Due diligence: the reasoning behind it and outcomes

One phrase that you will hear time and again under any investment migration program is "due diligence." The due diligence process is the backbone of any successful citizenship or residency by investment program, and it is the metric that is most important to any given program's sustainability. However, for many, due diligence may seem like a vague process, and this article wants to highlight what due diligence is, why it matters, and what can happen to an application in the due diligence phase.

What is due diligence?

Due diligence in the context of citizenship and residency by investment programs is a meticulous and multifaceted process aimed at safeguarding the integrity and security of these programs. It involves a thorough investigation into the backgrounds of applicants to assess their suitability for citizenship or residency based on a significant financial investment in the host country. The due diligence process typically includes several key components:

• Background Checks: These checks are aimed at verifying the applicant's identity, assessing their criminal history, and examining their financial records to ensure there are no previous criminal activities or associations that may pose a threat to the host country​​.
• Source of Funds Verification: Authorities scrutinize the origin of the investment funds to confirm they are obtained through legal means, which helps in preventing money laundering and other illegal financial activities​​.
• Reputation Assessment and PEP Screening: Applicants' reputations are evaluated, including any potential connections to politically exposed persons (PEPs), to identify any activities that could negatively reflect on the host country. This step is crucial in assessing the risk of corruption or misuse of citizenship​​.
• Compliance Checks: Due diligence ensures that applicants meet all the specific requirements of the citizenship or residency by investment program, including investment amounts and any residency stipulations​​.
• International Coordination: The process often involves coordination with international organizations like Interpol, Europol, and the Financial Action Task Force (FATF) to gain a global perspective on the applicant's background​​.
• Risk Factors and Mitigation: The due diligence process identifies potential risks associated with an applicant, such as negative media information or legal proceedings, and assesses how these risks can be mitigated​​.

Why does it matter?

Due diligence is the backbone of any investment migration program. It is a comprehensive process that governments tirelessly continue to improve, as such is its importance. Due diligence in citizenship and residency by investment programs is crucial for several reasons:

• Preventing Financial Crimes: Due diligence processes ensure that the investment funds are obtained legally, helping prevent money laundering and other illegal financial activities. This is vital for maintaining the economic integrity and security of the host country​​.
• Safeguarding National Security: By conducting thorough background checks, authorities can identify and deny applications from individuals with criminal histories or associations with terrorist organizations, thus protecting the host country from potential internal and external threats​​.
• Maintaining Program Integrity: Rigorous due diligence helps maintain the credibility and reputation of citizenship and residency by investment programs. Ensuring that only reputable and law-abiding individuals are granted citizenship or residency under these programs upholds their value and effectiveness​​​​. This helps programs deal with any foreign or local pressure from political parties with agendas that may try to scrutinize the program.
• Compliance with International Standards: Due diligence processes are aligned with global standards and best practices, helping countries meet international obligations and standards set by organizations like the Financial Action Task Force (FATF) and other regulatory bodies. This international compliance is essential for these programs' global acceptance and sustainability​​.
• Protecting the Host Country's Image: Ensuring that citizenship or residency is granted to individuals of good character and financial standing enhances the host country's image as a secure and reputable destination for investment and residency. This can have broader implications for international relations and economic partnerships​​.
• Risk Mitigation: Due diligence identifies potential risks associated with applicants, such as adverse media exposure or ongoing legal issues, and assesses how governments can mitigate these risks. This proactive approach helps manage and reduce potential harm to the host country and its citizens​​.

Due diligence is fundamental to citizenship and residency by investment programs, ensuring they serve their intended purpose of attracting beneficial investment while safeguarding the host country's interests and maintaining global trust and cooperation.

Potential outcomes

The due diligence process doesn't look like much to people on the front end, but behind the curtains, it is a flurry of activity as government officials make their required checks.

In Caribbean citizenship by investment programs, for example, the due diligence process is the longest part of the entire procedure. There are various aspects that governments must check, and the timeframe to do so requires them to act quickly without compromising the integrity of the process.

If government officials find any issues, they flag them, and the process differs depending on what they find. If it is an outright criminal offense that is clear as day, the government will automatically deny the application. This is a rare occurrence in Caribbean citizenship by investment programs since the international marketing agents and local processing agents are the first lines of due diligence defense and have to conduct their own checks, meaning that applicants with criminal records typically do not reach the official application stage. If they do, however, then the government will find out through their more comprehensive process and deny the application.

If the issue isn't clear, but there are some indications that point to any wrongdoing, then the government may take more time to investigate the matter further. It may also request more clarification from the applicants or relevant authorities in their home country. In this case, the government may produce a letter of Intent To Deny (ITD) in which the government explains the situation and its reasoning, giving the applicant the chance to clear up any misinformation. The government will conduct its checks after receiving any additional information and base its decision on its discovery.

Sometimes, however, due diligence may encompass issues that are not technically criminal but do fall under that categorization due to governing differences. This is particularly notable in the source of funds aspect of citizenship by investment, as different countries have varying financial regulations and customs that can lead to gaps or misunderstandings. In these cases, Caribbean governments normally ask for more clarification and do more comprehensive checks.

Another issue is cultural differences. For example, a single father of divorce applying with children may be flagged if the government doesn't find a letter of consent from the mother. However, due to custody laws in the father's home country, they may not be aware that they need to provide any proof. This issue can be quickly resolved through obtaining a letter of consent, and it wouldn't be an issue at all if the father worked with a capable agent that would have caught the matter early on through the process, effectively eliminating any potential delays or extra checks.

Robust agents, such as NTL Trust, understand the due diligence process and align the applicant's specific cultural and financial variances stemming from a different country to the requirements of the citizenship by investment program. This provides both the government and the applicant with a smoother process and ensures that no gaps are present in the application.

To know more about due diligence within investment migration and which citizenship or residency by investment program is the best for you, contact NTL Trust today to book a comprehensive consultation with one of our experts.