On November 22, the Financial Action Task Force (FATF) released the findings of a collaborative project with the OECD, examining the money laundering and financial crime threats linked to citizenship and residency by investment (CBI/RBI) programs. The risks of foreign bribery, fraud, and corruption are discussed in the paper, along with how they affect immigration, taxes, and public integrity. It offers strategies and illustrations of successful approaches to help decision-makers and program managers in investment migration programs reduce these risks. This entails carefully analyzing how criminals could take advantage of CBI/RBI programs and highlights the importance of governments implementing risk mitigation strategies.
Main Points from the Report
- Criminals exploit vulnerabilities in CBI/RBI programs to commit large-scale fraud and launder billions. This involves hiding assets in less regulated jurisdictions, aiding organized crime, and evading law enforcement. CBI programs offer global mobility, allowing illicit actors to open accounts, establish shell companies, and conceal their identity or tax obligations using new identification documents.
- CBI and RBI programs offer criminal elites various opportunities, including relocating assets and family abroad to impede asset recovery, justifying suspicious high-value transactions, and facilitating the cross-border movement of illicit funds. These initiatives serve as an entry point for recipients into the financial systems of diverse countries and regional markets, granting them access and potentially less scrutiny compared to their original citizenship or country of origin.
- Investment migration programs, being intricate and global, face challenges in coordination and regulation due to the extensive involvement of intermediaries and multiple government agencies. These programs are also at risk of exploitation by professional facilitators and fraudsters, including property agents, wealth managers, immigration agents, marketing agents, and concierge firms. These entities may contribute to abuse by inadequately conducting due diligence, mishandling financial crime reporting, or creating deceptive evidence for client applications.
- Abuse risks in programs often arise when governments struggle to effectively govern them. Malign interests can exploit these programs when roles of public and private actors are unclear, conflicts of interest are not well-managed, and resources for proper oversight are lacking. Challenges intensify with inadequate internal control and audit measures, hindering assurance that programs operate as intended. Coordination issues across public authorities and borders further compound these challenges. Programs perceived as susceptible to criminal abuse may result in the suspension of visa-free travel and harm business and international relations.
- This report proposes measures for policymakers and program operators to improve governance and address money laundering risks. Recommendations include analyzing risks, setting clear objectives, and integrating integrity measures into program design. It emphasizes multi-layered due diligence in the application process, specifically examining applicants' funding sources, overall wealth, funds transfer methods, and the financial status of accompanying family members.
- Illicit actors may use investment programs as a safety net before or during criminal activities. Ongoing monitoring is vital to prevent abuse and evade law enforcement. To ensure effective oversight, domestic coordination among law enforcement, immigration, and financial intelligence units is crucial. Multilateral cooperation is also needed for swift information exchange and mutually supportive enforcement mechanisms across jurisdictions.
- Jurisdictions with investment programs face growing fraud risks, particularly in monitoring the flow of funds. Initiatives promoting property development have implemented measures like domestically established escrow accounts to prevent fraudulent developers from deceiving the program and investors. Some programs have also witnessed fraudulent schemes where the same funds are recycled through multiple applicants, and instances where applicants are victimized, with their funds embezzled by property developers, immigration agents, businesspeople, or wealth managers.
- Policymakers, program operators, financial institutions, and law enforcement need to be alert to heightened money laundering and financial crime risks from both applicants and facilitators in investment migration transactions. Clear delineation of roles between public and private sectors is essential to prevent undue influence in citizenship and residency programs.
- Theoretically, when well run, CBI or RBI programs may be advantageous to both host nations and individuals. However, in reality, these programs carry a high of fraud, money laundering, and other misuses; thus, they should be planned and run with a risk-aware approach, putting protections like the ones outlined in the article.
Use of CBI to Purchase Foreign Real Estate
The price paid by foreign investors to purchase real estate property for the purpose of obtaining the Cypriot nationality was well above their estimated market values. This higher price paid was in line with the provisions of the citizenship by investment program. The funds were transferred from a foreign bank account to the local developer’s account. Subsequently, it was observed that the developer (seller) would return part of the funds to a foreign bank account, back to the foreign investor. Therefore, the foreign investor had in fact invested a lower amount than required under the CBI program. (Source: FATF)
Conclusion
Although CBI/RBI programs are varied and represent a nation's sovereign right to accept foreigners, they are also vulnerable to serious misuse, particularly in places without extensive mitigating policies. Due to a lack of adequate protections, the specialized CBI/RBI environment is vulnerable to being used for money laundering and other illegal activities. The study draws attention to widespread hazards of investment fraud and corruption, which harms the goals of the economies and reputations of the nations that host these initiatives. The initiative provides program operators with tools to comprehend and reduce these risks. Sufficient legal and regulatory backing is necessary for effective execution, in addition to sufficient resources and competencies. The research highlights the benefits of risk reduction for foreign partners, the business sector, and program jurisdiction and residents.
