Another Watergate Mystery

By David North on February 10, 2011
Obscure Arm of DHS Probably Does Right Thing
as Visa-Seeking Iranian Apparently Tries
to Buy into Watergate Hotel with Lawless Cash!

If I were on the copy desk of a tabloid newspaper, that would be the (admittedly long) headline I would write regarding one of the latest decision of the Department of Homeland Security's privacy-crazed Office of Administrative Appeals. (There's a lot of mystery in this story.)

Essentially, somebody, probably an Iranian, with half a million in what appear to be dubious Iran-based dollars, wanted an EB-5 immigrant visa (or a batch of visas for his family) to invest in the reconstruction of the famed Watergate Hotel, now in genteel disrepair.

The now-defunct Wall Street giant, Lehman Brothers, also played a walk-on role in the proceedings, as did Monument Properties, a major Washington real estate firm.

Part of the murky scenery in this drama is an effort to portray the Watergate Hotel – which is in one of the fanciest parts of Washington, with a gorgeous view of the Potomac and adjacent to the office building of Watergate break-in fame – as being in a depressed area, deserving federal bailouts.

But while all that is more or less clear, the leading actor is an unknown alien wanting one of those green cards we have (I think foolishly) set aside for investors, an alien wanting to obtain it in an extremely complex financial transaction.

Had the alien both masked the source of his riches and invested in a run-down ski resort in Vermont – a favorite investment for EB-5 visa applicants – he probably would have long since become a permanent resident alien.

This is, in short, a story about some of the wacky complications of our immigration system, and how part of the bureaucracy, after highly commendable efforts to thread through a mare's nest of investor-imposed complications, probably did the right thing.

The would-be investor, who sounds like a rich, stubborn, misguided, and totally luckless klutz, eventually was denied a visa.

You can read all about it at the government's website or, as I did, as Appendix VII in the January 3 issue of the immigration bar's trade paper, Interpreter Releases. IR, as is its wont, ran the full 24-page text of the decision, without a word of background, analysis, or interpretation.

As noted in some previous blogs, here and here, and there are up to 10,000 visas that can be issued to each year to members of families making two-year investments of half a million dollars in economic ventures in areas regarded by state (and local D.C.) governments as economically depressed. I find it odd and depressing that the U.S. thinks it is so lacking in resources that it will sell a batch of visas (one for each member of the investor's immediate family) for something as paltry as a two-year investment of $500,000. The specific locations of the favored investments are worked out by regional centers, set up by the states and licensed by USCIS.

These investment opportunities are, I have surmised, often sub-prime in nature, as the clutch of visas is often viewed as a, or perhaps the, major return on the moneys involved. Happily, from the restrictionist point of view, while some of the EB-5 stories, like this one, are intriguing to onlookers, the number of non-citizens actually using the program is far below the level set by Congress. In the same issue of IR it was reported that 1,885 EB-5 visas were issued in FY 2010, less than one-fifth of the maximum. How many of these went to principals, and how many to family members, was not reported.

If, say, 1,000 of the 1,885 were principals, the EB-5 program would have attracted, for two years, a total of five hundred million dollars into our multi-trillion-dollar economy. Relatively speaking, peanuts.

Returning to the would-be Watergate investor, he was adamant in his desire to put money in that building. His application was rejected by the USCIS California Service Center, where these decisions are made at the staff level, so he appealed to the DHS in-house appeals unit, the Office of Administrative Appeals.

The whole business, for a contested immigration matter, moved fairly swiftly. The original petition was filed on October 9, 2008; on June 12, 2009, the service center's director issued a Request for Evidence, usually a sign that the staff is concerned about some aspect of the petition; on November 25, 2009, the director denied the petition. The petitioner appealed. The OAA's decision, agreeing with the director, was issued on September 21, 2010.

What we have is an interesting encounter between a determined, if maladroit, investor, on one hand, and a not-very-intelligent investment/immigration arrangement, on the other, and the entire confrontation, in the terms of Clausewitz, is obscured in the fog of self-imposed secrecy on the part of the OAA. Typically, in American court actions, one knows the names of all the players, the litigants (or criminals), the witnesses, everyone's lawyers, and, of course, the judge or judges. All such information is blacked out in OAA decisions. Some useful information seeps through, however, because OAA's clerks do not redact some helpful data buried in the text of the decision.

So the tale of the (presumably) Iranian investor and his foiled attempt to buy a visa via the Watergate Hotel is that much more mysterious. But we do know the following:

1) What was proposed was a complex investment scheme that was constantly changing as the Watergate Hotel went through bankruptcy. At the heart of the scheme was the fact that the investor planned to put up a letter of credit (i.e., a potential loan) and the reviewers of the petition said it had to be a genuine, at-risk investment which would lead to the creation of jobs. The OAA concluded "the petitioner has not demonstrated that, as of the date of the filing, his investment would be sufficiently at risk and available for job creation during the [two-year] conditional residency period."

2) Similarly the reviewers were worried that various fees to be paid to the scheme's managers might mean that not enough money would be left to create the jobs. Had the investment scheme been more straightforward and more transparent – such as buying into one of those Vermont ski lodges – the investor would not have been burdened by these problems.

3) There was a factor that should have been fatal but was not. This was the congressional intent that these investor funds be invested in depressed areas as defined by state governments. The entity handling these funds for the District of Columbia essentially gerrymandered the economic boundaries to tie the Watergate area to low-income parts of the city. OAA found that it could not overrule that D.C. decision, saying: "While we are bound by [federal rules] it would appear that this [D.C.] regulation has produced unintended consequences that are clearly contrary to congressional intent."

4) What did prove fatal to the petition was the source of funds; they had been transferred through the Export Development Bank of Iran, an entity which is on a federally-banned list. The OAA concluded that the "petitioner has failed to establish that his investment was obtained through lawful means."

We also know that the investor was a male, because the OAA clerks failed to redact the word "his" in the decision.

A puzzle remains. Why did this investor continue his uphill battle to get one or more visas through such a flawed play book, and, for this investment, a fatally-flawed source of funds? Did he have some non-economic motive to get a piece of the Watergate? Was he misled or obsessed with this one path to a visa? Did he have faith in a really bad lawyer? If he is really wealthy, does he not have other options?

Perhaps it's the simple truth that some people with half a million dollars to spare are not necessarily very bright.