Scandals in the Sun

​Image: tpsdave | CC0 1.0

By Belinda Li

Los Angeles is known for its sunshine, traffic, palm trees, and – more recently – huge influxes of Chinese money. Perhaps because of the weather, or because of the historically large Chinese diaspora there, Los Angeles has been one of the most popular destinations for Chinese nationals to reside. Along with the money, there have been plenty of scandals, including raids on “birthing houses” for wealthy Chinese women, and the discovery of a mansion owned by a corrupt Chinese railroad official in the suburb of Walnut, California. The latest scandal—the unraveling of an EB-5 visa fraud scheme in San Gabriel—is another successful example of the authorities rooting out illicit activity, but it highlights the weaknesses of a program that continues to pose significant fraud and national security risks.

According to the affidavit filed in support of the search warrants, Victoria Chan and her father Tat Chan persuaded over 100 Chinese nationals to invest more than $50 million into a fund that was used to enrich themselves, and provided green cards to the foreign nationals without following EB-5 regulations. California Investment Immigration Fund LLC charged clients a $200-dollar consultation fee, and promised to return the $500,000 required investment within five years. While most of the funds were returned to investors, the money was not used to create jobs in the U.S. (as intended by the EB-5 program), but instead used to purchase large plots of land which would sit empty and provide a cover for the Chan family to purchase luxury cars and multimillion dollar properties.

The California Investment Immigration Fund LLC could be viewed as just another bad apple in the vast EB-5 visa business, but as the expiration date of the program looms closer, cases like these will make it harder for legislators to stand by the program. In January, Senator Feinstein (D-CA) introduced S.232, a bill to terminate the EB-5 visa program and redirect the nearly 10,000 annual EB-5 visas to other existing immigrant visa programs. It is unclear whether the bill will pass and be signed into law anytime soon, but with EB-5 fraud cases continuing to surface, even those who support the program ought to seriously consider reforms.

The San Gabriel case underscores the abuse of the program by EB-5 fund solicitors, but also reaffirms the national security risks that are created by a program that has minimal safeguards against fraud committed by its applicants. Back in January, I highlighted how immigration officials are overwhelmed by the amount of paperwork involved in conducting proper background checks on applicants, and how a lack of resources needed to cross check information on applications made it essentially impossible to determine with certainty who would be obtaining EB-5 visas.

Thus, it came as no surprise that at least three of the investors who received green cards from the California Investment Immigration Fund were on China’s “100 Most Wanted” fugitive list. This included the former director of the Development and Reform Commission in Wuhan and his wife, both of whom are wanted for embezzling money and accepting bribes. The fraud scheme was hauntingly similar to the case of Jianjun Qiao uncovered in 2014, where false information was provided on immigration forms in order to thwart authorities from knowing the true identity of the applicant.

The importance of strengthening background checks on applicants is even more salient given the current trends in immigration reform. While President Trump has called for “extreme vetting” of immigrants, he has not mentioned the EB-5 program in his list of immigration programs he hopes to overhaul. This has led to a spike in EB-5 applications, as wealthy foreigners now view the program as one of the only reliable ways to obtain a U.S. visa. With demand soaring, the likelihood of immigration authorities allowing a falsified application to fall through the cracks is even greater.

If the necessary reforms are implemented, it is possible for the EB-5 program to continue and maintain its integrity. Created by Congress to provide jobs for Americans in high unemployment areas, the EB-5 program is likely to be one of the few immigration programs that President Trump views favorably. However, if the program continues without substantial reforms (as it has for the past twenty years), it is clear that it will continue to be exploited by foreign criminals and unscrupulous American entrepreneurs. If the only options are either renewing a program that poses significant fraud and national security risks or simply eliminating it, legislators would be wise to choose the latter.

Belinda Li is a Research Associate at Hudson Institute’s Kleptocracy Initiative. Follow her @bli_hudson.