Talk to us

An examination of the Chinese EB-5 market: old challenges and new opportunities

Immigration lawyer David Enterline is an expert of the East Asian EB-5 markets. In 1993, he helped set up an immigration office in Taiwan and from there built his U.S. immigration and EB-5 practice. Today, he continues to work with Chinese petitioners, and also has offices in Vietnam and the Philippines. 

Enterline talks about the Chinese market reliance on agents and big-city investments prior to the enactment of the Reform and Integrity Act of 2022 (RIA), remittance and source of funds challenges, and where the market is now headed.

Investor trust in agents and big-city projects

Looking back at the history of the region, Enterline tells us that the mainland Chinese have been very willing, especially compared with other East Asian markets, to find an agent they want to work with, and the trust the agent’s recommendation of a EB-5 investment project.

“Chinese investors were not as involved with due diligence on their own,” he says. “Many of them had no background as sophisticated investors. And most of them didn't speak English well, and they certainly couldn't understand an offering package — even if it was translated into the Chinese.”

So in the past, the Chinese market relied, for better or worse, on the counsel of local agents. And agents were happy to push big-city deals with exciting marketing and glitzy events — even if the investments didn’t always stand up to rigorous scrutiny.

Without proper due diligence, Chinese investors threw their immigration hopes and investment dollars behind EB-5 projects in big American cities like New York and San Francisco, and perhaps to a lesser degree, Chicago, or cities in Florida.

Enterline sees this attraction to big-city investments as a somewhat universal instinct. “In terms of  big city appeal, if it was you, and  you had the choice to invest in Shanghai, or, say, Jilin, where would you invest?"

Chinese investors, looking for quality rural EB-5 investments?

Investors were in the dark about retrogression 

Beyond the lack of due diligence, Enterline points to another problem that plagued the Chinese market: most Chinese investors didn’t understand the backlog or actual wait times involved with EB-5. And agents weren’t offering clarity on this matter.

“There were a number of agents in the beginning that did not understand the Visa Bulletin. So when the Bulletin said an investor’s priority date was April 1st, 2015, and it was April 1st, 2017, in their minds, that's a two-year wait for a visa. So in the beginning of Chinese retrogression, many agents did not understand it.”

And when agents did begin to understand the onerous wait times for Chinese EB-5 applicants, they didn’t always share this information. “If there was a seven-year wait, the agents that understood this didn’t explain it very clearly to petitioners. It wasn’t in their best interest as agents as they had investments to sell.”

So trust in agents — even if it was not always deserved — defined much of the past with EB-5 in China.

For the relatively few Chinese investors who understood retrogression and knew that U.S. residency was still many years away, EB-5 still remained compelling as it offered an American future for their children.  

Chinese remittance restrictions — and ways around them

Remitting funds to U.S. investment projects and dealing with USCIS presented other challenges for the Chinese market. China has very strict remittance restrictions that can make funding an EB-5 investment difficult.

China allows its citizens to exchange and remit offshore up to the equivalent of the US $50,000 per person per year. Given that the minimum investment amount was historically $500,000, and now, post-RIA, is $800,000, an investor working alone can’t fund an EB-5 investment. 

The Chinese government has tried to crack down on sending money out of the country, and directed banks not to allow multiple transactions from one account that total more than $50,000. But Chinese investors had found a workaround: friends and family members.

“It used to be that an agent would help a client gather up ID cards from friends and family members and go to the bank manager that they have a relationship with and do all the transactions from 10 different people,” Enterline explains. “They would then remit the money to one account in Hong Kong and the investor transfers to the project. That was pretty common and at the time, technically, not illegal.”

The Chinese government curtailed this practice by restricting the banks but there is an investing will, there is a remittance way: investors still manage remittance limits by using different banks and separating withdrawals by a week or so.

Chinese source of funds: ‘it’s always a challenge’

Demonstrate a lawful source of funds with a full and unbroken path of the money is a requirement for petition approval. And for Enterline’s East Asian clients, “It’s always a challenge,” he admits. 

A currency swap with another party who had money outside of China started to become a common means of moving money around, and they were routinely accepted by USCIS. But around 2015 the agency started challenging this practice, mainly with Chinese petitions. Chinese applicants often would give money to a friend who had business in the country and a means of exchanging the money outside of China, but then USCIS started to issue requests for evidence that the friend’s offshore money was lawful. 

This change in policy was not formally announced by the agency; it just started happening. But Enterline says that with a reasonable explanation this path of funds was still being approved, but the industry was now put on notice that such methods would be strictly questioned

To have a currency swap approved by the Immigration Service, ideally, the entity exchanging the money should be a licensed company and must be able to show a lawful source of its own funds it is exchanging with an investor. 

His advice for petitioners using some kind of currency swap is simple: “The more you can document, the better, especially to the point of the funds actually being transferred from point A to point B by a licensed operator or government approval.”

USCIS standards: inconsistent and more difficult over time

While Enterline has best practices he follows for matters such as source of funds, he notes, with a tone of frustration, that USCIS “definitely lacks consistency” with their adjudication standards.

“In immigration, as in many industries, when there are refusals from the government, and you want to challenge these decisions, the term ‘arbitrary and capricious’ is often referenced,” he says. “Because the government cannot make arbitrary and capricious decisions…In theory,” he wryly adds.

But the inconsistency of USCIS adjudications suggests to him that the agency’s decisions are, in many cases, subjective.

He shares an example to illustrate his point: “I have an investor who was approved for the source and path of funds. At the same time, her nephew filed a petition with the exact same source and path of funds but was denied.” 

Did he challenge the nephew’s denial? No, as he did not want to risk the aunt’s approval being revoked. So he and his client had to accept this USCIS inconsistency.

How can this happen? Enterline says it’s just a matter of different USCIS examiners subjectively interpreting the hundreds of pages of EB-5 policy and investor documentation.

“In U.S. immigration law, everything becomes more difficult over time. The Immigration Service, which is supposed to be a benefits agency, is really a belligerence agency. Every visa category  becomes more challenging and more difficult. And I knew this was going to happen in EB-5 back in the mid two thousands. Filings and source of funds and regional center project applications — everything has become much more complicated.”

A White House administration can have a lasting impact on EB-5

What’s the reason for USCIS become more difficult over time? Is the answer rooted in politics? This is an expansive question for Enterline to consider. He acknowledges that the agency has a tough job to do. “In general, they’re always battling fraud of all time. It’s a huge issue and people don’t realize that. And in EB-5, there has always been some fraud and bad actors, as well as failed projects.”

But the Immigration Service’s combatting fraud isn’t the only reason for adjudication standards becoming more difficult. Enterline believes politics plays a role in this as well. He points to Trump’s executive orders and perceived internal directives that charged persons in authority with the mandate to make everything more difficult for immigrants.

And even though Trump is long gone, the impact of his policies and mandates is not. “The effects trickle down. And then a new pro-immigration administration comes in and people leave and are replaced with people who support the new administration’s immigration ideals. That’s great. But it takes time for that change to actually happen. It can’t all just be undone with a vote and a new president. Policies may have essentially become law and can’t be easily revoked by a new administration. It can take years to change.”

China post-RIA: reserved visas drive appetite for  rural investments

After years of investing heavily in EB-5 projects located in big and well-known cities, the backlogged Chinese market means  a new investor can wait over a decade for a visa. But, thanks to the RIA’s visa set-asides, a new investment in rural and high-unemployment areas offers potentially immediately available visas upon petition approval.

While the high-employment targeted employment area category existed pre-RIA, the new standards are tougher than before and likely to not allow as many projects in big-name cities. 

And faster priority processing — only for rural investments — will incentivize many to stop thinking big city and start thinking small town. 

Are Chinese investors familiar with this dramatic new policy, and how will it impact their entrenched preference for investment projects in big, well-known cities?

They are aware; they’re being made aware through the agent network,” says Enterline. “Agents are promoting it very heavily. And potential Chinese investors are listening because they’re thinking, 'Oh, I can do EB-5 and not have to wait 15 years? Maybe just two or three years?’ So that has superseded their comfort level with big cities.”  

RIA agent-fee disclosures: will they make a difference?

The EB-5 Reform and Integrity Act of 2022 has made other changes meant to protect investors. New provisions require that agents (“promotors”) be registered with USCIS and that all agent fees associated with an investment are disclosed in writing and submitted with each investor petition.

Considering that Chinese investors in the past were not being dealt with in a transparent manner, how does Enterline feel about this new RIA requirement for agent-fee disclosure? 

“My initial thought was, wow, excellent. That's going to upset the market and investors are going to benefit by reducing their total cost. But that's not going to happen. Right now, projects don’t even know what to do — what does disclosure really mean?” 

He has seen projects continue to use their pre-RIA disclosure statements that indicate there’s an administration fee that covers many costs, like administration, marketing, and broker and migration agent fees. But these disclosures are very general and have been used in EB-5 for the last five years or so after the Securities and Exchange Commission (SEC) became more involved in policing the industry. 

Even if some new disclosure standard becomes the norm in the EB-5 industry, Enterline is not confident that it will result in investor awareness of what agents are really making and how much they may be motivated in selling a particular project. “Investors, they're with an agent and they're signing up for an investment and they have the operating documents with 15 pages that the investor has to sign. They don't sit there and read every page. The agent flips the page, and tells them, ‘sign here and sign here and here and here.’  That's going to happen.”

Are Chinese agents unique?

Does Enterline’s skepticism about the lack of transparency with some Chinese agents mean that he thinks they operate differently than agents around the world?

His market familiarity is focused on  East Asia — Taiwan, Hong Kong, China, Vietnam, and, to some extent, India and Singapore. Still, he seems to believe that EB-5 agent culture is not the same worldwide. “I hear that other markets are a little bit different than East Asia. My experience  of India, for example, is everything's really transparent and above board partly because the Indian investor is going to take the time to read and understand ever word of the offering documents. 

Chinese and the future of EB-5: new lines for the set-asides may happen soon

China has been, by far, the biggest player in the history of EB-5. But in recent years, almost unimaginable visa wait times have cooled Chinese interest in the program. Are the RIA and the prospect of immediate visas enough to reignite interest in the program?

Enterline anticipates, to some degree, a repeat of what has happened in the past: “China, just by virtue of there being so many people, will again have significant interest in EB-5.”

However, he anticipates this interest will result in new lineups for the reserved visa set-asides — possibly in two or three years. “When that happens, the new Chinese investors in the set-aside lines will still jump ahead of the pre-RIA investors before them, but it's not going to be a wait of couple years to obtain the EB-5 visa. It could pretty quickly be a five or six-year wait for the set-asides.”  The problem is we probably will not know it is five or six years or longer until many thousands of investors have already file their I-526 Petitions, similar to 2014. 

Enterline’s take on China seems mixed: the set-asides will drive fresh market interest. But the RIA alone isn’t enough to protect investors from agents and investors that don’t demand careful investigation of investments. For Chinese investors, the old adage, even in this new EB-5 landscape, remains true: caveat emptor or buyer beware.

Read David Enterline's Chinese translation of this article

Read David Enterline's Vietnamese translation of this article

Stay informed about EB-5 news.