Wednesday, June 21, 2017

The EB-5 Program and China's Fugitives

(Source: Forbes) Recent events have put the U.S.’ so-called “investor visa” program back into the spotlight. A significant, if not the largest portion, of investor visa applicants come from China.  Whatever the merits of the program as a matter of public policy, one aspect of the program that has not received as much attention is its potential for abuse by kleptocracy or other fraud fugitives overseas to seek a safe harbor in the United States. The program, more formally known as the EB-5 program (“EB” meaning “employment based” immigration and “5” representing the level of preference), is designed to promote economic growth in relatively undeveloped parts of the country.

Generally, U.S. Citizenship and Immigration Services (USCIS) designates “regional center” projects, based on proposals to promote economic growth in targeted rural areas or areas with high unemployment. A foreign applicant submits an investment of $500,000 to participate in the project and also provides an application that describes the lawful source of that investment.  Upon USCIS approval, the applicant begins a two-year path to a “green card,” or legal permanent resident status. The program has been attractive to developers, because of the relatively low returns that the applicants expect from their investment (given that the primary motivation is to obtain U.S. permanent resident status). Some projects, however, have resulted in criminal fraud prosecutions in Southern California, Washington State, and Chicago, as a result of the defendant in question either failing to invest EB-5 funds in the underlying project or diverting funds from an existing project. A number of these cases involve defrauded investors from China.

The counterpart to the fraudulent promoter is the kleptocrat investor, who seeks refuge in the United States.  If the fugitive is from China, it will not be easy to compel the fugitive to return, given that the U.S. and China do not have an extradition treaty.  Criminal prosecution presents an avenue to the fugitive’s return, because the conviction of certain serious crimes may make immigration removal more likely. In one recent federal criminal case, a would-be investor, Shilan Zhao, allegedly submitted falsified paperwork that included false representations as to the sources of the $500,000 EB-5 investment funds (Note: When I served as a federal prosecutor, I worked on this case up to the time it was charged; the description here is based on public sources).  In turn, Zhao obtained derivative immigration status for Jianjun Qiao, whom Chinese authorities alleged had embezzled funds from the state-owned grain reserve.  In her application to USCIS, Zhao represented Qiao to be her husband, even though the two had previously divorced in China.

The government alleged that these defendants caused criminal theft proceeds to be transferred from China through a money trail leading to Hong Kong, then to Canada, and finally to the U.S. for the purchase of a residence in Newcastle, Washington. Zhao was arrested in early 2015, and recently this year pleaded guilty to a conspiracy charge involving her submission of false statements to USCIS that she and Qiao were married (even though she had previously divorced her former husband) and the investment funds came from a legitimate source. Zhao also agreed to the criminal forfeiture of the Newcastle property, along with a condominium in Flushing, New York, and properties in Monterey Park, California (both being popular suburbs in the overseas Chinese community in the United States).

Sentencing is pending. Qiao, the former husband, has yet to be arrested. The use of the EB-5 program here is another variation on immigration fraud that often makes up an integral part of kleptocratic behavior. In earlier cases, the immigration fraud vehicle might have been marriage fraud, through a U.S. citizen willing to take a payment to “marry” the fugitive.  With EB-5 as the vehicle, the difficulty of verifying the legitimate origin of the investment from overseas creates new challenges to detect the fraud. In any case, immigration fraud will remain a part of the prosecution’s arsenal. There is much debate in legal circles whether fraud or money laundering charges can be exercised extraterritorially to address corrupt conduct overseas.  Whatever the results of that debate, it appears to be much more accepted that the U.S. government has the authority to address conduct resulting in an immigration offense, even if that conduct is overseas.

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