The Financial Action Task Force (FATF) and the Organisation for Economic Co-operation and Development (OECD) published a joint report titled “Misuse of Citizenship and Residency by Investment Programmes,” detailing risks associated with special naturalization programs offered in certain jurisdictions to foreign investors. Although these naturalization opportunities—also known as “citizenship by investment” (CBI), “residency by investment” (RBI), or “golden visa” programs—offer citizenship or residency in a jurisdiction in exchange for investment in infrastructure, real estate, or other sectors of a country’s economy, according to the FATF, these programs “can also be abused by criminals who seek to launder and conceal proceeds of crime or commit new offences, including financial crimes, undermining these programmes’ intended objectives,” such as attracting foreign direct investment and economic and infrastructure development. Moreover, such programs can vary drastically in terms of how they are governed and overseen, and risks associated with these programs can extend beyond the borders of the national jurisdiction operating a given golden visa program.
As the FATF report makes clear, CBI/RBI programs can often present many illicit finance risks. Several countries have begun to grasp the full extent and implications of these risks, including some EU member states that have ended or are reexamining their CBI/RBI programs. The European Commission and European Parliament have also both recognized a need for an overhaul of regulations around golden visa programs, and the UK eliminated visa-free access for citizens of Vanuatu and Dominica—two countries that offered citizenship by investment to individuals known to pose a risk to the UK. However, jurisdictions that have offered CBI/RBI programs have already absorbed substantial corruption and illicit financing risk, which has knock-on effects beyond national borders.
Criminals can exploit a range of vulnerabilities in CBI programs to commit fraud, launder illicit proceeds, and establish corporate entities to hide assets. According to the FATF report, these programs can also provide illicit actors with additional opportunities to move and hide assets by:
- Allowing for enhanced freedom of movement for them, their family members, and their assets across borders;
- Granting the ability to incorporate businesses in additional jurisdictions; and
- Providing potential access to banking in multiple jurisdictions, particularly those with weak anti-money laundering and countering the financing of terrorism (AML/CFT) regimes and little financial transparency.
According to the FATF, “It is also not unusual for illicit actors to forum shop among” CBI/RBI offerings to exploit varied AML and due diligence requirements and investment costs. The most attractive types of programs to illicit actors are programs that feature:
- Minimal or weak vetting conducted by the government or third-party service providers;
- Weak monitoring or due diligence on individuals granted favorable citizenship allowing access to new bank accounts and company formation;
- Nonexistent or inadequate procedures to suspend or revoke passports if the holder’s risk profile changes;
- Insufficient transparency, accountability, oversight and control in the governance of the programs;
- The opportunity to evade capture and prevent asset recovery; and
- Lack of information sharing between the public and private sectors.
Russia’s invasion of Ukraine in February 2022 and the ensuing international sanctions and trade control measures imposed in response have brought renewed attention to CBI/RBI programs and the possible illicit finance risks associated with them. According to Transparency International, half of all EU-issued CBI-issued passports have gone to Russian individuals – including some notorious oligarchs. Additionally, as certain EU member states reconsider their CBI/RBI programs and their implications in the wake of Russia’s war of aggression in Ukraine, wealthy Russians have continued to forum shop and flocked to the United Arab Emirates, which offers long-term residency in exchange for a roughly $275,000 investment in a local company or an investment fund. As the FATF report notes, while these programs “reflect the sovereign right of countries to admit, provide residence to, and naturalise foreigners as they see fit,” when lacking in comprehensive mitigation and oversight measures, these programs can damage the reputations of operating countries as reliable investment destinations and can often serve as convenient vehicles for corruption, sanctions and tax evasion, and money laundering.
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Lauren Jack2024-03-12 10:19:472024-03-12 10:20:07Are Casinos Havens for Money Laundering?
