The EB-5 Test

In 2008, the director of the Zhoukou Municipal Grain Reserve in China’s agricultural Henan Province began moving money overseas. Qiao Jianjun sent $4 million to U.S. banks. $2 million went to Canada. Another $6 million went elsewhere: Singapore, Switzerland, St. Kitts. Mr. Qiao’s wife obtained a U.S. visa and moved to Seattle and bought a four-bedroom home. In 2011, Mr. Qiao skipped town, flying out of Zhoukou City and joining his wife in the United States. The law caught up with Mrs. Qiao in 2015, arresting her for fraud and money laundering. She’ll do five years. Mr. Qiao is in the wind.

The story of the Qiaos should be of some interest to the new Trump Administration because they arrived in the United States thanks to the controversial EB-5 visa program, which is up for renewal in April. The Obama Administration proposed changes to the program on its way out the door. How the Trump Administration handles the proposed changes will provide an early test of its approach to real-world corruption issues.

Powerful forces are arrayed on both sides of the program. Currently under EB-5, foreigners — they are mostly Chinese citizens — gain a green card and a path to U.S. citizenship by putting up $500,000 to be used for job creation in the U.S. in a high unemployment district. Development projects financed by EB-5 are supposed to be centered in economically distressed “targeted employment areas,” but usually they’re not. Marketing for the program is hot, gaudy and largely unregulated. The program is beloved by the real estate industry because of the cheap financing it provides, bringing in $15 billion to $20 billion in easy money in the last decade and financing development projects in such distressed areas as Manhattan, Brooklyn, Las Vegas, Miami and Beverly Hills. Mr. Trump himself is loosely connected to the program through a $40 million EB-5 play by a Trump-branded luxury hotel in Austin. His son-in-law and senior adviser, Jared Kushner, raised $50 million in EB-5 funds for a luxury tower in New Jersey.

Critics say EB-5 is a magnet for fraud and a vehicle for rich foreigners to purchase U.S. citizenship. Senator Charles Grassley denounced it on the floor of the Senate in December, saying the program “poses significant national security risks” and may be “facilitating terrorist travel, economic espionage, money laundering and investment fraud.” A Government Accountability Office report said international funds for EB-5 visas could come through the “drug trade, human trafficking, or other criminal activities.”

And those “targeted employment areas” intended to serve economically hard-hit regions? These days, critics charge, they’re often nothing more than a byzantine gerrymandering of pockets of high-unemployment mapped from census tracts to create a qualifying district.

The proposed regulatory changes go some distance to addressing reform concerns. The minimum qualifying amount for an EB-5 visa would be raised from $500,000 to $1.35 million for projects located in targeted unemployment areas. The power to designate such areas would be taken away from the states and given a consistent national standard. Transparency and accountability would be improved. Truly needy regions would be given a better shot at the money.

The real estate industry has reacted to the proposals with fear and loathing. “You can legislate all you want,” one EB-5 attorney told the Commercial Observer, “but if the bill went through as is, it would kill the program.” EB-5 proponents are looking to President Trump as a kindred spirit. “If you put aside his politics and just understand him as a real estate owner and investor,” John Banks, president of the influential Real Estate Board of New York told the Observer, “Trump understands that EB-5 is a good thing for the real estate industry.”

As for the case of the corrupt Chinese grain official and his wife, it turns out that Mrs. Qiao in fact was not Mrs. Qiao. Her name is Zhao Shilan. The couple had divorced in 2001 but claimed they were married on their EB-5 visa application. Riding EB-5, Ms. Zhao established U.S. residency, bought property and created shell companies with the stolen millions while waiting for her “husband,” who continued to loot Chinese government coffers until the scheme started to crumble. Then he got on a plane to the U.S. Then he disappeared.

Zhao Shilan went to jail for immigration fraud, money laundering, and international transport of stolen money. Mr. Qiao was last spotted in Switzerland. His run of great good luck will continue if it is the Americans and not the Chinese who catch up with him. In China, the sentence for official corruption is often a bullet to the head.

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Micah Morrison is chief investigative reporter for Judicial Watch. Follow him on Twitter @micah_morrison. Tips: mmorrison@judicialwatch.org

Investigative Bulletin is published weekly by Judicial Watch. Reprints and media inquiries: jfarrell@judicialwatch.org.

First published January 25, 2017.