Guest Post: China's Regulatory System for EB-5 Agents

Today we have a guest post from a colleague on-the-ground in China.

EB-5 REGULATION IN CHINA

By Steven Blayney, Esq*

By some estimates, roughly 80% of EB-5 investors in the popular USCIS EB-5 regional center program are from China.    Given the importance of Chinese investment to the EB-5 regional center program, it is crucial that U.S. EB-5 regional center principals marketing EB-5 investments in China understand the Chinese regulatory framework for administering EB-5 in China.  The following brief overview of the Chinese EB-5 regulatory regime is based upon my review of  The Measures Concerning Implementation of Administration of the Activities of Emigration Agencies (effective January 1, 2002) issued by the Beijing Public Security Bureau, and the Beijing Administration for Industry and Commerce; the Circular Concerning Risk Prevention in Undertaking U.S. EB-5 Business issued by the Beijing Entry & Exit Service Association (2011 No. 029) (北京因私出入境中介机构协会 ); and my conversations with relevant Chinese government officials. 

The Chinese EB-5 Nutshell

At present, EB-5 investments in Mainland Chinese (excluding Hong Kong, Taiwan, and Macau) may only be sold through Chinese emigration intermediary service organizations (中介服务机构) that (a) have been licensed by relevant provincial-level Chinese Public Security Bureau Entry-Exit Administration Bureau; (b) have executed written cooperation agreements with qualified U.S. immigration lawyers with at least 3-years EB-5 experience; and (c) whose EB-5 projects have been vetted and approved by the relevant local Public Security Entry-Exit Administration Department.    A Mainland Chinese emigration agency may not sell an EB-5 investment unless it meets all three of the above criteria.  While Chinese emigration agencies are administered at the local provincial level by the relevant local Public Security Bureaus and relevant local Entry & Exit Service Associations (因私出入境中介机构协会 ), the general administrative framework is the same as in Beijing. 

The Chinese regulatory framework for administering Chinese emigration agencies in China is consistent with the standard dual overlapping State-Party administrative structure:  The relevant local Public Security Bureau Entry-Exit Administration Bureau administers matters within the State administrative structure, while the relevant Entry & Exit Service Association administers Party matters.  For example, item 1 on the last page of the Circular Concerning Risk Prevention in Undertaking U.S. EB-5 Business issued by the Beijing Entry & Exit Service Association states that Chinese emigration agencies in Beijing must implement risk prevention measures in respect of EB-5 projects, and when undertaking EB-5 business, must engage in “self examination and self-correction” (自查自纠) , which is Party administrative parlance for relevant persons writing reports on others and circulating such reports within the Party organizational web.   

Due Diligence

According to relevant Chinese government officials that I have spoken with, it is possible to undertake a limited due diligence investigation of a Chinese emigration agency by visiting the relevant local Public Security Bureau Entry-Exit Administration Department administering the Chinese emigration agent.  At a minimum, this government department should be able to tell you whether the Chinese emigration agent is licensed to engage in U.S. EB-5 specific work; whether the Chinese emigration agent has executed a written cooperation agreement with a qualified U.S. EB-5 immigration lawyer; and whether the specific EB-5 investment project has been vetted and approved for sale in China by the Chinese government.  According to my discussions with relevant Chinese government officials, no Chinese emigration agency may execute more than 2 cooperation agreements with U.S. EB-5 immigration lawyers.  Termination or amendment of the cooperation agreements with U.S. EB-5 immigration lawyers must be filed immediately with the relevant local Public Security Bureau Entry-Exit Administration Department.

Relevance to U.S. EB-5 Regional Centers – Who cares?

From the perspective of the U.S. EB-5 regional centers, blind reliance upon Chinese emigration agents to obtain Chinese government approval of EB-5 investment products for sale on the Chinese market may be problematic.  It is clear that the Chinese emigration agents have an incentive to make money.  It is reasonable, therefore, to assume that some Chinese emigration agents may be inclined to favor large EB-5 regional center projects that offer the highest commissions and require a large number of investors since such EB-5 regional center projects are the most profitable to the Chinese emigration agents.   Theoretically, such Chinese emigration agents may be inclined to not submit (or to not diligently push) some EB-5 regional center investment project approval applications with the relevant Chinese government approval authorities for sale on the Chinese market.  

For more information on how to undertake due diligence in China in respect of Chinese emigration agents and how to get your EB-5 regional center project investment approved for sale in China, please contact me at:     BlayneyConsulting8888@gmail.com

*Steven Blayney is a U.S. and Australian qualified lawyer admitted in Washington State, and Queensland, Australia.  Mr. Blayney has over 2 years’ experience with EB-5 in China. Mr. Blayney speaks and reads fluent Mandarin, Chinese. 

EB-5 Trend Numbers from 2001 to 2012

And, continued from the previous post about the Top Five EB-5 Originating Countries, here are the EB-5 visa numbers from FY2001 (188 visas) to FY2012 (7,641 visa). What a difference ten years makes! (Click on the chart to make it bigger.)

The State Dept. numbers refer to people who are overseas and obtain their greencards through consular processing, while the USCIS numbers refer to people who are already in the United States on a non-immigrant visa (such as student visas or work visas) and adjust their status through an I-485 petition.

Top Five EB-5 Originating Countries

The IIUSA has compiled EB-5 Visa usage numbers released by the Department of State. (A bit of background. While the gatekeepers of the immigration process is the USCIS under the Department of Homeland Security, the actual visa issuances are under the purview of the Department of State. That is why visa numbers are issued by the DOS and not the USCIS for those of you who might be curious.) Here is a breakdown of the top five originating countries for the past five years. (Click on the chart to make it bigger.)

Chart source: IIUSA

Here's the key to the EB-5 category breakdown:

C5: Direct EB-5 in TEAs ($500K projects)
T5: Direct EB-5 in non-TEAs ($1M projects)
I5: Regional Center EB-5s in TEAs ($500K projects)
R5: Regional Center EB-5s in non-TEAs ($1M projects)

Those of you new to the EB-5 can read about the difference between Direct EB-5s vs. RC EB-5s here. Also, please note that visa numbers are not the same as I-526 numbers. I-526 petitions are filed by the investor who is investing; so if the investor has 3 qualified dependents (i.e. spouse and unmarried children under the age of 21), that means that 4 EB-5 visas were issued for that single I-526 petition.

Some interesting facts that we learn from this chart:

1. There are in fact $1 million Regional Center projects! Obviously not many as only 5 visas were issued out of the total 4,813 EB-5s as a $1 million Regional Center project - but still, they do exist! (And recently a major Regional Center had ambitiously announced a $1 million RC EB-5 project, so we can expect these numbers to go up a bit next year.) But still, the take-away is, all things equal, people will not pay $1 million for something they can get on the market for $500K.

2. These top five originating countries accounted for 90+% of EB-5 visas issued in FY2012.

3. Mainland China accounted for 80% of EB-5 visas issued in the first three quarters of FY2012.


4. The numbers are bumping against the 10,000 yearly quota that has never been met before. (Which is leading to concerns over backlog in China's per country quota - I'll do a separate post on this soon.)

5. Venezuela made the list for the first time!

6. There are Iranians who prevail through the arduous OFAC (Office of Foreign Asset Control) requirements of the USCIS (even more stringent than the OFAC office itself requires!) and succeed in gaining permanent residency in the United States.

There we have it folks.