analysis , asia-pacific , club , david-lesperance , honorary-citizenship , reasonable-doubt , vanuatu , vdsp

Lesperance: Vanuatu Govt. Inadvertently Admits Fatal Flaw in Its Honorary CIP

September 19, 2020


Reasonable Doubt
With David Lesperance

A contrarian expert on contingency plans for the wealthy delivers uncomfortable truths.


For months, I have been raising the issue that Vanuatu was selling an internationally meaningless status called “honorary citizenship”. In various blog posts, I compared honorary citizenship with being honorarily pregnant in that it does not produce the desired outcome.

I was attacked by various sales agents and government officials who claimed that legislation had been introduced to eliminate the “honorary” designation and granted applicants full Vanuatu (called “ni-Vanuatu”) citizenship. After repeatedly failing to show the legislation that backed this claim, they pointed to the fact that new citizenship certificates issued to applicants had dropped the word “honorary” and that buyers were issued normal green Vanuatu passports as evidence of their claim.

The claim that there is no longer honorary citizenship in Vanuatu just evaporated like the morning mist.

Economic citizens to get yellow passports
In an interview earlier this week with Radio New Zealand, Vanuatu’s Deputy Prime Minister, Ishmael Kalsakau, inadvertently admitted that the previous claims that the citizenships were no longer honorary were meritless. In a radio interview, he can be heard making the following statement:

“My team have drawn up policy papers to deal with this issue in the form of a new passport that takes care of persons with honorary status per people who are here on economic or investment purposes to be afforded a categorization of passport,” Kalsakau told Radio New Zealand. “It’s a sort of an economic passport, different in color. It’s going to be a yellow passport, not the green one. It clears up issues of integrity and sanctity.” 

Clearly, Mr. Kalsakau made his statement hoping to show that his government had come up with a “way out” to protect the integrity of the green passport of regular ni-Vanuatu citizens. Unfortunately, for current and potential purchasers of honorary citizenship, this statement is an admission of two significant facts:

  • Fact One: The Vanuatu government is abandoning the fiction that they previously eliminated the “honorary” distinction through legislation. This means that current and future purchasers of this program only hold the internationally meaningless status of “honorary citizen”; and 
  • Fact Two: The Vanuatu government is acknowledging to the outside world that honorary citizens are not ni-Vanuatu! 

Previous purchasers of honorary citizenship are in for a rude awakening
To understand the impact of the second fact, I will refer to a lesson I learned as a child of an automotive executive. Just like a new automobile, a passport secured through a citizenship by investment program can be an extraordinarily useful boost to one’s mobility. But unfortunately, a poorly designed car (like the infamous Corvair and Pinto) and a defective citizenship program (like “honorary citizenship”) are useful tools – right up to the moment they explode. 

To understand the impact of Deputy Prime Minister Kalsakau’s admission, one must first understand that countries such as New Zealand, Australia, or associations such as those of the Schengen Agreement, apply visa requirements to the citizens of foreign countries, such as Vanuatu. To be clear, these countries and associations specifically apply their visa requirements to individuals who are ni-Vanuatu. 

Up until the introduction of the Vanuatu honorary citizenship program, these countries and associations were confident that individuals who presented green Vanuatu passports at their borders were ni-Vanuatu. However, with the introduction of the program, with its now admitted fatal flaw, these countries and associations will now justifiably question if the individuals who have been presenting green Vanuatu passports at their borders are or are not ni-Vanuatu. 

Australia is a classic example of a country that does not take kindly to those who present “bogus documents or information that is false and misleading in relation to your current visa application”. In addition to refusing a current application (or canceling a previously issued visa), penalties can range from a three to ten-year bar on applying for an Australia visa. New Zealand goes even further and imposes a potential seven-year prison sentence along with a financial fine of NZ$100,000.

The main point that I am making is that Vanuatu has been offering a fundamentally flawed program that I have been predicting will, in time and suddenly, catastrophically fail its users. Just like the fatal design flaws in the defective Corvair and Pinto, there is a period of time when the product is in use before a momentous catastrophic failure occurs. Up to Deputy PM Kalsakau’s public admission, Vanuatu’s honorary citizens have been enjoying this “so far so good” grace period – while the commissioned sales agents and Vanuatu government have been making money hand over fist.

Mr. Kalsakau’s statements have, not surprisingly, launched a process of foreign journalists asking their governments if they are aware of this fatal flaw. These foreign governments will not question the right of Vanuatu to sell whatever status to whomever they wish. However, these same foreign governments will also know that their own visa rules specifically apply only to Vanuatu nationals/citizens/ni-Vanuatu. 

Their legislation does not consider lesser Vanuatu statuses such as “honorary citizenship”. Once foreign officials come to realize that there are individuals presenting green Vanuatu passports (or even worse, a new yellow honorary citizenship document), their laws will kick in and the impact on the passport holders will be swift and profound. In short, thousands of people will learn that like the defective car, the honorary citizenship program worked well for international travel right up to the moment when it stopped working.

Anticipating the predictable fallout
Before I get criticized as being against Vanuatu using a CIP as an economic development tool, I want to make it clear that I believe in CBI as a viable way for a country to attract foreign direct investment. Furthermore, as long as proper due diligence is undertaken, I also do not have any issue with a country expanding its CBI offering to stateless persons.

My issue with the current Vanuatu honorary citizenship program is that it contains an inherent design flaw, namely that it offers a status that is not full ni-Vanuatu citizenship. This not only negatively impacts the honorary citizens and their families, but it also dramatically impacts natural-born ni-Vanuatu. 

As laid out in my previous blog posts, the predictable fallout of the upcoming widespread news of this fatal flaw by foreign governments will be:

  1. Foreign governments refusing to accept the current Vanuatu passport as evidence by itself that the holder is ni-Vanuatu when applying for visas or seeking entry;
  2. International travel disrupted for “honorary citizens” and ni-Vanuatu who already possess foreign visas in their current Vanuatu passports. This will occur as the foreign governments issue blanket cancellations of previously issued visas or status (for those who have already entered) and impositions of a requirement to re-apply with additional evidence of ni-Vanuatu status being a factor. All air travel for Vanuatu passport holders will cease until they obtain new visas (if they are ni-Vanuatu) because the airlines will not want the financial responsibility of flying back individuals who are refused entry at their foreign destinations. Honorary citizens will be excluded from receiving visas; and
  3. Class action lawsuits against the Vanuatu government, local and international agents by individuals who had been sold Vanuatu honorary citizenship on the promise that they would be able to travel on their Vanuatu passports just like ni-Vanuatu. 

What can Vanuatu do to minimize the damage?
The first thing that Vanuatu needs to recognize is that simply creating a yellow passport for new honorary citizens will do nothing to stop these three predictable impending catastrophes. The main underlying decision for the Vanuatu government is whether the significant future revenue and the mitigation of damage caused by the faulty program to date is worth the local political price of offering full ni-Vanuatu citizenship. The pronouncement that they were intending to issue a different document to honorary citizens is a clear sign that so far they have not been willing to pay this political price.

If they decide to issue full ni-Vanuatu citizenship to avoid this fallout and continue to pull in these significant revenues, then they must:

  1. Pass clear and unambiguous legislation noting that the status being offered to new applicants is that of ni-Vanuatu;
  2. Pass clear and unambiguous legislation noting that all individuals who had previously been issued honorary citizenship would retroactively be legally considered under Vanuatu law as ni-Vanuatu. This will most likely also require the issuance of new citizenship certificates;
  3. Do extensive lobbying of foreign governments and airlines to rebuild their prior trust that those presenting green Vanuatu passports are ni-Vanuatu; and 
  4. Assist local and international sales agents in rebuilding the reputation of the Vanuatu CBI program.

Given that the people of Vanuatu have suffered the double whammy of Covid-19 and a cyclone this year, it is my sincere hope that their government recognize the fatal flaw in their current program and undertake the political heavy lifting necessary to correct it.

More From Reasonable Doubt

Vanuatu’s deputy PM concedes the country’s CIP investors are still just honorary citizens and that he plans to give them a yellow passport.

Media reports this month say the pandemic is driving record expatriation. The reality, writes David Lesperance, is exactly the opposite.

Three major developments have increased the likelihood of EU countries adopting citizenship-based taxation, writes David Lesperance.

 

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The post Lesperance: Vanuatu Govt. Inadvertently Admits Fatal Flaw in Its Honorary CIP appeared first on Investment Migration Insider.