, I understand that they would only support the scheme if it carries the following conditions: strict disclosure accompanied by rigid KYC (know your client) procedures to ensure access to citizenship is denied to unsavoury characters who think their money can buy anything; obligation to make investments in Malta to promote economic development; and minimum residency obligation.

People do business with people they know and people they like once bottom line criteria are met

The first objection has already been taken on board and the government has announced that although full disclosure would reduce the marketability of the scheme (some potential clients would not wish the authorities in their country of birth to know of their choice to acquire a second citizenship) it will adopt full disclosure following robust due diligence procedure.

The government also confirmed that the final decision on whether to grant citizenship will not be outsourced. It will only be taken by the government.

Regarding the other two conditions, in an ideal world they ought to be taken on board too. But this is not an ideal world. Far from it!

So before suggesting conditions one should ask who are the potential clients of the IIP scheme. Only when we have a clear idea of the attributes of potential clients can we make an assessment of what maximum conditionality would keep the scheme marketable. As many other things in life, the citizenship scheme comes wrapped in paradox. If we make conditions regarding investment and residency we may be addressing our offering to people who do not need it. People who make such investments can gain right of residency and if desired tax domicile in many countries.

By offering what the Opposition seems to be insisting upon we would be largely making our scheme unsaleable. It’s like when the PN government suddenly decided to change the rules for acquisition of property with right of residency by non-EU nationals and, cold turkey, killed a market that was flourishing. Do we want a repeat of that? Do we want to kill the IIP before it is born?

The question is who needs citizenship and is prepared to pay a million dollars for it? Note that I said pay not invest.

Investment means clients can get their money back once they decide to cash out their investment. But paying a million dollars to acquire citizenship under the IIP scheme is a one-way payment. It’s a fee. It’s not refundable.

So who needs such expensive rights to a second citizenship and is prepared to subject oneself to tough due diligence process?

Such citizenship would interest successful entrepreneurs in countries that suffer political instability due to external threats or internal problems. They have no immediate intention of leaving their original country of birth or acquired citizenship where their business is still evolving.

They are not interested in taking up residency in any other country and they mean to continue living in their country of primary citizenship. But they need an insurance policy that if the perceived threats turn real they would need to relocate to a country they can still call home.

Imposing investment and residency conditions to such potential clients would mean blocking them out. On the other hand, awarding citizenship to such clients on government conditions subject to rigorous due diligence would mean that such clients will be willing to pay one million dollars for the privilege, they will probably visit on holiday and will probably be interested to buy real estate here to enjoy their visits. And, gradually, as Maltese citizenship grows on them, they will start looking for business opportunities to deepen their roots. After all, people do business with people they know and people they like once bottom line criteria are met.

First you have to understand who the client is before starting to suggest conditions, unless the intention is to kill the baby before it is born.

On the government’s part, it must do a serious effort to keep control on the marketing rollout of the scheme. The IIP should be rolled out with an aura of prestige and scarcity.

The government would do well to announce a very restricted annual quota for such citizenship grants.

It would address unfair criticism that we mean to start selling citizenships in wholesale bundles creating problems to other countries that reciprocate rights to Maltese citizens. And it would add a scarcity premium to the programme.

If we budget revenue of €30 million in 2014 at the price indicated this would amount to a quota of 50 grants. Certainly not a problem for us, much less for our Schengen partners. The quota for future years may be the basis of a compromise between the government and the Opposition.