The Chinese Supreme People's Court and the China Banking Regulatory Commission have handed down a new interpretation of Chinese law that will have a significant impact on those marketing the EB5 visa program to investors.
When it comes to the selling of securities in China, there was already law on the books meant to regulate marketing activity. According to Brian Su, however, the court's latest decision was rendered specifically to clarify many existing regulations. He calls the move by China's government "extremely serious" in its implications for brokers selling securities in that country, and he believes EB5 visa practitioners should know what the new ruling may mean for their business activities.
Until a full English translation is available, the details of the court's decision are not fully known. Still, Su says there are some high-level components of the decision of which we are already aware:
- All brokers must meet licensing and registration requirements.
- EB5 marketers will no longer be able to use "public media" ? television, radio, internet, etc. ? to promote the sale of securities.
- Marketers will be barred from promising (or perhaps even discussing) any form of return on an investment.
- Marketers will be unable to promote financial products to the general public.
Some of those elements, in particular the last three, may be cause for alarm among some brokers promoting EB5 visa investments in China, and regional center operators should be vigilant about how their projects are presented abroad.
"It is now very risky for regional centers to ignore" the activities of brokers marketing their projects in China, said Su. If investors experience massive losses on a project, "the authority will go after not only brokers, but also trace to the regional center in the U.S."
Concern over the sale of securities by unscrupulous organizations transcends those transactions made between Chinese EB5 brokers and investors. During the last few years, several investment-related schemes ? some having to do with immigration and others not ? have sprung up in China. Many investors lost money, and provincial governments have become increasingly concerned.
An article in China Daily dated January 5 states that "about 5,400 suspects [have been] arrested in 5,000 cases" of illegal fundraising since 2008. What's more, Chinese police "investigated 10,000 illegal fund-raising cases involving about 100 billion yuan" between 2005 and 2010.
Given the prevalence of such activity, it's little wonder why the Chinese government has become concerned. "At this point, the brokers have to be very very careful about their contact with the investors," said Su. "The brokers should focus on selling the immigration side as opposed to talking too much about investment itself. Any time you are talking about the EB5 investment, you might be in violation."
PRC Supreme People's Court Notice
The Supreme People's Court interpretation of the illegal fund-raising on the trial of criminal cases, the application of law by the 1502 meeting of the Judicial Committee of the Supreme People's Court was November 22, 2010, is hereby published since January 4, 2011 implementation.
December 13 for Hongkongpost.com
Deposits from the public to punish the illegal fund-raising fraud and illegal fund criminal activities, according to the relevant provisions of the Penal Code, on hearing the specific application of the law in such criminal cases are explained as follows:
The first act, violation of state financial administration law, and absorption of funds to the public (including the units and individuals) have the following four conditions, in addition to the criminal law as otherwise provided, shall be determined as the provisions of Article 70 256 "illegal deposits from the public or disguised deposits from the public:
(A) without the relevant approval according to law or to absorb funds borrowed in the form of legitimate business;
(B) to the public through the media, presentations, flyers, SMS and other means publicity;
(C) commitment to debt service or payment of money, in kind, equity return within a certain period;
(D) to the public that society does not a specific object to absorb funds.
Not publicized to the community, relatives and friends or Internal absorption of funds for a specific object, is not unlawful by absorption or disguised deposits from the public.
Article one of the following acts, in line with the conditions of the first paragraph of this interpretation, should be in accordance with the provisions of Article 70 26, to illegally convicted and punished in public deposits:
(A) does not have a real estate sales or real estate sales to back sales, after-sales charter, agreed to repurchase, sale of real estate share illegally funding;
(B) the transfer of forest tenure and on behalf of the management and protection of illegal absorption of capital;
(C) on behalf of cultivation (farming), rent cultivation (aquaculture), a joint cultivation (aquaculture) and other illegal absorption of funds;
Real content (d) does not have the sales of goods or rendering services or selling products, providing services as the main purpose of the commodity repurchase Storage outlets such as illegal absorption of funds;
(E) does not have the issue of stocks, bonds, real content, and illegally funding the false transfer of ownership, the sale of fictitious bonds;
(F) does not have real content to raise funds illegally under the guise of offshore funds, the sale of fictitious fund of funds;
(G) does not have the true contents of the sale of insurance, fake insurance companies, forged insurance documents illegally funding;
(H) of the investment shares illegally funding;
(I) the trust management of illegal absorption of capital;
(10) using folk "would," "community" organizing illegal absorption of capital;
(Xi) other illegal acts of the absorption of capital.
Article illegally absorbing deposits from the public in disguise, one of the following circumstances shall be investigated for criminal liability:
(A) Personal illegally or disguised deposits from the public, the amount of 200,000 yuan or more, the unit illegally or disguised deposits from the public, the amount of over $ 1 million;
(B) Individuals illegally or disguised form of deposits from the public objects of more than 30 units illegally or in disguised form, the deposits from the public objects more than 150 people;
(C) illegally or disguised deposits from the public, causing direct economic loss of the amount of $ 100,000, the unit illegally or disguised deposits from the public to the depositor, depositors caused direct economic loss of the amount of 500,000 or more ;
(D) result in adverse social impact, or other serious consequences.
One of the following circumstances, belonging to the provisions of Article 70 which stipulate that "large amounts, or other serious circumstances":
(A) Personal illegally or disguised deposits from the public, the amount of more than 1 million yuan unit illegally or disguised deposits from the public, the amount of 500 million yuan;
(B) individuals illegally or in disguised form, the deposits from the public objects more than 100 people, the unit illegally or in disguised form, the deposits from the public objects more than 500 people;
(C) illegally or disguised deposits from the public, causing direct economic loss of the amount of more than 500,000 yuan, the unit illegally or disguised deposits from the public to the depositor, depositors caused direct economic loss of the amount of more than 2.5 million yuan ;
(D) caused by a particularly bad social impact, or other particularly serious consequences.
Illegally or in disguised form, the amount of deposits from the public, to the absorption of funds by the behavior of people in full calculation. Before and after the incident has been the return of the amount can be used as the discretion of the punishment fits the crime.
Illegally or disguised deposits from the public, mainly for the normal production and business activities, the ability to repel the absorption of capital, can be exempted from criminal punishment; the circumstances are obviously minor, not dealt with as offenders.
Article to the illegal possession for the purpose of fraud method to implement the provisions of Article II of the acts listed in this interpretation, it should be convicted and punished in accordance with the provisions of Article 192, for financial fraud.
Fraud illegal fund-raising, one of the following circumstances, can be identified as "illegal possession for the purpose of:
(A) to raise funds not used for production and business activities, or for the production and business activities and to raise funds significantly out of proportion to the scale resulting in raised funds can not be returned;
(B) the profligacy of the raised funds, resulting in raised funds can not be returned;
(C) to carry the raised funds go into hiding;
(D) raised funds for the illegal and criminal activities;
(E) flight, transfer of funds or hiding property to evade the return of funds;
(F) concealment, destruction of accounts, or creating false bankruptcy, false close down to escape the return of funds;
(7) refusing to account for where the money goes to escape the return of funds;
(Viii) other purpose of illegal possession of situations can be identified.
The purpose of illegal possession, financial fraud, a distinction should be drawn between the situation specifically identified. Part of the perpetrator of illegal fund raising behavior with the purpose of illegal possession, the part of the illegal fund-raising behavior of the raised funds for financial fraud conviction punishment; illegal fund-raising as part of the common criminal purpose of illegal possession and other actors is not illegal possession of the funds raised common intent and behavior, and behavior with the purpose of illegal possession, convicted and punished for financial fraud.
Article personal financial fraud and the amount of $ 100,000, it should be recognized as a "large amount"; the amount of more than 300,000 yuan shall be regarded as "huge amount"; amount in more than one million yuan shall be determined as as a "huge amount".
Unit to raise funds fraud, the amount of more than 500,000 yuan, it should be recognized as a "large amount"; the amount of 150 million yuan, should be recognized as a "huge amount"; the amount of 500 million yuan, should be identified as a huge amount. "
Financial fraud and the amount of calculation, the behavior of the actual amount defrauded the incident prior to the return of the amount should be deducted. Behavior of the implementation of man-made financial fraud and paid advertising costs, intermediary costs, fees, rebates, or for the cost of bribe, gift, etc., shall not be deducted. The behavior of man-made implementation of financial fraud and the payment of interest, unless the principal is not returned may be set off against the principal, should be included in the amount of fraud.
Without the 6 approved by the relevant state departments issue not specific to the object in disguise issue of transfer of ownership, such as stocks or corporate, corporate bonds, issued to a specific object, disguised issue of shares or the company, corporate bonds total more than 200 people shall be determined as provided for in Article 79 of the "unauthorized issue of shares, companies, corporate bonds. Constitute a crime, to Whoever issues shares, the company, corporate bonds, crime, convicted and punished.
Article 7 violation of state regulations, without legal approval of the unauthorized distribution of fund shares to raise funds, in serious cases, convicted and punished in accordance with the provisions of Article 225, the crime of illegal business.
Article 8 Advertising operators and advertisement publishers violation of state regulations, the use of advertising to make false propaganda for illegal fund-raising activities related to goods or services, one of the following circumstances, in accordance with the provisions of the deemed to have committed 20 2, convicted and punished the crime of false advertising :
(A) the amount of illegal gains of more than $ 100,000;
(B) causing serious harm to the consequences or adverse social impact;
(C) within two years the use of advertising to make false propaganda, received two or more of the administrative penalty;
(D) other circumstances of a serious.
Knowing that others engaged in the fraudulent issue of shares, bonds, illegal deposits from the public, without authorization to issue shares, bonds, fund-raising fraud or organization, leadership pyramid schemes, and other fund-raising and criminal activities, to provide advertising and other publicity related crimes handled as accomplices.
Article IX previously issued judicial interpretation is inconsistent with this interpretation, this interpretation shall prevail.