The Diaspora Of The Wealthy

Human history is replete with examples of human displacement due to war, persecution, financial calamities, disease, environmental disasters and other events that make living in one's land unbearable. Persons with limited resources would flee, and still do, as refugees and seek out a country – any country – that would take them in. Those with resources always had choices and would seek out a new home where they could again prosper. It is these resourceful individuals that this article will focus on.

We are living in a time of unimagined individual prosperity. By this author's estimation, there are at least 500,000 families that have a net worth of more than US$50 million and millions of others that have a net worth between US$5-50 million. Of these, approximately one third are in Asia, one third in North America (with more than 90 per cent in America), one quarter in Europe and the rest scattered in Middle East and North Africa (MENA), Latin America (LatAm), Russia and the Commonwealth of Independent States (CIS).

When we speak of diaspora, we mean a displacement of a people from their homeland and scattering throughout the world and to more than one location. In the world of citizenship by investment (CBI) and residence by investment (RBI), the key drivers to this scattering have been political corruption, political instability, personal safety and tax avoidance. For decades, these were the primary reasons persons from Europe, LatAm, Asia, CIS and MENA relocated, if not themselves then certainly their assets. With the onset of financial reporting, Common Reporting Standards etc., it was not enough to move one's assets, but to physically and legally establish a new residence and/or domicile in another jurisdiction. We are all familiar with wealthy Russians in London, Chinese in Singapore, Brazilians in Portugal, Italians in Switzerland and Arabs in Monaco. This was the “old face” of the Ultra High Net Worth (UHNW) diaspora.

But now there is a "new face" of the diaspora with unexpected new members: the Americans and the cryptonaire (the crypto multimillionaire or billionaire).

What is motivating Americans to investigate citizenship and/or residence elsewhere? The answer is fear. America behaves and feels like a country on the brink of darker days. The election of Barack Obama saw what some believed to be a push for "socialist" concepts – such as universal health care – and the birth of a rebellious "Tea Party" and the rise of a more in-your-face populist Republican Party. This was consistent with the rising populism in places like China, India, former Russian states and even parts of Europe. Then came the election of the divisive Donald Trump and it became obvious to even a casual observer that America was a place where half of its people seemed to fear or hate the other half. This internecine theatre was played out incessantly on the streets as well as in the media with some within the Republican Party rather cheekily calling for a national divorce.

Adding to America's societal and political dissonance is an aggressive and very powerful US Treasury's Financial Crimes Enforcement Network or FinCEN. While FinCEN's legitimate mission is "to safeguard the financial system from illicit use, combat money laundering and its related crimes including terrorism, and promote national security through the strategic use of financial authorities and the collection, analysis, and dissemination of financial intelligence", it is perceived by many – especially in the cryptocurrency ecosystem – as government overreaching.

This has given birth to the other member of the new face of the diaspora: Millennials and Gen Z, most of whom were born and raised in a mobile, techy world. Many of these young UHNW individuals already identify as global citizens and are not so tethered to their country of birth. They naturally seek out other residence and/or citizenship opportunities.

So, in a nutshell, the UHNW community in the US – like much of its citizens – tends to see America as follows:

• Donald Trump and his brand pose a "constitutional crisis"…this might be true.
• Democrats are “socialists” who want to redefine America…maybe they do.
• Taxes will go up, especially on the wealthy…and they may.
• Regulatory pressure/enforcement on crypto industry is unfair…maybe it is.
• Cancel culture, wokeness, Black Lives Matter, Red States vs. Blue States, social liberalism vs. orthodoxy, etc. all mean the end of the American experiment…maybe it is the end or maybe it isn't.

It is important to recognise that the issues dividing America are not so different than those that citizens of other countries experience. The one difference – at least to this author – is that when people in other countries disagree, they at least agree that they are Argentines, Indians, Chinese, British and so on. In today's America, those with whom one disagrees is un-American. This is not a Democrat or Republican mindset; it is an American mindset.

As a result, Americans in unprecedented numbers have been seeking alternate citizenships and/or residences. In the past, an American who did not have a second citizenship by virtue of birth or ancestry would get one so they could renounce their US citizenship (one must have a second citizenship before renouncing US citizenship). What is unique about today's UHNW American diaspora is that they don't necessarily want to give up their US citizenship – at least not just yet. They just want to have an exit strategy in place if their fears become reality. Of course, when people settle outside the US, they quickly realise that living in Europe or the Caribbean or Asia isn't so bad and they often decide to expatriate and get away from global tax, the Foreign Account Tax Compliance Act (FATCA) and a very high US estate tax.

Then came COVID. Millions of people found themselves locked in their countries because they only had one passport or one residence. Many people were unable to travel to take care of a dying relative, attend weddings or go to school because they only had a single passport or residence. Suddenly, one's wealth meant little as far as freedom of movement was concerned. A wealthy American could hardly go anywhere in 2020 and 2021. If one had a Caribbean or EU passport, then one could go to the Caribbean for a couple of weeks and then go to Europe or other parts of the world. Dual American-European citizens were able to return to their homes and then travel more freely within Europe. While COVID will go away and travel will return to normal, the pandemic did expose certain vulnerabilities which have not and will not go away.

Another recent event that has again shone a bright light on the value of alternative passports is the ongoing conflict in Ukraine. An almost immediate response by the EU and Caribbean CBI/RBI programmes was the suspension of granting citizenship or residence to Russian citizens, even if they had nothing to do with Mr. Putin’s government or were not sanctioned. Thousands of successful and wealthy Russians suddenly found themselves stuck in Russia and had no place to go. Had they a 2^nd residence or citizenship, they would have been free to leave. Today’s Russian experience is being closely watched – or at least should be – by similar persons in other parts of the world. Should one find themselves in the crosshairs of crises beyond their control, the time to act may be too late. And so, they should and are taking action now.

So where are the UHNWs going?

There are over 100 countries (US, EU, UK, Singapore, Australia, New Zealand, LatAm, etc.) where one can get residence by investment, employment or other means and ultimately citizenship after meeting specific physical residence requirements of several or many years. From a tax perspective, citizens of every country – except the US – can usually manage the political, personal, tax or other risks by merely settling in one of these countries. Of course, they may still need a passport that gives them more freedom of travel.

Residency, however, does not help Americans because they are taxed on their worldwide income regardless of where they reside. That is why residency options don't appeal to Americans as much as citizenship options. And in the CBI world, the options are very limited: Malta, Bulgaria, Montenegro, Turkey, Vanuatu, St. Kitts & Nevis, Dominica, Grenada, Antigua & Barbuda and St. Lucia.

What all of these programmes have in common is that for a relatively affordable sum – remember, we are talking about UHNW individuals – one can get citizenship without any burdensome physical residence requirement. The exception is Malta which has a much higher investment threshold and requires one to have meaningful connections to Malta. All of these countries require one to clearly document the source of funds that are being invested as well as provide – sometimes document – an explanation of one's wealth creation. Individuals must not have any criminal record. Extensive background checks are conducted as part of the due diligence process. This ensures that bad actors are not able to get citizenship in these countries. It is important to remember that citizenship is different than residency. For example, one could get citizenship in Grenada or Malta and choose to live in Singapore or Monaco. The Grenadian or Maltese passport gives one good freedom of movement and in the case of Americans, the opening to expatriate. The Singaporean or Monégasque residence allows one to live in perhaps a more preferred place.

Countries that offer pathways to citizenship or residence by investment are under pressure from the OECD, and recently the US, to terminate their programmes. The reasons given by these forces are hyperbolic and not based on facts. These detractors, almost all of whom are European, argue that criminals, traffickers, and other bad actors can easily get citizenship and thereby backdoor into Europe. The facts don’t support this hypothesis. The extensive checks in place by Malta, Montenegro and others make it virtually impossible for a bad actor to get citizenship. Notwithstanding that the criticism of these programmes is misplaced, the pressure from the EU and other critics could result in the programmes being terminated.

The UHNW community will continue to grow. Political, personal, financial, societal, cyber, environmental and other risks are increasing – or at least our awareness is. And in the face of these risks, wealthy families are not going to sit still. They will anticipate various scenarios and plan strategies to safeguard themselves, their families and their wealth.

Footnotes:

[i] Being and Time (1927)

Reaz H. Jafri
Reaz is CEO, Dasein Advisors LLC and Of Counsel, Withersworldwide. He specialises in global strategic citizenship and residency planning; and US expatriation. He has published articles in ICLG Private Client; New York Times; WSJ; Bloomberg; CNBC; South China Morning Post; Business Insider; Forbes; and Law360.