This article was contributed by Dr Jean-Philippe Chetcuti, Managing Partner at Chetcuti Cauchi Advocates.
Designed to attract foreign investment and fueling countries’ economic growth, the investment migration industry faces increased scrutiny by supranational organizations like the OECD and the EU. Earlier this year, the OECD launched a consultation process to investigate concerns relating to potential tax avoidance practices that could be facilitated through residency and citizenship by investment (RCBI) programs.
This week, the EU Commissioner for Justice, Vera Jourova, announced that European countries offering RCBI programs will come under redoubled scrutiny to ensure that the source of wealth of applicants (in particular for Russian citizens) comes from legitimate and verified sources. While acknowledging that the granting of citizenship “remains within the competence” of individual Member States, the Commissioner stated that the EU Commission can impose tough requirements on countries offering such programs.
In view of such concerns, we aim to mention a few of the fundamental characteristics that a reputable RCBI program must have to be considered legitimate and reputable enough to pass any rigorous requirements set forth by such institutions.
1. A thorough Due Diligence Process
The primary concern expressed by critics of RCBI programs is that applicants with questionable reputations or criminal records could gain access to alternative citizenship due to lack of proper verification.
Taking the Malta Individual Investor Programme (MIIP) as a benchmark, a multi-tier due diligence process is carried out by the Maltese authorities to verify that applicants have a clean criminal record and unimpeachable sources of wealth on a personal and business level. The Maltese due diligence process taps into international databases such as Interpol, as well as international security agencies, and strictly requires applicants to provide detailed information on the source and origin of funds required under the program.
This extensive and exhaustive due diligence process ensures that only reputable individuals and families are accepted.
2. Transparency and Accountability
Increasing the visibility of the outcomes of RCBI programs helps eliminate the speculative and often unfounded negative perception attributed to the industry.
The publication of official statistics on the applicant approvals, rejections, nationalities, and types of investment provides a factual basis for discussion and analysis of the industry’s contribution to the economy. In Malta, the Office of the Regulator for the Individual Investor Programme (ORiip) is tasked to conduct and publish an extensive yearly report on the performance of the program, which is then presented to the Maltese Parliament.
The Regulator also provides feedback and recommendations to the IIP Agency for improvements in the management of the program. This model ensures that the IIP Agency remains accountable to the Regulator and the Maltese parliament while ensuring transparency in the conduct of their activities.
3. High Standards of Ethics and Professional Representation
Regulation of agents and professional representatives of applicants under the program is of utmost importance to maintain a high level of professionalism and work ethic within the industry.
Agent regulation and supervision has been adopted by Malta and very recently also by Cyprus under the revised rules of the program. The setting of standards and minimum requirements for representation of applicants provides an important safeguard for the program and applicants themselves. Appropriate vetting of providers eliminates unwarranted risks that could potentially be taken by individuals or companies operating in an unregulated environment, thus posing a risk to the program and the industry at large.
4. Genuine Link with Country
One of the requirements that the EU Commission imposed on the Maltese government prior to the approval of the IIP was to make sure that prospective citizens would show a genuine connection or link to Malta. This requirement is an essential part of the Maltese investment program and various avenues through which new citizens may establish a link to the Maltese community are available.
Beyond a minimum residency period and a physical address, applicants look at other ways to establish links to Malta, such as through business investments, philanthropy, memberships, and sponsorship of cultural and social causes. Such activities show that the link between new citizens and the country goes well beyond the initial phase of the acquisition of the passport and takes on a personal dimension that is very often actively pursued.
5. Managing Public Perception through Marketing Guidelines
The setting of a code of conduct or marketing guidelines for investor programs provides a framework in which agents and professional representatives can compete within established boundaries while ensuring the program retains a good reputation.
The Maltese government, from the very start, launched a code of conduct as part of the regulatory framework for promoting the MIIP to ensure that marketing efforts remain worthy of the seriousness of the program. Such a model has recently been adopted by the Cypriot authorities to prevent potentially low-quality or misleading information from being distributed by certain agents.
Setting and Maintaining the High Standard
It goes without saying, that any reputable RCBI program must comply with principles of international law and the highest industry standards. With a proper regulatory framework based on the principles discussed above, there is clearly an opportunity for the RCBI industry to continue to grow and facilitate international investments while minimizing risks for countries offering such investment programs.