The UK Tier 1 visa: The dangers of blind faith

The UK Government is suspending the UK Tier 1 (Investor) Visa – a type of ‘Golden Visa’ scheme – over money-laundering concerns. The suspension will end after an audit process is introduced, the BBC reported.

Update: On Tuesday, 11 December, the UK Home Office said that the programme was not suspended, but that the department was committed to reforming the scheme.

Invest £2 million in UK bonds for five years, and you are on your way to buying UK residency. In fact, the more you invest, the quicker you can apply for “indefinite leave to remain”.

This is the concept at the heart of the UK Tier 1 (Investor) Visa, a route into the country that has proven most popular with Russian and Chinese nationals since its establishment in 2008.

Compared to other schemes on offer around the world, the UK scheme may sound expensive but unexceptional. However, until relatively recently, there was an important loophole that could have made the scheme more attractive.

Investigations by Transparency International UK revealed that the scheme undertook minimal checks on applicants’ wealth from 2008 to 2015. The problem was that applicants were given visas before they opened a UK bank account.

Transparency International UK discovered that a number of banks interpreted the fact that individuals had been given a visa as verification from the UK Home Office that an applicant’s wealth was legitimate.

They incorrectly assumed that the government had already undertaken checks of the applicants and their money, and had been satisfied by what they found. Conversely, the Home Office assumed that the opening of a UK bank account would involve thorough due diligence checks.

During this ‘blind faith period’ over 3,000 high-net-worth individuals entered the UK, bringing with them at least £3.15 billion of questionable legitimacy. The scheme was most popular with citizens from high corruption risk jurisdictions, with 706 successful applicants from Russia and 1,126 from China entering the country between 2008 and 2015.

Realising their mistake, the Home Office reformed the programme in April 2015. Now, applicants have to open a bank account before applying for the visa and are required to provide clean criminal records. Only in 2018, 10 years after the scheme began and three years since the flaws came to light, did the Home Office decide to review successful applications.

Why the change of heart? The answer can be found in the small city of Salisbury, which found itself at the centre of a global diplomatic crisis when residents Sergei Skripal and his daughter were poisoned by a deadly nerve agent.

The Russian state fell under suspicion. The amount of dirty money in the British financial system and the number of ultra-wealthy individuals who had made a home for themselves in the UK hit the headlines.

The UK’s story of blind faith and delayed scrutiny provides a salutary warning of the social, political, reputational and diplomatic risks of failing to properly coordinate or conduct enhanced due diligence on golden visa applicants.

This is an extract from European Getaway: Inside the Murky World of Golden Visas, a joint report by Transparency International and Global Witness published in September 2018.