The Importance of Due Diligence within the RCBI Industry.

Article was written by Roderick Cutajar, CEO, immVest International

Within the Residency and Citizenship by Investment sector, multiple actors ranging from accredited agents, service providers as well as the relevant authorities are tasked with conducting and implementing rigorous due diligence procedures before onboarding and accepting a client. While levels of due diligence vary from one country to another, the core process ultimately guarantees that reputable applicants are in in total compliance with the standards of global financial regulations and anti-money laundering and anti-terrorist funding rules. 

The proper administration of due diligence does not only secure the safe passage of an interested applicant engaging in investment migration programmes, but also allows key actors to safeguard themselves from reputational risk exposure, whilst ensuring that proper transparency and standards are being adhered to in good effect.

Due Diligence is conducted in line with the Prevention of Money Laundering and Funding of Terrorism Regulations. Accredited agents as well as the relevant Authorities are obliged to conduct due diligence checks in conformity with this Act. Due Diligence is key to ensure that prospective applicants have a clean criminal record and are therefore eligible for the investment schemes.

Applicants applying for any residency or citizenship by investment programme should undergo the following background checks; PEP (Potential Politically Exposed Person) Political Exposure; Employment and business interests; Global Sanctions/Black listings; Civil and Criminal Proceedings (lawsuits, etc.); Extensive Press, Media and Social Media Research (Including the local language; Source of Wealth & Source of Funds (net worth; wealth creation; money laundering concerns); Bribery & Corruption and Fraud & Regulatory. Although this is a very overwhelming long list of checks, Governmental Agencies offering the RCBI programmes are subsequently reassured that approval or not of a particular application is also based on the findings of Background Verification Reports (BVRs) and Police Checks .

Nowadays, financial crimes, money laundering and terrorist financing are rampant within society, thus the need for checks and balances within the industry. Financial crimes ultimately pose a threat to a country’s national security and undermine political and economic interests. As a result of the ever-increasing global interconnectedness and the development of technology, financial crimes pose a significant risk and are presenting an ever-greater challenge for law enforcement authorities to tackle, with one main reason being the limited resources that such law enforcement authorities have. Given that residence or citizenship rights are conferred upon the individual in exchange for a substantial monetary investment, source of funds as well as the source of wealth need to be properly scrutinised and evidenced within the application forms. Substantiated proof of the aforementioned should also be attached when onboarding the client or when submitting the application pack to the relevant Authorities.

Through due diligence of source of funds and wealth any risks pertaining to money laundering where, as per the definition of the Financial Action Task Force (FATF), money laundering is “the processing of […] criminal proceeds to disguise their illegal origin” in order to legitimize monetary proceeds of unlawful acts.

Further to the above, red flags can be raised regarding terrorism funding. The FATF defines terrorist financing as the “financing of terrorist acts, and of terrorists and terrorist organisations.” Both these crimes find their basis in generally using similar processes to achieve their intended goal, such as remaining under certain banking thresholds. They both benefit from the ease of fund transfer brought about by the global technological advancements and essentially the ease through which funds can be moved across different borders without raising suspicion, either as to their source or as to the destination. When analysing a trail of funds, a detailed understanding of the movement of such funds and the specific elements of the crimes of money laundering and terrorist financing is essential to allow law enforcement authorities to differentiate between the two crimes.

When it comes to due diligence, it is a known fact that Malta is in total compliance with the standards of global financial regulations and anti-money laundering and anti-terrorist funding rules. There are in fact two popular and attractive migration investment programmes offered by the country. These being the renowned Malta Permanent Residency Program (MPRP) and Malta’s Residency to Citizenship by Investment. Their high-quality levels of due diligence stem from the fact that a four-tier due diligence process must be executed for each and every interested applicant and dependent. If any suspicion or red flag is raised by the relevant agencies, namely the Residency Malta Agency (Residency Program) or Community Malta Agency (Citizenship Program), they have the power to decline the application there and then without reason. Statistics have shown that in the case of the old citizenship program offered in Malta, Malta’s Individual Investor Program, a total of 1 in 4 applicants were rejected.   The Chief Executive Officer of Community Malta Agency Jonathan Cardona, further emphasises the importance of proper due diligence, corroborating all that has been spoken about in this article by saying that “85% of our work today is due diligence”[1]. All work personnel employed with the Residency Malta Agency and Community Malta Agency within the due diligence department are especially handpicked from banking and auditing industries, and provided training in anti-money laundering and terrorism funding.

Further to this, one can note that in order to guarantee extensive due diligence for all applicants, the Government of Malta can issue no more than four hundred (400) certificates annually, and a total of 1,500 certificates unless citizenship regulations are amended.

Prior to submitting an applicant’s application with the relevant governmental entity for residency or citizenship by investment, Maltese accredited agents need to satisfy and comply with specific criteria to acquire a licence/approval. Only approved agents are permitted to offer the Malta Programmes by Investment so as to ensure that the right standards of compliance are maintained. In other countries offering RCBI Programmes, the requirements are less rigid. The system of having approved agents in place provides prospective beneficiaries extra piece of mind when applying for the Malta Programmes.  One must realise that the time and effort spent conducting due diligence cannot be jeopardized to improve processing time and efficiency, and this in order to attract the most reputable nationals from around the world.

The four-tier due diligence utilised by the relevant Agencies in Malta, is a proven process, having the ability to catch the slightest of suspicious activity.  I like to compare this process to travellers being forced to pass through four control borders being compelled to verify identity and personal information as well as being subjected to checks for any suspicious activity which might endanger.

The modus operandi of the four tiers of due diligence are the following:

Tier 1: 

Agents and/or other institutions whatever the jurisdiction,  are expected to conduct a thorough ‘Know your customer’ (KYC) due diligence on the main applicant and dependents. This is done in order to prove that there is no a priori evidence that can tarnish the successful completion of the individual’s application.  One must tackle due diligence at its basic, by determining the applicant’s identity.  KYC is the basis of an effective due diligence procedure covering applicant passport biometric checks as well as identity confirmation. The findings of the KYC will determine if to engage the client or if to refuse the case before subsequently submitting the application. 

Tier 2:

Once the applicant’s file has been received before the relevant authority, ie. Community Malta Agency or Residency Malta Agency, further due diligence is conducted from their end to ensure the correctness and completeness of the application. It is here that designated forms are issued, asking the agents to clarify certain submission pertaining to the applicant or applicant beneficiary. The agencies must receive the go-ahead clearance from police authorities after checks on Interpol, Europol, the Schengen Information System (SIS) have been performed.

Tier 3:

The relevant agency tasked with handling the applicant then performs checks through international databases for sanctioned individuals and reviews that data and documentation submitted in-depth regarding the source of funds and wealth.

Tier 4:

A risk assessment is then compiled using a risk matrix systems in order to probe for any anomalies, further scrutinising applications submitted. All details are then presented to the Financial Intelligence and Analysis Unit (FIAU) for reasons of transparency.

In an ideal world, all applicants wishing to invest in the program would be accepted with a snap-of-a-finger. If this were the scenario there could be serious national implications which would in turn tarnish the image of all investment migration representatives. All in all, the success rate in securing and being eligible for an RCBI program boils down to the ability of due diligence providers, agents as well as government entities in their abilities to abide with due diligence requirements and fulfil thorough risk-screening.

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