By Caribbean News Now contributor
BASSETERRE, St Kitts — The recently exposed but apparently still ongoing abuse of the St Kitts and Nevis citizenship by investment programme (CIP) may have already cost the country and its government between US$30 million and $130 million in lost revenue and overall economic impact.
Multiple allegations of apparent fraud in the St Kitts and Nevis CIP have surfaced recently, involving forged letters of approval, unmonitored switching from the donation option to the real estate investment option, misappropriation of client money into personal bank accounts, and illegally financed unsanctioned discounts.
Although, according to documents in the possession of Caribbean News Now, this abusive and possibly fraudulent activity has been going on since at least 2016, the frequency appears to have escalated following the introduction of the so-called Hurricane Relief Fund (HRF) donation option following Hurricanes Irma and Maria in September 2017, which substantially reduced the required donation from US$250,000 to US$150,000 for a single applicant.
According to the St Kitts and Nevis government, some 1,200 applications for citizenship were submitted under the new option.
However, according to one industry source, since 2016, as many as 400 applicants under the donation option were switched into the real estate option, which under the CIP regulations should have required an investment of US$400,000. In at least some cases, as evidenced by copies of documents in the possession of Caribbean News Now, these switches were accomplished illegally by means of forged letters of approval.
While there are some variations, how the “switch” scheme generally works is that an application is submitted and approved under the donation option of either US$250,000 to the former Sugar Industry Diversification Foundation (SIDF) or US$150,000 to the more recent HRF. Currently, the latest iteration of the donation option requires a contribution of US$150,000 to a new Sustainable Development Fund (SDF) in the case of a single applicant.
Once the St Kitts and Nevis Citizenship by Investment Unit (CIU), the government agency charged with administering and policing the CIP, issues an approval letter under the donation option requiring payment to be made to the government, an application is then made by the local agents to switch that approval to the real estate investment option, which merely requires a fee of US$75,000 to be paid to the government.
The applicant is also required to make the legally mandated minimum real estate investment of US$400,000 (now US$200,000 under the latest rules) but there is no follow up by the CIU to ensure that this is done, which therefore means that the applicant simply pays the originally quoted donation amount to the developer, who in turn takes US$75,000 of that to pay the government fee and is able to pocket the rest free and clear without any monitoring by the CIU that the full amount of the required real estate investment is ever made or anything is ever built.
Doing the math in this respect, on the basis of an estimated 400 such switches and using the lowest donation amount of US$150,000, this means that the government has lost at least US$75,000 in donation revenue in 400 such cases — a total of US$30 million (EC$81 million) — and a similar amount is kept by unscrupulous developers and agents without any supervision as to actual investment in or construction of an approved project.
Alternatively, assuming a US$325,000 shortfall in a real estate investment in each of 400 cases, this means that the St Kitts and Nevis has lost a total of US$130 million (EC$351 million) in economic benefit, including hundreds if not thousands of jobs.
All this may explain why 70 out of 80 such approved projects never got off the ground and why others that have started construction have not been completed after many years.
It is beyond belief that the CIU cannot or does not monitor the grants of citizenship under the various options and thus be able to identify when the law has not been followed, as it is empowered to do by the Citizenship by Investment Regulations of 2011.
Furthermore, the CIU has been well aware from at least early November that applications have been submitted on a discounted or “financed” basis and/or fraudulently switched from one option to to another using forged letters of approval, but little or no effective action appears to have been taken to put a stop to it, raising questions as to why this is and who is benefiting from the missing tens of millions of dollars of government revenue.
Head of the CIU, Les Khan, issued a press statement on November 28, 2018, claiming that two low level agents found to have been operating outside the parameters of the CIP had been identified and penalised, and committing to investigate further and take appropriate action. There has been no evidence of any such promised corrective action and Khan has consistently failed to respond to media inquiries.
To the extent that the funds received by the St Kitts and Nevis government and/or the developers and agents represent the proceeds of criminal activity, namely, forgery and fraud, all parties concerned seem to be completely oblivious to the implications of causing those funds to be transferred in US dollars through the US banking system.
Currently only one American bank is willing to process such transfers to the St Kitts-Nevis-Anguilla (SKNA) National Bank and, once it is realized that such transactions may be money laundering under US law, it would hardly be surprising if the US bank in question terminates its correspondent relationship with the SKNA bank.
The active participants in the fraudulent scheme, as well as the St Kitts and Nevis government and its officials, by their active or passive complicity, in utilizing the US banking system in this way are thus acting in reckless disregard of the potentially exacerbating negative impact on the correspondent banking “de-risking” crisis currently affecting most if not all Caribbean nations, including St Kitts and Nevis itself.
In addition, the abuse of the St Kitts and Nevis CIP is hardly likely to improve the reputation of the Eastern Caribbean economic citizenship programmes in general.
Future articles will cover the use of forged approval letters, financing schemes, illegal discounts, and evidence of applicants’ funds misappropriated by instructing them to be paid into private bank accounts in China.