By now you may have figured out that EB-5 Agencies in China are a bit like
the Cuba Gooding character in the film Jerry McGuire. They tend to have one
thing on their mind: “Show me the money.”
CAUTION: The unfortunate situation is that EB-5 Agencies in China are more
interested in how much they are going to be paid than they are in anything
else, including the financial soundness of the investments that their
investors may make. It is a reality that you are going to have to deal with.
They will talk a good game about wanting to know your reputation and
experience, but, at the end of the day, it is probably going to come down to
how much money you are willing to put into their hands. This is especially
true with the larger EB-5 Agencies. Many of those agents have become quite
wealthy by using the EB-5 mechanism to extract large fees and commissions
from U.S. Regional Centers who are willing to pay large sums of money in
order to locate investors.
Rarely, if ever, do Chinese EB-5 Agencies do any due diligence into Regional
Centers or the actual projects they sponsor. The fact is, they don’t care. They
will arrange to make connections between investors and projects, take as
much as they can get from the investors and the Regional Centers, and then
not worry about whether the project is able to reach its full potential. If the
project fails, it is not their fault. If you, as a client, complain that a project did
not live up to your expectations, it will be your problem, not the Agency’s.
John Roth, an immigration attorney, financial advisor, and EB-5 consultant,
visited several EB-5 Agencies in China to offer them due diligence services to
investigate Regional Centers and their projects. He asked a mere $10,000 for
his services. Not one Agency was interested in his offer, despite it being a
small amount compared to the millions of dollars large Chinese Agencies are accustomed to handling.vii He describes the situation as “A pernicious selfselection
process going on in the China EB-5 market, [to the extent that] the
more sophisticated and analytically-oriented investors are not likely to sign
on with an emigration agent at all.” Having analyzed some of the major
scams in the U.S. involving EB-5, he found that “all show the same pattern of
small projects finding investors in China by paying very high fees to Chinese
emigration agents, and no one performing even superficial due diligence.”
So, where does that leave us in terms of building a long-term relationship
with a Chinese EB-5 Agency?
My editor had a saying when he was in business. “It’s not so important that the
guy I’m working with is a snake. It’s much more important that I know that he is
a snake. He is what he is. I just have to know what he is so that I know how to
deal with him.”
IDEAS:
We have already discussed having documentation. We suggested
that you not expose everything about your project, but rather do so
bit-by-bit. Expand on that by not being in a rush to expose it all until
you are certain that the Agency is more interested in your project
than your money. If you sense that it is more about the commission
than about the project, walk away.
The fact that they may not be inclined to perform due diligence is all
the more reason for you to do so regarding them. You can save a lot
of time and expense by checking with trusted friends in the U.S. who
have dealt with specific Agencies in China. Drill down for the facts.
Don’t just look for big problems. Look for tainted histories.
Sell your project, not your soul.
Agencies will often be interested in your future projects as well as your
current ones. Resist the temptation to discuss the future. You are not there
yet and you don’t know any more about tomorrow than you did yesterday.
Be honest to the extent of expressing your intent to be in the EB-5 business
for a long time to come.
Regardless of whether your business is EB-5 or mowing lawns, long-term
relationships are always built on trust and performance. Regardless of cultural
differences between Americans and Chinese, trust and performance are still the fundamental building blocks of a long-term relationship. Prove your
trustworthiness. Check theirs. Demonstrate your success. Investigate theirs.
Written contracts can certainly provide a sense of security regarding the term of
your business relationship, but they need to be enforceable. This is where
knowing Chinese emigration and U.S. immigration law and general business law
is important. The issue will not be the length of the contract; it will be whether
or not you choose to do business with a particular Agency.
No matter how we try, it still comes back to the money. Trying to determine
what is the right amount to pay for an Agency’s services is like Joe Average
trying to figure out what a new car is really worth compared to the sticker
price. He’s never going to find out, so capitalism comes into play. He buys
the car when the price gets to the point where he feels it is a good deal.
Frankly that, aside from due diligence, is probably the best you can expect
to do in trying to establish a relationship with a Chinese Agency.
Know ahead of time what you are willing to pay, then don’t budge from that
amount. Don’t do it. They will negotiate to get more, but do not budge. By
holding firm, you will demonstrate your integrity. They may not like it, but
you will soon discover which Agencies are interested in establishing a long
term relationship with you.