Should You Prefer a Local or a Foreign Escrow Account When Acquiring Second Citizenship by Investment into Property?

It is possible to acquire Caribbean citizenship by investment in real estate. Depending on the particular country, you can sell the property back after 3, 5, or 7 years while retaining your second citizenship. However, if you buy property that is part of an unfinished development project, there is a chance that the construction may remain incomplete for a long time. You may also run the risk of investing in a ‘ghost project’. In some other cases, the developer may offer you a serious discount while having no legal rights to make the offer. In all these situations, you may face problems when the time comes for you to withdraw from the investment.

How can you avoid the potential problems? Experts recommend that you should choose the country whose legislations oblige the developers to open escrow accounts in local banks rather than foreign ones. Below we use two Caribbean countries running citizenship-by investment programs – St Lucia and Grenada – as examples of different approaches to the geography of escrow accounts.

Fundamentally different approaches to escrow accounts in Grenada and St Lucia

Grenada sets very strict rules for the developers that participate in the economic citizenship scheme. Apart from other regulations, the following two provisions are in force in the country:

• Developers that attract investments from foreign nationals seeking citizenship of Grenada shall cover at least 20% of the construction costs out if their own funds;
• Immigrant investors shall deposit the money in escrow accounts with banks in Grenada and not in foreign countries.

St Lucia, on the contrary, allows the developers to use escrow accounts with banks located in other countries. According to the experts, this fact may prevent the local Citizenship by Investment Unit (CIU) from conducting efficient financial monitoring. In particular, the Unit may face troubles when controlling the capital purpose and combating unauthorized discounts.

Semi-legal discounts

Some Caribbean developers use the so-called ‘buyback’ scheme. At the core of this mechanism is the buyback agreement between the developer and the immigrant investor.

The developer undertakes to buy the property back from the investor after a certain period expires at an agreed price. As a rule, the buyback time comes when the foreign investor obtains the passport of the Caribbean country.

The buyback mechanism allows the immigrant investor to regain a large portion of the investment capital before the required 3/5/7 years expire. Besides, the investor can pay a much smaller sum than that required by the local legislation to acquire Caribbean citizenship by investment into property.

The foreign investor saves money. The developer earns on commission. At the same time, the development projects do not receive enough investments. They remain incomplete for a long time. New jobs are not created. 

Let us assume that the development company participating in the local citizenship-by-investment program uses escrow accounts with banks located in foreign countries on its own accord. In this situation, the CIU has no practical instruments of ascertaining that the foreign investor has contributed the entire amount of money that is required for obtaining the ‘golden passport’.

Grenada’s regulations on escrow accounts

In June 2023, Dickon Mitchell, the Prime Minister of Grenada (in the photo below) answered many questions about the proceedings of the local citizenship-by-investment program. The questions were asked by Grenadian journalists.

According to Mr. Mitchell, the Grenadian CIU had a record-high number of applications for citizenship awaiting processing by the end of March 2023. The number of applications had also been record-high in the previous three quarters and the backlog reached 1.5 thousand unprocessed applications.

The politician admitted that one of the reasons for that was the fact that Grenada continued accepting applications from Russians and Belarussians (applications are not accepted from citizens of these countries any longer). He also noted that the CIU was ‘headless’ for the best part of 2022. Carlin Purcell was only an acting director during this period.

In April 2023, however, Thomas Antony (in the photo below), an experienced financial control and due diligence specialist, was appointed head of the Grenadian CIU. Apart from trying to sort out the backlog problem, the new head of the Unit started countering the fraudulent developers who financed their construction projects with the money that foreign investors brought.

Prime Minister Mitchell complained about the irresponsible approach to the management of the Grenadian citizenship-by-investment program that the previous administration used to have.

He said that a lot of time had gone by before the previous administration introduced the escrow account scheme. The time was enough for some developers to pull off certain scam schemes and flee with the investors’ money. Ultimately, they fled with Grenada’s money.

The Prime Minister emphasized the importance of escrow accounts because they allowed controlling the money flows from the investors to the developers and ascertaining that the capital was used for the right purposes. In particular, escrow accounts in local banks prevent unauthorized discounting and investing the required amounts of money into the construction projects.

He said that when he took office, there was one developer who had permission to use escrow accounts with foreign banks. The reasons why this permission had been granted were unknown. The new administration insists that escrow accounts should be opened in Grenada only. If the developer fails to meet their obligations, the Government of the country has the legal power to hold back the money kept in the escrow account.

Mr. Mitchell also said that the obligation to cover at least 20% of the construction costs from the developer’s own pocket would make the company assess the risks very carefully. Coupled with the requirement to open escrow accounts in local banks, this obligation would disallow fictitious development projects to appear. He also noted that other island states issuing ‘golden passports’ to foreign investors had faced similar problems.

In particular, the administration of St Kitts and Nevis confronted an unpleasant situation a short time ago. The Prime Minister had to make all the developers working in the country go through the certification process again. Rather few licenses have been re-approved thus far in St Kitts. As far as Grenada is concerned, Mr. Mitchell said that the same reassessment processes were going on there and six licenses had been annulled. If a development project is approved for citizenship-by-investment purposes but the developer has not started the construction work and neither are there any signs that it will start soon, the Government promises to take the license away from the developer without any hesitation.  

Development projects approved in Grenada:

Name of the development projects	Stage of completion
Bacolet Bay Resort & Spa	On pause
Beach House Resort by Silversands	Under construction
Coral Cove Hotel/Charis Group Ltd.	Under construction
Grenada National Resort Project	Under construction
Hartman Education Enterprise Ltd.	Not started yet
Hartman Hotel Development Ltd.	Not started yet
Hideaway True Blue	Construction complete
Intercontinental Hotel & Villas	Under construction
Kimpton Kawana Bay Resort	On pause
La Pointe West Indies (Hope Development)	Not started yet
Mariposa Condominiums	Construction complete
Mount Cinnamon	Partially complete
Reece Investment Inc. trading as Emerald Suites	No data
Saint David Agro Inc	No data
Silver Sands	Construction complete
Six Senses La Sagesse (Range Developments)	Under construction
The Point at Petite Calivigny	Construction complete
The Sanctuary at Fiji Beach	Not started yet
The View (The Legacy Project Inc.)	No data
West India Spice	No data
Grenada Corolla Consultant Limited	No data
Horseshoe Cove Resort	No data
New Opportunities Investment Limited (NOIL)	No data
Port Louis	On pause

The approach to escrow accounts taken in St Lucia

The determination of the Grenadian authorities to settle all the issues with escrow accounts is in contrast with the attitude that some other Caribbean states demonstrate. For example, the CIU of St Lucia has allowed the Caribbean Galaxy (a developer working in the region) to open escrow accounts in China. The administrators hope that the developer will be able to prove that each candidate for St Lucian citizenship transfers the required US$ 200,000 to the Chinese escrow account.

This practice, however, makes it difficult for the St Lucian CIU to ascertain that the required investment has been made indeed. The agreement between the developer and the foreign investor clearly states that the obligation to transfer the money to the escrow account lies with the developer while the investor has to make a ‘one-off payment’ to the developer.

In particular, Articles 3 and 4 of the Title Release Agreement signed between the developer and the investor state the following:

• It has been agreed by the Developer and the Purchaser (Investor) that the Investor shall make a one-off payment of ____________ US$ to the Developer.
• The Developer agrees to deposit in the name and on behalf of the Purchaser the sum of US$200,000, as specified by the Government, in an escrow account opened with the specified Escrow Agent within 10 days after the Purchaser pays the state duty required to apply for citizenship of St Lucia by investment. The Developer guarantees that the Letter of Confirmation of escrow account and all required documents/confirmations relating to the purchase and sale of the property will be submitted in a timely manner.

Caribbean Galaxy officers agreed to comment upon the situation. When asked if the St Lucian CIU had any instruments for obtaining a confirmation that the US$ 200,000 deposit had been made, the Galaxy representatives gave an affirmative answer. They said that the Government of the country was able to request bank statements from the Escrow Agent that would confirm the deposit.

But even if the Agent can confirm the deposit, the goal of the Government is not achieved. The above-mentioned Agreement says that the Developer makes the deposit ‘on behalf’ of the investor.

The matter is that Caribbean Galaxy or any other developer can accept a sum less than US$ 200,000 from the investor while depositing the required amount on the investor’s behalf. This can be a way to show to the CIU that the investor has paid US$ 200,000 while he/ she actually has paid much less.

In other words, the bank statement confirming the deposit cannot prove that the required amount has been invested indeed. As the development company acts as the escrow account settler, it is free to withdraw money from the account and then put it back in the name of another investor.

Amounts of foreign investments in St Lucian citizenship. Source: St Lucian CIU

Please note that we do not mean to suggest that Caribbean Galaxy or another developer deliberately misleads the CIU of St Lucia or another jurisdiction by charging foreign investors smaller sums than those specified in the legislation. We only suggest that the escrow account-related rules applied in St Lucia at the current moment make it possible for an unreliable developer to take advantage of the loopholes.

Some mass media report that there is a development company in St Lucia that promises to accept as little as US$ 85,000 from a foreign investor wishing to acquire citizenship of the country by investment into property. They claim that the sum will cover the investment proper, the state duties, and the immigration agent’s fee. Thus, we are talking about a huge unauthorized discount here. Five or more immigration agents have reported seeing such proposals that, of course, do a lot of harm to the citizenship-by-investment program.

Head of a well-known company providing investment immigration services noted that if US$ 85,000 was enough for obtaining citizenship of St Lucia, the Government of the country had to explicitly confirm it. ‘Every foreigner’, he said, ‘who uses this offer steals between US$ 100,000 and US$ 200,000 from the people of St Lucia. I cannot understand why the local CIU allows this to happen’.

The expert lamented the fact that the unfair discounting practices put immigration companies in a dilemma: they have to decide whether to take part in the process thus joining a bunch of frauds or switch to another jurisdiction. He said that every investor intending to accept such an offer had to proceed with great care. They might end up in a situation that is similar to the situation currently taking place in Cyprus. The authorities of the country are conducting a ‘retrospective analysis’ of the ways in which each foreign investor obtained the Cypriot passport. (The Cypriot citizenship-by-investment program was closed at the end of 2020 after a corruption scandal.)

In March 2023, the Grenadian CIU issued another warning to developers and agents promoting illegal discounts. The administrators promised to annul the passports of those investors who had accepted unfair discount offers.  

In April 2023, the authorities of St Lucia made a similar announcement even though it was a bit more timid. They simply pointed out that offering discounts on real property violated the license conditions. At the same time, the local CIU said nothing about the possible practical consequences of buying property at a discount.

Additional comments from Caribbean Galaxy

Caribbean Galaxy representatives explained that the reason why they open escrow accounts in China was the impossibility of opening such accounts in St Lucia. They said that the laws of St Lucia and Dominica do not oblige the developers to deposit the investors’ money in the countries. Caribbean Galaxy did try to set up an escrow account in St Lucia but it was not able to do so because the local banks do not provide such services. On the other hand, St Kitts and Nevis does have the corresponding obligation for developers and banks in the country do make it possible to open escrow accounts with them. Caribbean Galaxy is building resort complexes in St Kitts and Nevis too and the investors’ money is kept in the jurisdiction.

The company representatives also said that the development projects were on track in St Kitts and Nevis. The first part of Ramada resort was completed and available for purchase. Two more development projects are underway. One is the second part of Ramada and the other is construction of a prison building.

It must be noted, however, that neither the Ramada resort complex nor the prison project are listed among the approved development projects on the St Kitts CIU website.

Caribbean Galaxy is involved in constructing Canelles Resort in St Lucia. Officially, the construction work started in 2020. The company representatives noted, however, that it was the time when the whole world came to a stop due to the COVID-19 pandemic. Now the work has been resumed. The first three-story building of Dreams Hotel (part of the Canelles Resort complex) has been completed as well as the first story of the second similar building. The construction of the largest building of the complex that is going to hold the lobby, the reception area, and the restaurant started at the beginning of 2023. The construction is expected to be completed early in 2024. Galaxy keeps St Lucian authorities informed about the progress of the development projects. The authorities are satisfied with the progress.  

Caribbean Galaxy has not announced any intentions to engage in development projects in Grenada thus far.

Apply for professional assistance to avoid pitfalls when acquiring second citizenship by investment into property

If you would like to acquire Caribbean citizenship by investing into real estate, you have a huge choice of property indeed. Each development project will have specific characteristics that will make it more or less attractive. Beware of fraudsters! Use only reliable agents when choosing the property to invest in!