Shady deals. Befuddled investors. SEC investigations. Change can't come fast enough to the EB-5 visa.
- By Rong XiaoqingRong Xiaoqing is an award-winning reporter for the Chinese-language newspaper Sing Tao Daily in New York. She also contributes to various English-language publications in the United States and China.
Nicole Meyer could have ended her recent China trip with piles of money to bring back home, and nothing more. But instead the sister of Jared Kushner, son-in-law and senior advisor to U.S. President Donald Trump, will be lugging quite a bit of baggage after having made herself and her family a target for critics. She did so by invoking her brother’s name and his new White House role when seeking investors for a Kushner family real estate project in a presentation in Beijing on May 6. Also bad for the family’s image was the fact that investors at the event were sought via the United States’ EB-5 immigration program — one often accused of allowing Chinese citizens to buy American green cards.
But Meyer is not alone, and her practice is by no means unusual. The rising number of U.S. developers going to China to seek investment has led to increased competition for EB-5 funds. An open secret among those involved is that to make a project appealing to potential investors, developers must bring on their trip one or two people who are, or seem to be, government insiders. That strategy, perfected by promoters to bedazzle naïve Chinese investors, has seen the enthusiastic participation of many current and former American government officials — from the federal, state, and municipal levels. “If you can find a retired American government official to help you promote the project, your job is half done,” one friend working for a major immigration consulting company in Beijing told this reporter. And “if you can find a current official, the only thing you need to do is to wait for the money to flow in.”
The practice, intentionally or not, takes advantage of a cultural difference between the United States and China. Most American investors can tell the difference between a private project with a public face on its poster and a public project launched by the government itself. And they are clearly aware that even a government-backed venture may fail. But living in a country where the government has near-total power over almost everything, Chinese investors tend to believe that government has the power, and the will, to backstop any venture.
This may be true in some cases. But Chinese investor trust of government-sponsored projects also makes them vulnerable to scams. In July 2015, hundreds of thousands of investors in Fanya Metal Exchange in the southern city of Kunming who were expecting high yields found they were instead trapped in what appeared to be a Ponzi scheme. Those investors, some of whom lost hundreds of thousands of dollars, blamed the local government for helping promote the company and misleading investors to believe that it was a government project.
Launched in the early 1990s, the United States’ EB-5 program offers green cards to foreign investors who can cough up at least $500,000 to invest in eligible development projects Stateside. Amid the credit crunch after the 2008 financial crisis, the program, which had largely been dormant, became a major fundraising avenue for American developers. In 2009, for example, EB-5 applicants numbered 1,031. By 2014, the number of applicants first exceeded the annual quota of 10,000 and has remained above it ever after.
That spike coincided with a surge of confidence and wealth in China, with its booming economy and impressive showing as host of the 2008 Olympic Games. China soon became the number one source country for investment immigrants in the United States. In recent years, over 80 percent of the 10,000 annual quota of EB-5 green cards in this category have gone to deep-pocketed Chinese.
This dynamic makes current or former U.S. government officials a hot commodity on the EB-5 job market. Former New York Governor David Paterson once told journalists from Chinese-language media outlets, including this author, about one experience in 2011 when he traveled to China to help promote an EB-5 project. Shortly after one potential investor took a selfie with Paterson at a promotional event, the picture appeared on the website of a competitor company with a false announcement: “Gov. Paterson will work with us soon.”
Nevertheless, Paterson has since traveled to China many times to promote several different EB-5 projects. “I might be the first former governor in the U.S. going to China to promote the EB-5 program,” Paterson told us proudly before he took such a trip to Shanghai in December 2014.
That might be true. But more and more big names have been attending EB-5 promotional events in China since Paterson first flew there. In September 2011, then-Illinois governor Pat Quinn attended a promotional event in Beijing for the Chicago Convention Center project. In April 2014, Vermont U.S. Senator Patrick Leahy and Congressman Peter Welch showed up at a promotional event in Shanghai for the Jay Peak ski resort project. In July 2015, former Assistant Secretary of State Christopher Hill and then-director of the Idaho Department of Commerce Jeff Sayer appeared at a promotional event in Shanghai for the Walker Ranch Geothermal Energy project. Last April, former New York Mayor Rudy Giuliani spoke at a promotional event in Shanghai for the “Times Square Broadway Live” project. Last October, Illinois former Congressmen Bobby Schilling and Aaron Shock dropped by Shenzhen to promote the Pro Football Hall of Fame campus project in Canton, Ohio. The list goes on.
To be sure, no law bans U.S. government officials from helping to promote private projects that they think are in the public interest, nor does anything bar them from discussing the EB-5 program in general at events hosted by private projects. And after U.S. government officials leave public office, they generally have the freedom to work for whomever they like.
But for potential Chinese investors, the involvement of current or former U.S. officials sends a particular message: that the project is government-sponsored, and therefore risk-free. Even the Chinese media, when covering the appearance of U.S. officials at such events, often use headlines suggesting the officials were there to “support the project.”
Such blind trust often makes Chinese investors vulnerable to shoddy projects and scams. For example, the Chicago Convention Center, slated to be a $900 million-plus complex including a convention center and five hotels near the city’s O’Hare Airport, was announced in 2011. But despite the Illinois’ governor having spoken in support of it on Chinese soil, the project never broke ground. Its developer, Anshoo Sethi, was instead sentenced to three years in prison in February for swindling about $150 million from about 290 Chinese investors. Investors eventually got their money back, but not before years of anxiety and fear and broken dreams of a green card.
The Jay Peak project followed a similar crash course: the U.S. Securities and Exchange Commission ultimately accused Florida businessmen Ariel Quiros and William of running a “Ponzi-like scheme.” In April, Raymond James, the financial firm that the two allegedly used to funnel the investments, reached a settlement with the authorities to pay $150 million. A Chinese media outlet’s headline on the story vividly summed it up: “After Eight Years of Bitter Waiting, Chinese Investors In Jay Peak Finally Have Hope of Getting Their Money Back.”
The EB-5 program is now at a critical juncture. It was slated to expire at the end of April before Trump signed a bill extending it to the end of September. That was good for the Kushner family, of course; Nicole Meyer made her Beijing pitch the very next day. But the calls for reform have been getting louder. The Department of Homeland Security has proposed raising the threshold for minimum investments, and lawmakers have urged strengthening background checks to make sure questionable foreigners won’t be able to kick the doors to the United States open with their money. But the possibility of curbing the involvement of public officials in promoting these projects has not gotten serious attention.
This is not a surprise. After all, the program was designed for the interests of Americans, rather than foreigners. But one small change in the regulations could make it a win-win situation. A ban on current or former government officials being involved in such projects at all may not be realistic. But a mandate that projects using the smiling faces of current or former U.S. officials clearly disclose whether they are actually government-backed is practical, and would go a long way to clearing the picture for confused Chinese investors.
Image credit: Getty