U.S.
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Over a period of 18 months, Xu Dongmei and some 250 other wealthy internationals piled $156 million into what they were told was to become a state-of-the-art Chicago hotel and conference center.
But the “world’s first zero carbon emission Platinum LEED certified" business hub never was. Instead, it turned out to be an “elaborate” fraud to fleece rich foreigners seeking a pathway to U.S. citizenship through the investor visa (EB-5) program, according to prosecutors from the Securities and Exchange Commission (SEC).
Much of the cash was eventually returned to those who sunk upwards of $500,000 into the project, following a court order obtained by the SEC. But even so, around $11 million in administrative fees remain unreturned.
Legal experts with knowledge of the case — in which Xu joined as a plaintiff after the initial SEC filing — say many of those who were swindled are indifferent to the plight of their lost money. Rather, their concern is that they are no closer to getting the green card shot that drove them to the project in the first place.
The case of the hotel that never happened is just one that has exposed alleged abuses of the EB-5 system. Under the scheme, wealthy individuals from overseas are eligible to apply for a green card if they plow at least $1 million — or $500,000 in targeted areas of higher unemployment — into a project that will create at least 10 American jobs for a minimum of two years.
EB-5 may seem like a win-win for America's unemployed and China's rich, who make up the majority of investors. But some believe misinformation on investments is rampant. Even after numerous SEC warnings, some companies purporting to be connected to U.S. Immigration Department–accredited centers still manage to mislead would-be EB-5 investors.
What's more, the onus of due diligence falls entirely on the investor. U.S. immigration officials told Al Jazeera that it is up to individuals to ensure that projects they are funding result in sustainable living wages for Americans.
But pressure is being applied on Washington to start taking up some of the burden of oversight. Chinese diplomats — mindful that an uptick in U.S. applicants from the People’s Republic is expected following Canada’s decision last month to close its own investor visa scheme — told Al Jazeera they want the U.S. to better regulate the program.
Problems on the investor side of the EB-5 scheme are coupled with concerns over the actual impact they can have on job creation in the U.S.
Jorge Alvarado was employed by Northern Beef Packers (NBP) Limited, a major recipient of EB-5 funds in South Dakota.
The plant started production in October 2012. By the following July it found itself in financial difficulties and had to lay off Alvarado, along with 107 others of its 400 employees. Three months later NBP laid off over 250 more. It eventually filed for bankruptcy.
Alvarado is now heading a class action lawsuit against the firm, claiming he and others were not given proper notice before being laid off.
In court filings, the employee's lawyers claims that the failure to pay earned wages was “oppressive, fraudulent, or malicious."
EB-5 funding is expected to boost the economy and generate jobs, but some say the math behind the program doesn't guarantee American workers a sustainable living wage.
And earmarking certain Targeted Employment Areas (TEAs) — regions where unemployment is around 150 percent of the national unemployment rate — may not be entirely having the desired effect of funneling money into parts of the country that need it most.
A federal employee with knowledge of EB-5 told Al Jazeera on condition of anonymity that through a process described as a kind of “gerrymandering,” some states qualify districts where citywide unemployment rates don’t meet the unemployment threshold for TEA status.
And when projects begin to falter, some EB-5 investors say they aren’t inclined to pump more funds in. Rather, they are prepared to see their investment disappear, as long as they have the right to remain in the U.S. first.
A Chinese EB-5 visa seeker in his 20s, who spoke on condition of anonymity to preserve his immigration status, said he wanted to minimize financial risks in his bid for a green card, but wasn’t concerned with profiting from his investment in a TEA project based in a major city.
“You have to be rich to afford this,” he said, adding that the principal $500,000 investment “won’t hurt my family that much.”
On the other side of EB-5 projects, there appears to be little protection for investors.
EB-5 investments are not insured by law, according to New York–based lawyer Mona Shah, who has a long history of directing foreign investment to successful projects.
“Most of the projects say you can refinance after five years and get your money back,” Shah said. "Banks don’t refinance so easily."
And there is evidence that some middlemen websites seeking to link potential investors with EB-5 projects mislead would-be clients over the success of past projects and the chances of it leading to a green card.
Al Jazeera is aware of one such website that highlights a now defunct nightclub as a “success."
Another advertised a link-up with a Chicago-based restaurant chain that, when contacted by Al Jazeera, claimed no knowledge of requesting any EB-5 funding.
Such apparent misrepresentation was seen in the case of the Chicago hotel that never transpired. Alleged fraudster Anshoo Sethi submitted forms through his firms to immigration claiming that he had entered into a deal to execute the project with hotel chains including Hyatt. Hyatt had never entered into such an agreement, court records show.
A spokesman for the Chinese Embassy in Washington, D.C. condemned EB-5 fraud.
"China is opposed to all fraud against investor immigrants," Geng Shuang told Al Jazeera, citing Xu's investment in the Chicago hotel project. "I hope the relevant U.S. government agencies involved in [the EB-5 program] will strengthen supervision of projects, improve relevant regulations and eliminate the use of loopholes in the existing law to engage in criminal, fraudulent activities."
He added, "If necessary, China is willing to cooperate with U.S. law enforcement to combat illegal immigration practices."
Like Geng, U.S. legislators are calling for better regulation.
Earlier this month, a bipartisan group of legislators in the House of Representatives introduced the American Entrepreneurship and Investment Act of 2014, a bill calling for stronger regulation but one that makes no specific requirements of government agencies.
Despite the problems, it is in the interests of Beijing for EB-5 to run smoothly.
"The Chinese government is the biggest holder of U.S. bonds. It’s beneficial for China if the U.S. economy is going strong," said New York–based EB-5 lawyer Yi Song, who practices law in the U.S. and China.
Likewise, the U.S. has lots to gain from the success of the investor visa program, too. EB-5 has improved entire neighborhoods, Shah said, adding that the Brooklyn entertainment venue the Barclays Center received a large fraction of funding from EB-5 and created countless jobs, in a move that "totally changed Brooklyn."
"The issue is for the consumer to be a bit more educated about who he goes to and where he puts his money," she added.
Whatever EB-5 portends for the U.S. economy and investors, there’s more to come.
U.S.-China Chamber of Commerce president Siva Yam said the demise of Canada’s investor visa program "will draw some Chinese investors to America" who would have otherwise made a bid for residency north of the border.
For wealthy Chinese eager to put their capital abroad, risking becoming a fraud victim or a flop may be worth it amid greater scrutiny under Chinese President Xi Jinping's administration.
One EB-5 lawyer intimated on condition of anonymity that a number of public sector workers have attempted in recent years to send their relatives — and assets — to the U.S. through the EB-5 program.
Yam said that while China is very stable, it wants to pursue economic reform. "But the political reform isn’t there," he said. "The political situation creates anxiety for people."
Editor's note: This article was amended on April 22nd to clarify that the investors in the Chicago hotel scheme have now received their investment monies back, but have not had administrative fees returned.
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