Focus on EB-5 and EB-2 Visas
Financial institutions are charged with mitigating the risks of products, services, and customers, and there are many risks presented in each area. For customer risk, one area that is often overlooked is the type of visa that a non-U.S. citizen has. Many institutions often don’t consider this as a risk factor to consider or even notice it when looking at the visa. The Department of State’s website gives this picture of a visa and the red arrow points to the visa type.
Various types of risk are presented depending on the type of visa presented. Some of the non-immigrant visas are for visitors (B-1, B-2) or for exchange students (J). According to law enforcement, J visas, particularly from Russia, are sometimes associated with money mule activity. Visa types are an important consideration when determining the risks presented by various customers.
There are two visa types that present an even higher risk of money laundering and those are EB-5 visas and E-2 treaty investors. Understanding the definitions of each of these will shed light on the specific risk factors associated with them both.
The EB-5 Immigrant Investor Program was created by Congress in 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors. On March 15, 2022, President Biden signed the EB-5 Reform and Integrity Act which created new requirements for the program. Here are the basics of the program:
All EB-5 investors must invest in a new commercial enterprise that was established:
- After Nov. 29, 1990; or
- On or before Nov. 29, 1990, that was:
- Purchased and the existing business is restructured or reorganized in such a way that a new commercial enterprise results; or
- Expanded through the investment, resulting in at least a 40% increase in the net worth or number of employees.
A new commercial enterprise means any for-profit activity formed for the ongoing conduct of lawful business, including:
- A sole proprietorship;
- Partnership (whether limited or general);
- Holding company and its wholly owned subsidiaries (provided that each subsidiary is engaged in a for-profit activity formed for the ongoing conduct of a lawful business);
- Joint venture;
- Corporation;
- Business trust;
- Limited liability company; or
- Other entity, which may be publicly or privately owned.
This definition does not include noncommercial activity, such as owning and operating a personal residence.
The key piece that makes this visa type of concern to financial institutions for possible money laundering is the requirement to invest between $500,000 and $1,050,000 depending on the type of investment.
Another type of investment visa is the E-2 Treaty Investor. To qualify for a E-2 classification, the treaty investor must:
- Be a national of a country with which the United States maintains a treaty of commerce and navigation;
- Have invested, or be actively in the process of investing, a substantial amount of capital in a bona fide enterprise in the United States; and
- Be seeking to enter the United States solely to develop and direct the investment enterprise. This is established by showing at least 50% ownership of the enterprise or possession of operational control through a managerial position or other corporate device.
“Investment” is the treaty investor’s placing of capital, including funds and/or other assets, at risk in the commercial sense with the objective of generating a profit. The capital must be subject to partial or total loss if the investment fails.
I find it interesting that the government website also states, “The treaty investor must show the funds have not been obtained, directly or indirectly, from criminal activity.” So, obviously the source of funds is a concern for money laundering.
Even so, the FFIEC Exam Manual has no real guidance on visa types and the concerns with them. That leaves the burden on financial institutions to determine on a risk-based approach how to handle the implications of various types of visas.
The first challenge is identification. If a customer presents a valid driver’s license and has a social security number, no question arises as to whether or not they are a U.S. citizen or a visa holder. Therefore, any risks associated with that visa type are unknown. Even if the person presents a visa, many front-line personnel are not trained to identify any associated risks.
Particularly, with the EB-5 and EB-2 Visa Programs, there are enhanced money laundering risks. The Financial Action Task Force (FATF) published in November 2023 a report entitled “Misuse of Citizenship and Residency by Investment Programmes.” This report highlights the concerns of these types of programs including money laundering and various financial crime risks.
One risk is “Identity Laundering”. Per FATF’s report, “Identity laundering is a method by which individuals may acquire secondary or multiple identities…this can mean applicants could acquire a passport under a different name, or with information that is slightly different from their other identity documents, which may prevent database searches from identifying known derogatory information about that individual.”
“If an illicit actor obtains a new identity via a CBI program prior to committing an offence, this may enable the individual to keep their original identity unaffiliated with the crime. Even where a person’s biographical details such as name and date of birth stay the same, an undisclosed new citizenship enables an individual to create ambiguity around their identity, which can prove challenging to law enforcement.” Per FATF
Another concern is the potential for Politically Exposed Persons (PEPs) to exploit the programs to launder illicit funds. Identification of PEPs and mitigation of the associated risks is even more challenging if you are banking those associated with EB-5 or EB-2 programs.
It rests on financial institutions to conduct sufficient Customer Due Diligence (CDD) to ensure that all customers, especially those presenting a higher risk do not exploit the financial system for criminal activity. If an institution determines to serve EB-5 and/or EB-2 visa holders, robust mitigations must be implemented.
