Tuesday, June 3, 2014


If you work in compliance, you should always be aware of which jurisdictions allow foreign nationals to become citizens, through what are generally referred to as economic citizenship programs, which usually require substantial liquid assets. Since some participants in these programs have been later found to have fled countries where they were engaged in financial crime, and were looking to evade justice by acquiring a new nationality, compliance officers should be aware of programs where there are known flaws, as they have the potential for abuse by criminal elements.

The Individual Investor Program (IIP) in place in Malta, which is an EU member, has been in the news lately, due to numerous complaints, lodged by Maltese citizens, about the administration of the program. They fear that unsatisfactory applicants will be approved by the company that holds the exclusive public service concession to operate the IIP, and use their new passports to commit crimes abroad. Thereafter, the reaction of foreign governments might be that Maltese citizens could lose some or all of their freedom to travel, and work, throughout the EU, and for visa-free entry to seventy other countries, including the US. Additionally, some Maltese also feel that selling citizenships is inconsistent with EU principles, and they have expressed these views in a very public way.

The problem that I have with the IIP is the process through which applications are processed and administered. Let me be specific here:

(1) The consulting firm with the exclusive concession is not a licensed professional association, of attorneys or accountants, and is not subject to any regulatory supervision by a governmental body in any country where it is domiciled. Any claims made by applicants cannot be heard anywhere.  It also does not carry insurance for malpractice (professional negligence), meaning that any claims have no available fund from which to recover damages. The firm's performance is not subject to any government or agency audit, and there is no place where one seeking to perform due diligence can go to review penalties, warnings or disciplinary actions against the firm.

(2) Frankly, since legal rights and responsibilities of applicants are at issue here, it is for a competent attorney to handle; I am aware that there are attorneys in the firm, but a search of lawyers' rolls in the relevant jurisdictions reveals that lawyers working in-house in Switzerland and the Channel Islands are not admitted to practice, and that they do not appear to be experienced immigration specialists.

(3) The firm is, reportedly according to the operating agreement, responsible for marketing the product abroad, administering the program, and even vetting the applicants. Will that not be an incentive to pass marginal, or even unsatisfactory applicants, so that it can receive the hefty fees listed. This is a clear conflict of interest, without a doubt.

(4) How can an unregulated entity hold applicant funds in escrow ? The agreement so provides, amazingly enough. This is not a professional association, but a loose arrangement of what appear to be partners, each working independently.

(5) The firm is also engaged in other businesses, and it does not appear to have a large number of staff in its various offices. It advertises tax planning, real estate sales, offshore corporate formation, trustee services, and something called "Landing Services." How can the firm process 1800 applications, especially when it is offering investor citizenship programs from other countries ?

 Given the scandal that is unfolding with the St Kitts citizenship through investment program, the Malta program should be administered solely by a major international law firm, qualified in immigration issues, and experienced in Maltese and EU law. All non-professional firms should work through, and with, that firm. Anything less puts the EU in danger from money laundering and terrorist financing. Malta needs to make some changes to its program.

Should the consulting firm wish to reply, I will be happy to post its response on this blog; I always give equal time to all sides of any issue.

As presently constituted, the economic citizenship program in Malta will probably be sufficient grounds for compliance officers to conduct a mandatory enhanced due diligence investigation upon any prospective bank client he or she finds is a Maltese citizen through investment. The risk levels are just too high to do otherwise.

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