The citizenship by investment industry has afforded high-net-worth individuals and their primary dependents to enhance their global mobility by investing in countries that offer citizenship by investment. The newly naturalised citizens can apply for a second passport and use it for improved leisure travel, access to medical treatment abroad, and even live, work or study in their new country. 

The process to be eligible to participate in citizenship by investment program legally requires its potential investors to undergo due diligence. In some cases, it is necessary to complete multiple tiers of due diligence. The numerous steps ensure that the investor and the financial information undergo scrutiny to mitigate potential risks.

What is Due Diligence in Investment Migration?

The Importance of Investment Migration Due Diligence

The country’s Government approves citizenship by investment programs. There are multiple parties involved in the process.

Why is Due Diligence Required for Investors? Who are the Outside Parties Who Take a Keen Interest in the Process? Is it Necessary?

Although countries use citizenship through investment programs to raise funds and secure foreign investment into their country, they cannot allow anyone to become a citizen. They need to ensure that newly awarded citizens are not involved in illegal activities. 

For one, they want to avoid potential criminal acts in their country. Secondly, geopolitics is essential for the country’s growth and international relationship. If the Government awards citizenship to someone who can now travel without obtaining a visa to the European Union, or the United Kingdom, this carries additional risk. The due diligence process has become increasingly challenging to bypass individuals. There is a high-level investigation conducted in modern citizenship by the investment world to ensure the individual’s legitimacy and the information they provide for their application. 

There are several reasons for the increased level of due diligence. In 2020, a document leaked exposed nefarious activity between the applicant for their program and high-ranking government officials and experienced legal practitioners. Applicants who otherwise would have failed the due diligence investigation were approved and allowed to obtain a Cypriot passport. Cyprus is a full EU member state, allowing its citizens to live, work and study anywhere in the Union. The program was duly cancelled soon after the harmful exposure and four people are currently facing prosecution.

The European Council and EEA specifically have taken a keen interest in the due diligence processes in countries that offer citizenship by investment programs. The council severely pressured Vanuatu to improve its structures and procedures to vet their potential investors properly. The Government needed to improve processes, and subsequently, the country lost its visa waiver agreement with Europe’s Schengen zone. It is currently permanently suspended.

The Structure of a Due Diligence Process

Do I have to undergo stringent due diligence if I want a Golden Visa, not immediate citizenship or a passport? Are they the same?

It is necessary to distinguish that the due diligence investigation for citizenship by investment is vastly different to standard residence applications and even Golden Visa programs. The level of due diligence on residence typically only requires proof of funds and police clearance certificates. There will be several years before the resident is eligible for citizenship. Time allows the authorities to understand their residents through tax returns and return visits to government offices over several years.

What is Due Diligence in Investment Migration?

Due diligence for citizenship by investment is very different. The process involves a thorough investigation or audit of a person and their associates to ensure their authenticity. Legal due diligence is a step needed to be completed before any approval of citizenship. For this reason, prospective investors need to understand that there are no alternative options to this step.

I urgently need my second passport for business travel. I understand the process is necessary, but how long does Due Diligence take to complete?

Due diligence is considered the most critical part of CBI immigration law. The due diligence investigation focuses on keeping criminals from applying for passports. Most of the work involved in the investment process for citizenship is for conducting due diligence.  Proof of funds and financial statements is one of the top priorities for the investment process to be completed. That might include reviewing background content and verify information, personal investments and company financial statements, and environmental issues with company activities. Other factors look at existing legal matters, tracking money flows through cash flow statements, detailed terms on agreements which draw attention to investigators, and information on the company’s management. 

Who handles my due diligence process? Is there a process to provide additional context to my submission?

Specialised internal units or unique external vetted third parties take two to three months to review documents and ensure a fundamental analysis, follow-ups to ensure their legitimacy, and generate a comprehensive report on potential investors. It is critical that the potential investors only submit accurate information to the due diligence teams. If the team determines that some financial information needs to be clarified, they will ask the potential investor to verify the information by conducting an interview. The investor may remotely attend the interview, and the due diligence team uses this process to mitigate risk further.

Is the cost included in the investment cost of my application? How much does Due Diligence cost?

The cost varies depending on the program that the investor wants to participate in. The cost for the due diligence process is an additional cost to the prospective investor. It is not part of the original investment deal. Typically the cost will be between $5,000 to $10,000 for the primary applicant for citizenship programs in the Caribbean, including St Kitts and Nevis, St Lucia, Grenada, Dominica and Antigua and Barbuda.  European programs such as Malta’s Exceptional Investor Naturalisation (MEIN) will cost the primary prospective investor €15,000 and each qualifying dependent €10,000. Montenegro’s process costs €7,000 and €3,000 for a spouse.

What is Due Diligence in Investment Migration?

What are the stages of the due diligence process? Do they vary from Program to Program?

Potential investors need to disclose relevant information to ensure successful due diligence. There are a few different styles of due diligence depending on the program. The three stages of due diligence involve verifying facts using a fundamental analysis of the information provided. 

The first process is an initial due diligence investigation (IDD). The approved agent working with the investor will conduct this first due diligence check after an initiation fee has been paid. The assessment is relatively high level, and the agency will determine what level of risk might be involved by doing business with the potential investor going forward. Focus is placed on the financial aspects during this due diligence stage. Although they do not have the resources for a deep dive into areas such as environmental issues or legal matters in a business, they need to ensure a good level of investigation. The agency’s reputation may be damaged if they consistently send clients who are rejected during the more rigorous due diligence. 

After the initial clearance from the agency team, they will build a case file for the investor, including the documents expressed above. This enhanced due diligence (EDD) will be conducted by the citizenship investigating unit or an approved third-party investment due diligence team.  The enhanced due diligence approach will try to ensure that the financial information regarding the cash flows and proof of funds are legitimate. Passing this check more than often leads to successful due diligence.

An area of constant improvement is investigating politically exposed persons during due diligence. Investors must disclose close political connections, especially if they are involved in countries on red lists and might have trade embargoes. Depending on what is found, the investor may be called for an interview for additional financial information.

If cleared of financial steps involved, the Government will approve the deal on the applicants investment decision. However, over the next few years, the Government will have some form of ongoing due diligence. The Government or investment due diligence agent will periodically evaluate the citizen over the next few years to ensure the relationship is positive.  The industry has seen citizenships and passports retroactively revoked if citizens are involved in illegal activities. Governments can deal with citizenship in any way they please if going through the proper channels and can award, but equally can take away citizenship at any time.

What is Due Diligence in Investment Migration?
What is Due Diligence in Investment Migration?
Investment in Real Estate is a significant way to build Long-Lasting Wealth.

Citizenship and Residency by Investment programs help to obtain invaluable advantages such as Safety, Global mobility, and a Higher Standard of Living.

We combine these two powerful instruments to create a tailor-made Wealth&Life strategy for every client to be implemented through an intelligent investment portfolio.

Natalie Fridlender,
Managing partner Global Citi-Zen

What Does the Future of Due Diligence for Citizenship by Investment Hold?

The scrutiny placed on citizenship by investment processes is understandable. No one should receive citizenship when they fail or should fail a due diligence investigation. Malta’s Exceptional Investor Naturalisation (MEIN) has been the benchmark for its due diligence. It is something that other programs will either strive to reach. The Mediterranean island does not allow a third party to conduct their due diligence process. The Government has their own Community Malta Agency (CMA) to be wholly responsible for due diligence. The CMA will investigate each applicant and complete every due diligence and verification for Malta’s program. 

The CMA developed a four-tiered due diligence triggered at various stages of the MEIN due diligence. On top of the four tiers, the CMA will follow a checklist with seven risk categories. The team builds a comprehensive report which the Minister reviews before making a decision. One in four applicants does not pass the MEIN due diligence investigation. 

The seven categories for the risk matrix include:
  • Identification and verification
  • Business and corporate affiliations
  • Politically exposed persons
  • Source of funds, investments and wealth
  • Reputation
  • Legal and regulatory matters
  • Relative impact on the primary applicant’s immediate network.

There are constantly changing external geopolitical factors that can influence how my existing citizenship is perceived. How do I prepare for due diligence with this in mind?

Being prepared for the investment due diligence process does require some work on the client side. Although it can assist a lot, the agency will only be able to obtain some information needed to submit a case file for due diligence. There is no need to exaggerate financial statements, cash flow performance, profit margins, investment ideas, or inflating assets. Having leveraged market positions might raise red flags as well. 

The agency will assist their clients and applicants in providing clear instructions on which documents need to be submitted. Submitting documents promptly allows the agency to collate them systematically, making it easier for the due diligence team to deal with. After submission, the citizenship agency will be the first port of call for any engagement with the due diligence team reviewing the case file. They will act in their clients best interest to ensure a smooth process and only engage their client if absolutely necessary. 

Our agency has a high level of expertise in the investment due diligence process and has an incredibly good success rate for successful applicants. If you need to know more about the due diligence investigation contact us now.