Investment Migration: Compliance Checks in Acquiring Alternative Residence or a Second Citizenship

By: Robert Ross-Clunis, General Counsel and Group Head of Compliance at Henley & Partners

Checks, controls, and compliance are all part and parcel of the due diligence process that applicants for residence by investment permits and alternative citizenships need to comply with. Due diligence is a fundamental aspect of every investment migration solution as it acts as a gatekeeper, not only protecting host nations from personae non grata, but also safeguarding the integrity of the sector itself.

Investment migration: An essential instrument in the government toolkit

Investment migration programs are undeniably pivotal instruments in the economic strategy of nations across the world, especially during times of unprecedented financial and socio-political volatility. They offer a plethora of benefits to host nations, serving as a funnel for foreign direct investment, bolstering the economies of both small and large states, and leading to an improvement of the quality of life of their citizens.

As Dr. Juerg Steffen, Group CEO of Henley & Partners recently highlighted, “nation states without investment migration programs will find themselves increasingly handicapped in the global competition for investment and talent”. It is crucial for countries to promote alternative residence and citizenship programs that not only serve the needs of individuals and host nations, but that are also fully supported by international stakeholders due to their robust due diligence frameworks.

Reputational risk for host countries

Governments around the world have enacted a myriad of anti-money laundering (AML) and due diligence laws and are further subject to international frameworks established by, inter alios, the Financial Action Task Force, the OECD, and the UN. Consequently, investment migration programs are subject to continuous review by policymakers to ensure sector practices are in line with both local legislation and international AML programs and standards. Failure of governments to do so puts them at grave reputational risk, affecting not only public perception of the host country, but also discouraging potential investors from investing in the specific country. Failing to implement a well-structured AML system may even result in scandals or political fallout should nefarious actors take advantage of such situations. 

Compliance considerations for investors

From the investors’ perspective, it is indispensable that they work with registered or licensed advisors where applicable, and carry out due diligence checks before investing their capital in assets that qualify them for an alternative residence or citizenship. To elaborate, they would be prudent to engage third party advisors to assess an investment target’s viability, which may include, by way of example, analyzing a fund’s track record, or even ascertaining a real estate developer’s credibility. Host nations that offer investors solid safeguards are in fact the ones that reap the greatest benefits by attracting the highest caliber of foreign investment.

Independent due diligence checks

Beyond compliance from the perspective of the host country and the investor, another key part in the ecosystem stems from due diligence providers. Various residence and citizenship by investment programs now mandate that independent experts confirm the eligibility of applicants via the production of background verification reports. These due diligence professionals wholeheartedly assume the responsibility that their role brings and are cognizant that the reputation of the governments and advisory firms that promote the programs rely on the integrity of their investigative work. To buttress the public’s trust in the fortitude of the sector’s compliance standards, numerous investment migration programs now require applications to be reviewed by reputable independent due diligence companies.

Raising the bar for compliance

Although there is no investment migration regulator globally, the Investment Migration Council (IMC), a non-profit forum, persistently promotes global compliance standards and offers professional certifications to ensure that due diligence remains a priority for all stakeholders. The IMC’s efforts have been critical in elevating the compliance benchmark to world-class standards such as those observed by Henley & Partners and agencies that oversee numerous alternative residence and citizenship application files.

Due diligence steps to obtain an additional residence or citizenship

While each investment migration program has distinctive rules and requirements, there are some key due diligence steps that apply for most, and these include:

Initial due diligence

At this stage, applicants and their dependents provide their identification and basic know-your-customer documents. They undergo preliminary checks on databases, such as World-Check, that identify potential red flags. These can range from being a politically exposed person to international sanctions risks. Any nationalities or categories of applicants who are restricted from applying to a particular program are also filtered out at this time.

Criminal history and police checks

Most applicants will be required to produce police clearance certificates from the authorities in the countries in which they have resided over the past decade or so. Cross-checks are also conducted with international police organizations such as Interpol and Europol as an additional security safeguard.

Source of wealth and income

Several programs have independent due diligence experts or registered lawyers further scrutinize each case file. They will assess the full spectrum of agreements, court rulings, birth, adoption, marriage, and divorce certificates, as well as any financial documents submitted. Their goal is to confirm that the applicant has provided full disclosure, has credible and clean sources of wealth and income, and has delivered duly certified documents. Applicants’ business operations and family ties may also be assessed further.

Qualifying investment assessment

The final stage rests with the issuing government, whose responsibility is to confirm the eligibility of an application. This can involve an independent unit dedicated to this function, the attorney-general, a panel of experts, or a ministerial office. In addition to confirming that the due diligence is in order, they verify that the qualifying outlay, whether a donation, real estate, units in a fund, or other investment, has been completed in accordance with the program’s requirements.

Rigorous due diligence is beneficial to all

Due diligence regulations are multi-tiered and purposefully thorough to best serve the interests of host nations and investors. They weed out risks of exposure, mitigate corruption, and cancel the ‘old boys’ network’ mentality of a bygone era. As demand for investment migration will continue to soar, especially now as political strife, societal breakdowns, and climate and financial crises proliferate across the world, the sector must rise to the challenge and elevate the due diligence benchmark even higher.