China and the EB-5 Visa Program: Fraud on Both Sides of the Pacific

Two U.S. senators, Republican Chuck Grassley of Iowa and Democrat Patrick Leahy of Vermont, have been working together for more than five years to reform a major immigration program used in recent years almost exclusively by Chinese investors. Now, however, in the words of Senator Grassley, the program “is simply too corrupted to be saved.”

The program in question is the EB-5 Investor Visa, and Grassley is now calling for it to be abolished. Originally, the idea seemed sound and elegantly simple. Why not couple the American need for investment into its rural and low-income areas with the international craving for the right to live and work in the United States?

Thus the EB-5 program was born. A $500,000 investment into an approved new enterprise in a Targeted Employment Area (TEA) Regional Service Center could secure conditional U.S. residency visas for a non-U.S. national and their family. At the end of two years, the investor only needs to prove that the conditions upon which the visas were granted, particularly the creation of 10 jobs in the Targeted Area, have indeed been satisfied, and those conditional visas can be traded in for permanent residency, the prize sought after by so many non-U.S. nationals: the Green Card.

However, the long list of inherent EB-5 deficiencies include a lack of meaningful due diligence before permanent residency is established, say senators.

Once granted, permanent residency, i.e. the Green Card, is good for 10 years and is indefinitely, and easily renewable.

China was far from most minds when the program was created in 1990, and enhanced in 1992. It was still years before large numbers of Chinese had the capacity to make, much less invest, large sums of money.

Now, however, of the approximately 10,000 EB-5 visas that are available each year, the vast majority go to Chinese investors.

Sadly, to the detriment of both investors and the distressed areas that their funds are intended to support, the original intent of the program has been subverted, and in some cases, corrupted. As Grassley said a year ago on the floor of the Senate:

Sadly, in the last decade this program has been hijacked by big-moneyed New York City real estate interests.These developers now take almost all the foreign investment from this program, and for the last few years they’ve actively prevented this body from enacting any reforms.

Over the years, Grassley, Leahy, and others have discovered gaping holes in the structure and terms of the program. The result has been illicit funds coming out of China on the one hand, and corrupt developers siphoning off investors’ funds from EB-5 projects offered to Chinese investors in the United States, on the other hand.

The program invites abuse, say senators.

Egregious examples of insufficient safeguards and other deficiencies inherent in the system, and identified by Grassley and his colleagues, include:

1. Of the 10 jobs that each investor is required to create, none have to be direct. In other words, it is not necessary to identify 10 specific people working in 10 positions, and say, “My investment created these jobs.” Estimates and economic modeling satisfy the EB-5 requirements.
2. The money used to make the investment is not properly vetted in order to determine its sources. Investment money can even come from loans and gifts, with no due diligence on who those secondary sources are.
3. The Regional Centers into which foreign individuals invest don’t have to be owned by Americans. Not only can they be set up in the United States by foreigners, for foreigners, but also there is no ban on a foreign government itself setting up a Center.
4. The physical borders of what comprises a Targeted Employment Area, which, by definition, must meet certain high unemployment criteria, can be gerrymandered to include higher-income areas that are much more attractive to investors, drawing the investment away from the distressed areas that the investment should legitimately target. Examples of this are common in New York.
5. Abuse of the program is found on both sides of the equation.

In 2018, the U.S. Justice Department moved to forfeit the $500,000 EB-5 funds of a Chinese investor “whose companies allegedly were procuring U.S.-origin items and illegally supplying them to sanctioned entities in Iran.”

And in California, attorney Victoria Chan pleaded guilty to a $50 million EB-5 conspiracy that secured visas for Chinese conspirators, while refunding their investment monies to them. “Some of the foreign nationals were on China’s “100 Most Wanted List” after being charged with crimes such as bribery,” according to the Justice Department.

Not all of the scandals are initiated on the Chinese side, however. Investors from China have fallen prey to bad actors in the United States, as well.

An Idaho developer was forced by the Securities & Exchange Commission (SEC) to return over $5 million to a group of 200 Chinese investors when it turned out that he had used money from their investments in his mining project to buy himself homes and luxury vehicles.

In Texas, developers had to return $49 million to 90 Chinese investors, after using funds for projects outside the scope of the EB-5 investment.

Fraud in Regional Centers is no surprise, according to Grassley. “There are no required background checks on anyone associated with a regional center.”

A spokesman in Senator Grassley’s office, George Hartmann, summed up the senator’s position:

Sen. Grassley has been pressing for years to correct or eliminate the EB-5 visa program, which has clearly deviated from its original intent and is plagued by rampant fraud and security flaws. Since last year, he’s sought an outright end to the program if it is not reformed, and will keep pushing the administration to issue the pending regulations to fix the program and stem the widespread abuse.

Over the years, Grassley, Leahy, and others have presented bipartisan reform measures to U.S. Citizenship and Immigration Services; these measures had the support of the largest EB-5 trade association, Invest in the USA.

However, according to Grassley, wealthy special interests always manage to block the reforms from becoming law.

For those who are accustomed to reading stories of Chinese financial malfeasance, including forged documents, falsified bank records, and front companies for government entities, the EB-5 saga has plenty of substance to add to the narrative.

Less publicized has been the fraud visited on some Chinese investors who have been encouraged by the U.S. government to place their faith and funds in America, in return for the right to live, work, and study there.

Residency, and ultimately, citizenship for sale schemes have one fatal internal flaw: Aside from some legitimate investors, they also attract crooks on both sides of the table. In the case of the EB-5 Investor Visa, the U.S. government has brokered the deal.