Due Diligence under the Bulgarian Investment Immigration Program

Due Diligence under the Bulgarian Investment Immigration Program

Last week, We – the Visa Free Europe team, published the article “Due diligence – The path to a successful investment immigration program”. Motivated by the work on the topic by the Investment Migration Council and its current actuality, we decided to provide different point of view looking through the general framework as well as through some aspects usually left in the background. Another stimulus of ours related to the current publication is the need of transparency. The transparency is an important part of the whole industry. As it was seen in the public reports of the EU Parliament and the Commission in 2018 and 2019, lack of information, resp. transparency regarding due diligence is often considered as lack of such scrutiny. The later may have serous negative effect as regard formation of opinion of the competent authorities and the general public. 

The current article focuses on the due diligence mechanism utilized by Bulgarian Investment Immigration Program (BIIP), and its multitier system and effectiveness as tools providing risk controlled environment for the operation of the Program.

Due diligence is already recognized as one of the most important factors for an investment immigration program. The Bulgarian investment program applies to its applicants a multitier due diligence. It is carried out by multiple independent actors (private and public) under a three-grade developed risk assessment framework, including as well relevant security and criminal past checks. Thus the associated risks can be identified and required measures taken for their prevention.

Currently Malta’s Individual Investor Program is given as the CBI with best DD system, implementing a four-tier check of all applicants. Cyprus made relevant changes in the regulations of its program in the last two years too. All agents are has to abide to a Code of conduct, implement obligatory DD researches, as well as not allowed to carry out other activities (i.e. real estate contractor cannot act as agents).

As it’s been noted in our previous articles, the Republic of Bulgaria has been providing residence-by-investment options for more than 20 years. In line with this, together with Cyprus and Malta, the state has been administering a citizenship-by-investment options since 2013. Although Bulgaria, officially has not formalized its direct legal options for residency and citizenship as a program, thus establishing a separate due diligence mechanism, the applied enhanced checks and scrutiny is as strict as in all other cases and program.

In the current context, the BIIP implements a multitier due diligence based on the legal requirements of the effective legislation. This checks can be characterized as of an obligatory type and are based on the current Anti-money laundering and Counter terrorist financing legislation. Following security checks of the criminal past are carried out concerning national security. The government authorities on several levels directly and indirectly apply DD and exercise following control.

The BIIP DD encompasses control over the main associated risks of financial crimes and national security. As long as this control is as strict as possible for all cases, not only for the program, a reason conclusion can be made that reputational risks involving the state apparatus are covered too.

The due diligence of the applicants under the Bulgarian investment program is carried out on the following 4 (four) stages:

1.     KYC and eventually obligatory AML+CTF due diligence carried out by the agents

As a service provider under the Program, Visa Free Europe acts as agent and executes the “introduction” role for foreign investors before the Program and the competent authorities. This puts Us in the delicate but responsible position as the first line of defense in front of the related risks.

Depending on agent’s capacity and activities, the AML+CTF legislation may be applicable on several legal grounds. This shall require application of AML+CTF due diligence consisting of: KYC, PEP identification, “origin-of-funds” procedures. 

NB: It should be noted that all subject of the AML-CTF legislation are required to implement individual own risk assessments developed around their main activity and associated risks.

2.     Obligatory AML+CTF carried by a banking institution.

In 2020 Bulgaria has implemented the 5^th EU AML Directive updating this part of its legislation to last applicable European standards. Making an investment under the Immigrant program is only possible if the investor opens an account at a local bank. The latter puts such a person as a subject of obligatory AML+CTF+KYC+PEP due diligence and continuous monitoring of this status. Bank compliance sectors additionally make a separate due diligence check from internationally recognized electronic databases.

It should be noted that under the 5^th EU AML Directive applicants under investment immigration programs are considered as subjects of higher risk group. As such ones, investors are always subject to enhanced due diligence under all circumstances.

3.     Obligatory AML+CTF carried by an investment intermediary

As the banks, so and the investment intermediaries (brokers) are responsible by law to carry out the same due diligence to their clients. 

For an investor under the BIIP this shall mean that at this stage he/she shall be subject to third individual check before even implementing the investment.

4.     The next stage of the due diligence includes KYC and research on criminal past

The next stage of the due diligence is upon visa application.

The investor is subject to research on criminal past as well as presence in:

-      National security and intelligence databases;

-      European and world police intelligence databases;

-      Partner intelligence agencies.

5.     Repeat of all due diligence stages upon citizenship application, including: 

-      Periodical due diligence by all involved actors;

-      AML+CTF / PEP DD regarding increase of the investment;

-      Additional enhanced due diligence check for national security reasons.

All DD stages carried out by private bodies are individual and separate. This independence feature allows thoroughness of the checks performed and operational freedom of all actors involved for the purpose of achieving compliance with their legal responsibilities. Thus related risks prevention/mitigation can be performed on a separate basis and at full extent.

Coordination and cooperation is achieved first on the stages of public due diligence through communication between the competent national security and police authorities as well as through supervision of the subjects responsible for the implementation of the AML+CTF measures.  

At last but not least it should be noted that in the end of March ’20 a bill for amendments of the Program’s related legal acts was introduced at the Parliament for consideration. The new bill proposes new moments in the current control framework of the BIIP ensuring not strict entry but also scrutiny for compliance of the investors with their liabilities and responsibilities under the BIIP in regards to the granting of citizenship.

The Bulgarian Investment Immigration program implements a multitier due diligence mechanism to all applicants. It is carried out on each stage of investment establishment and further approvals. Responsible actors are independent in these processes. Due diligence is legally based on laws and further detailed with sub-legislative act. KYC+AML+CTF due diligence is established on the grounds of three-tier risk assessment framework (i.e. EU, national and individual). Applicants under the BIIP are characterized as subject to enhanced due diligence in all cases and under any circumstances. Considering all of the above, a reasoned conclusion can be made, that the due diligence under the Bulgarian program is in full compliance with the applicable European (EU) and world standards in the spheres of antimony laundering and counter terrorist financing. It covers all associated with the Program risks to the extent of their total prevention or at least uttermost mitigation.