Comment: Chinese CEO Arrested

Chinese CEO Arrested

The CEO of one of the largest Chinese agents along with several of her family members were arrested in Shanghai this week on illegal money transfer charges. See here and here. We analyze the action and its consequences below.

  • What actually happened?
  • How does this impact the Chinese EB5 market?
  • How does it impact the global EB5 market?
  • What should the EB5 industry do?
  1. What actually happened?
  • The actual charges against the CEO and her family members/colleagues were for doing illegal money transfers–accepting RMBs in China and releasing dollars overseas. Note that the charges were about money transfers, and not about EB5.
  • From the list of co-defendants, it is clear that the government is targeting the CEO and her family–sending a message that the heads of other large Chinese agents and their families could also be a target.
  • This action fits a larger pattern in China – China is facing financial difficulties and the government is taking action to stop capital leaving China. The Chinese government does not care about people leaving–only about capital leaving.
  • The charges show two levels of offenses: Inhouse transfers which are being treated more harshly by denying bail, whereas third party transfers, and referrals to money transfer agents are facing lesser charges and have been granted bail.
  1. How does this impact the Chinese EB5 market?
  • Enforcement actions in China are historically uneven, and highly dependent on the connections of those involved. The big Chinese agents are generally well connected, so the final outcome of such an enforcement action is unknown at this time.
  • A significant amount of money has left China over the past many years, and is parked outside of China in real estate and other assets throughout the world. If that money is used for EB5, there is no objection from the Chinese government, since that would not constitute any capital leaving China now. Also friends of those wanting to do EB5 may have money parked outside; the use of that money for EB5 does not constitute capital leaving China now.
  • Chinese demand for EB5 has been massively stoked by the RIA through reducing the waiting time from 12-15 years to 1-2 years, so this demand will remain a major impetus in ensuring continued Chinese participation in EB5. Transactions will likely move from big agents (who are easier to target) to smaller agents in China. 
  • The costs of doing EB5 will rise: Well connected money transfer companies (independent of Chinese agents) will charge a premium to get the transfers done. EB5 money transfers will continue albeit at a higher price.
  1. How does it impact the global EB5 market?
  • The two large markets after China, namely India & Vietnam, will get a boost as a result of the problems in China. (There are two separate Indian markets with their own separate dynamics: Indians in India and Indians in the USA. Both will receive a boost.)
  • The quality of EB5 offerings will fall: Large Chinese agents use a modest whetting process to filter EB5 projects. With the reduction of their participation in the EB5 market, the average quality of EB5 offerings will be lowered. Distribution of EB5 securities will get harder, since the volume that large Chinese agents provide is not replaceable by any other source. This will raise agent fees in the short run.
  1. What should the EB5 industry do?
  • We encourage the EB5 industry to persuade USCIS to keep Source of Funds determinations solely focused on US laws. USCIS cannot rely on agencies of foreign governments for this purpose because the policy objectives of the foreign governments are opposite to those of the US (capital leaving China vs capital entering the USA). Besides, USCIS cannot claim any expertise in foreign finance laws. EB5 funds are likely the cleanest money in the US banking system, making it harder for EB5 investors to use money transfer agents to get around foreign money transfer restrictions will not make EB5 funds any cleaner than they already are.
  • The industry will do well to focus on markets other than China, the biggest of which is India. With the opening of the Chinese market, many in the industry abandoned India and rushed to China. The Indian market is harder to sell to because both Indians in India & Indians in the US have higher financial savvy and are not unduly swayed by slick marketing material. Succeeding in Indian markets requires changes to offering terms as well as staffing by issuer-related entities.

We will be following the developments in the Chinese market closely; stay tuned to ILW.COM for the latest.

Please let us know your thoughts by writing to us at

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