Due Diligence for Obtaining Citizenship by Investment

The most detailed guide to Due Diligence for obtaining second citizenship: with details, case studies, and recommendations to be prepared for the check.

Due Diligence is a comprehensive audit of the risks associated with investing, placing deposits and any other financial transactions. It seems that the concept is more banking and is mainly related to business. But how does it relate to the second citizenship by investment?

You probably had to deal with this concept when you made any transactions with your partners in Europe, America, United Kingdom and other countries, or when you just tried to open an account with a foreign bank. Now it is no longer possible to take any significant legal action in any of the above mentioned regions without going through Due Diligence (DD).

As you know,  recently governments of the EU countries, the USA, and states of Caribbean region have paid significant attention to this topic . You have probably heard about such cases as the “Panama papers”, Russian laundromat – high-profile investigations of the largest financial institutions in the world.

Fighting against money laundering the EU has approved a new (5) version of the Directive, which significantly tightens the process of DD by all actors involved in the provision of various services, not only financial but also legal and consulting services that receive and process funds.

In fact, without proving the source of the funds, you will not be able to conduct any significant transactions, including money transfers, to Europe or other countries.

A very important novelty in the Directive states that all providers rendering different types of services will now be obliged to qualify applicants who invest to get the citizenship in the EU as having high risk and to apply to them the highest level of Due Diligence procedures.

What Does This Practically Mean?

This means that you will have to disclose and to verify your identity, business, sources of income as well as your main property as detailed as possible..

The most detailed Know Your Client (KYC) profile is drawn up, which allows to justify the legality of the sources of fund origin o that you invest. This Directive are due for implementation by EU countries in January 2020.

This matter is especially relevant for those who are considering citizenship/residency programs by investments in the EU and the Caribbean region.

Content
    Add a header to begin generating the table of contents

    Due Diligence to obtain citizenship by investment

    Citizenship by investment programs are regularly criticized by EU institutions as well as by public organizations. In fact, all critics comes down to one point – the quality of Due Diligence. The EU authorities want to make sure that the citizenship will be granted to the most reliable businessmen, who have legally earned their money and will be able to bring the benefits to the EU state.

    In response to such official criticism, Malta and Cyprus have tightened the terms of their programs significantly and have taken into account most of recommendations made by the EU bodies. The most important requirement is a maximal transparency: a 100% guarantee is required to prove that the citizenship has been obtained by legal investments.

    From time to time, Caribbean countries also strengthen the security screening process and implement additional requirements and documents.

    But the most unprecedented decision has been taken recently by the Government of Cyprus: to conduct an independent Due Diligence for all passport files obtained until 2018 under Cyprus Investment Program. They have engaged three major independent companies to carry out this work. The first results have already been announced – the government plans to revoke citizenship of about 20 people due to suspicions of the illegal origin of their investments or due to the inclusion of such people to the sanction lists. A very important point: the actual situation for 2019 is taken into account, i.e. citizens who became subjects of sanctions after the issuance of a Cyprus passport under the program are at risk.

    What Do You Need to Know About Due Diligence and How to Be Prepared for It?

    Here below, we will consider features and risks faced by investors during the Due Diligence process, as well as provide examples from our practice. Here you may have a question: “Why should I trust you?” Perfect! Read on…

    Brief Information About Our Company

    Immigrant Invest is an international company specializing in investment programs for obtaining citizenship/residence of the EU countries and countries of the Caribbean region.

    Launched in 2006.

    The company is agent authorised by respective governments to provide its services in citizenship/residence by investment programs of EU countries and countries of the Caribbean region.

    The company has a separate unit that deals with Due Diligence.

    Employees are certified AML Compliance specialists, lawyers, and attorneys.

    We perform our own preliminary due diligence of an investor before providing services.

    In our work we use such databases as Lexis Nexis, 360 KYC, Reuters, World-Check and others (databases are used by governmental authorities of investment programs).

     

    In 2020 you cannot make a step forward without Due Diligence!

    All investment programs, irrespectively if it is EU or Caribbean country, pay particular attention to verifying the reliability of a future citizen.

    MYTH

    Many believ that Caribbean passports are easier to obtain and the Due Diligence procedure is simplified. This is not true! Immigrant Invest is an international agent of the programs, that is why we assure you that the Due Diligence process on the Islands is not easier compared to European Due Diligence it terms of its requirements and profundity.

    A serious approach to Due Diligence is due to the fact that it refers to the reputation of the state and the security of whole society. As an investment program agent, we have noticed that the requirements and processes associated with the Due Diligence becoming stricter over the last year.

    «Due Diligence is a fundamental element of both the Cyprus Citizenship by Investment and the residency program. It includes a multi-stage selection system of applicants. Malta's Due Diligence is a benchmark for other states».

    Charles Mizzi, Director General of the Malta Residence and Visa Program. Tweet

    One of the latest indications of this trend is the revision of Cyprus passports issued for investments before 2018. They check the quality of the implemented Due Diligence process.

    “Due Diligence is a fundamental element of both citizenship and permanent residence investment programs. It includes a multi-stage selection system of applicants. Due Diligence conducted in Malta is a benchmark for other states”, Charles Mizzi, Director General of the Malta Residence and Visa Program.

    Due Diligence issue is raised at the international level, which can be seen in the changes introduced in the latest (5th) version of the EU Directive “On Combating Money Laundering and Financing of Terrorism” (adopted in May 2018). It envisages the introduction of stricter security screening requirements for persons who participate in European investment programs leading to citizenship.

    The Directive requires enhanced Due Diligence for non-EU citizens who apply for residency or citizenship by investment in the EU countries by purchasing real estate or government securities or investing into business.

    Due Diligence: Detailed Guideline

    How to be prepared for the Due Diligence: Details, Risks, Case Studies, and Expert Advice.

    Among other providers, Due Diligence obligations will be imposed on real estate brokers, legal, tax and other consultants and, it goes without saying on licensed agents of investment programs.

    The tightening of security checks is not only the European trend. A similar approach was previously introduced in the USA, in particular, FATCA is a proof of this. Caribbean countries also collaborate closely with the EU and the US, so the expansion and strengthening of control in all areas is a worldwide trend.

    But we are already prepared for this now!

    Our company puts the DD process as a priority. We believe that this is a key factor in the entire citizenship process. The successful outcome of the case and the decision of the relevant Government depends on the correctness of the analysis and the accuracy of your client’s portrait.

    High-quality DD allows to be prepared for it in the best possible way, avoid additional requests and thus accelerate the whole process.

    At Immigrant Invest, we have taken the DD process serious. Therefore, we implemented a separate Policy, Instructions, Forms, and Cases. Our employees are regularly trained and certified. All non-standard cases are thoroughly analyzed and reviewed by our staff.

    We have achieved great success and now the companies from our industry. approach us just for DD report. In total, we conduct over 1,500 Due Diligence research per year.

    Memo

    Immigrant Invest always carries out an internal Due Diligence before a service contract is concluded.

    Who does the research: In-house Due Diligence department, AML Compliance Specialists, lawyers

    2 levels of Due Diligence (the approach of large European banks).

    Level 1

    Preliminary Due Diligence – KYC – Know Your Client.

    At this stage we determine:

    • The possibility to participate in the program;
    • Involvement in illegal organizations;
    • Status of politically exposed persons;
    • Involvement in sanctions lists;
    • The presence of negative information.

    Level 2

    Enhanced internal Due Diligence

    At this stage, we carry out:

    • Full analysis of the sources of welfare;
    • Analysis of sources of income;
    • Analysis of risks associated with the specifics of the business;
    • Analysis of possible risks associated with investor activity in the past.

    If any risks identified:

    • We are looking for solutions;
    • We prepare legal opinion;
    • In difficult cases we ask for specific clarifications of the program representatives;
    • We are preparing alternative options.

    As a result, we prepare a client profile in the most possible detailed way, revealing all points and details, which excludes further additional requests and, consiquesntly, delaying the entire process.

    Bonus for Investor – the file provided by Immigrant Invest for Due Diligence fully meets international standards, it can be used  in all cases where it is required to pas Due Diligence check for any other companies and banks.

    As a result, we prepare a client profile in the most detailed way possible, revealing all points and details, which excludes further additional requests and, as a result, delaying the entire process.

    Bonus for Investor – the file provided by Immigrant Invest for Due Diligence fully meets international standards, it can be used as information that the client presents in all cases of passing the check by other companies and banks.

    Please note

    Immigrant Invest does not provide services and does not work with persons/companies that are under the sanctions of the EU and the USA, as well as with investors or companies that are involved in any illegal, corruptive or terrorist activities.

    Who Conducts Due Diligence in the frame of Citizenship Programs?

    The due diligence process involves not only authorized government organizations, but also international companies specialised on providing these services.

    «The formation of citizenship or residence by investment industry depends on three main pillars: applicants, the private and public sectors, and international organizations.».

    Jonathan Cardona, CEO of MIIPA Tweet

    For example, in Malta, international organizations such as Interpol, Europol, FATF (Financial Action Task Force on Money Laundering) are also involved in Due Diligence process, along with government agencies.

    In particular, FATF regulation No. 15 states that “Countries and financial institutions should identify and assess the money laundering or terrorist financing risks that may arise in relation to (a) the development of new products and new business practices … and (b) the use of new or developing technologies for both new and pre-existing products”

    What should investors know before passing Due Diligence?

    The most important thing is that you should be prepared to disclose maximum information about yourself and your family members, for example:

    • Did you or your family have a criminal record?
    • Have you been refused a visa or a residence permit?
    • What is your business area, what is your source of income?
    • What is your financial status now and what are the prospects?
    • What is your business and public image?
    • Whether you or your relatives are involved in political activities?

    To be as open as possible and ready for cooperation is very important at this stage. Knowledge of all the specifics and details enables us to analyze the options and to solve possible problems.

    Our Due Diligence specialists introduce your portrait and financial profile in the required and professional format.

    NB

    All the provided sensitive information is not available to third parties, we only pass it on to the government program operator for further check. Our lawyers will form an individual list of documents for you, based on your specific application.

    Due Diligence Stages to obtain a Second Citizenship

    Stage 1

    Verification of the applicant by a licensed agent.

    Immigrant Invest has a separate department for these purposes.

    Our company conducts Due Diligence on two levels: preliminary (basic) and enhanced Due Diligence.

    “This is explained by the fact that we have been working with citizenship and residency investment programs for a long time, and security clearance is a key step in obtaining a passport.

    All programs stipulate licensing, therefore o the responsibility falls on the agent – company representing the interests of its clients.

    We have obtained licenses for all migration programs that we offer at the moment, thus we can assess a potential client in terms of the probability to obtain a new status and passing Due Diligence check.”

    Pavel Reshetnikov
    CAMS, Managing Director for Business Development, Immigrant Invest

    We only use large reputable databases that are recognized by the program operators (in particular Lexis Nexis, 360 KYC, Reuters, World-Check).

    Risks

    Based on the results of a preliminary check, the following risks can be identified:

    • Country risk: e.g. citizens of China, Russia, Kazakhstan, and the Arab States are considered high-risk countries.
    • Industrial risk: mining, production of weapons, dual-use goods
    • Risk associated with the type of business: offshore, funds, trusts, hedge funds
    • Negative information
    • Status of a politically exposed person

    In addition to the above, as a program agent, we perform KYC (Know Your Client) checks in accordance with established industry standards.

    Our specialists have received international certificates and CAMS status (certified AML Compliance Specialist). Our staff has considerable experience in this area, which facilitate our clients to achieve positive results.

    The second stage of the internal Due Diligence refers primarily to the proficient description of business activities and origin of funds, as well as to the formation of the financial documents package.

    «In case, some facts require professional assessment for further submission for due diligence, we accompany the application with our expert opinion and additional information on the matter. It is a vital point that you share with us as much information as possible, which guarantees a positive acceptance of your application during the due diligence process. As a result, we submit a proficient application, which is structured and transparent. This is often the key factor in making a decision.»

    Pavel Reshetnikov
    CAMS, Managing Director for Business Development, Immigrant Invest

    Thus, we clarify all the details at the contract signing stage, which gives us and the investor confidence in the positive result. If our preliminary check via online databases gives a positive result, we are ready to sign the contract and the applicant can proceed to the next stage.

    Our Case

    During the preliminary inspection stage, it was revealed that the main investor is namesake of the person who committed the crimes and is on the federal wanted list. Our legal professionals understand that such a coincidence may affect not only a positive decision regarding the program, but also influence the process of crediting funds in the bank already at the stage of submitting documents for due diligence of the program. This fact might seem not significant, but we responded to this in timely manner and prepared all the relevant documents. As a result thereof, the risk for the client was significantly reduced.

    We are proud that our in-house Due Diligence is mentioned by the some government program operators as an example for other agents. Companies in our field refer us for expert analysis for their clients.

    We do not sign a contract with a client before the pre-check is completed – this is the only way we can guarantee our potential clients the opportunity to successfully participate in the program.

     

    2 Stage

    Main Due Diligence

    This stage of due diligence is the most complex and long lasting.

    It begins with the confirmation given by the authority on completeness of the package of documents prepared by the agent.

    The form of the submitted documents and the correctness of their preparation are also important.

    Then the investigation of the financial aspects of the application is carried out, namely, whether the investor has enough capital and what are the origin of funds.

    If there is not enough information provided on any of the points, clarifications or additional documents will be requested, and the verification process will be suspended for the time of clarification.

    Case

    For example, we had a case when the Malta Agency requested information on an investor’s company that had been closed long time ago. Being aware of this practice, we prepare documents and affidavits in advance in order to minimize the time taken to process the application.

    As we have mentioned above, the risk assessment involves verifying the identity of the applicant and his family, including adherence to politically exposed persons (holding high-level government positions) as well as the management of companies which are on sanctions lists.  The integrity of the applicant’s business, credit history, as well as the applicant’s public reputation and legal compliance are to be examined.

    The investor must have a positive public and business reputation. In addition, possible visa/residence/citizenship rejections are checked. According to the rules of visa-free agreements and the EU Visa Code, an applicant cannot obtain citizenship of a country, which gives him a visa-free entrance to previously prohibited countries.

    Case

    Our client was the manager of a company that is under sanctions (SDN). In this case, it is important to know that as a manager of a sanctioned company, the manager is not a sanctioned subject.

     It is necessary to analyze all the risks properly: what responsibilities this manager has, what documents he is entitled to sign on behalf of the company, what decisions he can make. After the correct qualification of all these points, it is possible to make a conclusion and describe the entire situation correctly.

    Stage 3

    Expert analysis by independent companies

    At this stage, international organizations such as INTERPOL, Europol, FATF are involved.

    But Malta, for example, went even further. Two reports from international companies are ordered for each family. These include checks of all the information provided, checks in databases, both international and local in each family’s country of residence.

    How to Avoid Red Flags?

    Red Flags can appear when using a complex structure of an offshore company, because in this case there is a strong suspicion that the final owner is being hidden.

    It may also be alarming if funds are obtained from sources that are not related to the main business and assets of the investor.

    In addition, unusual investor behavior and reactions to questions may also serve as a red flag in the security screening process.

    But if:

    • A legal source of earned funds and current income has been identified;
    • the main activity has been correctly defined and the detailed business structure has been described;
    • all major shareholders, partners, business owners (25% and more) have been identified;
    • a check negative information related to the investor has been done.

    It this means you should not be afraid of Red Flags and the Due Diligence will be successful!

    Advantages of Strict Due Diligence for Investors

    Investors can be sure that after passing such enhanced Due Diligence their passport:

    • is absolutely reliable;
    • has an excellent international reputation. And the program itself is an example for other Citizenship-by-investment programs, as well as residence programmes;
    • is valued by a limited number of investors who have passed the check.

    Our professionally conducted preliminary Due Diligence has some additional advantages.

    You can use the result of our Due Diligence and the corresponding report in any other organization where it is required. You will know exactly what documents need to be prepared and in which form and will be able to use your report as your main resume.

    Of course, each company has to conduct its own DD, but the Due Diligence that we prepare for the citizenship program is as deep and detailed as possible. This is an additional bonus that you can use later on for many years, only by updating your documents and supplementing the information and changes that have taken place.

    How to Prepare for Due Diligence?

    1. Advice – Selection of the right Agent

    Go to a licensed, and most importantly, an experienced agent. Don not forget to request registration documents as well as a license to verify the facts. Unfortunately, there are many sites that pretend to be licensed agents now. Check it out!

    2. Advice – do not sign a contract with an agent before the results of the preliminary check.

    You should be alerted if an agent is prepared to sign a contract with you on the same day without prior verification. A licensed agent always values his reputation and license, so he will never make a deal knowing that there is a chance of rejection.

    3. Advice – Check the credentials to conduct Due Diligence

    Everyone writes about the preliminary check, but the question is what it includes and who conducts it. Check the certificate and authority of the employee (company) to conduct Due Diligence. It’s very important that you do not say “Okay” by doing a cursory check. The result of your application approval and citizenship directly depends on this.

    4. Advice – Do not be afraid of negative information

    If there is negative information, the professional analysis of this information is very important: is it really negative? Only a professional agent can properly qualify the information received and prepare the necessary documents. But it is important to know about it in advance.

    5. Advice – providing information as fully as possible

    The success of the Due Diligence and the time it takes to review documents depends on how well you are prepared to provide all the necessary information about yourself and your activities.

    Want to get an individual solution for your family?

    We will develop an individual solution, select the country and status, who will solve your problems, we will accompany the whole process.

    По назначению

    Для путешествий

    Запасной аэродром

    Для детей

    Изменения в программах

    По назначению

    Для путешествий

    Запасной аэродром

    Для детей

    Изменения в программах

    Гражданство

    Вид на жительство