Recently, China Central Television (CCTV), China’s state-run broadcaster, accused Bank of China (BOC) of money laundering by helping wealthy Chinese send their money offshore (the service is named “Youhuitong”). The following day, China CITIC Bank emerged as the second national bank implicated in offering to illegally transfer money overseas. Both banks decried the money laundering accusation, indicating that the investigation contains “discrepancies” and was “biased.” This news launched extensive discussion and captured the focused attention of EB-5 investors. Two major points are causing concern among the investors.
Will I-526 applications be declined if Youhuitong transfers investors’ money?
Investors are concerned that if they use Youhuitong to transfer their EB-5 investment capital, that the money laundering investigation will affect the USCIS approval process for the I-526. The USCIS requires two personal fund documents for EB-5 investments: Source of Fund and Path of Fund. The Path of Fund document provides evidence of money transfer. China controls the amount of money one can exchange into foreign currency; one citizen can exchange only US $50,000 worth of foreign currency per year. The traditional way to transfer money is to have friends or exchange facilitators perform the currency exchange in the amount of $50,000 per person, which has not been prohibited by the State Administration of Foreign Exchange. Another method is through underground banking in Hong Kong. Both methods have not been questioned by either the Chinese authorities or by the USCIS. Youhuiting gives the green lights to Chinese EB-5 investors. It follows the market trend and was launched by one of the big four banks in China.
Will the EB-5 market be cooling down?
There are two different opinions on this topic. One opinion is that China encourages overseas investments and that Renminbi(RMB) going abroad and overseas investments are inexorable trends. The State Administration of Foreign Exchange of China supports this “walk out” strategy. Youhuitong-type services offer to transfer large sums of money into foreign exchange in one step. While it may seem that Youhuitong-type services broke the foreign exchange rules, licenses for these type of services were issued to BOC in late 2011 and to CITIC Bank in late 2012 by the Guangzhou branch of the People’s Bank of China. In fact, “BOC and CITIC Bank are not the only banks providing these kinds of services. All major banks do. "It’s an open secret,”claimed an employee of a major state bank.This is a sign of relaxed restrictions in foreign exchange rules.
The opposing opinion believes that the Chinese government aims to cool down investments in overseas property. As President Xi Jinping’s Anti-Corruption Campaign is on-going in China, it could reduce the number of EB-5 investors. “Naked officials,” those who send their families abroad and move personal property overseas, account for a significant number of EB-5 investors. Now the “naked officials” phenomenon is being investigated on a large-scale as possible “money laundering activities.”
In EB-5 supermarket’s opinion, the cross-border Renminbi business is rapidly growing due to the developments of a global market and the internationalization of RMB. The State of Administration of Foreign Exchange tries to improve overseas investments and foreign exchange within allowable capital amounts. We anticipate that the EB-5 market will open up to the more “average” people seeking legal immigration investment options. EB-5 supermarket continues to study the Chinese market and policies in depth and will track the latest news of these on-going changes.
-John Li, 15 Aug,2014
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