Touro Law Review BLOG

By James Reiser

I. Introduction

In 1990, Congress implemented the Employment-Based Immigration Fifth Preference EB-5 Program (hereinafter “EB-5” or “EB-5 Program”) to stimulate the United States economy by allowing foreign investors to invest capital into companies to create jobs.[1]  The program has become problematic due to social, economic, and political changes.  The program is flawed in many respects as it creates problems of fraud and corruption regarding background checks and document verification.  There are also national security concerns.  While there has been an immense influx of investment since deployment, the implications of the deployment of the program far outweigh the positive economic gains generated by it.  Undoubtedly, the program must be changed, or removed altogether, to repair the vulnerabilities and to reduce the number of problematic scenarios caused the program’s weaknesses.

The name was coined for the fifth preference visa that participants receive for taking part and being approved for the program.[2]  In 1992, Congress created the Immigrant Investor Program, also known as the Regional Center Program, which sets aside EB-5 visas for participants who invest in commercial enterprises in association with regional centers approved by the United States Citizenship and Immigration Services (hereinafter “USCIS”) based on proposals for the purpose of promoting economic growth.[3]  An investor and his family members are granted a two-year conditional permanent resident visa once investor documents are verified and specified immigration forms are approved.[4]

Section II gives a background of the program, including some statistical information, application and petition requirements, and other important information.  Section III provides a discussion of the legislative intent of the program.  Section IV discusses the economic changes that have occurred in the United States over the past three decades and how these changes make the program less appropriate given its intent.  Section V discusses the various implications that have come about because of the program, whether intended or not.  Section VI addresses the need for reformation of the program due to the vast number of problems that have been created by EB-5.

II. Requirements

USCIS administers the EB-5 Program, which has multiple requirements that must be met in order to qualify for approval to obtain a visa.[5]  One requirement is that EB-5 investors must invest in a new commercial enterprise established after November 29, 1990.[6]  Investors can alternatively purchase an existing business that is restructured to create a new commercial enterprise or expand the existing business through investment resulting in a forty percent increase in number of employees or an increase in net worth of the business occurs.[7]  A commercial enterprise is defined as “activity formed for the ongoing conduct of lawful business including, but not limited to: [a] sole proprietorship[,] [p]artnership (whether limited or general)[,] [h]olding company[,] [j]oint venture[,] [c]orporation[,] [b]usiness trust[,] or [o]ther entity, which may be publicly or privately owned.”[8]

The second requirement is that the investment in the new commercial enterprise must create ten full-time positions for at least ten qualifying employees, and the new commercial enterprise, or a subsidiary, must itself be the employer of the qualifying employees.[9]  If the new commercial enterprise is within a regional center, then the full-time jobs created can either be created directly by an employer-employee relationship between the enterprise and the person it employs or indirectly by an outsider of the enterprise but created as a result of it.[10]  A qualifying employee is

a U.S. citizen, lawful permanent resident, or other immigrant authorized to work in the United States including, but not limited to, a conditional resident, a temporary resident, an asylee, a refugee, or a person residing in the United States under suspension of deportation. This definition does not include the immigrant investor; his or her spouse, sons, or daughters . . . .[11]

Full-time employment is established by a qualifying employee working a minimum of thirty-five hours per week for the new commercial enterprise or indirectly due to the new commercial enterprise with the allowance of a job-sharing arrangement.[12]

The final requirement that must be met to obtain an EB-5 visa is that the investor invests a minimum capital amount which is generally one million dollars, or five hundred thousand dollars in a rural or high unemployment area.[13]  A high unemployment area or a targeted employment area is an area that at the time of investment has experienced an unemployment rate of at least 150 percent of the national average rate.[14]  A rural area is a region not within either a metropolitan statistical location as determined by the Office of Management and Budget or the outer boundary of a city or town having a population of 20,000 or more in consonance with the most recent decennial census of the United States.[15]

The petition and application process require that a potential immigrant investor candidate submit an I-526 Form, designated the Immigrant Petition by Alien Entrepreneur.[16]  The petitioner or applicant must meet each element of the petition by merely a preponderance of the evidence.[17]  If the I-526 Form is approved, then an I-485 Form, the Application to Register Permanent Residence or Adjust Status, is to be filed with USCIS to adjust status to a conditional permanent resident within the United States.[18]  Alternatively, a DS-260, known as the Application for Immigrant Visa and Alien Registration, is to be filed with the U.S. Department of State for an EB-5 visa abroad for the purpose of seeking admission to the United States.[19]  After approval of either of these documents, the EB-5 investor and his or her derivative family members are granted a 2-year conditional permanent residency in the United States.[20]

Regional centers are public or private economic units in the United States that aid in promoting economic growth, particularly designated by USCIS for participation in the Immigrant Investor Program.[21]  As of October 10, 2018 there are 887 approved regional centers; however, approval as a regional center does not constitute USCIS endorsement of activities of that regional center, does not guarantee compliance with U.S. securities laws and does not minimize or eliminate risk for the investor.[22]  USCIS provides a list of approved regional centers but also disclaims investment liability on its Immigrant Investor Regional Centers webpage.[23]  USCIS further provides that the information available on this webpage is for informational purposes only.[24]

III. Legislative Intent

Congress passed the Immigration Act of 1990 to encourage investors and entrepreneurs with an interest in American business to invest capital.[25]  If an individual met the statutory requirements of the EB-5 program, then they were effectively on a fast track to obtaining a visa and ultimately purchasing conditional citizenship without having to go through the nationalization process by “purchasing” citizenship through investment.[26]  The congressional intent of the program was not incentivizing “purchasing visas,” but to inject capital into the United States from non-citizens.[27]  One scholar believes that

[t]he requirement of active engagement in the new enterprise is aimed at targeting an entrepreneur’s human capital investment contribution; this demonstrates Congress’s intent to attract entrepreneurs and not merely investors. The Senate Report also reveals specifically that the purpose of the EB-5 program was to create jobs for U.S. workers and to infuse new capital into the U.S. economy, “not to provide immigrant visas to wealthy individuals.”[28]

Essentially, the program incentivizes individuals with backgrounds and knowledge of running successful businesses to do so within the United States.  But while the idea of the program initially worked in theory, the early frameworks needed reform in order to ensure the EB-5 Program worked effectively.[29]

IV. Changing Times

            Since the creation of EB-5, there have been major improvements to the economy, including an increase in gross domestic product (hereinafter “GDP”), a decrease in unemployment, and an increase in United States stock markets.[30]  The program was enacted in 1990 and minimally altered in 1992.[31]  In 1990, the United States GDP was about $5,980,000,000 according to the World Bank.[32]  Compare this to the GDP of today, according to the U.S. Bureau of Economic Analysis, the United States GDP as of second quarter (Q2 2018) was $20,410,000,000, more than three times the 1990 valuation.[33]  The United States stock markets recovered in 1992 to a value equal to where they had been before a dip in 1987.[34]  The Immigration Act of 1990, which included the enactment of the EB-5 program, was created in order to provide employment opportunities for U.S. workers and to infuse capital into the country from foreign sources.[35]  Congress estimated as many as 4,000 foreign investors and their families would utilize the program to seek legal residence in the United States, bringing with them $4 billion in investment, ultimately creating 40,000 jobs each year.[36]  It must be noted that the United States Stock Market dipped substantially in October of 1987 and dipped again substantially in October, 1990,[37] further incentivizing Congress to come up with a program promoting a generation of capital investment and jobs in the United States.

Sparking investment by non-citizens in order to create jobs for qualified workers that do not have to be United States citizens is highly beneficial, especially because the United States unemployment rate fluctuated between 5.2 percent in 1989 and 7.5 percent in 1992.[38]  However, this bolster to the economy is unnecessary when unemployment is low.  As of July 2018, U.S. unemployment was at 3.9 percent, compared to 9.7 percent in 1982,[39] which may have triggered discussions of immigrant investor or similar programs at that time.  Less than 10 percent of total available EB-5 visas were issued between 1990 and 2010.[40]  This statistic shows that the program was not initially utilized as intended, partially due to the strict requirements and restrictions that were later relaxed or eliminated to increase EB-5 use.[41]  However, in easing requirements to expand access, increased use of the program has come with a fair share of vulnerabilities and unintended problems.

V. Implications

As requirements and regulation for the program have eased, there have been a growing number of concerns, including fraud.[42]  In October 2013, USCIS and the U.S. Securities Exchange Commission (hereinafter “SEC”) published an investor alert warning EB-5 investors that Regional Centers have falsely guaranteed a return and misused funds provided by EB-5 investors.[43]

With the immigration demographic constantly changing, along with an economy that has rapidly expanded since 2008, the number of applications received by USCIS has increased from 1,258 in 2008 to 12,165 in 2017.[44]  There is an uneven distribution of visas allocated to various countries as evidenced in 2014 when 10,692 applications were approved, over 85 percent of which were granted to Chinese investors.[45]  This bias potentially lies in the large population and the strong economy of China, but as the statistics show there is clearly a larger number of individuals coming from China than from the rest of the countries in the world combined.[46]  Although EB-5 and similar programs were not intended to be a safe-haven for corrupt officials, anyone with sufficient funds, intelligent counsel, and minimally sufficient evidence of funds can get a U.S. visa through the program.[47]  Powerful foreign officials suspected of corruption have utilized the EB-5 program to escape prosecution in their home country.[48]

As use of the program has expanded, there has been discussion of whether the capital requirements of $1,000,000 and $500,000 should be raised and whether an additional net worth requirement should be applied to investors for the EB-5 program.[49]

The United Kingdom, Netherlands, Australia, and Canada have similar programs with different requirements.[50]  These programs have been sought out by wealthy Chinese criminals and corrupt political figures, as a means of fleeing and expediting citizenship to escape the clutches of prosecution.[51]

VI. Conclusion

            Looking forward, there is a possibility for a decision in November 2018 to raise the minimum investment amounts for EB-5 investors.[52]  There is also a possibility for new legislation in November 2018 that would affect EB-5 relating to Department of Homeland Security appropriations for fiscal year 2019.[53]  Further, a deadline for discussion of EB-5 regional investor centers has been pushed to December 7, 2018; this is the date of the Continuing Resolution to extend the EB-5 Program.[54]  There has been intense debate about what is next for the EB-5 program.  There are many aspects to the program that should be amended or altered to meet the change in economic, political, and social circumstances.  Reform of the program is necessary in order to patch the vulnerabilities and slough of problems that have come about with the expanded interest in the program.  There is an immense need to increase the standard of review of evidenced funds of investment.  Further, business plans need to be analyzed and followed in order to ensure that funds are not misappropriated by individuals utilizing the investment for their project.  The initial investment minimum must be increased to meet the stronger economic conditions and in order to compete with other countries’ investment programs.  A third tier should be added that targets higher income and more developed areas that require greater investment and greater job creation.  This third tier should be the most highly regulated and analyzed by officials.  Finally, there needs to be more disclosure of statistical data, including a registry of individuals in the U.S. and their use of EB-5 funds to limit fraud and corruption.  This will allow for smoother regulation of cases so that misallocated funds can be recouped faster and more efficiently

Fraud, corruption, internal bias, increase of capital requirements, regulation, and data collection of investors and projects are just some of the areas where major alterations could be a key to the future success of the EB-5 Program.  Comparing similar programs of other countries, current economic data, future economic outlook, and analyzing problematic areas of the current programs will allow an efficient and necessary alteration to the EB-5 Program.  Immigration to the United States has always been a touchstone to expansion and growth of the country.  It is vital to allow people to come to the United States.  Nonetheless, fairness and safety are integral and are at stake in the EB-5 Program that has been in place for nearly three decades.

[1] EB-5, Immigrant Investor Program, U.S. Citizenship & Immigr. Services, https://www.uscis.gov/eb-5 (last visited Oct. 29, 2018).

[2] Id.

[3] Id.

[4] EB-5, Investors, U.S. Citizenship & Immigr. Services, https://www.uscis.gov/working-united-states/permanent-workers/employment-based-immigration-fifth-preference-eb-5/eb-5-investors (last updated May 8, 2017).

[5] EB-5, Immigrant Investor Program, supra note 1.

[6] Id.

[7] About the EB-5 Visa Classification, U.S. Citizenship & Immigr. Services, https://www.uscis.gov/working-united-states/permanent-workers/employment-based-immigration-fifth-preference-eb-5/about-eb-5-visa-classification (last updated Mar. 27, 2018).

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

[16] EB-5 Investors, supra note 4.  Necessary documentation includes: Form I-526, Immigrant Petition by Alien Entrepreneur, which also needs evidence of new commercial enterprise investment, evidence that the investor is or will be engaged in the management of the new commercial enterprise through either day-to-day managerial control or through policy formulation, evidence of investment of required capital amount ($1 million or $500,000 depending on the area), proof that the funds being utilized were obtained through lawful means (by any one of the following: foreign business registration records, relevant enterprise entity, personal, or any other tax returns filed within the last 5 years, evidence identifying any other source of capital, certified copies of judgments or civil/criminal litigation (pending or otherwise) involving money judgments from any court in or outside the United States within the past 15 years), evidence that the new commercial enterprise will create at least 10 full-time positions for qualifying employees or a business plan showing that the nature of the projected size of the new enterprise will result in a need for at least 10 qualifying employees, and evidence that the number of existing employees is or will be maintained for a 2-year period, with photocopies of tax records, Form I-9, Employment Eligibility Verification, or other relevant documents for qualifying employees, along with a business plan in support of the petition.  See id.

[17] Matter of Chawathe, 25 I. & N. Dec. 369, 375-76 (A.A.O. Oct. 20, 2010).

[18] EB-5 Investors, supra note 4.

[19] Id.

[20] Id.

[21] EB-5 Immigrant Investor Regional Centers, U.S. Citizenship & Immigr. Services, https://www.uscis.gov/working-united-states/permanent-workers/employment-based-immigration-fifth-preference-eb-5/eb-5-immigrant-investor-regional-centers (last updated June 6, 2018).

[22] Immigrant Investor Regional Centers, U.S. Citizenship & Immigr. Services, https://www.uscis.gov/working-united-states/permanent-workers/employment-based-immigration-fifth-preference-eb-5/immigrant-investor-regional-centers (last updated Sept. 10, 2018).

[23] Id.

[24] Id.

[25] History of the EB-5 Program, EB-5 investors, https://www.eb5investors.com/eb5-basics/history-of-eb5 (last visited Nov. 8, 2018).

[26] See P.J. Tobia & Marina Lopez, How Chinese Millionaires Buy U.S. Citizenship, PBS News Hour (May 14, 2015, 11:07 AM), http://www.pbs.org/newshour/updates/chinese-millionaires-buy-u-s-citizenship/.

[27] Beth MacDonald, The Immigrant Investor Program: Proposed Solutions to Particular Problems, 31 Law & Pol’y Int’l Bus. 403, 409 (2000) (“The main goals of the program are to create new employment for U.S. workers and to infuse new capital into the country and not to provide immigrant visas for wealthy individuals.” (internal quotation marks omitted)).

[28] Annie Anjung Lin, Splitting the EB-5 Program: A Proposal for Employment-Based Immigration Reform to Better Target Immigrant Entrepreneurs and Investors, 18 Chap. L. Rev. 527, 537-38 (2015) (citation omitted).

[29] MacDonald, supra note 27 (explaining the weakness of the 1990 Act).

[30] See Databases, Tables & Calculators by Subject, U.S. Dep’t Labor, https://data.bls.gov/pdq/SurveyOutputServlet (last visited Nov. 7, 2018); see also GDP (current US$), World Bank National Accounts Data, And OECD National Accounts Data Files, World Bank, https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2017&locations=US&start=1990 (last visited Aug. 31, 2018); Dow Jones – 100 Year Historical Chart, Macrotrends, https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart (last visited Aug. 31, 2018).

[31] MacDonald, supra note 27.

[32] GDP (current US$), supra note 30.

[33] Gross Domestic Product: Second Quarter 2018 (Second Estimate); Corporate Profits: Second Quarter 2018 (Preliminary Estimate), U.S. Bureau Econ. Analysis (Aug. 29, 2018), https://www.bea.gov/news/2018/gross-domestic-product-second-quarter-2018-second-estimate-corporate-profits-second.

[34] Dow Jones – 100 Year Historical Chart, supra note 30.

[35] History of the EB-5 Program, supra note 25.

[36] Christine Ryan, Too Porous for Protection? Loopholes in EB-5 Investor Visa Oversight Are Cause for National Security Concern, 16 S.D. Intl. L.J. 417, 425 (2015).

[37] Dow Jones – 100 Year Historical Chart, supra note 30.

[38] Databases, Tables & Calculators by Subject, supra note 30.

[39] Id.

[40] Ryan, supra note 36, at 425.

[41] Id.

[42] See generally William A. Haddad, EB-5 Visa Fraud Cases-What Practitioners Need to Know, Pasquarello, Fink, Haddad, LLC, Sept./Oct. 2017, http://www.pasqfinklaw.com/uploads/8/1/9/0/8190135/eb5_visa_fraud_article.pdf.

[43] Ryan, supra note 36, at 433 (2015) (citing Investor Alert: Investment Scams Exploit Immigrant Investor Program, U.S. Sec. & Exchange Commission, Oct. 9, 2013, https://www.sec.gov/oiea/investor-alerts-bulletins/investor-alerts-ia_immigranthtm.html).

[44] Number of Form I‐526, Immigrant Petition by Alien Entrepreneur, by Fiscal Year, Quarter, and Case Status 2008‐2018, U.S. Citizenship & Immigr. Services, https://www.uscis.gov/sites/default/files/USCIS/Resources/Reports%20and%20Studies/Immigration%20Forms%20Data/Employment-based/I526_performancedata_fy2018_qtr2.pdf (last visited Sept. 2, 2018).

[45] Taylor C. Byrley, Selling Citizenship to the Highest Bidder: A Proposal to Reform the United States EB-5 Investor Visa Program, 27 Ind. Intl. & Comp. L. Rev. 79, 96 (2017).

[46] Lee Li, Navigating EB-5 Visa Usage Statistics: A Historical and Current Perspective, 5 Int’l Perspectives 68 (2017), https://iiusa.org/blog/wp-content/uploads/2017/12/Navigating-EB-5-Visa-Usage-Statistics2C-A-Historical-and-Current-Perspective.pdf.

[47] Kyra Gurney et al., Suspected of Corruption at Home, Powerful Foreigners Find Refuge in the U.S., ProPublica (Dec. 9, 2016, 9 A.M.), https://www.propublica.org/article/corrupt-foreign-officials-find-refuge-in-united-states.

[48] Id.

[49] Byrley, supra note 45, at 111.

[50] See Quick Countries Comparison, Best Citizens, https://best-citizenships.com/countries.htm (last visited Oct. 4, 2018) for a list of 54 countries that have investor-based visa and immigration programs with a short summary comparing the program of each country.

[51] Andy J. Semotiuk, EB-5 Fraud Highlights Risks Of Investor Program, Forbes (Jan. 5, 2015, 1:50 P.M.), https://www.forbes.com/sites/andyjsemotiuk/2015/01/05/the-eb-5-investor-program-risks-and-rewards/#1fb1dd6d43a5 (referring to an increase of corrupt Chinese officials seeking to utilize the Australian Investor Based Immigration program, similar to the EB-5 program of the United States; there is cause for concern that this problem will also occur, if it has not already, through utilization of the EB-5 Program).

[52] RC program authorization (12/7/2018), Lucid Prof. Writing EB-5 Blog (Sept. 28 2018), https://blog.lucidtext.com/.

[53] Regulations update (Fall 2018), Lucid Prof. Writing EB-5 Blog (Oct. 17, 2018), https://blog.lucidtext.com/.

[54] RC program authorization (12/7/2018), supra note 50.