How due diligence checks applicants applying for EU golden visa and citizenship by investment programs? Please find below the vetting procedure and backgrounds involved.

Security checks is the most important subject form the heart of the citizenship and residence by investment industry.

More than 90% of the checks involved is in due diligence process of screening applicants, keeping compliance officers, hard at work behind the screens.  Due diligence is one topic that keeps the integrity of the citizenship and residence programs from unscrupulous persons who think they can game the system.  This subject is ever-evolving, and the security experts are hard at work. To us, compliance experts working behind the screens are the real heroes, deserve lot of praise for keep the Cbi/Rbi industry intact from collapsing.

These findings are published by the European commission report on investor citizenship schemes in 2018, probably will give insights to general public.  A deep understanding into the security checks done by authorities sometimes can reduce bad or negative media publicity from the media.

1. Security Checks

Security checks are triggered by the information provided by applicants regarding their background. Although not all Member States use the common denomination of ‘clean criminal record’ for such information, for the purposes of consistency this term is used in this Study to refer to all documents provided by applicants to prove that they do not pose a threat as described above. Security checks encompass a variety of processes from checking the presented criminal records with the authorities that issued them, to checks in national and international databases (e.g. Schengen Information System (SIS), EUROPOL, INTERPOL), and interviews with the applicant. The term ‘security checks’ is hence used to refer to all these different processes.

Checks on criminal records are a standard element of all naturalisation procedures and for investor schemes this is no different. The competent authorities (and, where applicable, non-public bodies) must always carry out security checks in investors’ schemes; however, the way in which they carry out such checks is highly discretionary and guidelines or legislation on how to carry out checks is scarce. Therefore, details obtained for the purposes of this Study are limited. In all three Member States, checks are carried out to ensure that applicants and their dependants are not a potential threat to national security, public policy or public health. What is set out below is based on analysis of legislation and information obtained through the consultation of national stakeholders. While the Study identified that such checks are carried out, it was not able to identify for example how a person is identified as a threat to national security.

Malta

In Malta, the checks on the criminal background cover the main applicants and their dependants over 12 years of age. The checks are carried out on the basis of police records from the Maltese police and/or from the competent authorities in the country of origin and in the country or countries of residence where the applicant has resided for more than six months during the last ten years. The requirement to prove a clean criminal record may be waived in exceptional circumstances, where the competent authority considers such a certificate impossible to obtain. In those cases, a sworn affidavit from the applicant and any dependants, declaring a clean criminal record, will suffice.

The Maltese authorities consult the INTERPOL and EUROPOL, databases as part of a four-tier due diligence process covering: know-your-client due diligence checks by the agent and Identity Malta’s IIP unit (see below ‘checks on the source of funds’); clearance by the police authorities; a check for completeness and correctness of the application and verification of the documents submitted; and an outsourced due diligence check whereby Identity Malta commissions two reports from international companies on every IIP application.

Cyprus

The Cypriot police prepare a criminal record report on the basis of the information provided by the applicants in their application. While preparing the criminal record report, the Cypriot police search in both EUROPOL’s and INTERPOL’s databases. The investor’s name and family members’ names must not be included in the list of persons whose assets, within the boundaries of the European Union, have been frozen as the result of sanctions. No further information about the security checks was available.

Bulgaria

In Bulgaria, legislation requires the applicant to present a clean criminal record certificate and a document showing that no criminal proceedings are pending or ongoing against the applicant.

The Council for Citizenship gives an opinion on citizenship requests, following a written statement by the Ministry of the Interior and the State Agency for National Security (SANS). The latter carries out checks on all applicants for Bulgarian citizenship (including those applying through investors’ schemes) within the scope of its competence, such as police intelligence or police record databases.

The competences of SANS include counter-terrorism, counter-intelligence, and combatting organised crime and corruption. There is no publicly available information about the exact information databases checked and the internal regulations of SANS – stipulating the specific databases to be checked – are classified. Bulgaria is not yet connected to the SIS

2. Source of funds

Regarding checks on the origin of funds, all EU Member States47 have notified transposition measures for the Anti-money Laundering Directive.

Under this legislation, the obliged entities (inter alia, credit and financial institutions, notaries and lawyers, and real estate agents) must carry out customer due diligence measures, which include identifying the person with whom a business relationship is established (e.g. opening a bank account, money transfers of a certain amount, legal advice provided in carrying out a business transaction such as buying immovable property, etc.), identifying the final beneficiary of such transaction (‘beneficial owner’) and checking the origin of funds. The obliged entities are not compelled (or even encouraged) to communicate this information to the State’s competent authorities; however, they must do so when there is a suspicion that the funds involved in a business relationship/transaction are or might be the proceeds of criminal activity or related to terrorist financing (by filing the corresponding ‘Suspicious Transaction Report’). Obliged entities can do this motu propio or at the request of the State’s competent authorities under the anti-money laundering legislation (Financial Intelligence Units).

Furthermore, Member States must hold adequate, accurate and current information on their beneficial ownership, including the details (nature and extent) of the beneficial interests held, in a central register (‘Beneficial Ownership Register’) which is accessible, inter alia, to the Member States’ competent authorities.56 Therefore, formally, there is no obligation for the bodies involved in carrying out the checks on the origin of funds in investors’ schemes to communicate to the Member States’ competent authorities the results of these checks. However, in practice, such cooperation exists

Malta

Identity Malta is required to verify the source of all funds (Regulation 7(4) of LN 47/2014). The main applicant must confirm that his/her ‘wealth has been obtained from completely legitimate sources, and is not, whether directly or indirectly, derived from the proceeds of criminal activities of any kind’. 57 The main applicant must also submit administrative documentation and bank statements for the account from which funds for the IIP are being remitted. Funds must be remitted from a personal account registered in the main applicant’s name. All information in relation to the source of wealth must be triangulated before a piece of information is considered verified – Identity Malta seeks verification from three independent sources: the applicant and two independent service providers58 and the provisions of the Anti-Money Laundering Directive are applied in verifying the source of funds for the contribution paid into Identity Malta’s account.

Cyprus

Direct cross-reference to the anti-money laundering legislation is made in the Cypriot legal framework on investors’ citizenship schemes. Cypriot Banks’ compliance departments must implement the due diligence measures to verify and validate the origin of the funds used in the investment. This is based on the proof (bank transfer receipts) that must be submitted by all applicants (investor and family members) that the transactions were made through Cypriot banks from a foreign country to the Cypriot bank account of the seller/company/investment fund. The due diligence costs are borne by the applicant.

Bulgaria

In Bulgaria, the checks on the origin of funds (in accordance with the Law on Measures against Money Laundering) is carried out by the Invest Bulgaria Agency, 60 in the procedure to obtain a permanent residence permit61 (which is a prerequisite to applying for citizenship under the investors’ scheme). In such procedure the applicant must provide a declaration on the origin of funds in compliance with the anti-money laundering law. In the application for citizenship, the Citizenship Directorate and the Commission verify whether or not the declaration and checks carried out by the Invest Bulgaria Agency are valid.

3. Personal Interview

Personal interview with the applicant Personal interviews with the applicants are conducted in Bulgaria and may also be required in Malta. In Bulgaria, once the citizenship application is accepted and registered by the Bulgarian Citizenship Directorate, the applicant is interviewed by a member of the administration of the Minister of Justice, provided that all necessary documents have been submitted

In Malta, it is not a requirement that the applicant be interviewed but it can be recommended by the concessionaire and/or considered by Identity Malta on a case-by-case basis. The procedures for personal interviews are determined by Identity Malta.

4. Risk Tools

Tools to carry out the checks Only Malta has developed specific tools to carry out the checks. Identity Malta has developed an internal risk matrix based on its experience since the start of the IIP. The matrix is based on seven elements:

(i) identification and verification (how the applicant’s identity has been established and verified);

(ii) the applicant’s business and corporate affiliations;

(iii) whether the applicant is a politically exposed person or has been on a sanctions or watch list;

(iv) establishing how the applicant has accumulated his/her wealth and the origin of the funds for financing the application;

(v) the applicant’s reputation (observed through open source intelligence, reports and on the ground intelligence);

(vi) legal and regulatory matters such as charges or convictions for offences;

(vii) analysis of the applicant’s activities and their impact on his/her immediate network and society in general

5. Ex-post checks

None of the three Member States provide for ex-post checks. They do, however, provide for the revocation of citizenship in certain cases.

In Bulgaria, citizenship may be revoked if the data or facts provided in the application for Bulgarian citizenship are untrue and/or the beneficiary has concealed data or facts which, if known, would be grounds for refusing to grant Bulgarian citizenship, and/or has not maintained the investments for at least two years from the date of naturalisation (fast-track scheme only). However, citizenship can only be withdrawn within the first ten years after the acquisition of Bulgarian citizenship, unless the data and the facts refer to the person’s participation in terrorism and provided that the person does not remain stateless.

Likewise, in Cyprus, if a criterion, term or condition of the scheme has been breached, the naturalisation granted may be revoked. The competent authorities thus carry out periodic checks to ensure that the conditions required for the issuance of the Naturalisation Certificate are maintained after the foreign investor has obtained Cypriot citizenship.

In Malta, the Minister responsible for identity management (see competent authorities below) may deprive IIP beneficiaries of their citizenship if they fail to comply with any investment requirements, become a threat to national security, or are involved in conduct that is seriously prejudicial to Malta’s vital interests.

7. Genuine Link

Genuine link requirement As set out in the introduction, naturalisation procedures involve the fulfilment of criteria, which attest the individual’s ‘genuine link’ or ‘genuine connection’ to the State in question. Nonetheless, despite the existence of the ‘genuine link’ requirement, there are no concrete norms in international law as to the precise naturalisation criteria that constitute such a link.

As a consequence, each State develops naturalisation procedures and conditions in view of what it considers a sufficient connection for the different types of applicants. Furthermore, certain conditions may be explicitly referred to as the ‘genuine link’ in the national law, or the notion may be broadly defined, or it may not exist in the legislation per se (but, rather, it is assumed that any past or presumed relationship the individual has had with the State itself constitutes a ‘genuine link’).

In granting citizenship to investors, Bulgarian legislation does not require the foreign investor to prove a ‘genuine link’.

In Cyprus, the Cypriot authorities maintain that a genuine link can be established on the basis of economic interests of foreign investors directly related to the Cypriot economy, thereby creating a strong bond between investors and the Republic of Cyprus.

In Malta, applicants are encouraged to establish links with Malta depending on their particular situation, for example, opening a bank account in Malta or applying for a Maltese driving licence, and the Approved Agents can make introductions to Maltese entities relevant to the applicant’s experience, e.g. an investor from the football world could be introduced to local football clubs. Checks on these voluntary links may take place at the final stage of the process, after the issuance of the Letter of Approval in Principle and before the applicant can take the oath of allegiance. There is however no requirement in Maltese legislation in this regard.

Please refer to factual analysis of European commission report for more details.