AMERICAN SANCTIONS ARE MAKING CIPs WARY

Iran’s murky history of state-sponsored terrorism is well-known and the world is once again watching a dangerous game of geopolitical brinkmanship between the US and the Iranian regime, following the US drone strike that killed Iranian general Soleimani and Iran’s subsequent, but supposedly accidental, shooting down of a passenger plane. For its part, the Caribbean has an uneasy relationship with Iran. In the past the region has caught the eye of wealthy Iranians looking to acquire a highly-desirable Caribbean passport which would give them a golden ticket into a conflict-free country from which they could enter hundreds of other nations visa-free. But a US Department of Justice investigation in 2017 prompted several islands, including Saint Lucia, to crack down on Iranian CIP applications, banning them entirely or severely restricting the process to entry.

Iranians not welcome

CIP countries receive a flood of applications every year and each applicant must be thoroughly vetted in accordance with both domestic and international regulations. It’s common for countries to outsource this vetting to so-called ‘due diligence’ companies who take on the risk and burden of investigating would-be citizens.

In 2017 US-based ISPA International, a risk mitigation firm that has worked with a number of Caribbean governments, including Saint Lucia, St Kitts and Nevis and Dominica, was handed a US$259,000 fine by the US Department of Justice for violating sanctions in regards to Iran.

The firm had been carrying out background investigations on Iranian nationals applying for citizenship in unnamed jurisdictions but was outsourcing the work to subsidiaries who in turn made payments to local investigators, thereby violating US sanctions that prohibit importing ‘Iranian-origin services’ into the US and the payment of Iranian providers in USD.

Following the settlement, in 2018, Saint Lucia announced that it would no longer accept CIP applications from Iranian citizens, citing concerns over the source of funds and the difficulty of performing due diligence checks.

Saint Lucia was the first and only Caribbean nation to enforce an outright ban although other jurisdictions followed suit by firming up their CIP policies with regard to Iranians. Antigua’s programme can only consider Iranians if they left Iran before coming of age and have obtained permanent residency in certain ‘safe’ jurisdictions such as the UK, US or Canada. St Kitts and Nevis also heavily restricts Iranians – turning away those who live or do business in the country. In Dominica, citizens of Iran will only be accepted if they have not lived in Iran for the last 10 years, have no substantial assets there and are not performing any business in the country.

US Sanctions

For some Caribbean countries, limiting Iranians is about limiting their exposure to scandal. Dominica and Grenada in particular have been embroiled in controversy, following investigations from Al Jazeera which revealed that politicians in both nations were trading diplomatic passports in exchange for secret campaign contributions. 

Undercover filming by the news agency shows senior politicians in Dominica willing to take large sums from wealthy ‘donors’, including Iranian businessmen, in return for plum ambassador positions. According to Al Jazeera, a similar scheme was underway in Grenada. The politicians in question on both islands strenuously denied the allegations.

For other islands, such as Saint Lucia, the problem of Iran is primarily a due diligence issue. Following the IPSA case, international due diligence providers are extremely wary of violating the growing list of US sanctions and often respond by simply cutting off operations in high-risk areas. As Prime Minister Allen Chastanet told media shortly after introducing the CIP Iranian ban: “We cannot do [the due diligence] ourselves and the agencies that would normally do the third party background checks for us are themselves struggling with that.”

The US operates a long and broad list of sanctions on countries around the world including Iran, Russia, China, Pakistan, Syria, Venezuela, Libya and Turkey. For all Caribbean CIP schemes, there is a substantial overlap between those red-listed countries and applicants for passports. 

Saint Lucia’s CIP granted citizenship to 288 foreign nationals in 2018-2019 for a EC$ 61.9mn pay day. Of those 288, China took the largest share with 60 applicants, followed by 27 Russians and 22 Syrians. Other nationalities on the approved list included Turkey, Yemen, Venezuela and Iraq.

Strengthening due diligence

CIP is a high-risk business, open to financial fraud, money-laundering, terrorist funding and enabling fugitives. Countries put their credibility and security on the line to welcome new citizens in return for substantial economic gains.

Thorough and robust due diligence processes are the key to maintaining the system and avoiding reputational damage, but when the providers of these services bow to pressure from the US government and designate certain countries off limits, it can have a dampening effect on the entire CIP industry.

While blanket bans on nationals from US-sanctioned countries may be an effective short-term measure, a more rigorous and harmonised due diligence regime could provide a better long-term solution – one that doesn’t hamper the ability of Caribbean CIPs to take in law-abiding investors from problematic parts of the globe.

A recent report from the Investment Migration Council (IMC) examines the possibility of introducing minimum standards and best practices for the global due diligence industry that would apply to everyone in the chain, from governments to private sector contractors. The IMC suggests a combination of regulatory changes (eg making it easier to determine the ownership of complex assets) and increased use of technology and on-the-ground resources. With more data available now than ever, and faster, more efficient, ways of analysing that data, it’s becoming harder for undesirable applicants to slip through the cracks. Cost has been a factor in limiting the uptake of available technology, according to the IMC, and many countries and agents fail to maintain the necessary databases or follow through with more advanced checks. 

The report highlights another vital component in creating a better vetting system – collaboration. The Caribbean is currently working with the Citizenship by Investment Programmes Association to consolidate its due diligence processes, making them more transparent and encouraging a common standard.

In its final word, the IMC strikes a cautious note, emphasizing that the responsibility for the credibility of a country’s CIP scheme ultimately rests with its government: “It is critical to view due diligence as a tool for decision making, but that decision making remains the responsibility of governments and not third-party providers.”