The Investment Migration Council (IMC), in coordination with BDO USA, LLP (BDO), Exiger, and Refinitiv, formed a Due Diligence Working Group during the 2019 Investment Migration Forum to examine the state of play of due diligence in the investment migration sector and explore the potential for minimum standards across the industry. Oxford Analytica, commissioned by the IMC, has drawn on insights from across the sector by conducting independent research on these pertinent issues. The IMC coordinated the production of two reports with the support of BDO, Exiger and Refinitiv.

The first report – “Due Diligence in Investment Migration: Current Applications and Trends” – provides a critical overview of due diligence processes in investment migration, assessing current due diligence practices and the need for further improvements in the field.^[1] The second report – “Due Diligence in Investment Migration: Best Approach and Minimum Standard Recommendations” – is more specific, recommending basic standards for immigration agents, providers of due diligence, and governments.^[2] It is hoped that these two reports will address the issues that arise from a lack of harmonised standards and the questionable transparency of due diligence processes as they apply to investment migration.

Representatives of BDO, Exiger, and Refinitiv have been asked to explain in detail the project and the two reports.

1. Why did you decide to get involved in this project?

Laura Austin (LA): BDO has been involved in the Investment Migration industry as a provider of due diligence for over six years, and we have a deep understanding of issues facing the industry. The opportunity to participate in this project was of interest because it allowed us to reliably share with the industry and beyond what the tenets of a strong due diligence program should be. This was not only a great opportunity to be transparent about due diligence in the industry, but it was also a great opportunity to collaborate with our due diligence colleagues at Exiger and Refinitiv.

James Swenson (JS): At Exiger, we recognize that the investment migration industry has come under increased scrutiny over the past several years by multilateral bodies such as the European Commission and international NGOs over the perceived lack of due diligence and governance around the applicant vetting process. As the largest due diligence service provider in the industry, we see first-hand how several governments actually utilize some of the highest levels of due diligence available in the industry. However, we also recognize not all governments running investment migration programmes incorporate appropriate levels of due diligence nor are they transparent around their vetting processes, which can lead to international criticism. For us, we viewed collaboration with the Investment Migration Council and our peers in the due diligence industry as an opportunity to advocate for minimum due diligence standards and initiate an ongoing dialogue to share ideas and best practices across various stakeholders.

Sylwia Wolos (SW): Refinitiv has been a pioneer in the prevention of financial crime, since when we started providing risk intelligence data some 20 years ago, supporting now customers in approximately 190 countries. This project is a great opportunity to share our expertise in financial crime prevention, risk management and due diligence processes, gained from helping our customers, which operate in highly-regulated markets, comply with Anti Money Laundering (AML) and Anti Bribery and Corruption (ABC) requirements. As a growing sector, Investment Migration (IM) can benefit from the knowledge and experience of seasoned stakeholders have gained through decades of working in AML and ABC field with financial institutions and corporations around the world. This project became a channel to share that knowledge with the IM sector.

2. In your experience, what are the main challenges investment migration faces in terms of due diligence?

JS: One challenge for many organizations is defining a proportionate level of due diligence and ensuring these practices are deployed at the appropriate stages of the application lifecycle. In order to mitigate these challenges, the two published reports aim to recommend levels of appropriate due diligence for investment migration and also propose when these processes should take place in the application process. Another challenge for many programmes is ensuring the correct governance structure is in place. Having a sound due diligence process is not sufficient: programmes need to ensure they have documented policies and procedures outlining how various risks are mitigated and ensure there are clear acceptance and rejection criteria.

SW: The lack of regulatory oversight of the industry has some downsides, particularly when it comes to setting minimum standards and issuing best practice guidance. This lack of agreed standards causes significant gaps in Due Diligence processes applied by various governments as well as KYC process as applied by the agents. It also exposes the entire sector to the risk of financial misuse, as well as reputational and political risk. Apart from the lack of consistency in the sector, at a more practical level, some players in the industry struggle with the expert knowledge and resources needed to apply correct methodologies and policies for effective risk management.

LA: It is well understood that due diligence is critical to investment migration, but its uneven application across various RCBI programs threatens the standing of the industry as a whole. It is possible that fallout from a lack of proper due diligence in one program could have sweeping effects on other programs, as it may result in increased scrutiny and regulation, along with decreased public trust.

As we address in the reports, the establishment and application of minimum due diligence standards is essential for the industry’s continued success and growth. In order to achieve the level of standards we envision, it will require a commitment and added efforts from agents, governments and third-party due diligence providers. Working together, it will be possible to implement the standards necessary for industry success.

3. The two reports argue that, while the same standards should apply to citizenship and residency programmes, the level of due diligence undertaken by CBI programmes is more in-depth. Could you explain why that is the case and what is done differently with regards to due diligence undertaken by the two types of programmes?

SW: While most CBI programmes collect full reputational background through local on-the-ground sources about the applicant, RBI programmes tend to rely only on publicly available information. For more mature markets this may suffice, in less transparent locations, the countries that have lower level of digitisation of information, or are harder to reach, only the locally collected intelligence can provide a truly comprehensive profile of the applicant’s political association, reputational track records and an insight into the legitimacy of their wealth.

LA: There are a number of suggested reasons why RBI and CBI programs have different due diligence standards currently, to include the issue that RBI programs have lower revenues leaving less room for due diligence budgets, as well as lower perceived risk given the residence—not citizenship—status that is being obtained. Despite the differences, it is argued that RBI and CBI programs should implement the same due diligence standards based on the five-step process that we reference in the report, to include (1) Know Your Customer, (2) Legal Clearance, (3) Accuracy and Completeness, (4) Coherence, and (5) Risk Assessment. With this process, the depth of the investigation at each step could arguably be less for RBI programs as compared to CBI programs; however, the other tenants of a due diligence program that must remain consistent, regardless of the type of program, are a defined and sound decision-making process, and transparency with the general public.

JS: Due diligence is an essential component for both citizenship and residency programmes, but in practice, the level of applicant vetting applied to citizenship programs tends to be more in-depth. Across various industries, appropriate levels of due diligence are often applied depending on the risk profiles of the potential customers and the transaction types. As citizenship programmes generally require higher levels of investment, these transactions rightfully require more in-depth due diligence. The same is true in financial services where larger transactions or the on-boarding higher net-worth individuals may require additional due diligence.

4. What do you expect in terms of implementation of the numerous recommendations that are made in the reports?

LA: As it pertains to the basics of our recommendations for government programs, there are a number of programs who already subscribe to many of the best practices but would benefit from increased levels of transparency and communication. For those RCBI programs and agents who do not subscribe to the tenets of our recommendations, there is a much longer road ahead. Our recommendations form the basis of a strong due diligence framework, but at the end of the day, it is up to the government programs and agents to make the necessary steps toward implementation.

JS: The recommendations made in the report were largely based on existing best practices in the industry. We recognize that there are countries that have been leading examples in applying due diligence when screening potential investors. However, we also recognize that these practices are not evenly applied across the industry and the lack of standardization was a leading motivator for the research and publishing of these reports. A positive outcome from these efforts would be the adoption of more consistent standards across various programmes. We also expect governments to be more transparent around how they utilize due diligence as part of their applicant selection process to give industry outsiders a better sense of comfort around governance in the industry.

SW: With some very practical tips and recommendations, I’d hope that all CBI and RBI programmes are able to review their existing process and mitigate any deficiencies they discover. In terms of the agents, an improved risk-based KYC process can help lower the agents financial and reputational risk exposure and improve the efficiency of programme administrators. I also hope that external observers of the sector, such as NGOs and policy makers, can gain a unique and objective insight into the sector’s risk management processes and better understand its intricacies, thanks to these reports.

5. Do you expect that recommendations you’ve made form a solid base for future regulation of the investment migration industry at international/supranational level?

JS: Our expectations would be that the recommendations set forth in the publications should form part of every citizenship and residency programme’s governance and compliance structure. Due diligence will allow the programmes to not only protect their reputational integrity but also abide by international laws and regulations surrounding financial crime and anti-terrorist efforts. The issue of self-regulation in the industry requires additional thought and discussion, but citizenship and residency programmes should maintain solid due diligence programmes regardless of the regulatory structure.

SW: Regulation of the entire investment migration industry will remain a legislative challenge, because decisions relating to citizenship and residency status are matters for individual nation states. However, with improved risk management processes, transparency of the programmes and international cooperation at state level, the industry can significantly improve its exposure to financial, operational and reputational risk. Our hope is that international cooperation through projects such as this will help individual stakeholders understand the importance of the changes that are needed and gain a head start in implementing them.

LA: The recommendations contained in the reports form the basis of a strong due diligence framework and could certainly help to inform future regulation of the Investment Migration industry. As it stands currently, it is the responsibility of the governments to police themselves, and as we have seen, this is not an effective way to ensure transparency and good governance. Without a supranational body, the ultimate drivers for the implementation of our recommendations will likely end up being political and societal pressures. Regardless of the method or level of enforcement, there is much that can be taken from the reports and applied in order to enhance the due diligence programs that are in place with RCBI programs.

Authors:
Laura Austin IMCM, Head of Investment Migration Due Diligence, BDO, USA
James Swenson IMCM, Vice President and Head of International, Exiger Diligence EMEA and APAC, UK
Sylwia Wolos IMCM, Head of Proposition (Enhanced Due Diligence), Refinitiv, UK
Elena Baskeska IMCM, Head of EU Affairs, Investment Migration Council, Belgium

[1] Available at: <https://investmentmigration.org/wp-content/uploads/DD-in-IM-Current-Applications-and-Trends-January-2020.pdf>.

[2] Available at: <https://investmentmigration.org/wp-content/uploads/DD-in-IM-Best-Approach-and-Minimum-Standard-Recommendations-January-2020.pdf>.