President Donald Trump’s State of the Union address last Tuesday night offered some sensible recommendations for immigration reform. Unfortunately, he omitted a few things – such as the need to fix the EB-5 visa program. The EB-5, authorized by the Immigration Act of 1990, allows persons from abroad who invest in a U.S. startup business to become lawful permanent residents. All too often, it is an invitation to fraud and self-dealing.
The EB-5 visa, intended to spur business development, offers a green card for immigrant small venture capitalists. The visa holder must invest at least $1 million in a “new commercial enterprise” or at least $500,000 if the enterprise is located in a designated Targeted Employment Area. Upon approval of a petition, the investor and dependent family members may obtain a green card. The investor must show that the investment has created or preserved at least 10 permanent domestic jobs. In addition, real estate developers can acquire loans at below-market interest rates.
On the surface, the program has worked, especially when applied to large-scale real estate projects such as the Hudson Yards (New York City) and the Hunters Point Shipyard (San Francisco). Las Vegas in particular has benefited. EB-5 participants have invested in casino projects such as the Downtown Grand, the Lucky Dragon, and the Dynasty. The U.S. Citizenship and Immigration Services (USCIS) touts such projects as evidence that EB-5 is indispensable. Well, the program is popular. During 2012-16, the rapidly-growing program generated about $14 billion in foreign capital. But is it indispensable? Aside from the possibility that such projects would have realized in lieu of the EB-5, the program has become an open cash register for the well-connected.
USCIS now issues about 10,000 green cards annually through this program. And it typically does so in rubber-stamped fashion in order to secure approval for projects in targeted employment areas which in fact often are gerrymandered to include upscale areas. Agency-approved “regional centers,” which bundle investments, are making out especially well, charging investors outsized administrative fees and charging developers a 5-to-8 percent fee on capital raised. One such operation, the Virginia Center for Foreign Investment and Job Creation, had been operated by Hillary Clinton’s brother, Tony Rodham, until USCIS shut it down in September 2016. It’s a bipartisan thing. Last May, Nicole Kushner Meyer, sister of presidential adviser and son-in-law Jared Kushner, traveled to China to offer EB-5 visas to potential investors in a real estate project.
The biggest flaw in the program is its role as a stalking-horse for exploiting immigration law for personal gain, especially on behalf of the Chinese. A report by Washington, D.C. real estate consulting firm Savills Studley found that fully 9,128 of 10,692 EB-5 visa awards in 2014 – about 85 percent – went to persons from mainland China. The ulterior motive among the Chinese all too often is permanent U.S. residence for family members. One knowledgeable observer puts it this way: “I would say 70 to 80 percent of families are actually doing it for their kids’ education.”
Whatever the motives or national origins of participants, there are fraudsters among them. Examples:
- Two years after a 1998 raid by immigration authorities on the offices of a Herndon, Va.-based company, Interbank, the firm’s operators, James Geisler and James O’Connor, were arrested and eventually convicted for fraud. They had filed 320 false applications on behalf of 270 EB-5 immigrant investors.
- On August 24, 2015, the Securities and Exchange Commission charged Seattle developer and former Tibetan Buddhist monk Lobsang Dargey with defrauding dozens of EB-5 investors out of nearly $240 million. He pleaded guilty in January 2017 and later was sentenced to up to 10 years in prison.
- In April 2017, federal agents raided the home of a Los Angeles lawyer, Victoria Chan, who along with her father, allegedly defrauded dozens of Chinese EB-5 investors out of $50 million for a nonexistent real estate project.
These are not isolated instances. In 2013, the Securities and Exchange Commission issued an investor alert about program scams, offering monetary awards for whistleblowers. The SEC has been very busy. In a recent 12-month period, it successfully prosecuted EB-5 cases constituting a combined nearly $1 billion.
Congress has taken notice. In January 2017, Sen. Charles Grassley, R-Iowa, a frequent critic of the visa, along with Sen. Dianne Feinstein, D-Calif., introduced legislation to cancel the program. An earlier reform bill sponsored by Grassley and Sen. Patrick Leahy, D-Vt., stalled in the face of opposition from the U.S. Chamber of Commerce and Real Estate Roundtable. “(W)e need to take the necessary steps to wind down the program and completely mitigate the fraud, abuse and threats to our security,” Sen. Grassley said of the new measure.
After nearly 30 years of existence, the EB-5 is ripe for repeal. At stake is more than money. It is our ability to maintain self-governance and rule of law. America is a nation, not a haven for parking foreign cash in exchange for a green card or a college education.