When a trade journal publishes a sharply critical editorial on an element of its own trade, outsiders should pay attention.
Immigration Daily is a website written by and for immigration lawyers. As one would expect, it generally takes a mas-migration point of view, and it is critical of what it sees as inappropriate attempts to limit immigration (though it has been known to reprint a blog or two of mine).
In this context, Immigration Daily's searing criticism of the current EB-5 program, much of which will expire on December 11 unless Congress does something about it, is of particular importance.
Here are just a few of the negative comments on the program as it is now operated:
EB-5 has been plagued by fraud, and all the large players in the industry have had absolutely ZIP to propose how to fix this. All the major players, without any exceptions, appear quite willing to continue to rake in the money, and leave it to law enforcement to pick up the pieces — the fact that innocent immigrants are being harmed in the process is simply collateral damage to those filling their moneybags. ... The problem is deeply structural: it has to do with EB-5's dual nature — it is, on the one hand, an immigration program, and on the other hand, EB-5 quite clearly involves choosing an investment. ... The problem is on choosing an investment: neither Chinese migration agents nor U.S. immigration lawyers can credibly claim any competence in choosing the right investment. And since the wrong investment will usually lead to a bad immigration outcome, Chinese migration agents and U.S. immigration lawyers alike ill-serve their clients when they step into the role of investment advisor. To put it plainly: a fairly significant number of EB-5 projects will likely fail in the next real estate downturn, and their investors will lose both their money and their green cards in consequence.
Instead, the EB-5 industry has successfully gamed the system, and TEAs [targeted employment areas] can as a matter of practice be created out of thin air anywhere. Job creation numbers are likewise massaged by econometric modeling, something not easy to politically defend, so naturally Congress feels cornered when defending EB-5. Unfortunately, there exists widespread industry belief that this state of affairs should continue ad-infinitum, and that it is improper for Congress to step in and direct the location of capital. Permitting subjective preferences of Chinese investors to direct the flow of capital to downtown Los Angeles and midtown Manhattan usurps what is congressional prerogative, and the industry should not be surprised to see Congress jumping in with both feet to remedy affairs. Immigration Daily would be much more sympathetic to the EB-5 industry in standing up to Congress on the matter of location, if the industry were taking energetic steps to eject lying Chinese agents out of the EB-5 ecosystem, and substituting them with proper Chinese fiduciaries. ... Instead we see the EB-5 industry shunning savvy players in Chinese finance, and instead assiduously courting dumb capital, an untenable state of affairs.
One is reminded of the old line: "Other than that, Mrs. Lincoln, how was the play?"
I have two minor quibbles with Immigration Daily's description of the program. I am not sure that all alien investors faced with a bankrupt investment lose their green cards. Nor would I place the blame for the location of the investments in glitzy urban areas on the investors; it is the DHS-licensed regional centers that are making those decisions.
What is more distressing is the fact that, after describing the program in the most devastating terms, the website comes to the conclusion that pending legislation (to be described in a subsequent blog) should be passed and the program continued with some legislative refinements.
I think of the EB-5 program as deeply flawed by, among other things, its unspoken premise that it is perfectly OK to sell green cards to rich foreigners. Though the proposed legislation makes a number of useful, if often small-scale, corrections, the basic formula is wrong and Congress should let the current EB-5 program die on the 11th. This would leave in place a largely unused segment of the program that grants visas to million-dollar investors who manage their own properties — as opposed to half-million-dollar passive investors who now use about 99 percent of the EB-5 visas.