The Darkside of Chinese EB-5 Immigration Agencies
by: Kuan Lee, September 29, 2023
The Report
I recently came across a news report about immigration agencies in China, and their corrupt practices and scandals. The report discusses about the Shanghai Foreign Association (Wailian Group), which includes investment group, education group, and oversea consulting group. They advertise themselves as a group that is well-connected group with US government. The group has been operating since 2005 and particularly target Chinese clients interested in the US EB-5 Immigrant Investor Program. Since 2015, there has been a significant increase in Chinese EB-5 applicants. Despite the significant backlog in the EB-5 wait list due to the annual visa quota limitation, immigration agencies in China continue to heavily promote this program due to its high profit margins. To better understand profitable business in China, an investment of $800,000 (applications submitted after 3/15/2022) by an EB-5 applicant is sufficient if the investment is in a Targeted Employment Area designated by the US government. The client also pays an additional management fee of about $70,000 to $80,000, a lawyer fee of about $20,000, a material fee of about $10,000, an application fee of about $10,000. This ends up to be an additional $110,000 to $120,000 on top of the $800,000 investment. According to the report, the management fee and the lawyer fees are returned to the immigration agencies, which the agencies pocket as their profit. Additionally, these immigration agencies enter a contract with their client to earn a share profit from the interests earned through the client’s $800,000 investment of about 4% up to 8%. At the end, the immigration agency can earn a profit of about $300,000 to $400,000 per client in five years.
Additionally, according to the report, the immigration agencies partner with a liaison group which consolidates the EB-5 investment into a Mezzanine Capital loan, which is later given to projects with a 15% to 18% interest rate. Moreover, Mezzanine Capital loan is a subordinated debt. This means that, if the project goes bankrupt, the Mezzanine Capital loan debt owners would be the second to the last in line to get repaid, if any residual capital is leftover. Therefore, in practically, Mezzanine Capital loan debt holders end up loosing everything in case of a bankruptcy. These Chinese immigration agencies often fail to disclose these risks to their clients as required by US law. Returning back to the initial story regarding the Shanghai Go-End Group. The Group had over 1,500 clients invest into a project called the Hudson Yard project using the Mezzanine Capital loan since 2020. However, only after two years, in 2022, the Hudson Yard project stopped paying interest to the immigration agency. Ultimately, all the EB-5 investors lost their investment. While this enter scheme is legal in the US, the issue is that the Chinese clients were not being made away of the risks involved with the projects the immigration agency selected for the EB-5 investment. Since this failure to disclose involves a Chinese immigration agency and a Chinese national, the dispute is outside the US jurisdiction. Additionally, US law requires full disclose of the immigration agencies’ commission to their clients. To circumvent the legal requirement, Chinese immigration agencies create a straw company to conceal the actual commissions earned from their clients. The report’s conclusion is that these Chinese immigration agencies are all engaged in a fraud by exploiting the grey areas of US law as it is being applied in China.
Perspective
In general, the US legal system is extremely complex. This is true for not only non-US citizen but also US citizens as well. Therefore, finding a trustworthy attorney representative is vital. However, for clients who are not connected with the legal community, finding that trustworthy attorney can be a challenge. Big immigration agencies in China use their connections and marketing resources to eventually drown out smaller competitors. Although the Chinese government targeted these immigration agencies for other reasons, the paths to US immigration is still open to Chinese nationals. China needs more honest and ethical law firms so that the average Chinese citizens are better informed of their rights so to avoid being targeted by these fraudulent schemes crafted by these immigration agencies.
References
Congress created the EB-5 Program in 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors. In 1992, Congress created the Immigrant Investor Program, also known as the Regional Center Program, which sets aside EB-5 visas for participants who invest in commercial enterprises associated with regional centers approved by USCIS based on proposals for promoting economic growth.
Under this program, investors (and their spouses and unmarried children under 21) are eligible to apply for lawful permanent residence (become a Green Card holder) if they:
- Make the necessary investment in a commercial enterprise in the United States; and
- Plan to create or preserve 10 permanent full-time jobs for qualified U.S. workers.
On March 15, 2022, President Biden signed the EB-5 Reform and Integrity Act as part of the Consolidated Appropriations Act, 2022 (Public Law 117-103), which created new requirements for the EB-5 immigrant visa category and the Regional Center Program. Immigrant visas are authorized under the Regional Center Program through Sept. 30, 2027.
All EB-5 investors must invest in a new commercial enterprise that was established:
- After Nov. 29, 1990; or
- On or before Nov. 29, 1990, that was:
- Purchased and the existing business is restructured or reorganized in such a way that a new commercial enterprise results; or
- Expanded through the investment, resulting in at least a 40% increase in the net worth or number of employees.
A new commercial enterprise means any for-profit activity formed for the ongoing conduct of lawful business, including:
- A sole proprietorship;
- Partnership (whether limited or general);
- Holding company and its wholly owned subsidiaries (provided that each subsidiary is engaged in a for-profit activity formed for the ongoing conduct of a lawful business);
- Joint venture;
- Corporation;
- Business trust;
- Limited liability company; or
- Other entity, which may be publicly or privately owned.
This definition does not include noncommercial activity, such as owning and operating a personal residence.
For more information about the EB-5 Immigrant Investor Program please follow this links:
https://www.uscis.gov/working-in-the-united-states/permanent-workers/eb-5-immigrant-investor-program
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