Looking forward: Using real-time monitoring to make risk-based decisions

An article written by Karen Kelly FIMC, Director of Strategy & Development for Exiger for the IM Yearbook 2023.

In the weeks and months since the Russian invasion of Ukraine in February 2022, the importance of due diligence has once more been highlighted. Residency and citizenship by investment (RCBI) pathways have of course been impacted, with increased scrutiny on their due diligence standards and overall compliance programmes for the assessment of individuals seeking a foothold in those jurisdictions. The impact has not been limited to the investment migration industry, however. Any organisation doing business with those connected to high-risk jurisdictions such as Russia, including large and small financial institutions and corporations, has had to re-evaluate those relationships and reassess the effectiveness of their compliance programmes.

Monitoring works

In the immediate aftermath of Russia’s invasion and the first of many waves of sanctions targeting Russia and Belarus, Exiger worked closely with partners across all industries. This included those in the investment migration industry, looking back at their existing and previous relationships; and in the context of RCBI programmes, at previously approved applicants. This covered targeted sanctions and adverse media searches of previously screened individuals and companies, and often their close associates, for any new and elevated risk arising from direct or indirect sanctions exposure.

For our partners in the investment migration industry, this exercise served to validate and reinforce the necessity and effectiveness of technology-enabled monitoring of previously approved applicants. Over the last five years, we have seen ongoing, real-time monitoring, after the initial due diligence report has been delivered, go from a ‘nice-to-have’ to a necessary component for programmes with which we work. We strongly recommend it as a best practice for all programmes and due diligence providers working with them.

It was rewarding to confirm that, while conducting re-screening exercises for our clients, we did not uncover any adverse information or risks not already unearthed through our regular monitoring of applicants. Notably, through the use of an effective monitoring programme, our clients learned of new adverse information or risks in near real time, rather than at the time of the re-screening exercise. Done right, monitoring can and does alert a programme to serious findings that come up after an applicant is approved, putting the programme in a position to proactively address these issues rather than scrambling to react after it has become a problem.

A necessary shift

Investment migration pathways are playing catch-up when they rush to re-check and re-screen previously approved applicants when a new risk or threat comes to the surface, like the Russian sanctions risk. What the industry demands, and what the new standard for best practices requires, is a shift from a “look back” mindset to “look forward”.

Today’s monitoring technology offers RCBI pathways the opportunity to avail themselves of the right real-time information, putting them in a position to identify individual applicants with new and serious red flags. Moreover, a monitoring programme centralises volumes of information across complete applicant populations into a single data set, allowing programmes to identify patterns of risk and changing trends in risk exposure over time. Armed with good data sooner, programmes can make good decisions, and can look forward.

In the case of Russia in 2022, a centralised view and analysis of Russian applicants could identify almost immediately what percentage of a pathway’s total applicant population was impacted by sanctions, and at what level (and the likely percentage of new applicants who would present this risk). This is the type of critical data point to have in hand when weighing decisions about imposing or lifting restrictions on those applying to investment migration programmes.

The recent concerns over Russian applicants are just one example, and not the first, of how risk and risk appetites can change quickly. Other sanctions regimes will inevitably come about and may shift the focus to other jurisdiction or groups. New and different risks may surface raising greater concern for investment migration pathways due to changing attitudes.

We see rising awareness around Environmental, Social, and Governance (ESG) risks across other industries, and now in investment migration as well. With a whole-population approach toward monitoring and analysis, adverse media and enforcement actions could identify rising risk in a particular region related to violations such as forced labor or unsafe working conditions. If an RCBI programme is aware of this risk early, they can not only develop targeted strategies to reassess previously approved applicants with such red flags or in that particular region, but also incorporate those strategies into the risk framework going forward for new applicants.

Monitoring is now widely embraced by investment migration pathways. The next big step is consolidating that data and analysis for all applicants centrally, allowing programmes to take a holistic view, looking forward to continuously improve and refine their compliance programmes. Doing so will demonstrate to the industry, and to the general public, that they are prepared to address the changing risk landscape and committed to accepting only the highest quality applicants.

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