Eur. Commission Aims to Make Investment Migration Firms “Obliged Entities”: IMC Reaction

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On July 20th, the European Commission presented proposed legislative changes to its AML/CFT framework, which, if adopted, would apply to all EU member states. The proposal seeks to expand the range of entities defined as “obliged entities” to include, for the first time, investment migration practitioners.

The legislative package includes proposals for a 6th Anti-Money Laundering Directive (AML6), the provisions of which would be transposed into the national laws of individual member states.

The proposal reads:

The range of entities defined as Obliged Entities under current EU AML/CFT legislation and thus subject to EU AML/CFT rules is amended in the following ways: […] operators involved on behalf of third country nationals in the context of investor residence schemes are added […]

What obligations do obliged entities have?

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

Firms are also compelled to appoint a compliance officer or department to monitor procedures and to have internal policies tested by independent auditors.

Effectively, IM firms would be under the same set of compliance and reporting obligations as financial services institutions, tax advisors, accountants, notaries, and so on.

How does the proposal define investment migration operators?

Essentially, anybody representing a third-country national vis-à-vis EU member states for the purpose of obtaining residence permits in exchange for investment:

Investment migration operators are private companies, bodies or persons acting or interacting directly with the competent authorities of the Member States on behalf of third-country nationals or providing intermediary services to third-country nationals seeking to obtain residence rights in a Member State in exchange of any kind of investments, including capital transfers, purchase or renting of property, investment in government bonds, investment in corporate entities, donation or endowment of an activity contributing to the public good and contributions to the state budget.

Note that the European Commission proposes to exclude from the legislative package those working with citizenship by investment programs, not because it considers such schemes any less problematic but because it considers CIPs, as such, illegitimate:

This Regulation should not apply to investor citizenship schemes, which result in the acquisition of nationality in exchange for such investments, as such schemes must be considered as undermining the fundamental status of Union citizenship and sincere cooperation among Member States.

IMC believes Commission should regulate more

Reacting to the legislative proposals, the Investment Migration Council issued a statement saying it welcomed the proposal:

“We welcome that the proposal of the European Commission to regulate the operation of investment migration and to create strict common standards for all parties working in the field of investment migration are largely in line and come very close to the recommendations made in the Second Report published by IMC,” the statement reads.

“Notwithstanding the strong efforts of the IMC to enforce the recommended standards in the field, the lack of regulation on international or supranational level has prevented the full implementation of the recommended standards so far. The IMC, therefore, proposed on numerous occasions to work together with the EU, as well as with other relevant organisations, towards the strengthening of the minimum due diligence standards and regulation of investment migration. To that end, the IMC welcomes the proposal of the European Commission for regulation of residence by investment.”

Though lauding the proposed imposition of compliance standards on residence by investment practitioners, the IMC said it was disappointed the regulations would not extend to CIP practitioners as well:

“It is disappointing, however, that the European Commission decided not to propose regulation of citizenship by investment. The IMC’s position is that both citizenship and residence by investment should be effectively regulated to prevent the risks inherent to these programmes.”