EB-5 Visa Program: Can It Be Fixed?: An Overview of the EB-5 Program, Its Policy Issues & Potential Repairs
Like the Founding Fathers, many desire to immigrate to the United States in search of the proverbial American dream, hoping for better opportunities and an improved way of life.[ii] The Declaration of Independence memorializes this vision—holding as self-evident and true—man’s inalienable right to life, liberty and the pursuit of happiness.[iii] Nevertheless, to those who dare tread across oceans and seas for a taste of the proverbial pie, immigration to the United States is not readily accessible and often comes at a hefty cost.[iv] Most new citizens pay this price in a public ceremony—swearing the Oath of Renunciation and Allegiance forsaking loyalty to former states and sovereignties.[v] For others, while the cost is monetary, it is still dear.[vi]
Pursuant to Article I, Section 8, Clause 4 of the United States Constitution, Congress is granted plenary power to “establish a uniform [r]ule of [n]aturalization . . . throughout the United States.”[vii] With this enumerated control, Congress was afforded the autonomy to admit or deny access to the land of opportunity and consequently, enacted the Immigration Act of 1882.[viii] The Immigration Act of 1882 is a product of Congress utilizing its exclusive power and is widely recognized as the United States’ first immigration law.[ix] Subsequently, a series of reforms followed, most notably in 1990.[x] In 1933, the Immigration and Naturalization Service (“INS”) was charged by Congress with the responsibility to commission immigration and naturalization.[xi] Pursuant to a large scale restructuring of the United States government in 2003, this duty was split when INS was divided into three entities and placed under the guidance of the newly created Department of Homeland Security (“DHS”).[xii]
During the term of the President George H. W. Bush Administration, the Immigration Act of 1990 was passed on the heels of a period of negative growth for the United States economy, dubbed the Recession of 1990–1991.[xiii] It effectuated the “most sweeping overhaul of the [United States] immigration system in [sixty-six] years” changing naturalization from a judicial process to an administrative one.[xiv] Additionally, the Immigration Act of 1990 was designed to aid in spurring economic growth and in fighting the recession through the creation of American jobs, specifically through its Employment-Based Immigration Program.[xv] Despite his administration’s attempts to combat the declining economy, constituents abruptly lost confidence in President George H. W. Bush when he reneged on his previous campaign promise—“[r]ead my lips, no new taxes”—by raising taxes.[xvi] As a result, the effects of President Bush’s broken promise were reflected at the election polls and attributed to his defeat for re-election in the 1992 United States presidential election to President Clinton.[xvii]
While George H. W. Bush's presidency ended after one term in office, the Immigration Act carried on.[xviii] One pathway created through the Immigration Act of 1990 is the EB-5 Immigrant Investor Program (“EB-5 Program” or “Program”).[xix] It was explicitly created to stimulate the nation’s economy through capital investment by foreign nationals seeking a legal track to United States residency.[xx] It was given the moniker EB-5 because by filing a petition submitted under the Employment-Based Immigration Fifth Preference program, “a non-citizen, who invests—or is actively in the process of investing—lawfully obtained capital in a new or existing commercial enterprise—in the United States—that creates or maintains full-time employment for qualified workers, [may] apply for permanent residency in the United States.”[xxi]
Nevertheless, this Program has been the subject of much controversy.[xxii] Because of registration exemption, the Securities and Exchange Commission (“SEC”) has limited visibility into the immigration investor market as compared to registered offerings in the public market, which has led to much fraud.[xxiii] Although exempt from offer registration, investments are still subject to the same statutes for the offers and sales of securities as is used to govern registered offers.[xxiv] As a result, there have been several actions brought by the SEC against entities and attorneys alike regarding EB-5 fraud and the misappropriation of investor funds.[xxv] Enforcement actions have been brought against a number of attorneys acting as investment brokers to raise EB-5 investor capital.[xxvi] Additionally, there have been actions brought against recipients misappropriating funds.[xxvii] In that fashion, there has been a recently filed case in the United States District Court for the Southern District of Florida, S.E.C. v. Quiros, et al.[xxviii]
Additionally, it has been reported the United States Citizenship and Immigration Services (“USCIS”) cannot effectively detect fraud or assess the Program’s economic benefits.[xxix] The USCIS’s oversight is staggered by scattered data collection, as well as a lack of visibility into where the foreign investor money originates.[xxx] For example, EB-5 investors must document lawfully obtained sources of funds, not connected to drug trade, human trafficking or other criminal activities.[xxxi] However, the Government Accountability Office (“GAO”) has claimed the USCIS does not have a method to verify immigrants’ self-reported financial information with foreign banks; and in some cases, immigrants have used counterfeit documents prepared overseas to show legally derived funds.[xxxii] Consequently, this Program has drawn severe criticism for fragmented regulation ultimately leading to its abuse.[xxxiii] The EB-5 Immigrant Investor Program’s structure creates difficulty in monitoring, detecting, and preventing this kind of alleged fraud.[xxxiv] Nevertheless, there are proposed legislation that would mitigate the risk to investors.[xxxv]
Although there have been bills introduced proffering proposed changes to the Program, they were met with opposition and were not passed.[xxxvi] In December 2015, President Barack Obama signed a bill providing government funding until the next fiscal year.[xxxvii] Also included in this Congress-approved bill is an extension, without changes, to the Program until September 30, 2016.[xxxviii] Subsequently, the Program has been extended until December 9, 2016, and now faces renewal on April 28, 2017.[xxxix] The GAO report details four recommendations, and the scope of these recommendations should be compared to the proposed legislation to highlight the limits of addressing the Program through solely administrative actions as opposed to legislative action.
Although the EB-5 Program has been riddled with fraud and policy concerns, it is still in line with the American dream. It attracts entrepreneurs and gives an opportunity—albeit an expensive one—to foreigners who are willing to make the sacrifice. It strikes a balance and is beneficial for both prospective immigrants and the economy. It spurs the economy by injecting much needed capital into the country. Unfortunately, it has fallen short of its potential.[xl] In the twenty-six years since its inception, there has been no accurate data collection or assessment of the long-running program’s impact on the nation’s economy. This has made it difficult to substantiate the claim that the Program is indeed a beneficial one.
Nevertheless, in light of its discrepancies, the Program should be revamped on both an administrative and legislative level. In light of the recent presidential election, Congress should amend the Program on April 28, 2017 to better streamline its policies. In streamlining its policies, the original mission of the Program will be carried out by creating jobs and income in the underserved areas of the United States. Moreover, it would give USCIS more authority to terminate regional centers and better address fraud or national security concerns. Additionally, the USCIS should continue to improve its oversight of the Program by hiring more specialists, developing interagency collaborations and a more efficient way of detecting and preventing fraud.
In conclusion, the EB-5 Program has immense potential, its mission is laudable and ultimately, it could greatly benefit the still recovering United States economy.[xli]
* Sherisse Lewis earned her bachelor’s degree from Florida International University in Finance and in International Business, her master’s degree in Business Administration from Nova Southeastern University, H. Wayne Huizenga School of Business and Entrepreneurship, and will receive her J.D. in May 2018 from Nova Southeastern University, Shepard Broad College of Law. Sherisse would first like to thank the attorneys in the Miami Regional Office of the United States Securities and Exchange Commission for inspiring her to write about the EB-5 Visa Program. Sherisse would also like to thank Kyla Crowther, for impressing upon her the grammatical and writing skills necessary to complete this Blog Post. Finally, Sherisse would like to thank her family, friends, and specifically, her parents, Michael and Carol Lewis, for allowing her to realize her own potential and for being an unconditional support system.
[ii]. Kit Johnson, Buying the American Dream: Using Immigration Law to Bolster the Housing Market, 81 Tenn. L. Rev. 829, 830–31 (2014). See generally K. M. Kostyal, Founding Fathers: America’s Great Leaders and the Fight for Freedom, Nat’l Geographic, 2006, at 1. The American dream, often romanticized as a national mythology, suggests anyone born in or migrated to the United States, the land of opportunity, may have a slice of the dream through hard work and dedication. Elizabeth Keyes, Defining American: The DREAM Act, Immigration Reform and Citizenship, 14 Nev. L.J. 101, 109 (2013).
[iii]. The Declaration of Independence para. 2 (U.S. 1776).
[iv]. Trent R. Hightower, Give Me Your Tired, Your Poor, Your Huddled Masses Yearning to Breathe Free . . . As Long As They Have the Proper Visas: An Analysis of the Current State of United States Immigration Law, and Possible Changes on the Horizon, 39 Tex. Tech L. Rev. 133, 136–37 (2006) (previously, immigration was open-minded and met migrants with little resistance, but now immigration laws have tightened to control the flow of immigrants with a quota system set in place).
[v]. 8 U.S.C. § 1448 (2012); see also Naturalization Oath of Allegiance to the United States of America, U.S. Citizenship & Immigration Servs., https://www.uscis.gov/us-citizenship/naturalization-test/naturalization-oath-allegiance-united-states-america (last visited April 5, 2017).
[vi]. See EB-5 Immigrant Investor Program, U.S. Citizenship & Immigration Servs., https://www.uscis.gov/eb-5 (last visited April 5, 2017).
[vii]. U.S. Const. art. I, § 8, cl. 4.
[viii]. Keyes, supra note 2, at 109; see also Act of August 3, 1882, ch. 376, 22 Stat. 214 (thereby taxing each immigrant fifty cents). Before the enactment of the Immigration Act of 1882, the first United States Naturalization Law was passed in 1790 and granted limited naturalization to “free white persons . . . of good character” for two years. Naturalization Act of 1790, ch. 3, 1 Stat. 103. Subsequently, there were a series of repeals and reforms. See Naturalization Act of 1795, ch. 19–20, 2 Stat. 414; Act of June 13, 1798, ch. 54, 5 Stat, 566; Act of April 14, 1802, ch. 26–28, 7 Stat. 153; Act of July 13, 1870, ch. 252–254, 41 Cong. 254.
[ix]. Pratheepan Gulasekaram & S. Karthick Ramakrishnan, Immigration Federalism: A Reappraisal, 88 N.Y.U. L. Rev. 2074, 2085 (2013); see also Act of August 3, 1882, 22 Stat. 214.
[x]. See Immigration Act of 1990, Pub. L. No. 101-649, 104 Stat. 4978 (increasing the annual level of immigration, providing family-based and employment-based visas, and the visa lottery program). See generally Immigration and Naturalization Act of 1965, Pub. L. No. 89-236, 79 Stat. 201; Immigration and Nationality Act of 1952, Pub. L. No. 414, 66 Stat. (prohibiting racial and gender discrimination); Naturalization Act of 1790, ch. 3, 1 Stat. 103.
[xi]. Organizational Timeline, U.S. Citizenship & Immig. Servs., https://www.uscis.gov/history-and-genealogy/our-history/organizational-timeline (last visited April 5, 2017); U.S. Citizenship & Immig. Servs., Overview of INS History: USCIS History Office and Library, 7 (2012) [hereinafter USCIS INS History].
[xii]. USCIS INS History, supra note 11, at 11 (noting “INS was abolished and its functions placed under three agencies—[USCIS], Immigration and Customs Enforcement, and Customs and Border Patrol—within the newly created DHS. See USCIS INS History, supra note 11, at 11 (highlighting that after the September 11th terrorist attacks, there was a shift in the United States immigration policy to border security and a resultant restructuring of the government).
[xiii]. 2 Olivier Blanchard, What Caused the Last Recession?: Consumption and Regression of 1990–1991, 83 Am. Econ. Rev. 270, 270 (1993). Interestingly, one of the main causes cited for the Recession of 1990–1991 was a consumption shock, the effects of which were long lasting. Id. Consumption shock is defined as a decrease in consumer consumption in relation to its common determinants. Id.
[xiv]. Robert C. Divine, 1990 Immigration Law: New Visas, Changed System, Tenn. B.J. 26, 26 (March/April 1991). See generally Immigration Act of 1990, Pub. L. No. 101-649, 104 Stat.
[xv]. Immigration and Nationality Act of 1990, 8 U.S.C. § 1153(b)(5) (2012); Howard Patrick Barry, EB-5 As an Instrument of Sustainable Capitalism, 16 Vt. J. Envtl. L. 66, 70 (2014); see also U.S. Citizenship & Immigr. Servs., U.S. Dep't Homeland Security, PM-602-0083, EB-5 Adjudications Policy 1 (May 30, 2013) [hereinafter USCIS Policy Memo]; The Failures and Future of the EB-5 Regional Center Program: Can it be Fixed? Before the S. Comm. on the Judiciary, 114th Cong. 1 (2006) (testimony of Stephen L. Cohen, Associate Director, Division of Enforcement, U.S. Securities and Exchange Commission). Historically, investment was one seldom used pathway to legal permanent residency status. Leslie K. L. Thiele & Scott T. Decker, Residence in the United States Through Investment: Reality or Chimera?, 3 Alb. Gov’t L. 103, 133 (2010).
[xvi]. John W. Lee, III, Class Warfare 1988–2005 Over Top Individual Income Tax Rates: Teeter-Totter from Soak-the-Rich to Robin-Hood-in-Reverse, 2 Hastings Bus. L.J. 47, 55 n.30 (2006).
[xvii]. Jeffery Schmalz, The 1992 Capmaign: Voters; Words on Bush’s Lips in ’88 Now Stick in Voters Craw, N.Y. Times (June 14, 1992), http://www.nytimes.com/1992/06/14/us/the-1992-capmaign-voters-words-on-bush-s-lips-in-88-now-stick-in-voters-craw.html; see also U.C., Berkeley: Backcroft Libr., 1990–92 Early 1990s Recession, http://vm136.lib.berkeley.edu/BANC/ROHO/projects/debt/1990srecession.html (last updated March 7, 2011) (indicating that the Recession of 1990–91 also contributed to his defeat at the polls).
[xviii]. Carla Babb, US Presidents Gather for Bush Library Dedication, Voice Am. (Apr. 25, 2013), http://www.voanews.com/a/us-presidents-gather-for-bush-library-dedication/1648762.html.
[xix]. The Failures and Future of the EB-5 Regional Center Program: Can it be Fixed? Before the S. Comm. on the Judiciary, supra note 15, at 1.
[xx]. The Failures and Future of the EB-5 Regional Center Program: Can it be Fixed? Before the S. Comm. on the Judiciary, supra note 15, at 1; Kate Kalmykov & Steven T. Anapoell, Frequently Asked Questions Concerning the EB-5 Program, Greenberg Traurig 1, 1 (2012), http://www.eb5insights.com/files/2012/03/Frequently-Asked-Questions-Concerning-the-EB-5-Program2.pdf.
[xxi]. Immigration and Nationality Act of 1990, 8 U.S.C. § 1153(b)(5); Barry, supra note 15, at 70; Kalmykov & Anapoell, supra note 20, at 1. This hot button issue permits entities, both public and private, to propose projects for development into which foreigners invest. Kalmykov & Anapoell, supra note 20, at 2.
[xxii]. Jonathan Chew, The Controversial Program That Lets Wealthy Foreigners Buy Visas is Under Scrutiny, Fortune (Mar. 16, 2016, 10:19 AM), http://fortune.com/2016/03/16/eb5-visa-citizenship/.
[xxiii]. The Failures and Future of the EB-5 Regional Center Program: Can it be Fixed? Before the S. Comm. on the Judiciary, supra note 15, at 2; Investor Alert: Investment Scams Exploit Immigrant Investor Program, U.S. Sec. & Exchange Commission, https://www.investor.gov/news-alerts/investor-alerts/investor-alert-investment-scams-exploit-immigrant-investor-program (last visited April 5, 2017).
[xxiv]. The Failures and Future of the EB-5 Regional Center Program: Can it be Fixed? Before the S. Comm. on the Judiciary, supra note 15, at 2.
[xxv]. Id. at 2; see e.g. Suzanne Barlyn, SEC Charges Couple with Fraud in Chinese Investor Visa Scheme, Reuters (June 3, 2016, 3:59 AM), http://www.reuters.com/article/us-sec-fraud-investors-idUSKCN0YO2QP; Press Release, SEC.gov, SEC Lawyers Offered EB-5 Investments as Unregistered Brokers (Dec. 7, 2015), https://www.sec.gov/news/pressrelease/2015-274.html. The SEC is a federal regulatory agency charged with the mission to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” What We Do, U.S. Sec. & Exchange Commission, https://www.sec.gov/Article/whatwedo.html (last updated June 10, 2013).
[xxvi]. Press Release, supra note 25.
[xxvii]. See Investor Alert: Investment Scams Exploit Immigrant Investor Program, supra note 23 (listing several cases where recipients have misappropriated investor funds).
[xxviii]. Amended Complaint, SEC v. Jay Peak, No. 16-cv-21301 (S.D. Fla. May 17, 2016).
[xxix]. U.S. Gov’t Accountability Off., GAO-15-696, Immigrant Investor Program: Additional Actions Needed to Better Assess Fraud Risks and Report Economic Benefits, at Cover (Aug. 2015), http://www.gao.gov/assets/680/671940.pdf.
[xxx]. Id. at 18–19; Sanjay Bhatt, GAO Says Feds Lack Proper Oversight of EB-5 Investor Visa Program, Seattle Times (Aug. 12, 2015, 11:40 AM), http://www.seattletimes.com/business/real-estate/gao-says-feds-lack-proper-oversight-of-eb-5-investor-visa-program/.
[xxxi]. U.S. Gov’t Accountability Off., supra note 29, at 18.
The Senate Judiciary Committee report, accompanying the Immigration Act of 1990, states “the committee intends that processing of an individual visa not continue under this section if it becomes known to the Government that the money invested was obtained by the alien through other than legal means—such as money received [from] the sale of illegal drugs.”
S. Rep. No. 101-55, at 21. This committee report was cited as a basis for “changing the definition of capital to exclude assets directly or indirectly acquired by unlawful means.” Id.; see also 8 C.F.R. § 204.6(e), (f), (g)(1), (j) (2012); 8 C.F.R. § 216.6(c)(2) (2012); 56 Fed. Reg. 60,897, 60,904 (Nov. 29, 1991).
[xxxii]. U.S. Gov’t Accountability Off., supra note 29, at 19; see also Off. Inspector Gen., United States Citizenship and Immigration Services’ Employment-Based Fifth Preference (EB-5) Regional Center Program, 7–8 (Dec. 2009), https://www.oig.dhs.gov/assets/Mgmt/2014/OIG_14-19_Dec13.pdf (in its 2013 report, DHS drew similar conclusions).
[xxxiii]. U.S. Gov’t Accountability Off., supra note 29, at 12–34; Bhatt, supra note 30.
[xxxiv]. See generally U.S. Gov’t Accountability Off., supra note 29; Laura Foote Reiff et al., Immigrant Investor Program (EB-5 Regional Center Program) Extended in Congressional Omnibus Appropriations, Greenberg Traurig (Jan. 2016), http://www.gtlaw.com/News-Events/Publications/Alerts/190814/Immigrant-Investor-Program-EB-5-Regional-Ce%20nter-Program-Extended-in-Congressional-Omnibus-Appropriations.
[xxxv]. See generally U.S. Gov’t Accountability Off., supra note 29; Reiff et al., supra note 34.
[xxxvi]. Reiff et al., supra note 34, at 1–2; see also American Entrepreneurship and Investment Act of 2015, H. R. 616 (2015), American Entrepreneurship and Investment Act of 2015; EB-JOBS Act of 2015, H.R. 3370 114th Cong.; American Job Creation and Investment Promotion Reform Act of 2015, S. 1501 114th Cong.; Targeted Employment Areas Improvement Act, S. 2115 (2015); Invest in Our Communities Act, S. 2122 114th Cong. (2015); EB-5 Integrity Act of 2015, S. 2415 114th Cong.
[xxxvii]. Reiff et al., supra note 34, at 1. See generally Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, 129 Stat.
[xxxviii]. Reiff et al., supra note 34, at 1.
[xxxix]. Ellen Sheng, New Proposal Seeks to Raise Minimum Investment for EB-5 Visa, Forbes (Jan. 28, 2017, 6:00 AM), https://www.forbes.com/sites/ellensheng/2017/01/26/new-proposal-seeks-to-raise-minimum-investment-for-eb-5-visa/#51f33322ee18.
[xl]. Is the Investor Visa Program an Underperforming Asset?: Hearing Before the H. Comm. on the Judiciary, 114th Cong. 5 (2016).
[xli]. Michael B. Sichter, Pumping Up America: Using the EB-5 Visa to Inject Entrepreneurial Steroids Into a Struggling U.S. Economy, 79 UKMC L. Rev. 1007, 1025–26 (2011).