Due Diligence: Crucial for Investors and Agencies

In light of growing interest in investment migration in the USA, it is essential to understand the critical role of due diligence. For public agencies operating such programs, due diligence focuses on identifying and understanding the impact of both inherent and residual risks attached to the prospective investor and the funds they are proposing to invest. A large part of this relates to the potential that the funds could be the proceeds of crime, sanctions evasion, or terrorist financing.

The due diligence process doesn’t stop there. It also enables the agency to identify and understand the potential that investors have doctored their identity prior to or during the application process. Furthermore, it helps them assess any additional concerns posed by the investor gaining additional cross-border mobility for themselves and any family members, including minors in their custody. In this way, it can facilitate a deeper understanding of the investor’s track record and the funds they are proposing to invest, and their impact on the program’s reputation and ability to operate.  

Key strategic considerations

At its core, due diligence is all about the gathering and analysis of information. Needless to say, adopting methodologies that not only comply with local and international laws, but uphold market standard global practice, is critical to the process and its integrity in the eyes of all stakeholders, as is understanding the context in which issues arise.

When conducted well, by parties who understand the reputational, legal, and regulatory exposure faced by their client, due diligence can help the organization not only meet the requirements of regulators but also protect its marketplace reputation in the eyes of all stakeholders — investors, insurers, regulators and legislators, potential and existing partners and customers, and civil society.

Using the following four indicators as benchmarks is a good starting point in establishing the impact and ultimate robustness of an approach. 

Nuance and context

Due diligence can only support robust decision-making if it is contextualized and nuanced. This ensures decisions are not made only on the basis of headline-grabbing news reports, for example, but by a mature interpretation of the longer-term implications of issues for the body issuing the citizenship or residence.

Sometimes the assessment process is simple: fraud or corruption convictions, evidenced in court filings, have clear implications. In other instances, the picture is murkier. A potential investor could emerge from enquiries as well-perceived by those around them from a reputational, regulatory, and legal perspective, but a deeper dive might reveal that their wealth (or the manner in which it was accumulated) stems from a relative or individual they have a contractual arrangement with to invest on their behalf, whose own wealth carries anti-money laundering, counter-terrorism financing, or sanctions evasion risk.

Non-alignment and objectivity

Due diligence is best carried out by a transparently selected, internationally renowned, and independent third party with no vested interest in the decision-making process.

This ensures not only a separation of responsibilities regarding the decision and the analysis of the risks attached to it but also objectivity during the assessment process itself.

For example, while due diligence can reveal risks associated with investors who are well regarded in their circles, the reverse can also be true. In many instances, reputational feedback can be dismissed as being personal in nature and having no relevant implications for the institution receiving the funds. In this context, to be objective and fair, due diligence must avoid making assessments based on an individual’s personal characteristics. Ideological leanings or political beliefs, for example, are usually irrelevant to the due diligence process, unless they have a clear and objectively assessed impact on the investor’s wealth generation trajectory, or tangible implications for the cross-border mobility risk posed by the application. 

The primacy of privacy

Investor onboarding due diligence involves gathering and processing sensitive information, including that which may not be known to an individual’s immediate peers. Privacy controls are paramount, particularly regarding the retention and transfer of personal information.

While the subject's consent is key for all due diligence to be conducted legally, maintaining best practices for storing information is essential to promoting investor confidence and ensuring the program's ethical and reputational integrity. This extends beyond information about the investors themselves to the identity of individuals consulted during the due diligence process.

Methodological transparency

Due diligence can only support a wider risk mitigation and governance strategy if its methodology, with regard to both information gathering and analysis, is clear to all decision-makers.

To ensure a decision is made based on sound and balanced contextual awareness, it is equally important that the reasoning behind the assessment is communicated clearly and subjected to independent scrutiny within the organization onboarding the investor.

What does this mean for US investors?

Financial flows in the investment migration industry are still primarily driven by individuals with so-called ‘weak’ passports — those that grant their holders less than average global mobility, both in terms of short-term visa access and financial mobility.

US nationals seeking second citizenship or long-term residence by investment may not have experienced the same financial inclusion challenges as their peers in higher-risk jurisdictions that issue weaker passports. That said, to ensure an application is not seen as a risk factor in and of itself, it is important that due diligence standards are not compromised when assessing US nationals at the investor onboarding stage. It is also essential to demonstrate that due diligence standards adopted by programs are benchmarked against those of leading international financial institutions and multi-laterals.

Due diligence might sound like an additional layer of red tape. But its remit can reach further than binary answers. When conducted transparently, with maximum attention to nuance and discretion, it can promote investor confidence by providing them with clarity about the internal governance of the program they are making their investment through, the assets they are investing in, the program’s direction of travel, and the reputational implications of holding the citizenship they are acquiring. Internationally trusted due diligence processes at the investor onboarding stage can also safeguard perceptions of the business environment in the jurisdiction issuing the residence or citizenship, helping to manage the level of perceived risk and facilitating access to external finance for projects beyond the investment migration process itself.

For all investors seeking opportunity beyond borders — including those in the USA — due diligence isn’t a hurdle, it’s a safeguard. It ensures their global mobility is not only secure but sustainable.