Due Diligence is a comprehensive check of the risks associated with investment, opening deposit accounts, and other financial transactions. Before significant transactions, it is carried out to ensure that the parties involved are not sanctioned persons or tax evaders and verify that they are not associated with money laundering, terrorism, or other illegal activities.
Due Diligence is carried out in the European Union, the United States, Britain, and several other countries when buying real estate, opening a bank account, or carrying out business transactions. The participants in such transactions need to prove the legal origin of the funds to be used for any operation above a certain amount, even for a bank transfer to their own account.
Due diligence is also a mandatory step in any citizenship or residence by investment program. Approval of such applications depends on the results of the Due Diligence check. We discuss the important points that need to be considered when preparing for a Due Diligence check and the steps to take if a person with the same name and surname as yours is wanted by the police.
Why Due Diligence is needed in citizenship by investment programs and why the process is becoming stricter
Due Diligence is mandatory for investors and their family members who apply for citizenship or a residence permit by investment. The government department responsible for the program checks the applicant's sources of income, reputation, and no criminal record certificate; it also verifies that they are not on the list of sanctioned individuals and another country has not refused their application for a visa, residence permit, or citizenship.
The purpose of Due Diligence is to find out if the applicant's background meets the requirements of the citizenship or residence program. Governments of countries offering these programs want to ensure that the investor and their relatives included in the application do not have any criminal history and that the funds to be used for investment are from legal sources.
Criticism of programs. Citizenship by investment programs is often criticised by the European Union and civil society organisations. Their criticism is primarily aimed at the quality of the Due Diligence process. The European Commission is concerned that criminals, tax evaders, or those who finance terrorism can get access to the European Union by using citizenship and residence by investment programs.
Consequences of criticism for investors. As a result of the EU's criticism, the rules for citizenship programs are becoming more complex, and the Due Diligence checks are stricter. Some countries, such as Malta, check not only the investors and their families but also their backgrounds and associates, including their business partners and other connections.
I can understand the security concerns, which is why we have strengthened [the] Due Diligence process to an incredible degree, making us [Malta] one of the strictest member states [of the European Union] when it comes to identifying applicants with the wrong intentions.
Some countries are re-examining the applications of all investors who have obtained citizenship by investment. For example, the Ministry of Interior of Cyprus used three independent companies to recheck the applications of all investors granted citizenship by investment before 2018. As a result, the government revoked the citizenship of more than 20 investors granted citizenship by investment.
Cyprus withdrew its citizenship by investment program on November 1, 2020; however, EU sanctions can still affect investors. In 2019, nine sanctioned Russians, eight Cambodians and five Chinese, who had been granted Cypriot citizenship by investment, had their Cypriot passports revoked.
Vanuatu has also announced that it will recheck the applications of investors who were granted citizenship by investment since 2015. At the same time, it will make its Due Diligence check stricter and more complex. The British agency FACT UK will now be involved in the Due Diligence check.
Vanuatu's decision to tighten the terms under which it grants citizenship by investment is a result of the criticism made by the European Union. The European Council partially suspended its visa-free regime with Vanuatu: from May 4, 2022, Vanuatu citizens who were granted citizenship by investment from May 25, 2015, after the launch of its citizenship by investment program, will not be allowed to visit the Schengen countries without a visa.
Legislation related to Due Diligence. As part of the fight against money laundering, the European Union regularly approves directives related to Due Diligence checks. The latest version, Directive 2018/1673, provides for stricter standards and harsher measures that can be taken against violators than previous directives.
Banks, investment program departments, and other institutions must compile a more detailed client profile (KYC). This makes it easier to establish the legality of the source of the funds to be transferred or used in a transaction or for investment.
Detailed Due Diligence is carried out on non-EU investors who apply for residence or citizenship in European countries.
The tightening of standards for combating tax evasion and money laundering is a global trend. For example, FATCA, the Foreign Account Tax Compliance Act, aimed at fighting tax evasion, was adopted in the United States in 2010. Under FATCA, other countries transfer information about the assets of US citizens and residents to the US tax service.
Countries in the Caribbean work closely with the European Union and the United States. They follow US and EU guidelines regarding more stringent Due Diligence checks on their citizenship by investment programs.
Who conducts Due Diligence for citizenship by investment applications
A government-licensed agent of the citizenship or residence program conducts a preliminary Due Diligence check to ensure that the applicant has no criminal record or criminal prosecution record, has not been denied a visa, residence permit or citizenship by another country, and received the funds to be used for investment from a legal source.
You can only apply for citizenship by investment through a government-licensed agent. A preliminary Due Diligence check helps the agent identify and assess the risks of the rejected application and prepare additional explanatory documents to counter these risks.
The government department in charge of the citizenship by investment or residence program checks the application and attached package of documents submitted by the licensed agent on behalf of the applicant. An in-depth check of the investor and their family members included in the application is carried out by an independent company's certified Anti-Money Laundering Compliance Officers.
Interpol and Europol confirm that the applicant has no criminal or criminal prosecution record. The government department decides whether to approve the citizenship or residence application based on the conclusions of the Anti-Money Laundering Compliance Officers, as well as Interpol and Europol.
FATF, the Financial Action Task Force on money laundering, develops global standards for financial audits and makes recommendations to governments. The FATF is made up of 37 member states, including the European Union, the United Kingdom, and the United States. Governments also consider its requests by offering citizenship and residence through investment programs.
Due Diligence for citizenship by investment
1. Preliminary Due Diligence check by a licensed agent
1 business day
Government-licensed agents for citizenship by investment programs must conduct Know Your Client (KYC) Due Diligence checks by the industry standards. The agent sends the results of this check to the government department in charge of the program.
Immigrant Invest has its own compliance department and carries out preliminary Due Diligence checks on its clients through its own certified Anti-Money Laundering Compliance Officers. They know all the nuances related to Due Diligence checks for residence and citizenship by investment programs.
Applications for citizenship by investment can only be submitted through government-licenced agents on behalf of the applicant.
We have been issued licences to act as agents for citizenship and residence by investment programs by the governments for the programs we represent. We use our preliminary Due Diligence check to assess the likelihood of our clients’ applications being approved and the areas where the government may ask for additional information.
We carry out a preliminary Due Diligence check before signing an agreement with an investor. It takes 1 to 3 business days. The investor simply provides us with a copy of their passport and fills out a questionnaire on their business, no criminal record certificate, and other important aspects related to Due Diligence.
Our preliminary Due Diligence check discovered that a convicted criminal has the same Christian name and surname as our client. This could easily have inadvertently led to our client's citizenship by investment application being unfairly rejected.
Example from practice. Our preliminary Due Diligence check discovered that a convicted criminal has the same Christian name and surname as our client. This could easily have inadvertently led to our client's citizenship by investment application being unfairly rejected.
We, therefore, included additional information in the application that proved beyond doubt that our client was not a convicted criminal. We found information proving that the investor was registering their company at the time when the convicted criminal with the same name was in prison. This allowed us to continue preparing the investor's application. We will attach a no criminal record certificate to the application and an explanation clearly proving that our client is not connected in any way to the convicted criminal with the same name.
2. Main Due Diligence
3 weeks to 6 months
The government department responsible for citizenship by investment starts its Due Diligence check after the licensed agent submits the citizenship application on behalf of the investor.
Specialists from the department handling the citizenship by investment program check the reputation of the investor and their families and whether any of them is a politically exposed person. They look for any instances of their visa, residence permit, or citizenship applications being rejected by other countries. According to the EU Visa Code rules, an applicant cannot be granted an EU passport if it allows them entry to a country that had previously rejected their application for a visa, residence permit, or citizenship.
They also check the investor's business and the legality of the sources of their funds. If an investor or a company owned by them is placed under sanctions, they cannot apply for citizenship by investment in the EU.
In some cases, they also look into the background of applicants’ business partners, for example, if a politician applies for citizenship by investment.
If the government department handling the citizenship application needs additional documents to process the application, it requests the licensed agent to send them the additional material. Additional requests for information delay the Due Diligence process, and it is important to provide a complete package of documents when applying.
An example from our practice. We discovered that our client's father had a criminal record, which could have resulted in our client’s application for citizenship being rejected. Immigrant Invest's lawyers offered to draw up an affidavit, a sworn written statement, explaining the situation to reduce the risk of this happening.
The affidavit clarified that the investor was not involved in their father's crimes. In addition, our lawyers documentally confirmed the legality of the investor's business, attached their no criminal record certificate, and indicated their client's contributions to charitable organisations. As a result, the application was approved in record time, and the investor was granted second citizenship.
3. Due Diligence check in international organisations and independent companies
At this stage, international organisations such as Interpol, Europol, and FATF, submit their conclusions.
Some countries, such as Malta, order reports from independent companies dealing with Due Diligence. These companies check all the information provided by the investor. They also search for information on the applicant and their family in international and local databases in each family's country of residence.
Information required to carry out a Due Diligence check
The personal and business biographies of the applicant are verified in the Due Diligence check for citizenship by investment application. This must be disclosed to the applicant’s licensed agent so that the agent’s lawyers can prepare a suitable package of documents and reduce the risk of the application being rejected.
Information to be provided to the agent:
- sources of income, a sphere of business, and the structure of the business;
- financial position;
- no criminal record certificate or details of any criminal prosecution;
- any instance of the investor’s application for a visa, residence permit, or citizenship being rejected by another country;
- any issues related to their personal or business reputation;
- any connection of the investor or their family members with political activities.
Immigrant Invest does not disclose information about the investor to third parties: we pass it on only to the government department handling the application for further verification. Based on the information disclosed by the investor, our lawyers prepare the required list of documents that need to be attached to the application for citizenship by investment.
Certain factors raise doubts among the officers of the state department who conduct the applicant's eligibility verification, which sometimes results in the refusal to accept the citizenship application.
To increase the chances of their application being approved, an investor needs to attach a complete package of documents, which help answer any questions the government officers handling the application might reasonably raise: for example, copies of licences for particular business activity, documents clarifying the structure of their business, and documents proving that the money to be used for investment is not related to or sourced from political activities.
- Arab countries
- mineral extraction
- oil and gas production
- gaming sector: for example, casinos
- trading in expensive goods: real estate, jewellery, works of art, antiques, cars, precious metals
- freight transport
- production of arms and other products for the military industry
- consulting: for example, auditors or lawyers
- intermediary services
- brokerage activities
- tobacco industry
- waste processing
- infrastructure construction
- cryptocurrency investments
- registered in an offshore jurisdiction
- state-owned in a high-risk country
- complex shareholder structure, which makes it difficult to identify the beneficial owners
- a fund, hedge fund, trust, or family office serving wealthy clients
- included in the list of companies sanctioned by the EU, US, or Ukraine
an applicant who is or was a politician or civil servant has to show that the money to be used for investment was received from a source not related to the civil service and that their economic and political ties are not and were not associated with corruption
- Criminal record that has expired
- participation in court as a defendant, even if acquitted
- bankruptcy of the applicant as an individual or of their main business
about the investor or their business
The presence of a risk factor does not mean that the investor’s application for citizenship will be rejected. Rather, the risk factor will lead to greater scrutiny of the application: for example, a politician will need to provide additional financial documents, and an investor who has participated in court procedures will need to provide evidence of their innocence in the form of an affidavit.
Our preliminary Due Diligence check helps us prepare for the government’s Due Diligence process: if we believe it will help, we attach extra documents in addition to the standard package of documents or draw up a legal opinion, an affidavit. This increases the chance of our client’s application being approved.
Chief Development Officer in Immigrant Invest, lawyer
Example from our practice. We were approached by a former judge who wanted to apply for citizenship by investment in a Caribbean country. Judges are considered politically exposed persons (PEPs) and are subject to much stricter scrutiny than other applicants due to their high exposure to the risk of corruption.
Immigrant Invest’s lawyers attached an affidavit to their application. It explained that the investor earned money to be used for investment legally after leaving the civil service. The application was considered and approved by the government without any requests for additional information within the standard period, and the investor was granted citizenship by investment.
Features of Due Diligence in different countries
The Due diligence checks carried out by different governments for citizenship by investment are similar. They check the same thing: the presence of convictions, sanctions, rejections of visa applications in other countries, and the legality of the income sources of the investor and their family. However, the goals may differ.
In the Caribbean countries - Antigua and Barbuda, Grenada, Dominica, St. Kitts and Nevis and St. Lucia - the main purpose of the check is to confirm the availability of legally sourced money for investment. The check lasts from two to six months and costs at least $5,000.
Myth: the Due Diligence checks in the Caribbean are not as rigorous as in Europe
The Caribbean countries carry our rigorous Due Diligence checks on participants in citizenship by investment programs. The Due Diligence procedures in these countries are just as stringent as in many European countries, and the procedures in the Caribbean are often revised and complicated.
In Vanuatu, Due Diligence takes place in two stages: first, the Vanuatu Financial Intelligence Unit checks applicants' documents, and then the screening committee and the citizenship commission check the application.
In Vanuatu, Due Diligence is the fastest in the world: it lasts up to three weeks and costs $5,000 for the whole family.
In the EU, Due Diligence is carried out in accordance with EU Directive No. 2018/163. According to its terms, investors who are granted a residence permit or citizenship by investment in the EU undergo a rigorous Due Diligence check: they have to disclose information about themselves, their family members, their sources of wealth, and their assets as fully as possible.
The Due Diligence procedure, called the Eligibility Test, undertaken by investors who obtain Malta citizenship for exceptional services, is one of the most stringent in the world. The investor has to reveal the entire history of the origin of their capital and has to confirm that they have stable income. The Due Diligence check takes at least four months and costs at least €15,000.
The Due Diligence that we do here [in Malta] is found nowhere in the world. We train other countries on how to carry out Due Diligence. We invest a lot in Due Diligence and we will continue to do so.
To obtain a temporary or permanent residence permit in one of the EU countries - in Portugal, Greece, Spain, and Malta - applicants need to pass an equally rigorous Due Diligence check to confirm that their capital has been earned legally, and the reputation of the investor and their family is clean.
Preliminary Due Diligence check at Immigrant Invest
Immigrant Invest is a government-licensed agent for citizenship and residence programs in the European Union, the Caribbean, and Vanuatu. It is one of only a few government-licensed agents in the world with its own compliance department.
We believe that the Due Diligence check is a key step in any citizenship and residence by investment program. Therefore, we pay special attention to preparing for it: we analyse each case and prepare a comprehensive package of documents. Our preliminary Due Diligence check within the company is carefully regulated, and our employees are regularly trained and certified to carry out these checks efficiently.
We work with the same databases that are used by the governments’ compliance departments: Lexis Nexis, Dow Jones, and business registers. We carry out our Due Diligence check in two stages:
- Preliminary Due Diligence check. We check whether the applicant has a criminal record, is a politically exposed person, or is on the sanctions list. We also check for any negative information on the applicant in the media or on the Internet. We carry out a preliminary Due Diligence check, which takes up to two days before signing a contract with the applicant.
- The main Due Diligence check is carried out during the collection of the documents required for participation in the citizenship or residence by investment program. Our certified Anti-Money Laundering Compliance Officers in our compliance department conduct a thorough analysis of the applicant’s income sources, as well as the risks associated with their business and biography.
Immigrant Invest’s Certified Anti-Money Laundering Compliance Officers check the background of the investor and their family.
The time the government takes to consider the application and the risk of rejection depend on the quality of the licensed agent's Due Diligence process. The detailed preparation of the documents to be submitted by the agent's lawyers results in fewer requests for additional information from the government department dealing with the application, making the Due Diligence process easier and faster.
When certain facts require a professional assessment before being submitted for Due Diligence, we attach our expert opinion and additional information on the issue to the application.
It is important that our clients disclose as much information about themselves as possible. This helps us prepare and submit a complete and structured application to the government department responsible for the citizenship or residence by investment program. This ensures that our clients’ applications are transparent and easy to review – transparency is often the key factor influencing the government’s decision.
Immigrant Invest does not work with investors and companies under EU, US, and UK sanctions, or with those who break the law, for example, by being involved in corruption or promoting terrorism.
How to prepare for Due Diligence
1. Select a government licensed agent. It is important that the agency has experience in conducting Due Diligence and a department that conducts preliminary Due Diligence checks.
2. Sign a contract with an agent only after a preliminary Due Diligence check. Preliminary Due Diligence helps identify risks that may lead to the application for residence or citizenship by investment being rejected. It is thus better to sign the contract and pay for the agent’s services after the preliminary Due Diligence check.
3. Provide complete information about yourself, your family members, and your sources of income. Information on your business partners may also be required, especially if the applicant for residence or citizenship by investment is a politically exposed person.
4. Disclose any negative information about yourself to the agent if such information is related to yourself or your company.
All risk factors related to the application must be analysed and described: for example, negative publications in the media can be countered by documents showing the negative publications to be unfounded, and participation in court proceedings as a defendant in the past can be explained and supplemented with evidence confirming your innocence. In this way, the government department handling the application will have fewer requests for additional information, and the risk of the application being rejected will decrease.
The agency's lawyers prepare a list of required documents specific to each application. The investor provides the required personal and financial documents: passports, marriage and birth certificates, registration data, bank statements, etc. If necessary, the lawyers prepare affidavits to clarify any information they consider requiring additional explanation.
How undergoing a Due Diligence check helps investors in the future
The main advantage of a rigorous Due Diligence check is that if the government department thoroughly vets applicants, the risk of their residence permit or citizenship by investment being revoked in the future is minimal. The investor's citizenship will not be revoked as long as they do not violate the terms of the program.
The experience of successfully undergoing a Due Diligence check can also be helpful for the investor in the future. Due Diligence is carried out for any major transaction: for example, in the European Union, it is not possible to open a bank account, buy real estate, or conduct a financial transaction for a significant amount without undergoing a Due Diligence check.
Our certified Anti-Money Laundering Compliance Officers know the nuances of Due Diligence checks in different countries and take them into account in their preliminary Due Diligence check. We identify risks that our clients may not be aware of: for example, an investor may not consider themselves a politically exposed person, even though they are a politically exposed person under the laws of another country.
Our lawyers provide our clients with a complete list of the documents required for the application, help prepare information about their business, and assist them in proving the legality of the source of their money.
If an investor has successfully undergone Due Diligence once with the help of a professional team, it will be easier for them to pass subsequent checks in the future. They will have an idea about the questions that may be asked. They will be able to quickly provide all the necessary documents: for example, an organisation chart that reflects their business structure.