EB-5 Notes: A Court Case, OIG Reminders, and a N.Y. Times Review

By David North, March 18, 2016

There's a lot going on in the usually shuttered world of the EB-5 (immigrant investor) program. There is an intriguing new court case, reminders by the DHS inspector general that the program has not taken basic steps for reform laid out years ago, and a sober New York Times review of the whole scene.

The Court Case. Usually when the EB-5 program gets into the courts it is easy to choose sides, at least for me. It is usually another instance of the aliens who lost their money suing what they regard (usually correctly) as cheating resident middlemen.

The latest case, Does 1-72 v. U.S. Citizenship and Immigration Services, is different; it is one of those "go-it-husband, go-it-bear" cases. I mean, who do you root for when the combatants are 72 anonymous multi-millionaire aliens wanting to buy handfuls of green cards vs. the usually sloppy managers of the program at USCIS?

The developer in this case, Quartzburg Gold, mine operators in Idaho and Montana, is largely sidelined while the wealthy Chinese (using a heavyweight law firm connected with the late Senate Majority Leader Howard Baker, Jr. (R-Tenn.) battle it out with the Obama administration's immigration officials.

Does, in this case, is pronounced like the plural for female deer, not like a form of the verb to do (third person singular present). Given all the publicity about crooked Chinese officials using stolen money to fund their EB-5 visa applications, why would not the plaintiffs identify themselves? It would have been a good move.

The 72 John Does are collectively charging that they lost their applications for visas because USCIS inappropriately rejected them because the agency ruled, in effect, that they were not putting their money at risk. The plaintiffs' lawyers were thus given the, shall we say, golden opportunity to argue that investing in an unproven gold mine is, indeed, a risky business.

The case filings are thick on the ground and I do not know if the lawyers for the Does have argued that DHS rarely rules against alien applicants, even in this program, so why the special negative treatment of their faceless clients in this case? In short irony abounds, if not gold. The case is in the U.S. District Court in the District of Columbia, and its number, for users of the court's electronic filing system PACER, is 1:15-cv-00273.

The OIG Gently Reminds DHS of Its EB-5 Obligations. Meanwhile, in testimony before the Senate's Homeland Security and Governmental Affairs Committee on March 15, the DHS inspector general all too gently prodded the administration to rewrite its own regulations to give it power to prevent national security risks and criminals from running the EB-5 regional centers.

DHS officials have been complaining — I think without a shred of believability — that their little hands are tied and they need new laws and regulations to keep spies and crooks away from the regional centers, the DHS-licensed middlemen who stand between the aliens, on one hand, and the resident businessmen on the other. (One can't help thinking that maybe it would be OK if some of the Iranian and Chinese government gelt found its way into those Idaho mines, but that's another point.)

My sense is that, as far as new laws are concerned, I doubt if there is anything in the U.S. code that says anything remotely like: "Thou shalt not use U.S. government resources to remove suspected spies and criminals from the EB-5 regional centers."

It presumably would be useful to adjust the regulations to that end, but the agency can do that, all by itself, and the IG has been on record for more than 26 months saying that it should be done. In his most recent report, John Roth, the IG, has quietly mentioned the passage of time on this matter.

The administration is presumably not in favor of having spies and crooks in the EB-5 program (and I suspect the latter are much more of a threat than the former), it simply has other priorities for its executives and lawyers. Better that they spend their time opening up the gates for more legal immigration and closing down any remaining enforcement activity than to have any of those resources spent on restricting the EB-5 program.

While the IG's prodding is appropriate, I wish he would tell his staff to write a little more forcefully. For example, the testimony includes this statement:

USCIS is unable to demonstrate the benefits of foreign investment into the U.S. economy. ... [O]ne regulation allows foreign investors to take credit for jobs created with U.S. funds.

What should be said is "EB-5 regulations regularly allow middlemen to exaggerate the impact of foreign funds on job creation in the United States by mixing U.S. money and EB-5 money when calculating the creation of jobs by this program."

As far as I am concerned, most of the jobs being "created" in the EB-5 program are "indirect" or "induced" jobs visible only to the economists hired by the EB-5 players to support their clients' pitches to DHS.

To his credit, the IG recommends that DHS take two basic steps to enhance the integrity of the program — make more site visits (most EB-5 money goes into real estate), and actually interview the investors to get a better sense of the source of their money. That such baby steps have to be discussed speaks ill of the agency.

DHS, incidentally, cannot claim, as IRS does with justification, that it does not have the money needed to administer a program carefully. DHS can simply, unilaterally, raise the fees associated with the program any time it wants to. The management of the EB-5 program is funded by fees, not tax funds.

The New York Times Weighs In. Every so often the New York Times runs an accurate and balanced piece on an immigration subject, as it did on the EB-5 program on March 16.

Most of Ron Nixon's article, "Scrutiny for Visa Program That Aids Foreign Investors", summarizes familiar information, but I learned that opponents of the highly sensible, bipartisan effort to reform the program, introduced by Sens. Chuck Grassley (R-Iowa) and Pat Leahy (D-Vt), the current and former chairs of the Senate Judiciary Committee, had spent "as much as $3 million" to defeat that legislation. I did not know that but I am not surprised.

The byline, incidentally, is familiar to me and I have wondered from time to time what it must be like to work in a left-leaning environment, such as the Times newsroom, with a name like Ron Nixon.