Financial Action Task Force FATF Highlights Misuse of Citizenship & Residency by Investment Programs Including Being Used by Criminals & Corrupt Officials to Evade Justice & Launder Proceeds of Crime Amounting to Billions
14th December 2023 | Hong Kong
The Financial Action Task Force (FATF) has highlighted the misuse of Citizenship & Residency by Investment Programs including being used by criminals & corrupt officials to evade justice & launder proceeds of crime amounting to billions. FATF: “Citizenship and residency by investment (CBI/RBI) programmes are government-administered programmes that grant citizenship or residency to foreign investors by expediting or bypassing normal migration processes. These programmes can help spur economic growth through foreign direct investment, but they are also attractive to criminals and corrupt officials seeking to evade justice and launder the proceeds of crime amounting to billions of dollars … … The report highlights how CBI programmes can allow criminals more global mobility and help them hide their identity and criminal activities behind shell companies in other jurisdictions. It highlights the vulnerabilities of these complex and international investment migration programmes, including the frequent use of intermediaries, involvement of multiple government agencies, abuse by professional enablers and lack of proper governance of the CBI/RBI programmes. The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog.” More info below | View report here
“ Financial Action Task Force FATF Highlights Misuse of Citizenship & Residency by Investment Programs Including Being Used by Criminals & Corrupt Officials to Evade Justice & Launder Proceeds of Crime Amounting to Billions “
FATF President T. Raja Kumar: “Granting citizenship and residency to wealthy investors through ‘golden’ passport and visa programmes can potentially lead to economic growth. But they can and are being exploited by criminals and the corrupt, who want to launder their money hide their identity and assets, or carry out further crimes. This report calls on governments operating these programmes to implement a variety of safeguards to ensure these programmes are administered in a risk-sensitive way.”
OECD Secretary-General Cormann: “Criminal exploitation of citizenship and residency programmes is a multi-billion-dollar business to launder the proceeds of fraud and corruption, evade justice, or access third countries. Our joint FATF-OECD work identifies the risks and vulnerabilities around golden visa schemes and offers a series of mitigation measures to help policy makers and programme operators including appropriate due diligence, transparency, and integrity mechanisms.”
Use of CBI to Purchase Foreign Real Estate – The price paid by foreign investors to purchase real estate property for the purpose of obtaining the Cypriot nationality was well above their estimated market values. This higher price paid was in line with the provisions of the citizenship by investment program. The funds were transferred from a foreign bank account to the local developer’s account. Subsequently, it was observed that the developer (seller) would return part of the funds to a foreign bank account, back to the foreign investor. Therefore, the foreign investor had in fact invested a lower amount than required under the CBI program.
Investment in Illegitimate Projects – Investors buy into property developments where either the funds are misappropriated or are never invested in the first place. In Saint Kitts and Nevis for example property developers collected funds from investors but in return either left the project incomplete or did not begin work on the project at all. In response, Saint Kitts and Nevis implemented an escrow account policy that requires investments are drawn down over time. St Kitts and Nevis was then able to ensure all required funds are monitored and that drawn down of funds from the programme is aligned with project development. The UK has detected several abusive non-genuine investment schemes that sought to simulate investment for a fee. In one case a husband-and-wife team enabled clients to simulate £1million investments into the UK. The scheme organisers did this by taking loans from one UK based lending company controlled by the husband on condition the funds were passed to another UK company controlled by the wife. The UK company that received the investment then made onward investments with the funds into companies outside the UK. At no point were applicants ever genuinely in control of the funds. This service was provided to applicants for a fee of GBP 200 000 per applicant.
Money Merry Go Round Scheme – A later similar scheme simulated a £2 million investment for a fee of GBP 400 000. A wealth manager used a complex series of transactions between offshore and onshore companies all controlled by managers at the wealth management firm and their proxies to create the impression of investments into UK companies by applicants. In practice the wealth manager simply re-cycled funds between the onshore and offshore companies without the applicant ever actually placing more than the GBP 400 000, service fee into the scheme. When the wealth manager operating the scheme was inspected by the regulator the firm was also found to have serious wider failings in its money laundering controls.
Laundering Funds Involving Defrauded Investors – In November 2017, an attorney pleaded guilty to federal fraud and money laundering charges for participating in a multi-faceted scheme that collected more than USD 50 million from foreign investors seeking “Green Cards” through the EB- 5 visa programme. The attorney admitted that she exploited the EB-5 visa program, which provides lawful permanent residence – commonly known as a “Green Card” – to foreign nationals who invest at least USD 500 000 in a domestic business that creates 10 new American jobs. The Attorney admitted that much of the money collected by the investment company from the primarily Chinese investors was either stolen by the conspirators or refunded to the foreign nationals. This undermined one of the basic principles of the EB-5 programme because the money was not actually invested in the United States, nor did it lead to the creation of 10 new American full-time jobs, as required under the programme. The attorney further admitted that she fraudulently used hundreds of thousands of dollars in EB-5 investor funds to purchase homes in her name, including residential properties worth nearly USD 1 million each.
Financial Action Task Force FATF Highlights Misuse of Citizenship & Residency by Investment Programs Including Being Used by Criminals & Corrupt Officials to Evade Justice & Launder Proceeds of Crime Amounting to Billions
22nd November 2023 – Citizenship and residency by investment (CBI/RBI) programmes are government-administered programmes that grant citizenship or residency to foreign investors by expediting or bypassing normal migration processes. These programmes can help spur economic growth through foreign direct investment, but they are also attractive to criminals and corrupt officials seeking to evade justice and launder the proceeds of crime amounting to billions of dollars.
In response to the FATF Ministers’ call in April 2022 for greater focus on corruption, the FATF completed a joint project with the Organisation for Economic Co-operation and Development (OECD) that explores the money laundering and financial crime risks associated with CBI/RBI programmes, including risks related to foreign bribery, fraud and corruption, and their impact on public integrity, tax and migration.
Properly managed, CBI or RBI programmes can benefit both host countries and individuals, but in practice, such programmes bring significant risks of money laundering, fraud, and other forms of misuse.
The report highlights how CBI programmes can allow criminals more global mobility and help them hide their identity and criminal activities behind shell companies in other jurisdictions. It highlights the vulnerabilities of these complex and international investment migration programmes, including the frequent use of intermediaries, involvement of multiple government agencies, abuse by professional enablers and lack of proper governance of the CBI/RBI programmes.
The report proposes measures and cites examples of good practice that can help policy makers and those responsible for managing the investment migration programmes to address these risks. These include an in-depth analysis and understanding of how criminals can exploit CBI or RBI programmes. It also highlights how Governments can incorporate risk mitigation measures, such as multi-layered due diligence, in the design of their investment migration programmes. The report emphasises that the elevated risks of money laundering and financial crime in these investment migration programmes relates not only to the applicant, but also the professional enablers and intermediaries involved in the process. It is therefore essential to ensure clarity around the respective roles and responsibilities of the various parties involved in RBI/CBI programmes to be able to detect fraudulent activity.
Financial Action Task Force (FATF)
The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. The inter-governmental body sets international standards that aim to prevent these illegal activities and the harm they cause to society. As a policy-making body, the FATF works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. The 39-member body sets international standards to ensure national authorities can effectively go after illicit funds linked to drugs trafficking, the illicit arms trade, cyber fraud and other serious crimes. In total, more than 200 countries and jurisdictions have committed to implement the FATF’s Standards as part of a co-ordinated global response to preventing organised crime, corruption and terrorism. The FATF was established in 1989 and is based in Paris.
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