Financial Information Exchange Would Enhance Integrity in the EB-5 Investor Program

By Dan Cadman on September 8, 2015

Last week, my colleague David North wrote a blog post about problems within the EB-5 investor program, including rampant fraud. This particular post discussed, among other things, a member of the private immigration bar's advice to potential investors to always tell the same story about the source of their funding, lest the U.S. government trip them up when comparing EB-5 applications with, for example, nonimmigrant visa applications previously filed and on record with the State Department.

The advice comes perilously close to coaching applicants toward fraud, in my opinion. After all, if the information put on one application is the truth, then why would it not be materially consistent with the information in any other application? But the fact is that immigration applications and adjudications are, for the most part, either paper- or electronic-based and rarely involve personal interviews or (to my own dismay) much digging on the part of the examiners, who seem to be on a kind of benefits assembly line where the only thing that matters is the number of approvals churned out in a month.

Meantime we find out, courtesy of a few media outlets (not many carried the story), that the United States has lodged a protest with the People's Republic of China (PRC) because Chinese law enforcement officers appear to be operating within our country (and others) without knowledge or permission of, or oversight by, our government. The focus of the Chinese enforcement officers is to detect individuals who have amassed substantial fortunes through fraud and corruption and then fled to live the good life elsewhere. The program, Operation Fox Hunt, seems to be formal and reasonably long-standing. It seems to me particularly relevant to the EB-5 program, given that PRC nationals make up the bulk of investors in the program. Chinese officials undoubtedly wonder how so much money is washing out of their country and into this one, and clearly suspect that a significant portion of it is due to graft and bribery.

Given all of this, doesn't it seem clear that both governments would benefit โ€” as would the integrity of the shaky EB-5 program โ€” if there were a formal agreement to exchange information with China about investor applicants who are PRC nationals? After all, as North notes in his blog, there is a Chinese State Administrator of Foreign Exchange charged with monitoring outward flows of money from China.

Wait, you say, that would violate the applicants' privacy rights! Not so. Federal privacy law is clear: Privacy protections apply only to "U.S. persons" who are specifically defined as U.S. citizens or lawful permanent residents (LPRs). Applicants for resident status, such as through the EB-5 program, are not yet LPRs, and have no right to privacy. (You can take a look at the language of the Privacy Act, 5 U.S.C. ยง 552a, verbatim on the website of U.S. Citizenship and Immigration Services (USCIS), the agency that handles immigration benefits. Look specifically at the definition in subsection (a)(2), right toward the top.)

I am not suggesting an agreement that covers all other kinds of applicants. For example, it would clearly be inappropriate to do so with people seeking refuge or asylum. But by agreeing to exchange information formally, through a bilateral agreement, the U.S. government can define the parameters and provide for built-in checks and balances against misuse of the information to be exchanged. Establishing such an information exchange seems particularly apt for intended investors. And certainly China has a massive problem with official corruption. We do not want to be party to corrupt officials finding a safe haven for themselves or their money, having accrued it in ways that often mean victimization of ordinary Chinese citizens (such as the recent chemical fire disaster in Shandong Province, which resulted from allowing a massive storage plant for dangerous chemicals to be constructed too near residences, in violation of existing safety codes).

One last note for those who remain troubled by the privacy aspects: The federal government has in place tax treaties with several foreign governments permitting it to exchange information contained on your tax forms under defined circumstances, even if you are a United States citizen. One of those nations is China. Still feeling squeamish about the idea of the U.S. government sharing information on PRC citizens with their own government?