IMF has published an article on the financial integrity risks associated with citizenship by investment programs running in several countries. As countries closed their borders to slow the spread of COVID-19, a second passport became an ever-more-desirable commodity
CBI programs have generated large inflows, which can have a significant economic and fiscal impact. Some countries have used these programs to replenish their coffers after natural disasters.
“If the risks are not properly managed, countries that offer these programs can suffer reputational damage, affecting their economic and financial stability and worsening inequality”, said IMF
IMF has advised members on the financial integrity risks of such current and past programs in Article IV consultations for Comoros, Cyprus, Dominica, Grenada, Malta, St. Kitts and Nevis, and St. Lucia.
Countries should clearly understand the risks.
Before launching or continuing with citizenship-by-investment programs, authorities should carefully assess the costs and benefits, including their own capacity to manage the financial integrity risks. Are the application, monitoring, and revocation procedures robust? How effective are the supporting mutual legal assistance, tax information exchange, and anti-money-laundering and counter-terrorism-financing frameworks? Such risk assessments should be ongoing to respond to changes in the environment.
Authorities should ensure that there is robust vetting of applicants.
Government agencies or third parties responsible for processing golden passport applications should carry out rigorous background checks on an ongoing basis, including by checking with the home authorities of applicants and consulting databases of sanctioned and politically exposed persons. Agents who handle applications must exercise appropriate due diligence regarding their clients, establish the legitimacy of their sources of wealth and income, and report suspicious activity. Applicants should not be admitted without thorough vetting. All sectors and agents involved should be supervised for compliance with anti-money-laundering and counter-terrorism-financing requirements.
Authorities should consider enhanced measures for transparency and oversight.
One way to do this is to publish the names of successful applicants. This can in turn be useful for banks and other businesses when they need to conduct due diligence on their clients and for authorities carrying out investigations. Another way is to ensure that the passport and other citizenship documents issued indicate that these are golden passports. Authorities should also consider periodic public audits to ensure that the proceeds of the program are used for their intended purposes.
Countries could consider a regional approach to level the playing field.
A coordinated approach among countries with golden passport programs can help discourage criminals from shopping around for citizenship and prevent a race to the bottom. Effective arrangements for information sharing, standardizing best practices, and enhancing the transparency of the processes for granting (and revoking) citizenship can strengthen safeguard mechanisms. Pooling of resources can reduce costs and establish consistent regional due diligence, monitoring, and enforcement practices.
Golden passports grant all the privileges of a country’s citizenship. Ultimately, the decision to grant citizenship is up to each country
Ultimately the bestowal of citizenship is a government’s sovereign decision.
– IMF
The full article is available here
