Investment migration (IM) is now a multibillion-dollar industry. What started as a niche product for small developing states has bloomed into a structured industry. Nonetheless, there are aspects that require scrutiny and, perhaps, a greater degree of regulation.
Typically, within the world of IM there are two main licensed structures: The local (submitting) agent and the (international) marketing agent. These are tasked with the two main arms of a standard CBI program: Processing, and Marketing (Sales). Among Caribbean programs, local agents submit applications to the respective CBI units, who review and issue the final verdict on applications. This step in the application process is governed by quite strict regulations and there is a semblance of structure.
Most CBI programs also regulate their international marketing agents (promoters) who, in most cases, must obtain authorization from each of the various programs they promote internationally to engage in that activity. Notwithstanding, hundreds of unlicensed international CBI marketers engage in the promotion of CBI programs. A cursory perusal of the web sufficient to note the scores of firms that offer investment migration services without holding the requisite licenses.
The authorities of the respective CBI countries can exert only limited control over who does and does not promote their program in far-flung locations across the globe. Even when such unlicensed marketing activity is discovered and reported, program authorities have little recourse beyond blacklisting the rogue operators (the Saint Kitts & Nevis CIU has blacklisted 12 firms), a sanctioning mechanism that is, in any case, easily subverted.
At first glance, this unsanctioned promotion may not seem like a big problem that severely affects the process’ integrity because, in any case, even applications originating from offending firms are ultimately submitted via the more tightly controlled local agents.
More troubling, however, is that unlicensed promotion poses a serious threat to the credibility and image of CBI programs and can cause both inflated prices and (more commonly) downright illegal discounting. In many cases, it also precipitates the delivery of flawed applications that unnecessarily lengthen the application process and, in turn, harm the program’s reputation for timely adjudication. Such ungovernable entities also have a tendency to spread inaccurate information about programs.
Hundreds of people are victims of CBI scams each year. Some make investments into programs that don’t even exist. Others transfer the investment amounts to agents that exist entirely online and who, upon receiving payment, are never heard from again.
In 2018, for example, a group of confidence tricksters set up a number of offices around Istanbul from which they sold “up to one thousand” fake Montenegrin passports to credulous buyers for EUR 7-12,000 each.
In October 2013, the United States Securities and Exchange Commission was forced to issue an investor alert to warn investors about fraudulent scams exploiting the EB5 program. Among the SEC’s recommendations to applicants were that they always confirm in advance that the project into which they were investing had actually been designated by the USCIS as a regional center and to request to see the Form I-924 approval documents.
Investment migration may do well to take a stricter approach towards the issuing of licenses for its agents and to take firm measures against any unlicensed entities or operators. But the enforcement capacity of small-island jurisdictions is only so great.
One mitigative step is the European Commission’s recently announced plans to include investment migration practitioners as so-called “obliged entities” in its upcoming 6th Anti-Money Laundering Directive, the provisions of which would be transposed into the national laws of individual member states.
Should investment migration practitioners and firms become obliged persons or entities, they would be compelled by law to prepare “internal policies, controls, and procedures to mitigate money laundering risks”, including such procedures and controls as:
- Customer due diligence
- reporting and record-keeping
- compliance management
- employee screening
- employee training
The IMC has welcomed the development, questioning only the Commission’s decision to consider only residence by investment practitioners while not extending the same requirements to citizenship by investment, a practice the Commission believes unconscionable and is therefore not even willing to recognize in its AML6 directive.
David Lesperance has argued that even if this takes effect, which he believes would not, in any case, happen until several years from now, it would not make a big difference for leading RCBI firms, in part because they already operate with strict internal due diligence procedures on their own initiative:
Whether a large or boutique RCBI firm, having a quality AML/CDD program is just good business.
In the real world, we cannot expect governments or review committees to police the internet or even the marketplace for fraudsters. But there are a few simple solutions that can be used as an alternative, such as each respective program implementing measures to educate investors as to the proper methods and channels of investing and the use of fraud hotlines where strange activity can be reported. Once perpetrators are identified they could be made to feel the full extent of the law.
As the industry continues to expand all measures should be taken to mitigate fraud, which – if left unchecked – may fester and grow into an existential threat.
Mr. Nicholson has held diplomatic positions from the Caribbean countries to the Russian Federation. He is a Leading Immigration expert on Caribbean Programs at Migronis. In addition, at present, he is a Special Economic Envoy of Antigua and Barbuda to the Russian Federation.