Citizenship by Investment (CBI) and Residence by Investment programmes (RBI) remain popular for many reasons including visa-free travel, opportunity and stability.  However, as the number of countries offering citizenship or residence programmes in exchange for investment continues to rise, so does the scrutiny placed on those programmes, with particular interest placed on the source of the investment funds.

CBI and RBI programmes recently attracted attention from the Organisation for Economic Cooperation and Development (OECD) which established the Common Reporting Standard (CRS).  It issued a consultation paper in February 2018 on its concerns that some CBI and RBI programmes ‘are being misused to circumvent the rules on automatic exchange of financial information under the CRS’ under which tax authorities collect and pass information to their counterparts in other countries.  Further concerns include that such programmes ‘can offer a back door to money-launderers and tax-evaders’ as they may be exploited to undermine the CRS due diligence procedures, leading to inaccurate or incomplete reporting. The OECD considers the risk to be higher with programmes that have minimal or no physical residence requirements and those with favourable tax regimes.

The consultation received 21 responses which were published on 17 April 2018.  They broadly agree with the OECD suggestions which include comprehensive due diligence checks during the RBI/CBI application process and the spontaneous exchange of information about individuals who obtain CBI/RBI with their existing tax authorities. The OECD and G20 countries will meet in May 2018 to discuss the actions to be implemented going forward.

We are also seeing countries taking their own stance, for example in March 2018 the Home Secretary to the UK, Amber Rudd, announced plans to investigate the source of wealth of more than 700 Russians who settled in the UK through the Tier 1 (Investor) programme between 2008 and 2015. We await confirmation on what action will be taken and if the scope will expand beyond Russian nationals.

This coincides with the introduction of Unexplained Wealth Orders (UWOs) in the UK on 31 January 2018, which grant powers to enforcement agencies to investigate source of wealth and require individuals to explain how they paid for their assets.  Non-EEA nationals considered to be politically exposed persons and those who are reasonably suspected of involvement in serious crime (including those connected to them) may be subject to such orders, including foreign investors.  The National Crime Agency (NCA) secured the first two UWOs against an Asian politician in February 2018, stating its determination to use all powers available ‘to combat the flow of illicit monies’ to the UK.

Therefore, whilst the demand for a second citizenship or residence is increasing, with many new countries entering the market, it is clear that they do so in a climate of increased regulation, with a renewed focus on source of wealth.  CBI and RBI programmes, such as those offered by the UK, must have robust and thorough due diligence processes.

With thanks to Kathryn Crane for her contribution to this article

Author: Jurga McCluskey, Partner and Head of Immigration (Europe and the Middle East), Deloitte LLP