Good and Bad News for the EB-5 Immigrant Investor Program

By David North on June 24, 2021

The controversial immigrant investor (EB-5) program — facing a possible legislative non-renewal in just a week — received good courthouse news this week (for its backers) as well as a scathing review in, of all places, the Wall Street Journal. That’s like Pravda saying nasty things about the Kremlin.

Let’s explicate:

The EB-5 program gives wealthy alien investors a family-sized set of green cards in return for a stake of $900,000 or more in a Homeland Security-approved, but not guaranteed, investment, usually in big-city real estate. The minimum used to be $500,000 before a program reform that had the support of the Obama, Trump, and Biden administrations. The half-million figure was set in the 1990s and had not been raised for a quarter of a century.

The good news for EB-5 supporters came when a federal civil servant, sitting in for a federal judge, ruled that the reform just described was invalid because then-Acting Secretary of Homeland Security Kenneth McAleenan was not legally holding that position when the EB-5 reforms were adopted in November 2019. This is case 3:20-cv-09263-JSC in the PACER files.

The bad news for EB-5 is multiple. The central part of the EB-5 program, the one that pools investors’ funds through U.S.-based regional centers, faces a June 30 deadline for legislative renewal. While the renewals of temporary programs usually go through the normal legislative process of bill introductions, hearings, and floor votes, EB-5 (thanks to its support by now Senate Majority Leader Chuck Schumer (D-N.Y.)) was able, almost routinely, to be extended by attachments to “must legislation”, such as major appropriations bills.

No floor votes, just the silent addition of a year or so more for the program. Whether the wily Schumer, who has bigger worries, can pull off that stunt again next week remains to be seen.

Meanwhile, the staid, totally capitalistic Wall Street Journal ran an article on the program with this headline: “Covid-19 Worsens Troubles in an Investor Visa Program: Fraud plagues EB-5 real-estate investors seeking permanent U.S. status, and the pandemic hurts revenues at their developments.”

The WSJ article did not mention, as we had earlier, that there were nine or fewer applications filed for the program’s 10,000 visas in the first quarter of this fiscal year, an indication that the program was operating at less than 1 percent of its capacity.

What the article did describe was the impact of Covid-19 on the kinds of investments favored by EB-5 middlemen: downtown real estate ventures in hotels, retail establishments, and office buildings, all heavily battered by the virus. It also was quite explicit about how many alien investors, often those speaking only Mandarin, were gulled by some of the regional centers that handled their money.

The court decision, by a federal magistrate judge (a civil servant) sitting in for a federal district court judge in California was in a suit brought against USCIS by one of the EB-5 program’s regional centers, the entities that handle the aliens’ funds. The Behring Regional Center, as we reported earlier (see here and here) had sought to overturn the EB-5 reforms that not only raised the minimum ante from $500,000 to $900,000, but also barred the economic gerrymandering used in the program that allowed the creation of “targeted economic areas” (TEAs), where prosperous areas were joined on a map to distant, depressed ones to generate artificially high, TEA-wide unemployment rates. (EB-5 projects are supposed to be in depressed areas.)

In one flagrant case, the boundaries of a TEA joined a building on Wall Street via a body of water (the East River) to a distant public housing project in Brooklyn, where poverty is the norm.

USCIS may well appeal the magistrate judge’s ruling to the Ninth Circuit, but that is not clear at this writing.