This is part four in a five-part series of short papers on the EB-5 Immigrant Investor Visa program. If you missed parts 1 -3, you can find them here.
Through its 25 years of existence, the EB-5 program has faced some criticism, both policy-based and in relation to widely reported instances of fraudulent conduct. Some critics have characterized the program as a “wealthy immigrant visa program,” a “boutique immigration program,” a “visa-for-sale program,” “buying visas” or “visas for [the] wealthy.” Some have argued that the program poses significant risks and vulnerabilities for immigrant investors, while others have criticized what they see as the federal government’s failure to properly regulate the program to ensure that only worthwhile investments qualify for visas.
a. Concern that EB-5 exposes foreign investors to fraud
Since its creation in 1990, the EB-5 program has experienced cases of fraud, limited in number but often high-profile. Such cases have been reported across the United States, particularly in the program’s regional centers. Forbes magazine recently reported on an African investor who invested in an EB-5 project run by a con artist who looted the project and disappeared with most of the money. In fall 2014, the Securities and Exchange Commission (SEC) charged two Los Angeles-based EB-5 attorneys (and the wife of one of the attorneys) who operated an EB-5 regional center with securities fraud after they allegedly misappropriated $11.5 million in EB-5 applicants’ assets for other uses and misled the investors on the status of an ethanol plant that was purportedly to be built and operated in Kansas. The plant was never built and none of the promised jobs materialized.
In a report published in February 2015, the U.S.-China Economic and Security Review Commission cited the case of a real estate “developer” who was indicted in 2014 on federal fraud charges after defrauding 290 Chinese investors over plans to build a $912 million hotel complex near Chicago’s O’Hare International Airport. The father-son team who led that project “not only had no development experience, but also vastly overstated the amount of funding they had secured from federal and state sources, in an attempt to grease the project into success.” The report also highlighted high-profile problems in the South Dakota EB-5 program, which led that program to shutter. There, a state official committed suicide after being placed under investigation for mismanaging Chinese and South Korean EB-5 investment funds linked to a failed beef-packing factory.
In April 2013, the Los Angeles Times published a story about three Chinese businessmen who each invested $1 million with a California firm that was planning to open a Chinese restaurant in San Bruno, California. The investors eventually confronted the project developer after no progress was made on the restaurant. The failed project’s developer, who along with his associates eventually lost a default judgment, at one point feigned a heart attack to escape from the angry investors.
Stories like these demonstrate that, as with any financial venture, careful vetting and scrutiny by investors is essential. State and federal officials have noted the risk of fraudulent EB-5 investment schemes, including misleading uses of the “regional center” designation, and have increased their involvement in the program in an effort to promote integrity and investor awareness. An investor alert from the SEC noted that “the fact that a business is designated as a regional center by USCIS does not mean that USCIS, the SEC, or any other government agency has approved the investments offered by the business, or has otherwise expressed a view on the quality of the investment.”
While there have been some instances of fraud, the Department of Homeland Security and federal law enforcement agencies have been making significant efforts to stop and address unlawful conduct. The vast majority of stakeholders in the EB-5 program welcome strict enforcement and compliance as essential components to a successful policy. The relatively small number of cases involving fraud in the EB-5 program are dwarfed by the many successful projects that have been completed with the help of foreign investment.
b. Concern that EB-5 amounts to a sale of visas
Some critics have questioned the policy of granting green cards to foreigners in return for investments. According to these critics, “the program amounts to selling U.S. citizenship, allowing the well-to-do to jump to the head of the line in exchange for a fee.”
This argument gained increased attention after a recent report by the U.S. Department of Homeland Security’s Office of the Inspector General found that the actions of high-ranking DHS officials “created an appearance of favoritism and special access” for the politically connected. Others believe the program does not create as many jobs as advertised, the screening process may not meet national security guidelines and the investments do not benefit poor rural areas sufficiently.
Some criticisms of the program have been misleading, including the suggestion that when a foreign national obtains a green card through the EB-5 program, he or she is able to “jump to the head of the line.” Those in the EB-5 program who obtain a green card are similar to other individuals who obtain a green card through another employment-based immigration program or through the family-based immigration system.
Lawmakers who have historically supported the EB-5 Immigrant Investor Program are committed to addressing weaknesses in the program legislatively. Various legislative proposals, including S.1501 and H.R.616, introduced in the 114th Congress, and the comprehensive immigration reform bill that passed the Senate in 2013 (S.744), would take significant steps to enhance agency oversight and program integrity.
Continue reading Part 5: Proposed Investor Visa Programs
Full EB-5 Visa series available here.