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The importance of Effective Due Diligence in Safeguarding the Reputation of Residency and Citizenship Programmes

ARQ Group attended the Investment Migration Forum held in Geneva between the 4th – 6th June. This event addressed the advancement of the investor immigration and citizenship industry. Due to the ever-increasing number of individuals who choose to travel, live, work, invest and do business around the world, it could be said that globalisation is making our world a smaller place.  There is  no doubt that the industry is booming and that the growing interest in global mobility is leading to an increase in demand for residency by investment (‘RBI’) and citizenship by investment (‘CBI’) programmes. This development has not gone unnoticed by the international media and other organisations, who are now scrutinising these programmes and questioning the industry’s legitimacy.

The industry is under attack for supposedly promoting the sale of passports in a manner that devalues citizenship and may also threaten international security. This stance seems to be based on a general belief that little or no due diligence and screening procedures take place, and that every candidate is offered alternative residency or a second passport with practically no questions asked. This was one of the main themes of the conference and there is a consensus amongst service providers on the growing importance of due diligence in the industry. It is safe to say that the investment migration industry currently remains largely unregulated. Setting common standards for RBI and CBI programmes is now a must. The industry needs to recognise the need to self-regulate or otherwise accept the rules that will inevitably be imposed on it.

Due diligence should not be the responsibility of the state alone. Applicants must also conduct their own due diligence on the country they are considering in terms of citizenship or residency. It is therefore in that country’s best interest to be transparent, uphold the rule of law, conduct thorough due diligence and maintain a reputation of fairness. Any failure to conduct serious due diligence can tarnish the reputation of the programme and the integrity of the industry as a whole. That is why jurisdictions and agencies must come together and engage in competitive collaboration. Establishing common standards are key, particularly in terms of levels of due diligence, KYC checks and transparency. All should also  be selective in the applicants to whom they choose to grant residency and citizenship, secure in the knowledge that applicants who are rejected from one jurisdiction will not be allowed to receive passports in another jurisdiction. This effort this calls for greater cooperation amongst jurisdictions –  we can only start changing the perception of this industry if we work collectively to improve our processes and raise our standards.

Malta’s Individual Investor programme is the first CBI programme in the EU to be endorsed by the European Commission. It is considered to have the best due diligence procedures in the industry and is often cited as the ‘gold standard’ in terms of due diligence procedures. Malta has developed a multi-tier system, where checks are carried out by both the approved agents and the government authorities. Checks are also carried out with international agencies such as Europol and Interpol.  In this process, Malta takes into consideration anything and everything that might possibly impact the country’s reputation when granting citizenship to applicants. A recent statement issued by Identity Malta says it all: “The integrity of our citizenship programme must never be compromised…we understand that our responsibility is as global as those who apply for alternative citizenship.” This focused effort is being recognised in the industry, and Malta was in fact the venue of the first Citizenship by Investment Due Diligence conference, which took place on the 22nd May in St Julian’s.  It is clear that Malta’s high standards of due diligence are a critical contributing factor to its positive reputation in the industry, and the rigorous mechanism it has adopted should be viewed as a model for other jurisdictions to follow.

While the banking sector is often held up as being the standard that other industries need to attain, the reality is that, in a country like Malta, the standard set by the RBI and CBI programmes is higher. In order to ensure the continued success of these programmes, service providers and regulators will need to keep pushing the boundaries and remain at the forefront of due diligence innovation to give comfort to both the industry’s partners as well as its external stakeholders.

Blockchain technology has become one of the hottest topics within the industry and many service providers and agencies agree that the blockchain tech revolution has just begun. More than a distributed database for cryptocurrencies, the technology’s ability to send, receive, store and certify everything from passports, residency cards, utility bills and wedding certificates with a virtual watermark has the underlying power to truly disrupt the status quo of the KYC industry in the years to come. The implications of this technology for the industry could be transformative by enabling agencies and companies to instantly verify a client’s identity. The use of blockchain could therefore re-design the entire way due diligence is managed whilst providing further credibility to the industry.

Another interesting concept mentioned during the conference is how t Artificial Intelligence(‘AI‘) could be used to support the due diligence process. Companies have finite resources and due diligence procedures and KYC are becoming more rigorous as time passes. It is also impossible for individuals to manually check every source available in every language and on every medium to ensure that there are no negative results on any applicants. This technology could therefore facilitate the collation and analysis of diverse data in the most efficient and effective way possible.

It is important that the reputation of the industry continues to improve and this responsibility rests on us as its agents. We need to ensure that, as the number of CBI programmes and agents handling such programmes continue to increase, thorough training, education and robust due diligence procedures and KYC checks are carried out, not only by the agents, but also by governments to ensure that the standard of clients seeking solutions via CBI or RBI remains of a high quality.

For further information please contact Sarah Martin.