For years the Department of Homeland Security has said that if an alien wants to buy a bunch of EB-5 visas, for the alien, the alien's spouse, and all their kids, the half-million had to belong to the alien and that person had to prove that it had been obtained legitimately. Borrowing the sum was a no-no, just as getting the money in the drug trade, or from a sanctioned Iranian bank, was disqualifying.
Seems like a reasonable position to this non-lawyer. Buying visas with your own money is controversial enough, but buying a bunch of them with someone else's money? That should be out of the question.
But it is not. A skilled immigration lawyer, whose name has popped up again and again in such proceedings has persuaded a federal judge that cash obtained from a loan is not an "indebtedness" and an alien can use such borrowed cash to invest in an EB-5 project.
The heart of the case, according to D.C. Federal District Court Judge Emmet G. Sullivan, was this:
USCIS denied Plaintiffs' petitions on the sole basis that because Plaintiffs obtained the cash they invested in the new commercial enterprise through a loan, that cash was not "cash," but "indebtedness."
One hopes that DHS will appeal the decision in the Zhang et al v USCIS case on the grounds that USCIS was right; one cannot use one's "indebtedness" (i.e., borrowed funds) to obtain a batch of green cards.
Loans In, Loans Out. The judge's decision reminded me of how the key concept of EB-5, that the money invested must be "at risk", has been destroyed by the administration of the program. Once upon a time, the idea was that if an alien put up $500,000 in an enterprise, maybe that new investment would help expand the economy. Maybe the money would go into a new factory, or mine, or a startup software firm; the enterprise would grow and help the overall economy. Just a loan to an enterprise would not do, it had to be an at-risk investment.
Now the vast majority of the EB-5 funds go into single-purpose: nominally-for-profit entities that simply lend the aliens' money to urban real estate developers. The alien nominally owns a share of a firm controlled by others that is virtually guaranteed not to have a profit other than the receipt of some interest; the firm does only one thing: it makes low-interest mezzanine project construction loans, but DHS regards this as an at-risk investment. Meanwhile, the projects would have moved ahead easily without the EB-5 money, but at a lower level of profit for the developers.
The EB-5 money, in reality, is often lent at 1 percent or 1.5 percent when the going rate for this kind of transaction, in the free market, is often over 10 percent. EB-5 investors, in fact, are operating in a totally non-free market, and the program is thus beloved by the big city developers using it.
So, now we have come full circle.
At the start of the program, what was once supposed to be the alien's own money can now really be a loan to the alien, and at the other end of it what is supposed to be an honest-to-God, at-risk investment is, in fact, a loan by the alien. (Maybe it can be a re-loan, if that is a word.) And all of these stretched definitions help only the clever U.S. middlemen who play with other people's EB-5 funds, and, of course, the multi-millionaire aliens.
The skilled immigration lawyer who expanded the definition of cash in the Zhang case is Miami-based Ira Kurzban, who has won a number of open-borders decisions for his clients. One of the most recent was hailed by this headline in LexisNexis: "Major EB-5 Victory of Ira Kurzban - Chang v. USCIS (Feb.7, 2018)".
In that case USCIS had been — I think understandably — trying to narrow the definition of a legitimate EB-5 investment, but Kurzban got the judge to accept a broader definition, to the benefit of the EB-5 investors and of the EB-5 middlemen. It dealt with a truly obscure financial maneuver termed a "call option", which plays a somewhat different role in the EB-5 business than do calls and puts in stock option trading, but one that I will not try to explain.
Kurzban often plays the role of pushing the immigration-related envelope, as we have reported earlier.
Maybe the new Republican governor of Florida will recognize his legal talents and make him a high state court judge, where he, suitably robed, will sit at an elevated desk, with all before him appropriately deferential — and where he, because of the very nature of his new job, will largely stay out of the immigration business.