International Immigrant Investment Programs: Illicit Finance Risks

International Immigrant Investment Programs: Illicit Finance Risks

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April 27, 2021
International Immigrant Investment Programs:
Illicit Finance Risks
Immigrant investment programs (IIPs), sometimes referred
residency or citizenship may complicate due diligence
to as golden visas or passport programs, are immigration
efforts or the blocking of sanctioned assets, as they may not
programs in which applicants make a financial contribution
trigger sanctions alerts or the enhanced scrutiny sometimes
to the host country and, in exchange, are offered legal
applied to citizens of certain countries. Secondary passports
residency (residency-by investment, RBI) or citizenship
may also enable international travel, including through visa-
(citizenship-by investment, CBI, also known as economic
free arrangements, that an individual would not have access
citizenship). IIPs may appeal to governments as a
to under their primary passport. Secondary residency or
significant source of investment. See CRS In Focus
citizenship may also be used to avoid tax obligations.
IF11344, The Changing Landscape of Immigrant
Investment Programs, by Jennifer M. Roscoe, for more
Which countries’ programs have come
information on IIP-related trends and background. The
under scrutiny?
United States operates an IIP, the EB-5 Immigrant Investor
While various international IIP programs may be vulnerable
Program, which includes fraud-related risk assessments and
to illicit finance, U.S. and inter-governmental reporting
case adjudications administered by U.S. Citizenship and
have identified certain countries of particular interest, often
Immigration Services. See CRS Report R44475, EB-5
in relation to specific typologies of illicit finance. In 2021,
Immigrant Investor Visa, by Holly Straut-Eppsteiner for a
the INCSR identified 79 major money laundering
discussion of the U.S. IIP.
jurisdictions, defined by the Foreign Assistance Act
§481(e)(7) as those “whose financial institutions engage in
As the number of international IIPs has grown in recent
currency transactions involving significant amounts of
decades, some observers have expressed concerns that these
proceeds from international narcotics trafficking.” The
programs may facilitate financial crime. While the scope of
2021 INCSR referenced current or recent IIPs as
these risks is uncertain and many international IIP
vulnerabilities in 5 of the 79 identified jurisdictions (“A” in
participants may not have criminal motivations, some
Figure 1). The Organisation for Economic Co-operation
participants may seek to use the programs for tax and
and Development (OECD) has also identified countries
sanctions evasion and money laundering by conducting
with RBIs and CBIs that represent a potentially high risk to
business under an easily obtained secondary residency or
the integrity of its Common Reporting Standards (CRS),
dual nationality. Congress has sought to strengthen U.S.
which are designed to foster information exchange to
responses to illicit finance by appropriating funds for U.S.
prevent tax evasion (“B” in Figure 1).
government entities that address financial crimes and by
requiring reporting on anti-money laundering issues in
Figure 1. Countries with IIPs Identified as
foreign countries. Members have also called attention to
Vulnerabilities or Potentially High Risk by the INCSR
international IIPs that they have viewed as particularly
and OCED.
troubling through statements and in hearings.
How might international IIPs enable
illicit finance?
While international IIPs typically include requirements
designed to prevent participation by would-be criminal
actors, some programs reportedly exhibit lax standards or
enforcement. In 2021, the Department of State’s (DOS’s)

congressionally mandated International Narcotics Control
Notes: “A” indicates countries whose IIPs were referenced in the
Strategy Report (INCSR) Volume II: Money Laundering
2021 INCSR. “B” indicates countries that are listed on the OECD’s
cited examples of current or recent international IIPs with
website as of April 2021. The OECD countries are limited to those
selection processes that were advertised as fast and
that have signed on to the CRS (the United States has not signed on).
inexpensive, did not require an interview, and raised
concerns about attempts to evade law enforcement or
How have jurisdictions with IIPs
facilitate illicit finance.
responded to allegations of illicit activity?
In response to criticism and scrutiny, some foreign
Once individuals become citizens or residents of a host
governments have cancelled citizenship or residency for
country, they may attempt to store ill-gotten funds,
certain individuals and made reforms to their IIP processes,
circumvent tax requirements, or evade sanctions by
though the effectiveness of certain reforms remains in
relocating assets to the host country or conducting business
question. Cyprus and Malta, for instance, have reportedly
via their new residency or citizenship. Using a secondary
instituted reforms for their IIPs in recent years, including
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International Immigrant Investment Programs: Illicit Finance Risks
through limits on the number of IIP naturalizations and
from certain visa-related waivers. Pursuant to the Visa
increased proof of residence requirements. Yet, both
Waiver Program Improvement and Terrorist Travel
countries have continued to be described as risk-prone by
Prevention Act of 2015 (Division O, P.L. 114-113) and
media outlets and EU institutions. In August 2020, a media
subsequent implementation by the Department of
exposé released footage of high-level Cypriot officials
Homeland Security, dual nationals of the Democratic
agreeing to facilitate a passport for a Chinese applicant with
People’s Republic of Korea, Iran, Iraq, Sudan, or Syria are
a criminal history, contrary to Cypriot requirements.
not eligible to travel to the United States under the Visa
Subsequently, the officials resigned, but denied
Waiver Program. Additionally, according to press releases
wrongdoing, and Cyprus ended its CBI program. In October
from the U.S. Embassy in Barbados, individuals who
2020, the European Commission brought legal action
gained citizenship through a CBI in St. Kitts and Nevis,
against both countries due to their CBIs.
Antigua and Barbuda, or Dominica are not eligible for a
waiver for a visa interview for a U.S. nonimmigrant visa.
In a 2014 advisory to financial institutions, the U.S.
Department of the Treasury’s (Treasury’s) Financial Crime
Capacity Building
Enforcement Network (FinCEN) stated that despite
Federal entities, including DOJ, DOS, Treasury, and the
assurances by the Government of St. Kitts and Nevis that it
U.S. Agency for International Development, may engage in
had suspended Iranian nationals from its CBI in 2013,
capacity-building training or technical assistance with
FinCEN believed Iranian nationals continued to participate,
countries with high risk IIPs. Such assistance may seek to
potentially as a way to evade sanctions. To date, the
improve governance and counter financial crime.
advisory has not been withdrawn, although the 2021
INCSR cites evidence of steps taken to improve the
Issues for Congress
country’s CBI vetting processes.
Other Potential IIP-Related Crimes
How has the United States attempted to IIPs have been linked to criminal activities beyond the
address illicit finance in international
provision of residency or citizenship to criminal actors,
IIPs?
such as the improper use of investment funds and for the
criminal gain of host country officials or intermediaries
Monitoring, Reporting, and Oversight
who arrange investment opportunities. Congress may
In addition to the INCSR, federal entities have reported on
consider these and other aspects of IIP-related crimes in the
specific IIP’s illicit finance risks. For example, in the 2014
context of risks of international IIPs.
advisory on St. Kitts’s and Nevis, FinCEN encouraged
financial institutions to conduct customer due diligence,
Foreign Government Responsiveness
including seeking identification other than or in addition to
Reponses by host countries with reportedly risk-prone IIPs
a St. Kitts and Nevis passport. DOS has referenced citizen
may reflect considerations such as the value of IIPs to the
and civil society group concerns over corruption relating to
economy, perception of the risk as limited, prioritization of
CBI programs in its annual country reports on human
other policy issues, and, in some cases, opportunities for
rights. Congress has conducted oversight of the issue
corrupt, personal gain. Congress may seek to understand the
through hearings on illicit finance. Additionally, the United
role of and reasons underlying political will for IIP-related
States is a member of the Financial Action Task Force
reforms when considering responses to IIPs.
(FATF), an intergovernmental body that seeks to combat
money laundering and terrorist financing (ML/TF). The
Transparency and Information Sharing
FATF, as well as associated FATF-style regional bodies,
Some observers call for additional analyses of illicit finance
conducts mutual evaluations of member countries, which
and international IIPs and for countries to publish
analyze the implementation and effectiveness of measures
identifying information of IIP participants in order to
to combat ML/TF. Some mutual evaluations have described
prevent “visa shopping,” whereby bad actors can search for
vulnerabilities of specific IIP programs.
IIPs that will accept their applications and provide the most
benefit. These stakeholders suggest that more countries
Investigations and Prosecutions
should share reports and identifying information through
The U.S. Department of Justice (DOJ) may investigate and
Financial Intelligence Units, regional agreements, or other
charge individuals for crimes facilitated by an IIP. For
methods. Congress may consider the impact of information
example, in 2017, the U.S. Attorney’s Office for the
sharing as a tool to combat abuse of IIPs, including via
Southern District of New York indicted Ali Sadr Hashemi
congressionally mandated reports or directions to U.S.
Nejad. It alleged that Sadr took steps to evade U.S.
entities to raise the issue in international fora.
sanctions and defraud U.S. banks by concealing the role of
Iranian parties in transactions in part by using a St. Kitts
U.S. EB-5 Immigrant Investor Program
and Nevis passport and a United Arab Emirates address.
Congress may also consider alleged risks of the U.S. EB-5
Sadr was found guilty in March 2020, but the verdict was
IIP, which has been criticized by some observers, including
vacated in July 2020 due to federal prosecutors’ violations
certain Members of Congress, for the program’s
of disclosure obligations during proceedings.
susceptibility to fraudulent schemes, as outlined in a 2015
Government Accountability Office Report.
Visa Restrictions
The United States has restricted individuals with dual
Katarina C. O'Regan, Analyst in Foreign Policy
nationalities or who gained new citizenship through IIPs
IF11818
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International Immigrant Investment Programs: Illicit Finance Risks

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