Buying economic citizenship in the U.S. – When you point fingers, more can point back at you

 American Visa in the passport closeup issued in Kiev, Ukraine

*special contributor report*

By Sarah Beth Whetzel
BSA/AML subject matter expert at Palmera Banking Solutions
August 11, 2016

Compliance professionals are under intense pressure to identify and rate risky customers – a particular challenge when dealing with foreigners using visas because some types in recent years have been shown to be more vulnerable to criminal scams.

Typically, the topic of riskier economic citizenship has historically been reserved for offshore or Caribbean countries. But did you know that the United States offers a similar type of program, among the nearly 200 immigrant and non-immigrant visa programs, dubbed the EB-5 visa program?

Ah, there are those three fingers pointing back at us, an irony after the U.S. has been so busy pointing fingers at the perceived financial crime risks and failings of other countries, with specific attention paid to foreign citizenship programs tied to certain financial or investment thresholds.

Since 1990, under the U.S. EB-5 visa program, foreign investors can make an investment of at least $500,000, ranging up to a $1 million, and with that investment create or sustain at least 10 full-time jobs for at least two years, to get their start on a possible permanent status.

And like that, a foreigner becomes eligible to apply for a US green card, as well as a green card for their spouse and all of their children under the age of 21. This program, along with broader global immigration policies, have come under more scrutiny this year as terror groups look to expand their attacks to the U.S. and other countries even as their crumbling caliphate shrinks.

But, while at first blush, this may appear to be a no muss, no fuss dynamic where everyone wins – the foreign individual, family or business gets a US anchor point and this country gets new jobs – the EB-5 program has been rocked with scandals in recent years, so much so that Congress is debating whether to extend or terminate the more oft-used, lower-tier option, as soon as the end of next month.

In many of the largest states in the country, including Florida, New York, California and more than a dozen others, fraud and criminal acts have occurred on both sides of the EB-5 coin – with foreign scammers using their newly-gained U.S. footholds to launder illicit gains or, conversely, U.S.-based scofflaws taking advantage of naïve foreign investors to the tune of millions of dollars.

Those are just some of the findings from analyses by the Center for Immigration Studies, an independent, non-partisan, non-profit, research organization, which created an interactive map showing the depth, breadth of scope of EB-5 issues throughout the United States at state and federal levels, in the criminal and civil arenas. This begs the question, what should financial crime compliance departments do and what have U.S. regulatory bodies said about EB-5 risks?

Two questions immediately come to mind:

1) Why is there no guidance or regulatory prompting from the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) regarding these possibly higher risk resident aliens?

2) Why would the Department of State view our allies in the Caribbean, and around the world, as “higher risk” for allowing economic citizenship when we are providing a similar type of access?

The main difference is some countries are providing passports, while the US is providing conditional green cards, with 10-year green cards following, along with passing a US citizenship test, which can then be used for a passport application.

In face of EB-5 visa surge, scant guidance

According to a May 2016 article from the Migration Policy Institute, there has been a 2,700 percent increase in EB-5 applicants from 2005 to 2015. The maximum amount of EB-5 visas allowed per fiscal year is 10,000 with 2015 showing applications of 17,691.

Over the last few years this visa program has come under fire for several issues, including from being populated by alleged Ponzi schemers to allegations of favoritism from the Department of Homeland Security. The entire EB-5 visa program is expected to get an overhaul in the next few months.

Throughout the last 11 years, as the U.S. government has issued various manuals and pieces of guidance from the U.S. Treasury and federal banking agencies, including FinCEN and the interagency Bank Secrecy Act/Anti-money laundering (BSA/AML) Exam Manual, there has been nary a mention of a type of visa that could indicate a higher risk for money laundering.

There is also scant guidance or information found on the FinCEN website when searching for EB-5. (see below)
FinCEN graphic one

This is not an attempt to put FinCEN in the hot seat.

However, if the spirit of the law is to know and mitigate the risks associated with money laundering and terrorist financing, wouldn’t it be prudent to let financial institutions know that if a new customer, or a new business, or a new loan applicant, provides an EB-5 visa as documentation for opening an account, that it should be treated as a red-flag for further review and accounting for in the customer’s risk profile?

Or if a new customer presents a green card as their customer identification (CIP) documentation, that a good follow-up question should be what type of visa allows them to be in the US?

Laundering, fraud risks tied to EB-5 visa

There are many mentions of nonresident alien risks in the AML Exam Manual, but nothing mentioned of the possible risks posed by resident aliens (green card holders).

According to the U.S. Customs and Immigration Services (USCIS) site, an EB-5 investment can be in the form of cash, cash equivalents, equipment, inventory or other tangible property.  It can also be a gift of funds (as long as taxes are paid).

This seems ripe for the second or third step in money laundering.

Since we know larger laundering and terrorist financing organizations would see $500,000 as the “cost of doing business,” wouldn’t FinCEN want institutions to know of these riskier visa types or citizenship programs?

Instead a green card holder or a resident alien is seen at some institutions as little to no risk.

But having more details about the type of visa behind the green card could provide a broader and richer contextual risk framework for certain customers and would enable an institution to make the best decision given ALL the information.

Fraud and tax evasion risk seem to be the main focus of the current EB-5 due diligence efforts taken by USCIS. Again, according to their site, the foreign investor must include the following in their application:

  • Verification that a new commercial enterprise has been established, such as a business license, articles of incorporation and/or evidence of transfer of initial capital investment required to purchase or invest in an existing business
  • Verification that the necessary amount of capital has been placed at risk through bank statements validating deposit of funds into the business account, purchase of business equipment, transfer of property or evidence of funds transferred to the business account in exchange for shares of stock
  • Proof that the capital invested was legally gained, such as foreign business registrations, tax returns or certified copies of civil or criminal judgments
  • Proof that the foreign investment created the necessary 10 full-time employment positions, through tax returns, Forms 1-9 or if employees have yet to be hired a detailed business plan which demonstrates that the business will require a minimum of 10 new full time employees within two years. If the investment is made in an existing business experiencing financial difficulty, the foreign applicant must submit proof that current employment positions will be secure for at least two years


EB-5: By the numbers


In FY 2013, USCIS approved a total of:

  • 3,699 Form I-526 petitions (Immigrant Petition by Alien Entrepreneur)
  • 844 Form I-829 petitions (Petition by Entrepreneur to Remove Conditions)
  • 118 Form I-924 applications (Application for Regional Center Under the Immigrant Investor Program)

In FY 2014, USCIS approved a total of:

  • 4,925 I-526 petitions
  • 1,603 I-829 petitions
  • 294 I-924 applications

In FY 2015, USCIS approved a total of:

  • 8,756 I-526 petitions
  • 1,067 I-829 petitions
  • 262 I-924 applications

Based on these numbers, it is estimated that at least $8.7 billion has been invested into the U.S. economy through the EB-5 program since October 1, 2012. In terms of job creation, based on the number of approvals of Form I-829 to remove conditions on permanent residence since October 1, 2012, it is estimated that an aggregate total of an estimated 35,140 jobs have been created for U.S. workers through foreign investment via the EB-5 program.


EB-5 illicit acts, how it can work

Let’s look at a potential “real life” scenario:

FinCEN graphic 2

Critical questions for banks, government agencies

I’m sure the federal agents at U.S. Citizenship and Immigration Services (USCIS), part of the Department of Homeland Security (DHS), perform some type of due diligence on these applicants, more than for fraud purposes. Right?

Since this type of investment from overseas (wealthier) individuals can be fraught with money laundering, terrorist financing and fraud risks, is it safe to assume that USCIS is doing more than what they listed above?

Are they cross-referencing these individuals with suspicious activity report (SAR) subjects or names in narratives before granting the initial conditional green card or heaven forbid, the permanent green card?

Is there appropriate due diligence given to the pool of private investors that can be part of the equity sharing of an EB-5 visa holder?

In reports and statements to Congress in February, the head of the EB-5 program, Nicholas Colucci, who took over the program in December 2013 after a nearly five-year stint as FinCEN’s associate director, stated he was trying to improve program oversight and better identify and cut down on fraudulent activities, chiefly by adding more dedicated staff to investigate anomalies, engage in more surprise site-visits to regional centers and close operations that have run afoul of proper operating procedures.

As a side note – there are two different types of investments an EB-5 applicant can go with – a direct investment or through a regional center.

Investing through a regional center adds another layer of risk as these existing investors (other companies in the area) share in the risk of this new business venture being successful. The USCIS requirements are less extensive if the EB-5 program is through a regional center. This really is a dangling thread – when pulled on by curious AML-minds, it just unravels.

Unless US institutions are aware of the risks associated with citizenship investors (EB-5 visa holders) how can they have a proper context of the customer or the business?

Without this proper context of the customer, an institution may make decisions regarding potentially suspicious activity without all the facts. A new business that is funded by an overseas business from an EB-5 investor would strike most savvy BSA Officers as something to look further into.

I’ve been in numerous institutions in South Florida and border-towns in Texas and the type of visa, if collected at all, was a stagnant piece of information in the core system. There was no trickle-down effect to the BSA/AML area to be incorporated into the institution’s overall risk assessment or the individual customer’s risk profile.

Since FinCEN has been silent on the risks presented by certain visa holders, should institutions take it upon themselves to implement mitigation measures? Can a BSA Officer make an effective case for change with their management if there is not a threat of being marked down as “noncompliant?”

And my favorite question – does the charge of willful blindness extend to government agencies?