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  • Article: Controversial EB-5 Immigrant Investor Program Faces Possibility of Overhaul. By Muzaffar Chishti and Faye Hipsman

    Controversial EB-5 Immigrant Investor Program Faces Possibility of Overhaul

    by


    Green Card. (Photo: Wikipedia)

    While political polarization has all but guaranteed inaction on broad immigration reform—and even on most small-bore immigration bills—in the remainder of the 114th Congress, movement may be possible on a number of narrow policy measures that have gained bipartisan support.

    Legislative fixes to the controversial EB-5 immigrant investor program appear to be at the top of the list. Long the subject of questions regarding its actual economic benefits and its favoring of the wealthy, the EB-5 program has come under sharp and increasingly bipartisan scrutiny in recent months. The reauthorization deadline of a key EB-5 component in September 2016 has opened a window for possible congressional reform of the entire program.

    EB-5 in a Nutshell

    First introduced in 1990, the EB-5 program provides permanent residence to a foreign national who invests in a commercial project in the United States that creates at least ten U.S. jobs. While the program requires a standard investment of $1 million, investors are permitted a reduced $500,000 level for enterprises located in rural areas or those with high unemployment, known in EB-5 parlance as targeted employment areas (TEAs).

    Foreign nationals whose applications are approved by U.S. Citizenship and Immigration Services (USCIS) receive EB-5 visas granting them conditional permanent residence; after two years, they may apply to have conditions lifted and obtain permanent residence (known as getting a green card). Permanent resident visas issued to EB-5 investors are statutorily capped at 10,000 annually.

    While the EB-5 visa category has existed for 25 years, it has only recently gained in popularity. Between fiscal year (FY) 2005 and FY 2015, the number of EB-5 visas issued increased from 349 to 9,764, reaching the annual cap for the first time in FY 2014. The visa category received 17,691 applications in FY 2015, up from 11,744 in FY 2014 and 6,554 in FY 2013. Underusage during the program’s early years was attributed to low grant rates and complex, lengthy application processes, which were streamlined by regulation in 2005.

    The EB-5 Regional Center Controversy

    While the EB-5 program from inception has had its share of critics, its sharp expansion over a short period of time—combined with the emergence of several high-profile controversies recently—has markedly increased scrutiny, and thus the possibility of reform. A key and controversial component, the EB-5 Regional Center Program, must be reauthorized (either temporarily or permanently) by September 2016 if it is to remain operational. The deadline may prove an opportunity for substantive changes to the EB-5 program more broadly.

    The EB-5 Regional Center Program was established in 1992 to allow multiple EB-5 applicants to pool their capital investments to fund a wide variety of projects in a specific location, known as a regional center. There are 834 regional centers using EB-5 investor capital in a range of enterprises, including hotels, manufacturing businesses, farms, restaurants, and technology companies. In a new trend, the program has also become an avenue for sports teams to fund stadiums that cannot secure public financing.

    As with the original EB-5 stipulations, regional centers require a standard investment of $1 million, or $500,000 if the capital is invested in TEAs. Moreover, to meet the regional program's qualifying criteria, participating investors are permitted to count both indirect and direct jobs that were created as a result of their investment. Currently, 98 percent of EB-5 visas are issued to individuals who participate in regional centers operating in TEAs. This means that very few EB-5 investors participate at an investment level of $1 million, and very few launch direct job-creating businesses or ventures.

    Critics argue that whereas the EB-5 program was intended to stimulate economic growth and job creation by attracting immigrant entrepreneurs and drawing foreign capital to U.S. shores, it has evolved into one that fails to benefit struggling regions and simply enables wealthy foreigners to buy green cards. They contend that EB-5 investments do not reach economically distressed areas because states have gerrymandered the boundaries of TEAs to include highly affluent areas that are more attractive to investors, including Manhattan and Hollywood. As a result, Senate Judiciary Committee Chairman Charles Grassley (R-IA) argued at a recent hearing, “Cities in Georgia, North Carolina, and Minnesota compete with Beverly Hills, Miami, and New York City. It’s hard for smaller states and cities to compete with the glitzy hotels and luxurious condo projects.” Additionally, critics point out that the $1 million and $500,000 investment thresholds have never been adjusted for inflation.

    Several recent controversies have added ammunition to these concerns. In late April, the Securities and Exchange Commission (SEC) filed a 52-count criminal complaint against two EB-5 regional program directors accused of committing the largest fraud in EB-5 history. The SEC alleges that after raising $350 million from foreign investors for a series of projects in Vermont, the executives allegedly ran the venture like a Ponzi scheme, using hundreds of millions of dollars in investments to fund earlier projects, some of which were never completed. One of the directors was also accused of using $50 million in EB-5 funds for personal gain. In late March, South Dakota’s attorney general also filed criminal charges against an EB-5 regional program director for using investor funds for personal gain. And the Department of Homeland Security (DHS) inspector general in 2015 issued a report faulting a top department official for creating an “appearance of favoritism and special access” to the EB-5 program for well-connected participants—a charge he sharply denied.

    Government investigators have also raised several other concerns. A 2015 Government Accountability Office (GAO) assessment of the EB-5 program found various fraud risks, including difficulty verifying that investment funds were obtained lawfully (a primary EB-5 requirement), as well as the existence of various and “constantly evolving” investment-related schemes to defraud investors. At a congressional hearing in 2015, a former Homeland Security Investigations (HSI) official testified to investigating crimes of major fraud, money laundering, and bank and wire fraud surrounding a particular EB-5 project. Moreover, GAO found that the USCIS methodology for reporting program outcomes and overall economic benefits is neither valid nor reliable.

    To add to the program’s woes, national security concerns have resulted in additional scrutiny. In recent years, DHS investigators have discovered that individuals with possible ties to Chinese and Iranian intelligence agencies and international fugitives have gained access to the program, using fake documents. A final concern about the program, though understated, is its domination by Chinese nationals, who received 84 percent of EB-5 visas issued in FY 2015. Critics allege the program allows wealthy Chinese nationals to obtain green cards by investing money rather than applying though other employment-based immigration categories, which are especially backlogged for individuals from China.

    Opponents, Supporters, and a Rare Compromise

    These mounting critiques mark a departure from several years ago, when, amid the 2008-09 recession and its aftermath, the visa program enjoyed broader bipartisan support and was seen as a promising vehicle to infuse hard-hit areas with much-needed capital and jobs.

    Still, the EB-5 program maintains staunch defenders, and indeed some have introduced legislation to reauthorize the EB-5 regional centers program for another five years, or even permanently. The program’s advocates include a number of U.S. lawmakers—among them Sen. Charles Schumer (D-NY)—along with a coalition of real estate developers, other businesses, and groups representing state and local governments. Proponents argue the program is contributing billions of dollars of investment for economic development projects across the country and has been a key postrecession revitalization tool. The visa program, which accounts for about 1 percent of new permanent immigration to the United States annually, has resulted in more than $13 billion in investments by EB-5 recipients and has created 12,000 to 41,000 jobs for U.S. workers per year, depending on the estimates used.

    At the other end, some lawmakers—including Sen. Dianne Feinstein (D-CA)—want to let the regional centers sunset. Despite such calls, a rare bipartisan, bicameral compromise on reforming the regional center component already exists. It was negotiated by the chairmen and ranking Democrats of the House and Senate Judiciary Committees in the months leading up to the Regional Center Program reauthorization last year. While the compromise was ultimately shelved, its sponsors are continuing to press their proposal. Grassley has pledged to conduct oversight hearings of the program over the next several months, with possible legislation introduced before the next reauthorization deadline. At a recent hearing, he said he hopes to get legislation to the president’s desk before the regional centers sunset.

    Beyond the regional centers, the EB-5 program’s other emerging concerns might receive legislative attention. A reform package is likely to include a higher investment threshold, greater fraud protection mechanisms, more robust national security and criminal background check requirements, increased federal authority over how TEA boundaries are drawn, stronger program performance metrics, and new application requirements and processes. In the interim, USCIS is working on new regulations to strengthen the program’s integrity.

    Beyond EB-5

    Although there is a perception that Congress this year has been quiet on the immigration front, some legislation has advanced—particularly on issues of visa security and immigration control. In April, the Senate passed a State Department authorization bill that would make it more difficult for individuals with H, L, and V nonimmigrant visas to become permanent residents, as well as increase information sharing with other countries on visa issuance in general. In March and April alone, the House passed a handful of noteworthy immigration measures. One would authorize DHS to develop new watchlist and screening software that can be provided to foreign governments to facilitate screening of criminals and possible terrorists. Another bill aims to improve and streamline border and maritime security coordination within DHS and with foreign governments. A third would require DHS to submit an assessment of current and potential terrorism or criminal threats posed by individuals or groups seeking to unlawfully enter the southern border and improvements needed at or between ports of entry. While the prospects for enactment of these measures are not clear, the bills are noteworthy because they passed their respective chambers, an achievement in itself this year.

    Lawmakers have also shown pronounced interest in amending the 1966 Cuban Adjustment Act and in changing U.S. policy toward unaccompanied children (UACs) arriving at the U.S.-Mexico border. Specifically, a number of senators and House members are pushing to roll back the uniquely preferential treatment afforded Cuban arrivals to the United States (which includes an automatic and expedited green card process and access to federal assistance and some means-tested benefits). Congressional Republicans are also seeking to reduce protections for child migrants, who are afforded a hearing process in immigration court, even as Democrats are urging expansion of services to available to them, such as government-funded counsel. Despite legislative activity in these areas, changes are unlikely; they present considerable divisions within and between Republicans and Democrats, as well as between Congress and the White House.

    Looking Ahead

    While bipartisan agreement remains elusive in most immigration areas, on topics where there is consensus—such as on the EB-5 program—action might be possible. Given the current political climate, it is noteworthy that a wide range of significant immigration provisions were enacted as part of the omnibus spending package passed in December, including modifications to the H-2B visa program for nonagricultural temporary workers, changes to the H-1B and L-1 high-skilled visa programs, and new funding for the immigration court system. Many of these changes enjoyed bipartisan support and involved little public debate. If last year’s appropriations model is replicated this fall, more new and unexpected immigration provisions could be in store. Substantial immigration provisions are even more probable if Congress waits until after the November 2016 elections to take up appropriations. It remains to be seen how the role of immigration in the elections will influence broader legislative action in 2017 and beyond.


    This post originally appeared on Migration Policy Institute. Copyright © 2001-2016 Migration Policy Institute. All rights reserved. Reprinted with permission.


    About The Author

    Muzaffar Chishti is Director of MPI's office at New York University School of Law. His work focuses on U.S. immigration policy at the federal, state, and local levels; the intersection of labor and immigration law; immigration enforcement; civil liberties; and immigrant integration. Prior to joining MPI, Mr. Chishti was Director of the Immigration Project of the Union of Needletrades, Industrial & Textile Employees (UNITE). Mr. Chishti is Chairman of the Board of Directors of the National Immigration Law Center and serves on the boards of the New York Immigration Coalition and the Asian American Federation. He has served as Chairman of the Board of Directors of the National Immigration Forum and as a member of the American Bar Association's Coordinating Committee on Immigration. Mr. Chishti has testified extensively on immigration policy issues before Congress and is frequently quoted in the media.

    Faye Hipsman is an Associate Policy Analyst with the U.S. Immigration Policy Program at MPI, where her research areas include border and immigration enforcement and national immigration legislation. She regularly co-authors the Policy Beat, published monthly in the Migration Information Source, MPI's online journal. Prior to joining MPI, she worked as a paralegal at an immigration and nationality law firm in Boston on a variety of deportation, family-based, and employment-based cases. She has also worked at the Brookings Institution and at Las Americas Immigrant Advocacy Center in El Paso, Texas. She holds a BA in Latin American studies with minors in economics and history from Oberlin College.


    The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.

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