News

A largely overlooked provision in the European Union’s latest batch of anti-money laundering standards may place a new burden on compliance officers, say analysts.

The provision, which is found in an annex to the bloc’s Fifth Anti-Money Laundering Directive, or 5AMLD, requires EU nations to ensure that financial institutions, attorneys, realtors and other regulated firms and professions consider viewing applicants for immigrant-investor visas as high-risk clients who warrant enhanced due-diligence.

Several EU countries offer “golden visas” with minimum investments ranging from €250,000 to more than €10 million. The programs have drawn criticism in recent years for allegedly providing criminals outside the European Union a path to avoid meaningful due diligence and funnel suspiciously acquired assets into the bloc.

Manfred Galdes, former head of Malta’s Financial Intelligence Analysis Unit, told ACAMS moneylaundering.com that the standard set by 5AMLD will challenge banks, which, absent a voluntary declaration, often have no way of knowing whether their clients have applied for an immigrant-investor visa.

The reluctance of many governments to disclose the names of golden visa applicants or the nature of their proposed investment further compounds due diligence efforts.

“It’s definitely a problem,” Galdes, now an attorney with ARQ Group in Birkirkara, said. “Banks will have to ask: ‘Do you have one passport, two passports, are you applying for second citizenship?’—ultimately they will have to rely on a declaration by the client.”

Rules currently governing immigrant-investor visa programs vary throughout the European Union.

Foreign nationals must invest a minimum £2 million in government bonds or “active and trading” companies in the United Kingdom, where, according to Transparency International, 60 percent of all “Tier 1” visas issued since 2008 went to Chinese or Russian nationals. The Home Office reviews the applications, and applicants must open a U.K. bank account.

Applicants for golden visas in Portugal must also hold a domestic account, and their bank must notify the visa issuing authority that they have undergone due diligence and made the required investment of either €1 million in Portuguese firms, an investment leading to the creation of 10 jobs or an acquisition of at least €500,000 of property.

In 2015, Portugal initiated regular auditing of the program after investigators linked it to a corruption scheme involving the country’s former immigration chief, former interior minister and several other individuals.

“Banks are the only entities that do the due diligence and I do think the authorities should have a more important role,” Alexandra Mota Gomes, an attorney at PLMJ in Lisbon, said. “In the future, lenders will have to do stronger checks on clients—their reputation, family and even close business partners.”

Cyprus, which has raised more than €4 billion through its golden visa and passport scheme since 2013, requires applicants for citizenship to invest €2 million in property, companies or government bonds but does not require them to live on the island.

Russian oligarch Oleg Deripaska, whom the U.S. Treasury Department blacklisted in March, and Ihor Kolomoyskyi, a Ukrainian businessman accused of defrauding his former company, PrivatBank, out of almost $2 billion, both obtained EU passports from Cyprus in exchange for investments, according to leaked records cited by the Guardian in March.

In May, Cyprus rolled out new vetting procedures for applicants and capped the number of golden passports awarded each year at 700. Officials also introduced a new code of conduct for service providers involved in helping wealthy individuals apply.

The new AML directive, which member states must implement within 18 months, also requires that banks automatically apply enhanced scrutiny on clients from high-risk countries, including by identifying the beneficial owners of legal entities, determining sources of income and obtaining the approval of a senior manager to open an account or continue the relationship.

But similar scandals have occurred in the United Kingdom, Malta and Hungary, leaving critics questioning whether 5AMLD goes far enough specifically towards closing some of the most common loopholes of investor visa programs in the bloc or leaves too much open to interpretation by member states.

“The provision would provide insufficient anti-money laundering safeguards,” Laure Brillaud, AML policy officer at Transparency International in Brussels, wrote in an email to moneylaundering.com. “It places overreliance on banks and [other] intermediaries to make the necessary AML checks while ultimate responsibility should be borne by [national] authorities.”

Moreover, the minimum standard prescribed by 5AMLD only covers clients applying for a visa or passport by investment, leaving banks to decide whether or not they should continue viewing successful applicants as high risk for money laundering and other financial crimes.

“It seems strange that a person would be considered higher risk at the application stage, but no longer when they acquire citizenship,” Galdes said. “If that’s the case, the EU institutions are inconsistent in presenting us with this text.”

The provision also does not explicitly require financial institutions and other AML-regulated entities to conduct enhanced due diligence on golden visa applicants.

“However, it is reasonable to expect that certain banks will adopt a ‘rather safe than sorry’ approach by categorizing such individuals as high-risk even after they’ve become visa holders or naturalized citizens,” George Pelaghias, an AML lawyer with Chr. G. Pelaghias & Co in Larnaca, Cyprus, said.

Much depends on how EU nations implement the standard by the European Commission’s deadline of January 2020.

“Piecemeal, country-by-country reform doesn’t cut it when you’re selling freedom of movement to a whole union,” Naomi Hirst, a senior campaigner with Global Witness in London, said. “Unless we have harmonized standards across the EU, there will always be a race to the bottom on due diligence.”

Pressure from advocacy groups and European lawmakers has spurred the Commission to launch a formal review of immigrant-investor visa programs. The executive branch is due to publish its findings in November, and possibly recommend stronger program requirements for national governments.