Insight
A golden passport is a money launderer’s dream, and the schemes are more widespread than it seems. With the European Court of Justice striking down Malta’s golden passport scheme in the past weeks, now is a good time to review your risk exposure to citizenship by investment schemes.
In early May, the European Court of Justice ruled that Malta’s citizenship by investment scheme is illegal and that selling citizenship undermines the premise of European citizenship. The ruling was welcomed by campaigners like Transparency International and journalist Paul Caruana Galizia— but not everyone is happy. A representative of the law firm which worked with Malta on the scheme called it a “political decision” when interviewed by the Financial Times.
So, which is it? Are these schemes a brazenly open method of money laundering and tax evasion by corrupt wealthy people? Or a harmless and delightful method of siphoning money from the rich to prop up the national coffers? As with everything in financial crime, the answer is probably in the grey area between these two possibilities. FATF and the OECD reported in 2023 that the schemes can generate economic growth but are being exploited by criminals too. The same year, a study in the Journal of Public Economics evidenced that the schemes do increase tax evasion.
In 1984, St Kitts and Nevis introduced the first official citizenship by investment (CBI) programme, aiming to secure foreign direct investment. Other Caribbean countries like Dominica, Grenada, Antigua and Barbuda and St Lucia offer programmes, while Jordan, Egypt, Türkiye and North Macedonia also have programmes in place.
There are also plenty of residence by investment (RBI) schemes, which demonstrate similar risks including in Greece, Hungary, Italy, Portugal, the UAE and the US. The UK once operated the Tier 1 Investor Visa, allowing investors to reside in the UK before seeking leave to remain. Ireland’s Immigrant Investor Programme ran from 2012 to 2023 and allowed for indefinite residence, and Canada also operated a programme which closed in 2014. Several of the countries mentioned here might be considered ‘lower risk’ on a risk register, so the Maltese news is a good chance for firms to review their controls.
Criminals love a new identity. A new passport offers a chance to change your nationality alongside other details, making you harder to track compared to your old persona. This makes due diligence trickier for banks.
On top of that, golden passports can offer increased freedom of movement. As an example, the North Macedonian passport allows easy transit into the Schengen zone as well as access to Hong Kong, Singapore and India.
Both CBIs and RBIs can allow someone to move their family and associates to the new jurisdiction— and helpfully, the new jurisdiction might not benefit from extradition treaties with the ‘old country’.
Moving money looks a lot more legitimate if you have a base in multiple places and it’s easy to spend lots of money on seemingly obvious luxuries that are hard to verify from afar. Private school fees on St Kitts and Nevis? Sounds feasible, because I’ve never been and know nobody who has.
This space is a moveable feast and the appetite for CBIs and RBIs is unlikely to dissipate any time soon. More countries will make new schemes and this is especially the case in times of economic downturns. It’s worth your tim to sit down and investigate the different schemes to understand their background, the government-level controls around them and, critically, who is typically availing of them.
Maybe your firm has grown a lot and the risk is emerging— or maybe the country risk register is out of date on this topic depending on who last reviewed it. Sit down with your country risk register and consider whether the risk ratings are accurate and appropriate.
Your frontline CDD staff are the most likely people to spot the risk, so make sure they have your updated country risk list and your research to hand when making decisions. If they don’t know that a Montenegro passport issued in 2020 could be a CBI passport, they really ought to.
Do you collect information about multiple nationalities and citizenships at signup? Do you check back in during the lifecycle? Are there certain ID&V documents you don’t accept through your third-party vendor? Does your EDD process kick in where a customer has a document from a CBI/RBI jurisdiction?
Though the EU Justice Commissioner has said he wants these schemes to be a “thing of the past” in the EU, the damage has already been done and must now be mitigated. The Financial Times identified 16 people who acquired citizenship in Malta despite being PEPs or who were later sanctioned or committed crimes. There is a long road of risk ahead before the impacts of CBIs and RBIs are entirely mitigated.
If you’re not sure that your controls are robust to identify and mitigate CBI/RBI risk, get in touch with DCM about our thematic review and assurance work. We have dedicated experts to cover off the big risks in the right ways with sustainable, long term solves that will save you time and reduce exposure.
Written by
Regulatory Advisor @ DCM
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