The Office of the Regulator of the Individual Investor Programme in their annual report came out in strong defence against criticisms made about the IIP scheme.
The report, published in December, dealt with the period between 1 July 2018 and 30 June 2019.
The regulator, Carmel L. De Gabriele, said that the downward trend in applications is, in part, a direct consequence of competition from similar Citizenship by Investment Programmes operated by other countries a couple of which saw the light of day during this period, “in part to the consistent and highly inconsiderate bad publicity which has continued to prevail unduly both nationally and internationally towards such Programmes, (particularly and quite unreasonably the Malta Programme), and in part to the attempts made by a number of influential international organisations and institutions to deal a fatal blow to such Programmes based on totally unfounded pretexts and pretentions, (especially those unscrupulously levied at the Malta Programme).”
The regulator reiterated his “utter dismay that none of the fact-finding missions which came over to Malta from both the European Commission and the European Parliament as well as other institutions that have decided to criticize the running of this Programme have ever bothered to request a meeting with the undersigned or any of the members of my Office or seem to have at least carefully studied any of this Office’s past Annual Reports before expressing in one way or another their deep concerns over this Programme and have to-date continued to do so even after having made this amply clear in my last Report a year ago.”
The regulator noted that between October 2018 and January 2019 a series of reports were published by four different International Institutions concerning Citizenship and Residency by Investment Programmes.
The regulator referred to five reports, by Transparency International and Global Witness, The OECD, the European Parliament, the European Commission and the Council of Europe.
The Office of the Regulator came out swinging at the criticisms made in these reports.
“These reports could have provided the perfect opportunity to bridge the gap between the detractors of such programmes and their respective interested stakeholders by objectively analysing the various aspects, formulating constructive criticism and delivering recommendations which would enhance reliability and reduce inherent risks. Unfortunately, this has not been the case. With the use of terms such as ‘corruption’, ‘poor accountability’, ‘corrupt individuals’, ‘money-laundering’, ‘abuse’, ‘tax evasion’, ‘dubious practices’ and ‘scandals’, it is evident that the message which, at least, some of the rapporteurs tried to convey in their report is that these Programmes should be outrightly banned.”
“There were allegations in the reports that the Programme increases the risk of allowing corrupt individuals to become Maltese (and therefore EU) citizens. From their end Transparency International and Global Witness gave prominence to a quote by the FIAU which had acknowledged ‘an element of risk’ in the Programme. Considering that these types of programmes and, indeed, any types of Programme (whose final aim is to grant the country’s citizenship to a third country national) deal with basic human nature, there will always be instances where an applicant comes forward carrying a shady past, is presently involved in criminal activities or will – even possibly unknowingly – eventually go down an illegal path after citizenship is granted. Therefore, the element of risk can never be eliminated and due diligence processes serve to weed out ineligible criminals. What is incorrect in the arguments brought forward by the critics is that they deem the risks to justify requests for the closure of the Programmes. When comparing these Programmes with others leading to citizenship, it is often (and probably conveniently) forgotten that, in the latter case, the level of due diligence is (if any) minimal when compared with the scrutiny which IIP applicants go through.”
The Office of the Regulator went on to say that figures published regularly by Eurostat show that the amounts of third country nationals who obtained EU Citizenship through traditional means are significantly higher than those who do so through Citizenship by Investment Programmes.
“As an example, in its report published on 6th March 2019 Eurostat indicates that there have been 825,400 persons awarded EU citizenship during 2017. During the same period 1,328 third country nationals (i.e. 0.16% of all new citizens) were awarded Maltese Citizenship through the Individual Investor Programme. This effectively means that up to 99.84% of third country nationals could have been awarded EU citizenship without an effective due diligence being carried out on them. This clearly puts the ‘concerns’ which critics share on the Maltese IIP in a different light. Since no one will ever consider – and rightly so – clamping down on the right of sovereign states to award citizenship to the afore-mentioned 99.84% of persons who obtained it through non-Citizenship by Investment programmes, the most logical solution would be to ensure that the best due diligence processes are followed, that regular follow-ups are carried out on new citizens after citizenship is granted and that mechanisms are in place for the revocation of such citizenships should it transpire that grounds existed for revocation.”
The regulator’s report read that in the reports, Malta is “prominently but unjustly” linked to all the perceived negative aspects of Citizenship by Investment Programmes. “The Maltese IIP is pictured as the medium through which hardened criminals apply for and obtain Maltese Citizenship in a fast and easy way and, at the same time, due diligence is portrayed as a trivial formality which is easily dispensed with. Whilst the regulator completely disagrees with critics’ determination to seek the closure of Malta’s IIP, it also cannot show any respect towards such a conclusion since the arguments which are usually put forward by these critics are founded on baseless allegations, inherent misconceptions, twisted facts and half-truths which they have so conveniently accepted and endorsed without truthfully seeking to consult the fully fledged internationally acclaimed experts on such Programmes and conscientiously analysing all the operations that are currently in place as enticed in the Maltese Individual Investor Programme.”
The regulator’s report then went on to argue that for series of reports which “supposedly target and lambaste Malta’s IIP, it is ironic to note that, on the contrary, their allegations are testament to the fact that the local Programme is miles ahead of similar ones operated by other countries.”
On this point, the Regulator said, among other things, that Malta and Austria are the only countries which publish lists of new citizens, that whereas Malta discloses details of how much investment has been raised, 41% of countries operating a similar programme do not, that while Malta takes into account an applicant’s source of funds or wealth when analysing applications, according to one of the reports, Cyprus and Portugal do not.
Due diligence process
The Office of the Regulator noted that a significant amount of criticism was made on the due diligence process.
The Transparency International and Global Witness report spoke of concerns regarding the risk appetite and about arising doubts on the rigour with which due diligence was managed. Similarly, the European Parliament stated that the accuracy and adequacy of due diligence checks were questionable. “The rapporteurs unashamedly attempted to prove these negative assertions by making reference to a few persons who ended up in the media for the wrong reasons. Considering, just for argument’s sake, that the rapporteurs were right in raising red flags about these persons, it is felt that the Maltese authorities could always apply the provisions of Article 14 of the Maltese Citizenship Act and revoke these persons’ Maltese Citizenship. But this consideration is being made just for the sake of the argument because, in reality, at least some of the allegations made are dubious and questionable. This apart from the fact that there are reasons to believe that the alleged wrongdoings (if any at all) took place after their being granted Maltese citizenship.”
“For example, three of the persons in question were lambasted by the Transparency International and Global Witness report for simply appearing in the so-called ‘Kremlin list’. This is a list of 210 Officials and Businessmen, published by the US Treasury in 2018, which observers and renowned Media organisations report to have been put together haphazardly and included a list of Russian billionaires published by Forbes. The TIGW report even acknowledged that it was not to be considered as a sanctions list and that the three Russians in question were not included in a subsequent sanctions list published three months later. The unreliability of the report raises the question as to why these three individuals should have been refused citizenship in the first place.”
The Office of the Regulator said that a solid due diligence process is in place.
“It is well documented that the Malta Individual Investor Programme Agency has adopted a four-tiered approach which includes checks in international databases, clearance from the Police Authorities, internal due diligence checks/verification and outsourced due diligence.”
The regulator also spoke about criticism of Henley and Partners, the official Concessionaire, in the aforementioned reports.
Transparency International and Global Witness, the EU Commission and the EU Parliament “all voiced their concerns claiming that its multiple roles produced clear conflicts of interest since it conducted due diligence checks on the very individuals they represented. In reality all Agents (not only Henley and Partners) are obliged to conduct their own due diligence at the initial stage. The aim of such exercise would be to eliminate, from a very early stage, those applications which should be clearly refused. Subsequent to receiving the Agents’ own due diligence, the Malta Individual Investor Programme Agency carries out its own process separately and more thoroughly. This is irrespective of who the Agent is and of what the initial checks have revealed. In view of the above, consequently, there are no conflicts of interest that need to be addressed. Nonetheless, given that these concerns emanate from outdated provisions within LN 47 of 2014, the regulator recommends, in line with similar recommendations made in the past, that the Legal Notice in question is amended in order to reflect the actual role of the Company, since the very same launching date of the IIP.”
The regulator also highlighted a legal provision that was deemed to be controversial by the rapporteurs. The provision provides a mechanism allowing the Malta Individual Investor Programme Agency to recommend an ineligible applicant for approval if special circumstances existed. “It has to be pointed out that, in more than 4 years of operations, this provision has never been applied. “
The regulator highlighted that “it might make sense that when the afore-mentioned Legal Notice is revised the provision is removed completely so as to assuage any fears by critics that it is a loophole which can be abused.”
The Regulator also said that one of the reports read that one aspect of the screening and due diligence process that may pose risks was that applicants were not required to “purchase the passport” using their own funds and may rely on a benefactor to make the investment on their behalf.
“It claimed that while the benefactor was required to submit a declaration of their sources of wealth and funds, the law did not specifically require the conducting of enhanced due diligence on the benefactor. The report added that, if no additional checks were undertaken, there may be a risk of money laundering, as applications of individuals with clean criminal record could be financed by a dubious benefactor using illicit funds. From the outset it has to be clarified that, as part of the due diligence process, benefactors pass through the same scrutiny as applicants and dependants alike. This has been verified by the Regulator during its vetting sessions. Indeed, the Regulator is aware of cases in which the application is rejected due to negative information found on the benefactor rather than on the applicant and/or dependants. Nonetheless, in order to ensure that there are conditions which legally oblige the Agency to conduct enhanced due diligence on the benefactor, the Regulator recommends that the related provision is included in a revised Legal Notice.”