Canada: Economic Citizenships & Passports:- The Myths & Reality

In my article "Multi-Citizenship Planning for the Wealthy Client", I discussed the possible benefits of acquiring additional citizenships and passports. It is worth clarifying that a passport is simply the travel document a country issues to its citizens. From time to time, some enterprising individuals have sold a product called passports for non-citizens, for countries such as Panama and Uruguay. These tidy little books do have a passing resemblance to the real passports from these countries. Unfortunately, the buyers quickly discover these documents are not acceptable for international travel, leaving them sadder, wiser and substantially out-of-pocket. I hope that this paper will help you avoid such costly mistakes.

Citizenships (and then passports) can be acquired through a variety of methods including:

• birth in the jurisdiction;
• lineage (through parents and grandparents);
• marriage;
• naturalization;
• religious affiliation (i.e.: law of return to Israel);
• meritorious service; or
• economic benefit to the country.

Some lucky souls may be entitled to a lineage or religious affiliation. Others may have the time and patience to acquire naturalization citizenships. The purpose of this paper will be to review an increasingly popular product, the Economic Citizenship and Passport.

Prior to September 11th, I have been involved in the processing of over 250 economic citizenships and passports and as a result have a fairly good idea as to what motivates my clients. It is a popular myth that people, particularly Americans who travel widely, acquire these documents to avoid being targeted by terrorists.

Instead, my clients have acquired them for the following reasons:

• as part of an expatriation tax plan, or, to solidify a claim of domicile of choice (e.g. Americans and others who are subject to steep estate taxes);
• as a viable travel document (e.g. third world nationals who travel in the first world for business);
• as a type of insurance policy in times of political strife (e.g. ethnic Chinese in Indonesia, Gulf Arabs);
• as an insurance policy in times of personal strife (e.g. potential plaintiffs who could have their passports seized during civil litigation); and
• as a privacy tool or to do business without the burden of their current nationality, (e.g. Americans who wish to establish certain offshore entities or invest in non-SEC approved securities).

As you look into your options and think carefully about purchasing an Economic Citizenship and Passport, it is important to try and calculate the true cost and assess its potential benefits.

If you are acquiring an Economic Citizenship and Passport for expatriation or estate tax reasons, your accountant can help you place an exact dollar amount on the benefit you will receive.

If you are acquiring it as a travel document, you need to consider whether or not it offers you the personal and business advantage of not having to apply for visas. Or, will it also allow you to travel to places to which you could not possibly acquire a visa if you traveled on your existing passport?

If you are acquiring the citizenship and passport as an insurance policy against political change or personal problems; you must assess not only the likelihood of an adverse event happening, but the devastating cost to you and your family if such an event did occur. Remember, most of us will never experience a house fire, yet we still buy fire insurance.

Finally, only you can place a price on your privacy or the burden that your existing citizenship/passport places on your life.

Another area of confusion and misinformation is the actual cost of securing a proper Economic Citizenship and Passport. In comparing the products that may be presented to you (a Yahoo search on the Internet came up with over 200 hits on this subject), you must first understand what is being offered. Then you can separate the wheat from the chaff.

Not all economic citizenships and passports are alike although there are some common denominators. The following are the steps I suggest you take in reviewing any program:

Ask for all the marketing material including samples of the applications and a clear fee structure. This gives you a chance to gauge the amount of hype surrounding the offer.

Find out exactly which country's citizenship and passport is being offered; do not settle for "a West African country" or "a Caribbean nation". I am constantly amazed that some promoters will try to extract a fee to confirm "interest", when they are not even willing to disclose this basic information. Also be sure to ask for a copy of the country’s enabling legislation and run from anyone who talks about "special discretion from a passport official". This is a code word for bribery. Along with becoming entangled in Corruption of Foreign Official legislation; should you actually try to use such a passport, you could land in jail in most western countries. Canada will hand you a five-year jail term (section 57(3) of the Criminal Code of Canada) for simple possession of such a document.

Evaluate the legislation and look at:

• Nature of status being given: Remember honorary citizenship is like a honorary pregnancy. It does not produce the desired result;
• Restrictions on citizenship: Does it also grant you the right to reside in the country? Vote? Acquire land?
• Revocability: While there will always be an ability to revoke the citizenship because of treason or material misrepresentation, does the legislation allow for the possibility that a future government could unilaterally revoke all citizenships granted under the economic criterion?
• Review the pricing and compare it to other programs. If the program talks about an "investment", find out what the return on the capital is and what the likelihood is that the capital itself will be returned? One country actually requires you to purchase a non-interest bearing, non-refundable bond. If I give a country some money, get no return on it, and do not get it back; it is a government fee no matter what the label.
• Review the visa- free travel list this economic citizenship and passport allows. This should be done independently using a Travel Information Manual (TIM). Borrow one from your travel agent or check out some of the various travel agent software programs. Do not accept even a government-generated list at face value. This is where promoters give the most misinformation, both inadvertently and on purpose.
• Rather than concentrating on the total number of countries offering visa free travel, make sure the countries to which you will actually travel are on the list.

Remember that some countries require a visa from everyone (Australia) or almost everyone (U.S). If a country you travel to often is not on the visa-free list; you need to find out if acquiring a visa will be difficult or perfunctory.

Make sure the promoter is approved to offer the program by the issuing government. Make your own calls to the government in question to confirm the number of passports this promoter has actually completed. Then, compare that figure with the number the promoter claims. Although someone has to be a promoter's first client, avoid being the pioneer case (they usually end up with arrows in their back). If you do volunteer to be the pioneer case, ask for a discount.

Research the process for replacement of passports. Given my earlier comments about "passports for non-citizens", you should always make sure you secure a properly registered certificate of citizenship along with the initial passport. Your citizenship is for life. Your passport is for a finite period. Passports will expire, be lost, or have the pages filled. You need to factor in the ease and cost (including possible travel) of securing your future passports.

Ensure that your monies are held in escrow, either in a lawyer’s trust account or a formal escrow account with a third party bank. This requirement is essential to ensure you do not lose your money and that the government is motivated to act as quickly as possible to process your application. There is nothing like the carrot of payment upon completion to motivate a government. Many governments, however, will not even begin the process unless they know that the money payable to them upon acceptance is in escrow.

Ask about screening procedures. Are you acquiring the "passport of choice" of terrorists and drug lords? What is the quality of the physical passport document? If it is easily counterfeited then criminals may simply bypass screening procedures and reproduce the passport. This may make the passport a suspect document and you may find yourself under increased scrutiny at every border crossing.

Economic citizenships and their attendant passports offer many advantages to people. I have over 250 clients who would say it is the best money they ever spent. Their citizenships are an integral part of a larger workable tax strategy. They enjoy the freedom to travel when and where they wish without significant hassles. In the global marketplace, this gives them a distinct advantage as they pursue their business or personal objectives.

I hope you will take time to look at your options, research carefully and consider the personal as well as financial benefits of an economic citizenship. It is an important step to contemplate but with the help of qualified and experienced counsel working in tandem with your other advisors, an economic citizenship can offer you the security and peace of mind you are seeking to safe-guard and enjoy your hard-earned assets.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.