The FATF/OECD Report on Investment Migration: The Good, the Bad and the Ugly

In November 2023, the Financial Action Task Force (FATF) and the Organisation for Economic Co-Operation and Development (OECD) released a joint report on investment migration. Dive into the IM Yearbook’s breakdown of its key takeaways, exploring the good, the bad, and the downright ugly.

Investment migration is no stranger to outside scrutiny. From the International Monetary Fund and the World Economic Forum to Transparency International and the European Parliament, several international bodies have undertaken comprehensive assessments, often with a negative viewpoint, ignoring the numerous benefits. The joint report of the OECD and the FATF on “Misuse of Citizenship and Residency by Investment Programmes” aims to examine the financial crime and money laundering risks associated with investment migration.

It presents a mixed picture. While acknowledging that investment migration “can potentially lead to economic growth,” the report also argues that citizenship and residency by investment are prone to corruption and misuse. Criminals have exploited a range of vulnerabilities in CBI/RBI programmes “to perpetrate massive frauds and launder proceeds of crime and corruption reaching into the billions of dollars, while also hiding assets in less compliant or effective jurisdictions, facilitating organised crime and evading law enforcement.”

According to the report, CBI pathways are particularly vulnerable because they allow illicit actors more global mobility, the ability to open bank accounts and establish shell companies in other jurisdictions, and to disguise their identity or conceal where they may owe taxes or other liabilities from financial institutions by using new identification documents.

The Findings

The report suggests that both CBI and RBI can provide the criminally wealthy with a range of opportunities, such as the ability to place assets and family members overseas to prevent or hinder asset recovery efforts, explain suspicious high-value transactions, and enable the movement of significant sums of illicit funds across borders. Investment migration pathways can act as a gateway for their recipients to the financial systems of both small and large countries, as well as regional markets. They also provide the new citizens or residents with access they might not have enjoyed by virtue of their original citizenship or country of origin, and the likely lesser scrutiny that comes with being a domestic (as opposed to foreign) actor within their new financial system, the report claims.

Moreover, the report emphasises that the elevated risks of money laundering and financial crime in investment migration pathways relates not only to the applicant, but also to the professional enablers and intermediaries involved in the process. It states that the high level of involvement by intermediaries in their design and development, and the necessary involvement of multiple agencies across a government, can provide challenges in coordination, implementation, and regulation. In addition, the report claims that criminal, negligent, or complicit property agents, wealth managers, immigration agents, marketing agents and concierge firms can assist in the abuse.

“Opportunities for abuse tend to arise especially when governments struggle to govern their programmes effectively. Malign interests can infiltrate programmes when there is a lack of clarity around the roles of public and private actors involved, where conflicts of interest are not adequately managed, and where resources are lacking to ensure proper oversight. These challenges are compounded where there is a lack of internal control and audit measures to ensure that programmes are operating as intended, as well as the difficulties government agencies face in coordinating across public authorities and borders to manage risks,” the report highlights.

The Recommendations

The report proposes a long list of measures and cites examples of good practice that can help policy makers and those responsible for managing investment migration pathways to address these risks. These include an in-depth analysis and understanding of how criminals can exploit CBI or RBI pathways. It also highlights how governments can incorporate risk mitigation measures, such as multi-layered due diligence, in the design of their pathways.

The FATF argues that financial transparency and oversight within citizenship and residency pathways are critical for ensuring accountability and preventing potential misuse. One pivotal aspect is the public availability of information. Clear frameworks should mandate the disclosure of pathway details and financial audits, establishing transparency. Moreover, considering making information public about individuals granted citizenship or residency could aid in due diligence processes, the report states.

Efficient fiscal revenue handling is another crucial facet. The FATF and the OECD stressed the need for transparent reporting on investments. Likewise, responsibility and oversight measures play a significant role in ensuring the integrity of investment migration. Establishing a specialised agency, devoid of political influence and possessing regulatory authority, can oversee a pathway’s end-to- end operation, the report stated. Moreover, only qualified personnel should handle customer due diligence minimize risks and errors. The authors also argue that regulating third-party providers and having the authority to remove those engaged in inappropriate conduct adds layers of protection against potential malpractice.

The report also touches upon the need to license and regulate agents and employ only qualified service providers. Transparency and reporting mechanisms, such as publishing annual reports and considering application caps to manage caseloads, are highlighted as crucial steps toward greater accountability. In addition, the authors suggest implementing a multi- tier vetting process involving independent layers for due diligence and comprehensive checks, including interviews for verification.

Disclosing additional identities, conducting law enforcement checks, and continuously monitoring for risks, particularly concerning politically exposed persons (PEPs) and sanction screenings, are vital steps in maintaining integrity. Moreover, the report recommends establishing stringent measures for vetting and decision-making, including ongoing monitoring, transparent communication, and continuous corruption risk assessment, to ensure pathways operate ethically and transparently.

Lastly, the report finds that evaluating the economic costs and benefits, establishing genuine connections between recipients and the jurisdiction, and continuous transparent communication domestically and internationally are key to fostering trust and accountability within citizenship and residency pathways.

The IM Yearbook has spoken to several investment migration practitioners to gather their opinions on the report, and here’s what we discovered.

The Good

The report notably refrains from recommending the termination of investment migration pathways, differing from the European Economic and Social Committee’s proposal to phase out such schemes in the EU. The Investment Migration Council (IMC), engaged with the FATF since May 2023, emphasises the report’s acknowledgment of the benefits of well-managed pathways. It views it as a step forward, contributing constructively to the industry’s evolution. Others have observed that the report recognises countries’ sovereign rights to admit, provide residence to, and naturalise foreigners as they deem appropriate.

Additionally, the report acknowledges the complexity of investment migration and highlights that properly managed Citizenship by Investment (CBI) or Residency by Investment (RBI) pathways can be beneficial for both host nations and individuals. It also recognises that these pathways attract a diverse clientele, many of whom have legitimate assets and benign intentions. Moreover, the report is seen as a guide for setting industry standards, regulations, and due diligence practices. Recommendations aimed at enhancing transparency, security, and abuse prevention align with established industry values and standards.

The Bad

However, the report also exhibits shortcomings. Some recommendations replicate existing practices, particularly in Caribbean jurisdictions that recently implemented similar changes. Specific suggestions, like distinguishing passports based on birth or ancestry versus economic citizenship, are considered challenging and likely to create new hurdles for issuing governments. Moreover, criticism has been voiced regarding the comprehensive nature of the recommendations, pointing out that the FATF and the OECD did not thoroughly assess the practical feasibility of implementing them. Questions linger about whether these recommendations, with potential increased fees, longer processing times, and resource demands, might make certain pathways unprofitable or unappealing for genuine applicants.

The Ugly

The report takes a strong stance, highlighting the susceptibility of citizenship and residency by investment to corruption and misuse. It outlines how criminals exploit vulnerabilities in CBI/RBI pathways to perpetrate “massive frauds and launder proceeds of crime and corruption reaching into the billions of dollars, while also hiding assets in less compliant or effective jurisdictions, facilitating organised crime and evading law enforcement.”

Though recognising genuine applicants with good intentions, the report strongly leans towards portraying investment migration as primarily exploited by malicious actors. This viewpoint has sparked concerns about the report’s narrative. The foundational assumption that investment migration primarily serves nefarious ends and is exploited by malicious actors for ulterior motives poses a significant challenge. This inherent bias has raised concerns about the report’s narrative, indicating an immediate influence on its overall perspective.

Additionally, criticism surrounds the report’s generalisation, with concerns that it fails to differentiate between countries and their specific pathways. It doesn’t specify which pathway could benefit from recommendations and enhancements. This omission gives readers the impression that regulation and due diligence measures of all pathways are of a substandard quality, which many view as disappointing.

A Final Thought

Over the past years, the IMC has emphasised the critical role of stringent due diligence measures in shaping the future of investment migration. The organisation has actively contributed to this field by establishing common due diligence standards and an anti-bribery code. Firm regulations, emphasising public integrity, tax compliance, and migration policy considerations, will persist as the foundational pillars of investment migration.

Simultaneously, the IMC advocates for seamless collaboration among law enforcement authorities, immigration agencies, and financial intelligence units. As investment migration pathways often transcend individual jurisdictions, inter-country cooperation becomes imperative. The IMC endorses the call for jurisdictions to unite in addressing common challenges, sharing best practices, and collectively bolstering the resilience of investment migration against potential misuse. Continued efforts toward unified standards remain a paramount interest for all stakeholders involved.

Pin It on Pinterest

Skip to content