22 March 2022
Implications of Vanuatu Losing Schengen Access
Vanuatu lost its visa-waiver for the EU in the first week of March 2022. This came after a recommendation by the European Commission to the EU Council to impose an urgent restriction on visa-free access to the Schengen for citizens of Vanuatu.
The recommendation was made based on a number of factors to do with Vanuatu’s easy and fast CBI processes, lack of due diligence, low rejection rate, and low exchange of information (financial and other) with applicant countries. These were among several factors that made Vanuatu’s visa-free access to the Schengen a security and risk for the EU countries.
A major motivating factor that backed this recommendation and led to its being implemented very quickly, is the fact that Vanuatu has granted citizenship to a number of Interpol-listed criminals since the inception of the CBI scheme in 2015.
The restriction is temporary, but it may become permanent if Vanuatu does not improve on their CBI due diligence processes and stop infiltration of the Schengen by criminal organizations and individuals, with the Vanuatu passport.
There are a number of implications of Vanuatu’s losing Schengen access – for Vanuatu’s CBI, its citizens, and global CBI schemes.
Loss of visa-free travel to the EU and Schengen Member States
Under the visa-waiver agreement, all citizens of Ni-Vanuatu could travel freely in the EU, with visa-free access to all Schengen countries for a period of 3 months in a 6 month period.
Now, Vanuatu citizens whose passports were issued after 2015 must apply for a visa to enter the EU. They will also be subject to standard EU visa regulation for non-EU nationals, but with potentially more red tape and possibly also higher rates of visa refusal.
Devaluation of Vanuatu’s CBI Program
Visa-free access to the Schengen is a major draw in most citizenship-by-investment schemes. The loss of this benefit has already impacted heavily on the value of Vanuatu’s CBI. If the visa-waiver agreement is not restored, it will devalue the scheme further.
If it is restored, it won’t reinstate the value, as there’s simply no guarantee that the visa-waiver for the Schengen will not be taken away again. Additionally, the damage to Vanuatu’s reputation as far as being able to deliver on the CBI product it sells, will continue to impact further on the value of the Pacific island’s CBI scheme.
Vanuatu’s citizenship-by-investment scheme still offers visa-free travel to a number of countries not readily accessible without a visa (or at all) for most nationalities around the world. This includes the UK, Singapore, and the UAE.
A proposed 20% drop in CBI investment minimum will make Vanuatu a more attractive option for US citizens residing in countries, such as the UAE, where they cannot get citizenship – should they wish to obtain a second passport in order to renounce their US citizenship for tax purposes.
Vanuatu also has an opportunity along with an incentive to tighten up its CBI processes.
This may lose the jurisdiction of lucrative high-net-worth applicants. However, a drop in CBI costs could help counteract the current devaluation of the scheme and become more accessible to average to high-income families.
Impact on Citizenship By Investment schemes around the world
In the long run, this will help eliminate risks that prompted the European Council’s decision.
It will also help to ensure that other CBI countries with visa-waiver agreements with the EU maintain, or improve on, their own due diligence, security screening, and application processes.
Since global mobility is one of the major benefits offered by CBI programs, this will necessarily lead to an increase in the quality of CBI schemes around the world. Countries at risk of losing any of the visa-waiver agreements that make their ‘visa-free travel’ offerings particularly attractive, may increase their due diligence fees to satisfy requirements which may lead to a reduction in CBI minimum investments- to remain competitive in the international CBI market.
On the negative side, this could result in some CBI scheme applications taking longer and involving more red tape. It may also result in CBI higher rejection rates around the globe, and lead to the increased exclusion of certain nationalities.
It will no doubt also add to the general tightening in global financial reporting and related information exchanges – with knock-on implications for financial freedoms and tax planning. This spells bad news for anyone wanting to make the most of the confidentiality offered by CBI schemes.
It may also impact the scope of global financial freedoms offered by offshore financial institutions and laws.
What’s happened to Vanuatu also ups the risk for CBI applicants in general. Vanuatu is not the first jurisdiction to fall foul of the international community with a fast and loose CBI scheme. Nor will it be the last. This increases the need to choose the best, most reputable CBI schemes rather than those that offer the lowest minimum investment thresholds, the easiest process, or the fastest ‘time to passport’.