Case Study: Alien Investor Program Has a Spectacular Failure in S. Dakota

By David North on August 3, 2011

Both images of the EB-5 immigrant investor program emerging from recent DHS documents are misleading.

One, the widely publicized statement yesterday by DHS Secretary Janet Napolitano was that the agency had "outlined a series of policy, operational, and outreach efforts to fuel the nation's economy and stimulate investment [to] . . . create jobs . . ."

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The other, a totally ignored ruling by a DHS appeals panel, indicated that in one immigrant investor case jobs were created, all right, but 16 of 17 of them went to illegal aliens. (I will return to the specifics of this South Dakota case shortly.)

The truth is that the EB-5 (employment-based, fifth priority) program is neither a wonderful source of jobs for Americans, nor is it totally riddled with fraud.

It is a low-performing activity that brings neither many talented immigrants nor much money to the country, despite desperate efforts of DHS to promote it. And while, in the appeals case, most of the jobs created by an EB-5 investment of half a million went to illegals, in most instances it is not clear how many jobs have, in fact, been created, or who gets them. The program uses a technique of "indirect job creation" which fuzzes these issues.

The truth, in short, as is often the case, is both gray and muddled.

Secretary Napolitano's statement ballyhooed some minor tweaks in the investor and H-1B programs, as noted in my blog yesterday; both programs, as noted there, are among the handful in which there are fewer grants of status than Congress has permitted, with only about half the available EB-5 visas being used in FY 2010.

While the department's investment program announcement was given loving attention by the (Murdoch-owned) Wall Street Journal, I saw nothing, anywhere, about the South Dakota EB-5 ruling, but then I don't see that state's newspapers very often.

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The nameless alien investor in this case, who had invested $500,000 through a USCIS-approved regional center in a dairy farm, had appealed to USCIS to have his visa (and perhaps the visas of his family) converted from conditional to full green card status. This step usually follows routinely two or so years after the alien investor had made his investment.

In this instance, however, USCIS staff had rejected the application, and that decision wound up in the hands of the appeals outfit.

The investor is nameless because the appeals agency, USCIS's Administrative Appeals Office, has a strange sense of privacy, and never (consciously) reveals the name of the alien, the alien's lawyer, the alien's corporation, or even the judge sitting on the case.

Now, investing in a dairy farm is something I know about, second-hand, as my late father and grandfather both, separately, tried that a few times with very mixed results in the Middle West. All sorts of things can go wrong – Bang's Disease and Tuberculosis in the herd, for example. And somebody has to be there every morning and every evening to milk the cows.

Well, we don't know about diseased cows in this case, but the AAO ruled that the alien investor could not move from conditional to permanent resident alien status. It found that:

  • on review of I-9 documents only one of the 17 direct employees appeared to be in the country legally;

  • it was inappropriate for the alien to apply a multiplier effect (regarding the indirect creation of jobs) when the base to be multiplied against consisted of illegal aliens;

  • the alien had lied to the government about the payroll records;

  • the USCIS-recognized regional center through which he invested had gone bankrupt, and

  • the investment itself was a failure.

Anyone of the first three elements, or all together, killed the green card, and the other two were simply noted in passing. Not exactly a success story.

While reading any judicial or semi-judicial decision can often cure insomnia, the decisions of the AAO always present a challenge: to what extent have incompetent clerks failed to delete things that their masters want deleted from the text of the decision?

Bear in mind that the public copies of these documents carry a stamped message, one might say an overstated one, in the upper left hand corner of the document that reads: "identifying data deleted to prevent clearly unwarranted invasion of personal privacy."

So the challenge is to find out, as much as possible, who was involved in the case.

In this instance most of the time the names of the managers of the farm were blocked out, but in at least one instance we learn that they are Mr. and Mrs. Winter. The farm is called the "Winter Dairy Farm" in one place. The alien's accountant is Mr. Boadwine of Sioux Falls, and the farm is located in one of the 42 counties covered by the now bankrupt regional center, the South Dakota International Business Institute in Aberdeen, SD. We also can read the EIN number of a corporation involved in the deal.

The names of the alien, his lawyer, and the decision-maker are still secret. The Winters do not appear to be the investors.

The AAO decision, all 20 pages of it, is online here. It was handed down on April 14, 2011, to the parties; when it was placed on the AAO website is not clear, but there usually is a delay of many months. It is there now.

Incidentally, the name of the agency has changed in the last year; it used to be Office of Administrative Appeals, but that apparently conflicted with the initials it was using, AAO, so now it is the Administrative Appeals Office; the name and the initials now mesh. And while AAO has its eccentricities, I hope that the new "panel of experts" for the EB-5 program, mentioned in the DHS press statement above, will not reduce the AAO's role in these cases, though it might.

I do not claim that the South Dakota investment is typical of all EB-5 investments, but it indicates that at least some of them are pretty shaky; it is generally admitted that these investments, because the main attraction is the set of green cards that goes to the investor and his or her family, are well below par, financially, when compared to non-EB-5 investments.