KleptoCast 8: Belinda Li talks to Seto Bagdoyan, director of Audit Services at the Government Accountability Office, about the EB-5 visa program.
By Belinda Li
The collection of rights and responsibilities that we call citizenship has formed the bedrock of democracy since ancient times. But in many Western countries, it is now up for sale.
For a substantial fee, it is possible to speed up the immigration process and acquire a passport with almost no questions asked. For example, Malta’s Individual Investor Program (IIP) and the UK’s Tier 1 investor visa program have both been criticized for their lack of transparency and oversight. But while these programs were created fairly recently, their U.S. counterpart, the EB-5 immigrant investor program, has existed since 1990 with little scrutiny or reform. In December, Congress again extended the EB-5 program until April 2017 without any changes. But given growing concerns about security and dirty money, is continuing this program justified?
Under the EB-5 visa program, foreign nationals can qualify for permanent residency by investing a minimum of $500,000 in a job-creating new commercial enterprise within the United States. Once the investment is made and the petition for permanent residency is approved by U.S. Citizenship and Immigration Services (USCIS), the investor is initially granted conditional residence; after two years, permanent residence puts them on the path to citizenship. The investor’s spouse and children may also obtain permanent residency under derivative status.
Originally, the program was intended to create jobs in the U.S. and encourage foreign investment in rural areas. However, due to abuses that have come to light in recent years, the EB-5 investor program has become a contentious issue for policymakers.
On the one hand, defenders of the program point to its economic benefits: USCIS reported that the program added about $700 million to U.S. GDP from 2001-2006, and created about 12,000 jobs in the same period. However, federal auditors believe that calculations of the program’s economic benefits are flawed, and law enforcement agencies have brought about allegations that the program may be facilitating terrorist travel, economic espionage, and money laundering. When the program was extended without reforms in December 2016, Senator Charles E. Grassley denounced the inaction by Congress as another missed opportunity to fix an immigration program that has been “plagued by fraud and abuse.”
I spoke to Seto Bagdoyan, director of Audit Services at the Government Accountability Office (GAO) and co-author of multiple reports about the EB-5 program, about its fraud risks and weaknesses, as well as the uncertain prospects for reform.
For starters, almost nothing is known about the backgrounds of applicants for the EB-5 program. The only information made available to USCIS is provided by applicants themselves on their application forms. Verifying it requires an enormous amount of resources, which currently USCIS does not have. Additionally, as immigration authorities have to sift through about 14 million pages of documents each year and the application process is far from being fully digitized, the process of spotting a criminal is, as Bagdoyan puts it, tantamount to “trying to find a needle in a haystack.”
These fraud risks are especially important to consider when looking at investment from China. Chinese nationals have consistently been the largest group of EB-5 investors, and this may not surprising, considering that China has the greatest number of billionaires in the world. However, given China’s crackdown on capital flight and corruption, there is increased concern that these investors are engaging in fraud and using the EB-5 program as a way to bypass the law.
In 2014, U.S. and Chinese prosecutors collaborated to bring charges against Jianjun Qiao, a former Chinese government official who laundered money through banks in China, Hong Kong, Canada, and the U.S., and gained conditional residency in the U.S. under the EB-5 visa program. According to the grand jury indictment, Qiao not only abused his position at a state-owned grain facility for profit, but also used those proceeds to buy real estate in the U.S. His ex-wife, Shilan Zhao, was able to attain a visa for Qiao by lying about their marital status (they had been divorced in China eight years prior), and the sources of her $500,000 investment in the EB-5 program.
The case of Jianjun Qiao is significant not only because it is the first documented case of a Chinese kleptocrat abusing the EB-5 program, but also because it reveals the extraordinary weaknesses of the program to detect such blatant breaches of the law. If Qiao was able to lie about his marital status, launder stolen government money to purchase a $500,000 home in Washington, and still be able to live in the U.S. for at least five years (he currently remains at large)— who is to say that other kleptocrats would not be incentivized to partake in similar low-risk, high-reward EB-5 fraud schemes?
In addition to multiple reports published by the Government Accountability Office, several news outlets, including Pro Publica and the New York Times, have highlighted the inability of the EB-5 program to safeguard against fraud and national security threats. In 2013, a Department of Homeland Security (DHS) senior special agent found evidence of major fraud, money laundering, and bank and wire fraud, in addition to ties to organized crime, while investigating a particular EB-5 project. During the same investigation, she also found that some EB-5 applicants were approved “in as little as 16 days” and that application files “lacked the basic and necessary law enforcement queries.” Following her reports, however, (some of which suggested that high ranking officials and politicians were complicit in EB-5 fraud schemes), she was removed from the investigation, which was eventually shut down altogether.
In light of the troubling evidence provided by journalists, prosecutors, DHS insiders and federal auditors, why has the EB-5 program been reauthorized 10 times since 1992 without any significant reforms? Some point to the influence of lobbyists and big money, others to a lack of legislative will to change the program. Bagdoyan notes that there is no clear party split on this issue, with both Democrats and Republicans supporting and opposing the extension of the existing EB-5 program. However, he adds, “neither side seems to have enough of a legislative ‘umph’ to move their particular point of view forward and try and do something with the program as it currently stands.”
Encouraging foreign investment is laudable, but doing so without taking measures to safeguard national security is not only unfair to those who cannot afford to pay for their citizenship, but also incredibly dangerous. While the West sees only a steady cash stream from these investors, kleptocrats see an avenue for exporting proceeds from their corruption into places protected by rule of law, and a safe haven for themselves and their families. As long as immigration authorities are willing to open doors for the wealthy while turning a blind eye to the sources of EB-5 funds, the program will continue to perpetuate a system that rewards the undeserving.
Since the EB-5 program is set to expire again in April 2017, now would be a good time for legislators to start planning some much-needed reforms. Immigration is set to become an even more contentious issue under the next administration: Here is Congress’ chance to put national security before revenue and score an important bipartisan victory.
Alexandra Fricke provided research assistance.