Designed to empower countries’ economic prosperity and increase individual mobility, citizenship-by-investment programmes are subject to both appreciation and criticism.
Earlier this year, the OECD launched a consultation process to investigate tax evasion activities associated with residency and citizenship by investment programmes (RCBI). Last week, the EU Commissioner for Justice Vera Jourova declared that European RCBI programmes will be looked into with more precision, especially in terms of the legitimacy of the applicants’ source of wealth. This might result in the EU Commission imposing extra requirements on the states running investor schemes.
In view of such concerns, one can distinguish a few fundamental characteristics of a RCBI programme that render it legitimate, and reputable enough, to satisfy high standards of supranational institutions.
4-Tier Due Diligence
The primary concern expressed by critics of RCBI programmes is that applicants with questionable reputation, or even a criminal record, could gain access to alternative citizenship due to lack of due diligence or acceptance policies that are too liberal.
Malta’s Individual Investor Programme (MIIP) has established a benchmark in due diligence, applying a four-tier due diligence process.
1. First level checks are carried out by the lawyers licensed to handle applications, who are legally obliged to perform their initial due diligence and client acceptance process, in their capacity as ‘subject-persons’ under the EU’s Anti-Money Laundering & Counter-Terrorism Directives. This already filters out many undesirable applicants.
2. Upon acceptance by the licensed agent, the first step in the citizenship application process is to apply for the Maltese Residence Permit. In turn, this is to be held for one year prior to obtaining Maltese Citizenship. The second stage of due diligence kicks in before a residency application can be admitted. The Immigration Police perform their own checks to give their ‘clearance’ for the grant of a Maltese Residence Permit.
3. The third and fourth due diligence stages are conducted by the autonomous Maltese citizenship agency, the Malta Individual Investor Programme Agency (MIIPA). MIIPA has its own internal due diligence function and is exercised during the processing of an application. MIIPA’s own due diligence personnel conduct their own research, as well as risk profiling of applicants using public, private and government-only sources. MIIPA also engages specialist independent risk management and due diligence companies specialising in the country of origin of the applicant.
4. MIIPA conducts the last due diligence check. The agency then updates its due diligence checks again after the approval of an application – and before the end of the year residency requirement just before the actual grant of citizenship by naturalisation. This ensures that the applicant’s background has not adversely changed between application approval and the actual grant of citizenship.
Further Checks & Rejections
The due diligence process does not only consider applicants’ criminal records. Confirmed criminal convictions or ongoing criminal prosecutions will automatically render an investor ineligible under the programme. The applicant will have to be acquitted of all wrong doing to become eligible under the programme. The MIIPA also gives weight to the overall reputation of applicants and also takes into account the credibility and seriousness of negative press about the applicant, as well as explanations and justifications that an applicant might have on the same. PEPs, or Politically Exposed Persons, are not automatically ineligible, but a closer scrutiny is given to their source of wealth, reputation and sensitivity in light of diplomatic relations between Malta and the applicant’s country of origin. In fact, as lawyers specialising in this process, we regularly advise prospective applicants on their eligibility if in doubt due to background issues.
Finally, MIIPA carries out a verification of the sources of wealth of the applicant family. This would ensure that the funds used in eligible investments into Malta, as well as the overall business and wealth profile of the applicants, is clean and reputable.
Ultimately, the obvious reasons for rejection are clear and predictable: false documentation, false declarations, failure to disclose facts material to the application, criminal convictions. These with very adverse reputational profiles have been rejected to preserve the reputation of the program as well as to preserve the value set and cultural fabric of Maltese society. Therefore, the programme is all but financially driven. In fact, Malta only requires the outlay of the eligible investments after the application has been passed Malta's industry standard due diligence process. In this sense, Malta's due diligence has been recognised by industry specialists as the gold standard for countries running CBI programmes.
Publicly Accessible Statistics
Making public the outcomes of residency and citizenship applications helps increase transparency and avoid negative perceptions attributed to the industry. The publication of official statistics on the approvals, rejections, nationality and type of investments provides a factual basis for discussion and analysis of the contribution that the industry provides to the economy.
In Malta, the Office of the Regulator (Individual Investor Programme) is an independent regulator, appointed by the party in Opposition, tasked to conduct and publish an extensive yearly report on the performance of the programme and to present this to the Maltese Parliament. The Regulator also provides feedback and recommendations to the MIIPA for improvements in the management of the programme. This model ensures that the IIP Agency remains accountable to the Regulator and the Maltese parliament whilst ensuring transparency on the conduct of its activities.
Genuine Link with Country
One of the elements agreed by the EU Commission with the Maltese government, prior to the approval of the IIP, was to make sure that prospective citizens would show a genuine connection or link to Malta. This requirement is an essential part of the Maltese investment programme and, today, takes various forms through which new citizens can establish a link to the Maltese community. Apart from a minimum residency period and a physical address, applicants are able to consider other ways to establish links to Malta. This can include business investments, philanthropy, local social and professional involvements, and patronage of cultural and social causes. Such integration demonstrates a link between new citizens and their host country, that goes well beyond a financial transaction and therefore the phrase ‘passports for cash’ is unfair when applied to Malta. Applicants under the programme are vetted on a case by case basis at the outset upon an agent proposing an integration profile. On approval, this gives applicants certainty that their level of relationship with the host country is of the level required by the MIIP’s genuine link requirement.
Management of Public Perception through Marketing Guidelines
The setting of a code of conduct or marketing guidelines for investor programmes provides a framework in which agents and professional representatives can compete within established boundaries whilst maintaining the programme in high repute. The Maltese government has from the very start launched a code of conduct as part of the regulatory framework of promoting the programme to ensure that marketing efforts remain worthy of the seriousness of the programme. Such a model has been recently adopted by the Cypriot authorities to curb on potentially low quality or misleading information being distributed by certain agents.
Setting and Maintaining the High Standard
It goes without saying, that any reputable RCBI programme must comply with principles of international law and the highest industry standards. With a proper regulatory framework based on the principles discussed above there is clearly an opportunity for the RCBI industry to continue to grow and facilitate international investments, whilst minimising risks for countries offering such investment programmes.
While there are many other criteria that can ring-fence the reputability of a citizenship-by-investment programme, the above-mentioned ones are deemed to be of ultmost importance. Through such measures, the transparency and legitimacy of the programme is ensured. Moreover, any concerns on accusations or negative perceptions are dealt with effectively, thus granting peace of mind and a secure future to applicants.
