Comment: Is an independent audit of source of wealth the right way forward for Tier 1 (Investor) visas?

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Comment: Is an independent audit of source of wealth the right way forward for Tier 1 (Investor) visas?

The Tier 1 (Investor) visa route was introduced to encourage rich foreigners to invest in the UK, says Philip Barth, head of immigration at Irwin Mitchell. Since 2015 applicants have had to produce a letter from a UK financial institution confirming that they have opened an investment account.

Before then there were no effective checks on wealth sources, with the Home Office assuming that the banks were doing the checks on the individuals, and the banks assuming that the checks would be done further down the line.

Government concerns that the scheme was being misused to launder illicit funds into the UK and to allow undesirable persons to obtain residence in the country continued to grow, eventually prompting a masterclass in political bungling last year, when the press reported the pending suspension of the visa route to enable tighter rules, including an ‘independent wealth audit requirement', to be introduced. Almost immediately, the government backtracked and withdrew the threatened suspension.

The Home Office has adequate legal power to weed out undesirables and the resources to identify them"

Reforms were introduced in March 2019 "to protect better against financial crime and ensure that investments are of greater benefit to the UK economy". Financial institutions now have to confirm that they have carried out all required due diligence checks and Know Your Customer enquiries, but there was no sign of the independent audit requirement.

At the end of August, Channel 4 broadcast an undercover investigation alleging serious failings in the visa scheme, showing up everyone involved in the ‘Golden Visa' sector in a bad light. Dame Margaret Hodge MP, who appeared on the programme, called for the suspension of the Tier 1 (Investor) visa and also that there should be an immediate audit of all those who have got access into the country through the route.

The call for suspension was misguided, as the scheme as presently designed mostly has sufficient safeguards built into it. There is room for improvement, but is an independent audit really the answer?

There is no obligation to provide disclosure of overall source of wealth, as opposed to the £2m underpinning the visa application. The visa application form contains questions which arguably require disclosure of overall source of wealth, not just the £2m, and the declaration that the applicant has to sign contains an acknowledgement that their details may, in certain circumstances, be passed to fraud prevention agencies to prevent fraud and money laundering.

This does not bite sufficiently tightly, especially when compared to the obligations of the financial institutions regulated by the FCA/PRA, who have strict obligations when it comes to investigating their prospective customers' source of wealth before accepting their funds.

The Home Office has adequate legal power to weed out undesirables and the resources to identify them. Is there really the need to introduce an extra layer of regulation by a separate regulated sector that adds nothing to an existing layer, or should the Home Office be entitled to rely on the regulated professionals to carry out their source of wealth checks properly in accordance with their professional rules?

Clearly they don't have confidence in them, because although there was no mention of an ‘independent wealth audit requirement' in the September rule changes, sources in the Home Office have recently confirmed that they still intend to introduce it.

The better solution would be to have the checks carried out by the FCA/PRA licensed financial institutions regulated in a more targeted way. The respectable institutions who take their regulatory functions seriously should have nothing to worry about, but it should flush out any who seek to turn a blind eye or, even worse, actively collude with their clients in obfuscating the true source of their wealth and contribute to the restoration of confidence in the Tier 1 (Investor) visa.

 

Philip Barth is head of immigration at Irwin Mitchell

 

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