Cooperating to share experience and support the program

Thank you to EB5 Investors Magazine for launching an initiative to showcase positive EB-5 stories. Regional Centers and project companies, please make this effort succeed by taking time to reach out and contribute information about your completed EB-5 projects. The airwaves desperately need stories of real-life experience with EB-5 success. Otherwise, the conversation and our reputation will continue to be defined by the few projects that make the news for bad reasons.

Showcase the positive impact the EB-5 program has had in America
EB5 Investors Magazine is launching a special feature to showcase how the EB-5 visa program has provided a positive impact across the nation by creating American jobs while stimulating our economy.

Please share how your completed EB-5 projects have had a beneficial effect on America. Details of your completed EB-5 projects will be used in material to promote the success and economic impact of the EB-5 program!
Let’s show our policy makers, industry influencers, interested EB-5 program participants and everyday Americans how much investment and jobs the EB-5 program creates!

Click here to share your EB-5 project details!

IIUSA has also emerged with calls to action to support the industry.

• The IIUSA Public Policy Committee, of which I am a part, is preparing to engage with USCIS on the topic of unreasonable adjudication practices. To this end, we are collecting examples of recent Requests for Evidence and Notices of Intent to Deny that reflect new adjudication trends and make unreasonable requests. Do you have examples? If so, please redact personal information out of the RFE or NOID, and email to education@iiusa.org. The committee will use these examples to inform a robust response. (https://twitter.com/EB5IIUSA/status/1262832809162530819)
• IIUSA is calling on all EB-5 stakeholders, economic development professionals, and businesses around the country to sign a public letter of support. The letter, addressed to members of Congress, highlights the economic benefits of EB-5 investment, including job creation and retention for U.S. workers and local economic development.
• IIUSA offers a template to assist stakeholders in submitting op-eds to their local publications.

Unleashing the economic and job creation benefit of EB-5

Washington has been busy considering how to use immigration policy as a tool in midst of the current COVID-19 crisis. The flurry of immigration-related activity includes:

• a report that a coronavirus stimulus bill could include EB-5 visa relief (the report was contradicted, but not before spurring negative press)
• President Trump’s first executive order “Suspending Entry of Immigrants Who Present Risk to the U.S. Labor Market During the Economic Recovery” (with EB-5, the job-creating EB category, naturally among the exceptions)
• the proposed Healthcare Workforce Resilience Act to recapture previously unused visas and disregard the per-country cap specifically for healthcare workers
• a letter from senators including Senator Grassley calling on Donald Trump to extend the COVID-excused immigration crackdown to include guest workers, student trainees, and EB-5

So far EB-5 has not been harmed, except by threats. EB-5 might benefit indirectly next year from measures that prevent visas from being issued in other categories this year. But EB-5 has not yet been targeted for any benefit. Why? Our administration and legislators are tinkering with immigration policy for the express purpose of protecting jobs for U.S. workers and promoting economic growth. The EB-5 category exists “to stimulate the U.S. economy through job creation and capital investment.” Surely EB-5 is exactly what we need to encourage now?

EB-5 could and should be a potent tool to support our recovery, but faces political and administrative challenges.

The U.S economy and labor markets obviously benefit from a program that incentivizes foreign investors to invest in capital-starved U.S. business that will create jobs for U.S. workers. But politicians get more short-term benefit from talking points than from facts. Immigrant investment does not fit Republican rhetoric, which currently depends on painting immigration as an economic and social threat – the visible scapegoat needed to distract from the frustratingly invisible real foe of COVID-19. Immigrant investment does not fit Democratic rhetoric, which avoids being seen to side with business interests and wants to be seen supporting the most vulnerable first. Who wants to talk about immigrants who do not take jobs but create them, who aren’t to be seen limping across the border but shopping at Nordstrom, who come from success, who support business and developers, and who arrive flush with tax dollars to give? EB-5 investors are a practical help to everyone and politically awkward for all sides.

The EB-5 program would get more recognition and support if people realized what it is and does. American entrepreneurs get capital to enable them to open businesses and complete projects. The foreign investors get visas only if those ventures create jobs for U.S. workers. Most American entrepreneurs are honest. Many EB-5 projects involve small businesses and most employ vulnerable workers. EB-5 investors come from around the world, and tend to be upper middle class professionals. EB-5 uses a tiny percentage of total visas. The visas cannot be bought at any price, only granted in exchange for job creation. But who knows this? One headline out of a hundred tells that story. Most headlines instead shriek these words: fraud, scandal, buy-a-visa, pay-to-play, super-rich, Manhattan, China. Out of many thousands of EB-5 projects, the 20 with salacious features get covered. Where headlines lead, our government representatives follow. EB-5 can only thrive if the industry gets much better at education and public relations, showing a true picture of the program that legislators can afford to come out and support.

To achieve Congressional intent, the EB-5 program needs to be administered in a way that promotes job creation and capital investment. The regional center program needs to be available in geographies around the country, especially rural and distressed urban areas with naturally low investment activity. Applications for new projects need to be vetted promptly, to create opportunity for new projects to raise capital and discourage misuse. Investor petitions need predictable and timely treatment, so foreign investors will trust the program. At the moment, the Investor Program Office at USCIS is doing precisely the opposite at every point. IPO is busy eliminating opportunity for rural and distressed areas by making robust investment pipeline and frequent activity the bar for regional center designation. IPO posts a 4-6 year processing time to vet new regional center projects, and has been taking nearly 3 years to get around to reviewing investor petitions. Such administration is obviously not conducive to attracting capital investment to good projects, creating new jobs, or facilitating timely contribution to the country’s urgent economic needs. EB-5 can only thrive if USCIS remembers that it’s administering an investment-based program that involves the fate of U.S. business and jobs, not simply an immigration program.

To create economic benefit for America, EB-5 needs to be used. To be used, it needs to be attractive. Currently the U.S. investor visa has less availability with more trouble and expense than alternative visas in other countries. This makes it a tough sell for U.S. entrepreneurs trying to find investors to help launch and save businesses. EB-5 could become more attractive if Congress made more visas available to EB-5, walked back the regulatory change to triple the investment threshold, and forced USCIS to start administering the program with integrity and efficiency. Congress could take steps to do all this if they felt the need – just as they’re now proposing immigration interventions, including visa recapture and processing improvements, to help retain foreign health care workers. Congress realizes that America needs health care workers for COVID recovery. When will it realize that America could use investment and job creation for economic recovery, and treat EB-5 accordingly? Probably, when we finally successfully convey that that is, in fact, what EB-5 can offer. This story must be urgently told, by everyone who can tell it. Otherwise, EB-5 may get folded into the blind effort to scapegoat employment-based immigration in general.

UPDATES:

• EB5 Investors Magazine is launching a special feature to showcase how the EB-5 visa program has provided a positive impact. Please share how your completed EB-5 projects have had a beneficial effect.
• IIUSA invites EB-5 users to add signatures to this support letter to Congress, and to submit op-eds with stories of EB-5 success.

In other news, the latest IIUSA Regional Center Business Journal is worth the effort to read, with substantial and timely content. I particularly appreciated the articles on TEAs, EB-5 visa numbers, I-526 processing order, and installment investments.

EB-5 Primer

The media is still full of EB-5 stories, but many reports struggle to explain EB-5. Are we selling citizenship? Is this a cash-for-visas program? Why would a luxury project by celebrity New York developers get to benefit from immigrant investment?

Strictly speaking, EB-5 is not a visa-for-cash program but a visa-for-employment program. The “EB” in EB-5 stands for Employment Based. While some countries do sell citizenship, Congress took care to set up the US program differently. An EB-5 investor can get conditional permanent residence for making a qualifying investment that will result in creation of at least 10 jobs, and may eventually get a permanent green card if the investor sustains the investment and can go on to demonstrate that jobs were in fact created. Cash alone does not win EB-5 status.

Another distinctive feature of the US investor visa program is that it involves private sector investment, not government-sponsored or government-controlled investment opportunities. The prospective immigrant is free to choose to invest in anything from an Iowa farm to a New Jersey skyscraper, and may apply for a visa if job creation and other requirements can be met. Senator Grassley would like the EB-5 investor to chose the Iowa farm, and the investor might prefer it as well if the government bore the risk and responsibility for the choice and replaced market forces in underwriting the investment’s success. The government makes no such offer, however, and the investor is left to decide which private investment opportunity is most suitable. The government influences application of immigrant investor capital in two ways: by defining requirements for EB-5 eligibility, and by offering incentives. An eligible EB-5 investment must be at-risk investment of a certain amount in a for-profit enterprise that creates a certain number and kind of jobs, among other requirements, and the “Targeted Employment Area” incentive with reduced investment was designed to reward investment in high-unemployment and rural areas.

Some observers are concerned that the TEA incentive hasn’t functioned as intended, and that EB-5 investor capital is benefiting the wrong places and the wrong people. Others worry that the investment and job creation requirements need to be more robust to realize Congressional intent. EB-5 reform legislation targets these issues, as do proposed regulations from DHS. And to quote a White House spokesman, the administration “is evaluating wholesale reform of the EB-5 program to ensure that the program is used as intended and that investment is being spread to all areas of the country.”

For additional reading, see my post with comparison of investor immigration programs worldwide based on a Migration Policy Institute report, and my summary of TEA incentive proposals in proposed regulations and legislation (now significantly revised and expanded, and I welcome additional corrections).

EB-5 in the news (Kushner Cos in China, SEC in Idaho, visa dates, Ombudsman, RC terminations)

Now that we’ve celebrated the good news of regional center program extension to September 30, 2017, here’s some concerning news to keep in focus as well.

• The regional center program was barely extended – just another few months added. The program desperately needs stability – preferably the stability of a permanent program, and at least the stability we used to have of three-to-five year extensions. These tiny months-long jumps reflect deferred decision-making, not necessarily votes in the program’s favor. We need Congress to take positive action on EB-5 — something it hasn’t done since 2012.
• Big-city mega-projects are a minority of EB-5 offerings but claim a large number EB-5 investors, and their prominence in the news is not helpful when Congress and the public need to see how EB-5 is also working to help undercapitalized areas. This weekend, media from the Washington Post, the Wall Street Journal, the New York Times, and The Guardian to NPR and Vox.com are reporting hot stories from journalists who persevered in observing an EB-5 roadshow being put on in China by the Kushner Companies. It hardly matters if the backers are completely innocent of influence peddling – indeed, they ought be innocent, because everyone is likely to just assume and act on the assumption that they’re guilty, regardless of what they do or say. Prospective investors are likely to assume without being told that the Kushner EB-5 project promoters can leverage access to power at the highest level, making the offering very attractive, and EB-5 critics will be just as eager to jump to the same conclusion, making the offering very dangerous politically. Senator Grassley, Senator Leahy, and Senator Feinstein at least are going to have a field day. (Updates: Feinstein and Leahy have a letter out to the White House Counsel, Grassley has written a letter to John Kelly, Leahy, Conyers, and Lofgren have written a letter to the Kushner Companies, and the White House has started issuing statements.) Some of my relatives even called me today, questioning my involvement in EB-5 after reading the news. I’m proud of my personal experience with many small businesses that launched thanks to EB-5 investment, with investors who sacrificed to invest and have persevered on a difficult and lengthy path to US residence, and with entrepreneurs who’ve brought so much more to the US than their money. Such stories rarely make the news, however. In reviewing statistics on EB-5 filings for the Notice of Proposed Rulemaking, DHS indicated that regional center projects in FY2013-2015 included 15 investors on average, while non-regional center investments had two investors on average (NPRM footnote 58). That’s just an average, but reflects the EB-5 world I have known best. But mega-projects, though few in number, are increasingly making a big splash in a small pond. The Kushner project reportedly seeks to raise $150M from 300 investors, which means it could claim nearly 10% of available EB-5 visas for a year assuming an average of three visas per investor. The 27 mega-projects summarized by NYU researchers in a March 2016 article would use up over three years of EB-5 visa numbers by themselves, if fully funded. New York City Regional Center recently announced its 1000th I-829 approval, with permanent residence for over 2,750 individuals and conditional permanent residence for an additional 5,200 investors and family members  – nearly 8,000 visas facilitated by a single regional center. This big-fish phenomenon is something to grapple with as we contemplate the future of the EB-5 program.
• Investors understandably gravitate to major-league capitalists when the SEC keeps showing up amateur capitalists. The SEC has announced another EB-5 case, this one involving Serofim Muroff, associated entities through which he allegedly misappropriated funds, and an administrative assistant/bookkeeper charged with facilitating the misappropriation. Here is a link to the SEC press release and complaint.  The woes of Idaho State Regional Center are not new (various lawsuits have been ongoing), but this SEC case looks distinctive to me in the way it applies securities laws to the EB-5 context, and I look forward to expert analysis.  (UPDATE: see McKee and Ahrenholz: SEC Flexes Enforcement Muscle in EB-5 Action.) The handful of EB-5 cases brought so far by the SEC have common themes that should be targeted by industry best practices and integrity measures in new EB-5 legislation.
• The news from Charlie Oppenheim during the IIUSA EB-5 Washington, D.C. Conference was predictably sobering. Mr. Oppenheim anticipates that the cutoff date for China-born investors will have advanced only to June or July 2014 by the end of this fiscal year, and to September or October 2014 by the end of next fiscal year. Considering the I-526 filing surges that have happened since 2014, this trend  is not going to get prettier, absent legislation to change visa numbers. Mr. Oppenheim also noted that Vietnam could trigger the per-country limit and become subject to a cutoff date in 2019 or 2020. The small-pond phenomenon (only about 10,000 visas available annually for investors plus family members, and 7% per-country limit when the cap is reached) is another important issue for Congress to address as it contemplates the future of the EB-5 program.
• President Trump, who has yet to exhibit any warm fuzzies to EB-5, despite what the Washington Post may suspect, has appointed a new CIS Ombudsman known for being anti-immigration generally and anti-EB-5 in particular.  My only question is whether Julie Kirchner’s probable bad intentions are any more likely to be effective than good intentions expressed by previous Ombudsman.
• Meanwhile, USCIS continues to approve new regional centers while terminating others for failure to promote economic growth.

Regional Center List Changes
Additions to the USCIS Regional Center List, 04/17/2017 to 05/08/2017.

• First American Redevelopment Regional Center (California)

New Terminations:

• North American Center for Foreign Investments, LLC (California) Terminated May 1, 2017
• Westgate Orlando Regional Center, LLC (Florida) Terminated May 1, 2017
• New York Green Hotel Regional Center LLC (Connecticut, New Jersey, New York) Terminated May 1, 2017
• DRC Capital Partners, LLC (Arizona) Terminated May 1, 2017
• E&W Lake Tahoe Regional Center LLC (California) Terminated May 1, 2017
• ACIC Management, Inc. Regional Center (Washington) Terminated May 1, 2017
• PetroSam, LLC (Texas) Terminated May 1, 2017
• Alaska Gold & Mining Regional Center, LLC (Alaska) Terminated April 21, 2017 Liberty West Regional Center (Arizona, California) Terminated April 19, 2017

Washington updates, RC termination appeal, SEC (WA), Petition processing

Washington Updates

The comment period for proposed EB-5 regulations closes on April 11, and the regional center program’s current authorization expires on April 28. Either of those immanent deadlines could be associated with significant EB-5 program changes, but I’m not hearing any confident predictions for what will happen exactly. Last week Senators Grassley and Leahy wrote a letter reacting against news that a couple lobbyists for large real estate developers may have recently agreed to “secret backroom deals to thwart reforms.” The senators promised to oppose any such deal, which would presumably protect investment amounts and TEA definitions from significant change, but have yet to  reintroduce substantial EB-5 reform legislation of their own.  And Congress has so much to do in the next month that one wonders whether our representatives can even agree on a plan to fund the government beyond April 28, much less figure out EB-5 changes. For other commentary on state of play in Washington, see for example posts from IIUSA and Wolfsdorf Law. (This is probably too unserious to even mention, but Representative Steve King of “other people’s babies” fame has introduced another bill, H.R.1502, proposing to repeal the EB-5 program entirely. I don’t see this particular bill going anywhere, not least because terrorist threats may be the one problem EB-5 does not have.)

Appealing Regional Center Termination

Matter of S-D-R-C-, ID# 13768 (AAO Mar. 15, 2017) considers the question of whether or how USCIS would be justified in terminating South Dakota International Business Institute  — a regional center that on the one hand has had many successful projects and contributed significantly to economic growth over the years, and on the other hand was – for a number of years, though not currently – in the hands of management charged with various improper activities. The AAO concludes, after interesting discussion deserving industry attention and response: “Evidence of a regional center’s improper or unlawful activities is relevant to the question of whether that center is continuing to promote economic growth, but derogatory evidence must be weighed against countervailing equities on a case-by-case basis. This case contains evidence of the diversion of funds away from job-creating activities, as well as evidence of substantial economic activity that created thousands of jobs. USCIS must consider all relevant factors in determining whether the Applicant’s regional center designation should be terminated or maintained.” AAO withdrew USCIS’s termination decision and remands the matter for further proceedings.

Challenging Capricious Decision-making

Mr. Whalen also posted a decision on the Quartzburg Gold case that I discussed last summer. The court denies part of the plaintiffs’ motion, but grants the plaintiffs’ charge that USCIS was arbitrary and capricious in its decision-making. “First, the reasoning underlying USCIS’s denial of an initial set of Plaintiffs’ petitions was arbitrary and capricious and counter to the evidence before USCIS. Second, USCIS’s decision to treat the petitions of certain Plaintiffs differently than others, despite the fact that all of the Plaintiffs presented effectively equivalent petitions, without providing any explanation for doing so, was also arbitrary and capricious.”

Litigation

The SEC has announced fraud charges against Washington-based businessman Andy Shin Fong Chen and his company Aero Space Port International Group, Inc. The complaint has the usual allegations regarding misappropriation of EB-5 investor funds, and is distinctive in targeting just one of the regional center’s several offerings. The RC response argues that the EB-5 investments are not securities (SEC begs to differ), and points out that the investors involved still support the project and its management (unsurprisingly, considering that they have I-526 petitions pending). I haven’t had time to fill out details in my log of SEC EB-5 cases, but hope someone else will publish an exercise like this to highlight common themes.  In an article published today in The Hill, Catherine DeBono Holmes discusses reforms that could help reduce or eliminate the factors that keep repeating in the scattered cases of alleged fraud in EB-5.

I-526 Petition Processing

The EB-5 Insights blog reports that that IPO seems to be implementing an undeclared policy of holding I-526 petitions in abeyance when an Exemplar I-924 Petition associated with the same new commercial enterprise has been filed. For reference, here is my running log of communications from USCIS regarding EB-5 petition processing practices and times. My EB-5 discussion forum is still open for investors to discuss their experience and progress of the cases they are tracking.

Washington updates

The article Will EB-5 Survive? (February 23, 2017) in National Real Estate Investor reviews the current status of EB-5 politics.

[See also my more recent post on the 3/8 House Judiciary Committee hearing.]

Washington updates

2/6/2017 UPDATE: The news in this post is now all outdated. Please see my Washington Updates page.
–Original Post–
This week Washington has been busy making good on campaign promises and also throwing babies out with the bathwater. Of most significance for EB-5, the President has frozen federal hiring (halting USCIS plans to deal with petition backlogs and improve processing by bringing on more staff) and created two hurdles for new regulations (a regulatory freeze and a make-one-delete two requirement), deferring hopes and fears for the long-awaited modernization of EB-5 regulations. A horrifying new order suddenly suspends whole countries of people from US visas and even entry based on nationality. Senator Dianne Feinstein decided the time was right put her long-running opposition to EB-5 in the form of a bill (S.232) that proposes eliminating EB-5 entirely, both direct investment and the regional center program. I’ll write more about this bill if anything comes of it, but I expect that that the significant legislation will be a forth-coming update to the Goodlatte EB-5 reform bill (last released 12/2/2016). I am going forward with my work as usual under the assumption that reason will prevail eventually and that immigrant investment and the country generally are not, after all, doomed.  But if anyone would like to offer me a chance to move from the immigration business to the walls-and-bunkers business, I’m listening.