Breaking Down the Criticisms of the EB-5 Program

As with all topics surrounding immigration, there is controversy. The EB-5 visa investor program, whose aim is to bring foreign money and create jobs, is no exception. Media coverage skyrocketed this past fall with the fast approaching program deadline. For years, the program has been accused of “selling green cards to rich people” and being more vulnerable to fraud than other programs.

Those arguments are hardly supported in reality, and what is usually missed is the positive impact EB-5 has made. The core goals of EB-5 are to create new jobs and support economic development. With a track record of over 50 EB-5-related projects from providing defensible job projections to assessing the feasibility of an EB-5 application  ESI has seen firsthand the critical impact the program has across the U.S. In Pennsylvania alone, there have been great returns. Over the 2010-2013 period, the EB-5 funding saw[1]:

  • Over $684.2 million in total investment
  • $1.1 billion in economic activity
  • Supported 13,000 jobs
  • $142.8 million in federal taxes
  • $65.2 million in state and local taxes

 

Many congressional members have voiced praise and concerns for the program, which led to the introduction of different bills aimed at extending, restricting, and revising the program. No consensus was reached with the proposed program revision. In the wake of the new termination date of September 2016, Congress will be taking another look at the program, spearheading a new round of debates. Let us breakdown the arguments against EB-5 to debunk the misconceptions that exist around the program.

Program Highlights

But first, a quick explanation of how the program works. EB-5 is an employment-based visa program that allows eligible international investors to gain access to a green card if they fulfill these few requirements:

  1. Invest $1,000,000 to a designated project in the U.S. or $500,000 if the project is a Targeted Employment Area (TEA), either a rural area or an area that has an unemployment rate of 150% of the national unemployment rate.
  2. The investment must create at least 10 full-time jobs (directly or in-directly)
  3. The investment capital must be from a legal source, acquired directly or indirectly by lawful means.
  4. The investment must be “at risk.”

 

Three years after the program’s launch in 1990, Congress created the Immigrant Investor Program, also known as the Regional Center Program. Regional centers act as mediators between investors and projects. They offer capital investment opportunities in defined geographic areas to potential foreign investors, sponsor projects, and track the job creation information. After a slow start, the EB-5 program, supported by the creation of many regional centers, has grown significantly in the past decade.

Total EB-5 Visas Issued 2005-2015[2]

eb5 visa numbers
Source: D.H.S Immigration Yearbook 2005-2015

The program has worked to support many projects that would have otherwise not been funded. It serves as a low-cost source of funding, significantly cheaper than most sources of mezzanine funding. It has helped fuel economic development in states and municipalities, provided needed jobs, built infrastructure, and produced countless projects that aim at serving the community. EB-5 has proved to be an engine of growth for regions across the U.S.

Even with the great gains, concerns have been voiced about the integrity of the program. Many of the concerns have merit, but most have been exaggerated in the media and during political discussion. What are the major criticisms of this program and to what extent are they true?

MYTH: EB-5 is just a way for wealthy foreign investors to “cut the line” for a U.S. visa.

FACT: The EB-5 visa process is the same as other employment-based visa programs, involving intense screenings and background checks.

eb5-statistics application steps
Source: https://www.eb5investorvisa.com/eb5-statistics.html

Many critics of EB-5 claimed that the program allows immigrants to jump to the front of the visa line, privileging the rich over other qualified visa candidates. Investors who use EB-5 are able to gain quicker access to a green card, but the entire process spans lengthy screenings of applicants and does not guarantee any permanent extension of U.S. residency. The two-step process that is used for other visa applications is used for EB-5, as well as going through intense national security screenings.

EB-5 applicants, though, do not affect the backlog for other employment-based visas. The program has a strict cap, where only 10,000 visas can be generated in any give year. On the contrary, unfulfilled visas by the EB-5 program can be repurposed towards other employment-based visas.

MYTH: EB-5 developers can distort census tracks to fit the TEA requirements.

FACT: EB-5 projects are employing and supporting TEA residents and communities. 

The distribution between non-TEA and TEA investments has shown a drastic favoritism towards TEA. This preference makes sense, since the investment minimum is half of what is needed for non-TEAs. The concentration in TEAs should be positive, for these areas in dire need of an economic boost.

Percent of EB-5 Conditional Visas Issued to Investors in TEA and non-TEA[3]

eb5 TEA
Source: DHS Yearbook of Immigration Statistics (FY1992-FY2013); State Department preliminary data (FY2014)

What concerns many is that a project can be claimed to be in a TEA and then be built in Midtown Manhattan, which no one would consider as an economically struggling part of the U.S. While these projects may not be built in the more narrow definition of TEA, the effects are still felt in the surrounding TEAs. The fact that these projects employ outside their immediate area, in TEAs, is enough to fulfill the purpose of separating out TEAs. The reason for the reduced investment threshold of TEAs, from $1,000,000 to $500,000, is to encourage economic activity and support job growth in areas facing economic hardship. The TEA population can still work for the project and benefit from its creation, whether it is a road, retail site, or restaurant.

MYTH: There are heightened risks of fraud with EB-5.

FACT: USCIS continues to increase its security measures and strengthen its relationship with intelligence agencies. 

Many of the stories making headlines regarding EB-5 are cases of investor fraud and misuse of investment funds. These cases, while certainly requiring attention, are not as numerous as the media and politicians make it out it be. Thousands of successful projects have come out of the EB-5 regional centers, so the bad eggs are few in comparison to the positive impact the majority of the projects have made.

The U.S. Citizenship & Immigration Services (USCIS), which oversees the EB-5 program, has taken steps to address these concerns of risk and integrity of the program and regional centers. Oversight has been increased, as seen with the creation of the Investor Program Office (OPI), whose expertise covers national security, fraud detection, immigration law, economics, and business. USCIS has also strengthened its ties with the Department of Commerce and intelligence agencies such as the SEC, FBI, and the Fraud Detection and National Security Directorate (FDNS) in order to improve the screening process and better detect potential risks.

These concerns, though, should continue to be addressed. Current legislation has been introduced in order to increase oversight over the regional centers to catch potential threats of fraud earlier in the application process and make sure investors and project managers are honest and accountable with their use of funding.

MYTH: EB-5 is an easy path out for corrupt foreigners and criminals looking to escape their county.

FACT: All EB-5 investor applicants are put through extensive background checks.

Along with the issue of fraud, there have been concerns that EB-5 could serve as an outlet for foreign criminals and even terrorists to leave their native country to come to the U.S. This concern has been exaggerated by the media and for the most part has no basis in fact. Still, UCSIC understands these concerns and takes the potential threats seriously. Combining a rigorous vetting process, more thorough than any other visa program, with the support of many intelligence agencies, UCSIC has worked towards ensuring that threatening individuals cannot gain access to the U.S. via the EB-5 program. Not only are the individual potential investors put through exhaustive background checks, their funds are reviewed by DHS as well as regulated by the U.S. banking system, which is trained to accurately identify cases of money-laundering and fraud. As with any complex process and immigration program, risks will be involved, but UCSIC has taken the necessary steps to limit potential threats.

MYTH: EB-5 isn’t really creating jobs, just saving developers money on projects that could be financed in other ways.

FACT: EB-5 has created thousands of jobs across the U.S.

The program has been scrutinized for exaggerating the impact it makes, especially when it comes to job creation. Some claim that the USCIS is too flexible with its consideration of an “indirect” or ‘”induced
job, which count the jobs generated by the total investment, versus just generated solely with EB-5 funding. Others think the ten jobs requirement is far too low.

As with any economic impact study, there are many different models to calculate real impact. What is important, though, is that regardless of how the impact is calculated, incredible economic impact is being made. The most conservative estimates show EB-5 has supported at least 77,150 jobs (direct, indirect, and induced jobs) since the creation of the program, with a total investment of a minimum $4.2 billion[4]. These jobs have been created without the expense of taxpayer dollars. It’s important to mention that many of these projects will continue to support jobs throughout the years, through maintenance and upkeep, and these projects enhance the community whether it is providing a place to eat, shop, relax, live, or work.

Key Takeaways

All these concerns about the EB-5 program should not be dismissed or taken lightly. As a country, we must continue to be concerned with issues of national security, economic impact, and program integrity. However, it is important to distinguish between the actual program outcomes and the claims that distort the facts. USCIS has taken steps to ensure that the program performs in order to reach its intended goals: create jobs for U.S. citizens and encourage economic development. USCIS has worked scrupulously with Congress to hear the concerns of the public, as well as launching the Idea Community Campaign to allow citizens to directly communicate their thoughts and opinions about how to better the program. To become part of the EB-5 conversation and see previous successful campaign, check out their website here.

[1] Source: https://iiusa.org/blog/wp-content/uploads/2015/05/Economic-Impacts-of-the-EB-5-Immigration-Program_2013_FINAL-web.pdf

[2] Source: D.H.S Immigration Yearbook 2005-2013

[3] Source: DHS Yearbook of Immigration Statistics (FY1992-FY2013); State Department preliminary data (FY2014)

[4] Source: http://bipartisanpolicy.org/wp-content/uploads/2015/09/BPC-Immigration-EB5-Visa-Program.pdf

 

IMG_0576

Lauren Bauman is a Marketing Assistant at Econsult Solutions, Inc. (ESI) and a student at Drexel University studying Global Studies with a focus in International Business and Economics.

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Share This