PWM Perspective Series: Future Challenges Amid Global Risks

In the final chapter of the Financial Times’ Private Wealth Management (PWM) magazines’ virtual panel discussion on due diligence processes in the Citizenship by Investment (CBI) industry, the panel explored how international CBI units put extra focus on due diligence processes amid global risks.

Global instability fuels growth in the investment immigration industry. Geopolitical risks lead many investors to find ways in which they could protect themselves, their families, and their wealth while securing their futures.

While individuals attempt to distance themselves from restrictive regimes in their home countries, CBI Units need to ensure that strict measures are in place in order to verify applicants from high-risk jurisdictions. Failures in due diligence processes harm the reputation of a host country and its programme and often have widespread consequences for the entire industry.

A multi-layered due diligence system is an essential element of any successful CBI programme, as it combines internal government checks with research by specialist third-party due diligence firms and assessments by regional and international bodies. The rigour put around due diligence ensures that individuals of only the highest integrity are successful.

Independent due diligence firms, like those featured in the PWM Perspective Series, perform integral investigations in the form of on-the-ground checks to verify information provided by the applicant. These checks include verifying the information on the application forms and supporting documents, checking sanction lists, and producing a report on the applicants’ identity, source of funds and political exposure.

The European Commission has reiterated the call for the immediate termination of CBI programmes citing the sale of ‘golden passports’ as a serious risk to the bloc’s security because it opens the door to corruption, money laundering and tax avoidance.

The spotlight is on CBI programmes, and many CBI Units, like Dominica and St Kitts and Nevis, are leading the way in due diligence because of its multi-layered approach to the process. The due diligence standards in the Caribbean region are some of the most effective in minimising perceived and actual security risks.?

“Any risk is viewed in context. Whether we are talking about political exposure or jurisdictional risk. Each CBI programme has its risk appetite or threshold,” said Karen Kelly, director of strategy and development at Exiger.

Kelly added that the due diligence provider is not there to make a final decision, “we are there to provide facts and information in order to arm the CBI Units with the information they need to assess whether this person is above or below the risk threshold for acceptance.”

The conversation around applicants from “high-risk” jurisdictions brought up whether it is necessary to apply deeper and more enhanced due diligence processes on high-risk applicants and a lighter version for others.?

“We carry out the same levels of investigations and checks for all applicants and dependents based on criteria and documentation given to us by the client country. We do not discriminate because when we get an application, we do not know whether that applicant will be high risk or low risk – whether they declare that they are wealthy or if they have managed to scrape enough money to purchase alternative citizenship, we apply the same verification and due diligence process to all applicants and we provide a risk profile to the client to enable them to make the ultimate decision,” said Eddy Leviton, chief operating officer at Fact WorldWide.

Caribbean nations have been under tremendous pressure over the last few years – climate change has seen an increase in damaging hurricanes along with the complete lack of tourism during the pandemic. This has led some to believe that these jurisdictions sometimes ignore red flags instituted by pan-regional anti-crime bodies because they badly need the money.

“Caribbean nations are taking a longer-term view in terms of the integrity of their programmes. They have realized how vital CBI funds are to their economies. There is no point in having a quick win if it will jeopardise their status, which could result in the banks not wanting to do business with them meaning the programmes fall over straight away anyway,” said Heyrick Bond Gunning, chief operating officer at S-RM.

Furthermore, Gunning adds that “it is important to note that the units have become a lot more focused on their processes and how they run themselves to become as efficient as possible so that they can ensure that they are making the most of opportunities in terms of the applicants presenting themselves, within that there hasn’t been a compromise on the due diligence as they understand how important a part it plays. They want to be able to hold up their hands and say ‘we have external third parties auditing all our applicants at least twice but usually three or four times when you bring in to play the security agencies or Organisation of Eastern Caribbean States (OECS) to ensure that there isn’t a compromise on due diligence.”

The main goal of CBI programmes is to find a win-win solution for both investors and the countries offering the programmes. The investment made by applicants are often put towards improving the quality of life for those inhabiting the host country. Funds raised by the initiative are channelled into developing infrastructure, education, healthcare, and more.

Any significant inflow of funds brings a risk of money laundering or financial impropriety if not carefully vetted. Effective enhanced due diligence processes are imperative to ensure that only reputable and honest investors are allowed to obtain citizenship.

The PWM Perspective Series was moderated by Yuri Bender, editor in chief of the Professional Wealth Management magazine, the series shone a spotlight on due diligence process in the citizenship by investment industry amid the rising geopolitical risks.

Yuri Bender was joined by Karen Kelly, director of strategy and development at Exiger; Eddy Leviton, chief operating officer at Fact WorldWide and Heyrick Bond Gunning, chief operating officer at S-RM.