After the horrific events of September 11, 2001, visa restrictions and travel impediments became increasingly challenging for foreign nationals—domiciled in jurisdictions like, Russia, China, and Pakistan (amongst others)—interested in global mobility, as well as travel and trade into/with the United States, to obtain. This has led countries like Antigua and Barbuda, Dominica, St. Kitts and Nevis and more than 100 other nations, with favorable visa arrangement with the United States, to develop citizenship by investment or residency by investment schemes (CBI/RBI). These schemes enable citizens from high risk countries, where American visas are hard or impossible to acquire, to legally obtain citizenship in these countries within as little as 3 months. Although some of these schemes date back to the 1980’s, it has only recently proliferated to become a significant risk factor in international banking and cross-border investment activity.
The emergence and metastasis of global citizenship-for-sale trends and CBI/RBI schemes complicate anti-money laundering (AML) and Office of Foreign Asset Control (OFAC) sanctions compliance for multinational banks, forcing them to consider strengthening know your customer’s customers rules and procedures, creating stricter controls on transactions generated in, or involving, countries operating these schemes and developing a risk framework to identify, assess and mitigate the risk of dirty money flowing through their accounts.
2. THE CITIZENSHIP-FOR-SALE INDUSTRY
Five years ago, Henley & Partners, the leading international citizenship and residency advisory firm, estimated that global investors collectively spent $2 billion on acquiring citizenships. Today, the industry is estimated to have increased by 50 percent to $3 billion; this trend line is unlikely to change any time soon, these investments are highly attractive to participating nations because the funds undergird, in some cases even drive, economic growth. For example, in 2014, 25 percent of St. Kitts and Nevis’ GDP was generated from the inflow of foreign funds specifically for the purchase of citizenship or residency.
Contemporary international politics and regulatory trends have also played a role in the expansion of these schemes. For example, U.S. economic sanctions on Russian oligarchs—related to the annexation of Crimea—have led prominent Russians, and other nationals, to purchase secondary citizenships of countries like Cyprus or Montenegro. Given the price tag for such an acquisition, the buyers in this industry tend to be sophisticated and well-resourced legitimate, and illegitimate, actors. These citizenships can cost a buyer/investor between $100,000 and $2 million, therefore limiting participation to:
- International High Net Worth Individuals (IHNWIs);
- Politically Exposed Persons (PEPs);
- Professional Money Launders (PMLs);
- Transnational actors, with significant influence and funds (e.g. Drug and Human Traffickers).
To that end, the Organization for Economic Cooperation and Development (OECD) released a report on November 20, 2018, naming 16 countries as threats to the global effort to combat economic crimes, such as tax evasion. In the report, the OECD urged financial institutions to conduct enhanced due diligence related to customers claiming citizenship or residency in these jurisdictions through CBI/RBI schemes. Questions such as:
- Did you obtain residence rights under a CBI/RBI scheme?
- Do you hold residence rights in any other jurisdiction(s)?
- Have you spent more than 90 days in any other jurisdiction(s) during the previous year?
- In which jurisdiction(s) have you filed personal income tax returns during the previous year?
3. RISK EXPOSURE
Multinational banks, with clients on every continent, expose them to various jurisdictions, including, but not limited to, Antigua and Barbuda, Vanuatu, the Seychelles and others. As such, there can be a direct impact on the policies, procedures and controls developed by those banks to mitigate and manage these risks.
The U.S. Department of State’s Bureau of International Narcotics and Law Enforcement Affairs also issued a report in 2018 related to the risk of money laundering posed by various jurisdictions, including those running CBI/RBI schemes. In describing Antigua and Barbuda—one of the CBI/RBI scheme jurisdictions multinational banks are exposed to—the report states:
“Antigua and Barbuda has a very small free trade zone and an offshore financial center, which is an important part of the country’s economy, and operates a Citizenship by Investment Program (CIP) that makes it susceptible to money laundering and other financial crimes.”
Operating in this, and similar jurisdictions, means that a $400,000 real estate investment can potentially expose multinational banks to millions of dollars in illicit funds from money laundering, narcotics, firearms and human trafficking. Citizens from Iran, Afghanistan, Iraq, North Korea, Somalia, and Yemen are prohibited from applying for citizenship unless they are lawful permanent residents of Canada, the United States, or the UK. However, with Russian oligarchs snapping up properties throughout London, by leveraging offshore secrecy loopholes, this raises serious concerns about the viability of these prohibitions in Antigua and Barbuda and other similar jurisdictions. As a result, multinational banks risk exposure to bad actors veiling their true identities, and illicit activity, behind seemingly innocuous citizenships.
Citizenship for sale schemes, therefore, poses an AML and OFAC risk to globally-operation banks. Although these schemes are simple, they remain a serious challenge. As a result, it behooves legal, compliance and risk departments at these global banks to identify and track global CBI/RBI schemes and develop policies, procedures and controls to contain a multinational bank’s exposure to sophisticated money laundering schemes and illicit financial activity potentially facilitated by CBIs and RBIs.
The following are my recommendations:
- Develop and maintain a CBI/RBI risk framework and a risk index; evaluate risk scoring based on a bank’s level of exposure and customer base within the jurisdiction;
- Require correspondent account holders to provide detailed information on customers who are citizens, nationals or residents of these CBI/RBI jurisdictions;
- Analyze specific risk categories including but not limited to, purpose of the account, nature of the customer’s business/occupation, customer’s true residence, and length and duration of citizenship and legitimate lines of business/sources of wealth;
- Enhance country risk ratings, where necessary, to adjust for heightened risk exposure.
- Launch investigative look-back projects to determine transactional risk and historical exposure to create CBI/RBI rules and controls for future cases.
 Antigua and Barbuda; Bahamas; Bahrain; Barbados; Cyprus; Dominica; Grenada; Malaysia; Malta; Qatar; Saint Kitts and Nevis; Saint Lucia; Seychelles; Turks and Caicos Islands; United Arab Emirates; and Vanuatu.