Welcome to the Jungle: Dealing with the Investment Migration Industry’s Bad Apples – by Ralph Dahinden

By Ralph Dahinden
Senior Manager at Henley & Partners Canada

If you wanted to get a sense of what it might have felt like during the 19th century Gold Rush, you need look no further than the modern day Investment Migration (“IM”) industry. As in California back then, opportunists are seemingly welcomed to seek their own nugget of gold with open arms. Unlike the “good old days”, the principal objects of desire now come in the form of high net worth individuals from Russia, the Middle East, or Asia who wish to emigrate to the West.

However, the openhearted attitude of the industry is not due to a lack of specialists. No, the main reason is that there is practically no way of preventing someone with even the smallest amount of knowledge from participating. Any potential agent who is tired of navigating their activities in an overregulated industry can find a comfortable new home within IM.

It is likely that anyone who has had the pleasure of taking Economics 101 is familiar with Porter’s Five Forces. This framework helps businesses analyze and identify their market position, and consider the influences of their stakeholders. A key component of this analysis is to determine the barriers that a new player entering the industry is faced with.

Within IM, these barriers are virtually non-existent. Regrettably, there are no mechanisms in place that would prevent someone with even the most limited web design skills from creating a website offering prospective clients a complete list of IM services. They can claim a full and complete understanding of the application process, paperwork, and timeline, and state that they are “only” dealing with the most successful or experienced service providers.

Furthermore, there are increasing examples of websites which promise passports (no mention of citizenship) from jurisdictions without a government run IM program. Frequently, such agents claim impossible processing times (such as Maltese citizenship within six months). Many of such actors, however, generously offer payments for their services by credit card or PayPal.

As the industry rapidly grows, it is increasingly difficult for legitimate service providers to distinguish themselves from the less scrupulous. This is not a new development. Over the last few years, some of the more established firms have banded together to form associations to implement control standards, and to encourage members to follow “best practices”. The ultimate goal of such associations is to give service providers a basis to demonstrate to potential clients that they are in good hands.

Whilst the motivation behind the creation of such associations is respectable (and overdue) it comes with two major concerns: Firstly, not all influential parties could agree on a single common model, which is why there are now at least two organizations that have tried to establish themselves as the institution with a mandate to oversee and govern the industry. The second concern is more complex; even if a combined effort was possible, dubious service providers would remain in the industry, in the absence of government intervention.

It cannot be expected that Chinese or Russian authorities will begin scouring the internet in order to identify questionable offerings, as such persons who fall prey to these unprincipled actors are already looking for an easy way out. It is therefore necessary for the countries who participate in residence and citizenship by investment to identify practical solutions to prevent fraudulent business practices, including misleading propositions.

In a perfect world the representatives of the destination countries, together with IM industry (association) representatives, would come together to identify what can be done to improve the situation. For the sake of the industry and its reputation, we should hope that this is possible before irreparable damage is done.

Ralph Dahinden