Secret Payments from U.S. EB-5 Regional Centers to Chinese State-Run EB-5 Agents Violate the Foreign Corrupt Practices Act

By Guest Blogger on June 28, 2016

Guest post by Dallas EB-5 attorney Shae Armstrong

The 1992 EB-5 Regional Center Program, a subset of the original 1990 EB-5 Immigrant Investment regulations, is set to expire on September 30, 2016. The EB-5 program permits U.S. companies to raise capital from foreign nationals seeking expedited permanent-residency status ("green card") in the United States. Chinese immigrant investors account for over 90 percent of the EB-5 visa category.

U.S. projects and regional centers contract with Chinese EB-5 capital placement agents (also known as migration agents or simply agents) in order to facilitate fundraising for their respective projects. Although Chinese investors may communicate with U.S. regional centers directly, the vast majority of these foreign individuals depend on middle-men brokers due to cultural and linguistic challenges. The Chinese government closely regulates their own migration agent companies. Agents are required to place a substantial bond of approximately $300,000 with the Chinese government’s Exit-Entry Bureau. Hence, such migration agent companies are, by definition, state-managed entities.

In consideration for placing capital in American real estate deals, these state-managed agents and their Chinese cohorts are handsomely compensated in the form of monetary payments from the U.S. regional centers, and in many instances obtain equity interests in the U.S. projects. Agents are the master controllers of the EB-5 supply to China because on most occasions, they can control which U.S. projects obtain EB-5 Chinese capital, and how much. Although most agents thoroughly underwrite potential projects, the vast majority of agents are influenced by above-market and secret capital placement commissions.

Although the Securities and Exchange Commission (SEC) regulation strictly requires that project sponsors fully disclose the ownership structure of the offering, far too many active regional centers and projects are failing to publicly and accurately communicate their precise share structures.

The anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) make it unlawful for a U.S. person to make payments to a foreign official for the purpose of obtaining business. Under the FCPA, the definition of a foreign official includes principals and employees of government-managed institutions or enterprises. Furthermore, Black's Law Dictionary defines bribery as "the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or other person in charge of a public or legal duty."

Thus, the undisclosed booty paid by American project principals and sponsoring regional centers to their Chinese-government-managed agents should be considered an act of bribery and clear violation of the FCPA. Rogue regional centers and projects in violation of the FCPA anti-bribery provisions are subject to fine and penalties of up to $2 million, and their directors, officers, stockholders, employees, and agents are subject to fines of up to $100,000 and imprisonment for up to five years.