A recent UK parliamentary report said the country's citizenship/residency-by investment regime must be radically reformed to curb the influence of Russian oligarchs with dubious sources of wealth. The author of this article says such claims are unwarranted.

Unless one has been living on a remote desert island, it has been difficult to avoid reading about how attitudes towards those from the former Soviet Union and from mainland China have changed in recent years. The UK had been seemingly eager to roll out the red investment carpet to high net worth and ultra-HNW individuals. More recently, it appears the mood has cooled. One potential consequence could be a take-up of the UK’s own “golden visa” regime, aka the Tier 1 Investor Visa system. 

To discuss these issues is Nicolas Rollason, head of immigration at law firm Kingsley Napley. The editors are pleased to share these views and invite readers to respond. As ever, the usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

The Tier 1 (Investor) visa category celebrated its 25th year anniversary in 2019. It is one of the last survivors of a number of visa categories introduced (or rebranded) in 1994 such as the business person/entrepreneur route, closed off last year, and a number of other later visa categories such as HSMP and Post Study Work which have come and gone.

The UK is not unique in having a residence by investment scheme - most developed countries have similar visas, with variations in investment amounts and types. These should not be confused with the more controversial citizenship by investment schemes, which provide passports with relatively short or in some cases, no periods of residence. This distinction is often forgotten in the media discussions about passports for sale. 

Since 2011, the investor route has been overhauled many times, first to attract more investors, then tightened to increase the minimum investment from £1 million to £2 million and more recently adjusted to allow for more due diligence and to restrict investment types. The Home Office has responded to suggestions from the Migration Advisory Committee (MAC) in making these changes, but some of the changes have been driven by concerns in government, the media and parliament about possible abuses of the route by those with questionable pasts and sources of wealth, in some cases with Russian connections. 

The route has, however, survived. As the UK starts to move to a new immigration system in 2021, more questions about the investor visa have been raised by this week’s release of the UK Parliament Intelligence and Security Committee’s Russia Report. Under the subtitle Welcoming oligarchs with open arms the report states: “Whilst the Russian elite have developed ties with a number of countries in recent years, it would appear that the UK has been viewed as a particularly favourable destination for Russian oligarchs and their money. It is widely recognised that the key to London’s appeal was the exploitation of the UK’s investor visa scheme, introduced in 1994, followed by the promotion of a light and limited touch to regulation, with London’s strong capital and housing markets offering sound investment opportunities.”

The report goes on to recommend that one way of “shutting the stable door”  and “disrupting the threat posed by illicit Russian financial activity” would be “an overhaul of the Tier 1 (investor) visa programme.” There needs to be a more robust approach to the approval process for these visas.

The committee’s call for further overhaul of the investor visa is somewhat disingenuous. The necessary rule changes which make the route more robust are already in place. In fact the route has been reformed and tightened almost to death. The possibility of refusal based on the source of funds and how people extracted their funds from specific countries with capital controls are now much more explicit.

Many investors from higher risk countries such as China and, yes, Russia, are now interviewed. The Home Office has for some time effectively outsourced the source of funds, wealth and AML client due diligence to UK wealth managers - having an investment account opened has been a prerequisite for obtaining the visa since 2014. The argument is that banks are much better placed to run compliance checks and, as regulated entities, they should have a high level of compliance with AML regulations and sophisticated systems for undertaking that due diligence. 

Indeed, as banks and wealth managers have reduced their appetite for onboarding clients from high risk countries, so the number of Russian investor applicants has dropped from the peak of 241 applications in 2014 to just 26 in 2019. That reduction in numbers applies to all nationalities and is not only a result of more “filtering” of PEPs by financial institutions but also resistance to committing £2 million, along with other immigration changes which have made it harder for families to acquire permanent residence where one parent travels extensively. In the Russian context, taking up residence elsewhere can sometimes be seen as a sign of disloyalty to the regime.

The numbers coming in under the investor category are small and the historical issues about “dodgy” money identified in the report are, on the whole, no longer present. Introducing further restrictions on the visa category as a political tool against Russian interests would be a blunt instrument, as there are many applicants from all over the world who use the category and bring economic benefits to the UK. 

And we must not forget, there are still many successful Russians who have generated wealth in perfectly lawful ways and who come to the UK to conduct legitimate business. As free movement ends at the end of this year, the investor visa route will also be an important way for wealthy Europeans to relocate to the UK, particularly entrepreneurs who will be put off by the lack of a fully functioning visa route for those who wish to establish or run a business in the UK.

However, as UK wealth managers and banks are the new “gatekeepers” of the visa route, it is surprising that the Home Office (or indeed the financial regulator, the FCA) seem to have no interest in auditing or monitoring wealth managers who deal with high numbers of PEPS from high risk jurisdictions - it has been suggested that they could be the weak link in the system, so ensuring that they play by the rules and don’t undermine the integrity of the route is also important. 

The introduction of new immigration rules which would require independent auditing and accounting firms to prepare pre-application audit reports on applicants’ sources of funds and wealth have never been implemented - again, if they are, making sure that UK regulated accountants play by the rules and are not themselves compromised would be a vital part of bringing in this suggested additional check.

It is also frustrating that the Home Office has, to date, not wanted to engage in more detailed discussions about what creates the greatest economic gains from these investments, something the MAC looked at in 2015 - they should be looking at allocating at least some of the capital inflows from this visa route to funds or projects that benefit the whole UK economy and population more widely and that drive the post COVID recovery. 

The next few years will see the UK economy struggle to get back on its feet. Attracting capital to fund planned infrastructure will be vital and the investor route could be a useful channel for these inflows to help drive the post-COVID recovery. The architecture of a robust system is in place and the Home Office has all the tools it needs to make sure the bad apples don’t get through the system. it just needs to use to start using them.