Laying EB-5 to Rest

By Dan Cadman on April 17, 2019

My colleague here at the Center, David North, has written extensively and persuasively about the bloated, ineffectual, and scandal-ridden EB-5 investor program (see, e.g., here, here, and here). Although designed to pair wealthy foreign investors who seek green cards to worthy projects that create jobs for Americans, it does nothing of the sort on either end of that equation.

On the "investors" end, the program guidelines have become so loose that even individuals who borrow the $500,000 to throw into the approved investment pot can be deemed eligible to apply, according to at least one feckless ruling by a federal district court judge. What's more, many of the investors are so eager to accrue resident status for themselves and their families that they throw the money into the EB-5 equivalent of a Ponzi scheme designed solely to make the middlemen rich. This often results in multiple lawsuits against the promoters of the scheme, and sometimes prosecutions in which aliens still seek to obtain their green cards even though nary a job was created.

On the jobs end, the rules are equally pathetic. Approval for a project is often dependent on the same hype that sucks in the starry-eyed investors, and long-term (or even intermediate-term) jobs are scarce as hen's teeth. Even that portion of the program supposedly targeted toward creating growth, development, and job opportunities in poverty stricken and low income areas (so-called "targeted employment areas", or TEAs) is a sham because the borders of TEAs are gerrymandered in the same way that politicians gerrymander congressional districts to suit themselves.

A perfect example of this can be found in an April 12 article in CityLab, "The Hidden Horror of Hudson Yards Is How It Was Financed". It's worth a read, and it's also worth noting that what is described here is unambiguously not an outlier. It is, sadly, all too representative of the flaws of EB-5 developments writ large. They are almost never as advertised.

Why, you may be asking, has such a badly thought-through and poorly executed program survived? Quite simply, because it has drawn entrepreneurs and their politician friends like flies to honey. On the Democratic side of the Great Divide, members of the Clinton family, as well as possible presidential candidate (and former governor of Virginia) Terry McAuliffe, have gotten their hands deeply into the muck. On the Republican side, members of the Trump family, including First Son-in-Law (and roving middle East peace ambassador) Jared Kushner, have done likewise. These Democrats and Republicans are by no means the only ones who have lined up to cash in.

The provision of law authorizing the EB-5 program recently sunsetted. Unfortunately, it was renewed as a throw-in amendment to the last-ditch spending bill both parties scrambled to put together after the fruitless government shutdown.

This means that it sunsets again at the expiration of that spending bill, which is on the last day of this fiscal year, September 30, 2019. It would be a mercy to all concerned to lay this program to rest forever and not, as has happened in the past, to revive it yet again.