Problems with the Treaty Trader and Treaty Investor Programs

By David North on May 11, 2016

Last month we published 20 years of data on the E-1 (Treaty Trader) and E-2 (Treaty Investor) nonimmigrant programs. The tables, covering the years 1994 to 2013, show that the number of visas issued in the E-1 category dropped from over 11,000 a year to about 7,000, while issuances of E-2 visas moved in the opposite direction, from about 19,000 to about 35,000 a year. Data for 2104 show E-1 visas at 7,330 and E-2 visas at 36,825.

While the increase in the E-2 program is worrisome for reasons outlined below, there have been no signs that this program, unlike so many others, has been actively promoted by this administration. For example, no new treaties of commerce and navigation, which create these visa opportunities, have been signed during the last eight years.

The two programs deal with different populations. The E-1 (trader) program is largely for the employees of multi-national firms (think Japanese car companies) and their relatives. The E-2 program is for individual alien investors (from treaty nations), their relatives, and — here is a problem area — the employees of those investors, including substantial groups of ill-paid foreign workers.

The E-2 program has some similarities to the EB-5 (immigrant investor) program in that both reward aliens for investing in the United States (and both, confusingly, start with the initial E). The EB-5 program creates green cards (i.e., permanent status) for its investors and is run largely by the Department of Homeland Security; the E-2 (and E-1) programs are run exclusively by the State Department and create nonimmigrant visas that can be renewed without limit, but that create no path to permanent alien status.

These treaties are reciprocal in that U.S. citizens get the same set of rights in treaty countries as aliens from those nations do in the United States. This aspect of the program may or may not be a blessing for the U.S. economy, but that is an area far from my field and I will make no comment on that variable. The only recent change in these treaties has been with Bolivia, which sends few people to the United States; that country's leftish government has decided that there are too many advantages for American investors there and is in the slow process of winding down the U.S.-Bolivia treaty as the State Department has reported.

Of the two sub-programs, E-2 should cause much more concern than E-1 because the latter is only one-fifth the size of the former, and is becoming smaller. Further, E-1 is designed in such a way as to limit the potentials for abuse, as E-2 is not.

One Positive and Several Negative Considerations of the E-2 Program. The E-2 program, however, does something that the EB-5 program does not do. It brings business people who actually work with their own investments into this country. In 99 percent of the EB-5 cases, the wealthy aliens write a check to a firm that they do not manage, and whose activities they may never see. E-2 aliens thus are likely to be much more involved with the United States than EB-5 aliens.

On the other hand, there are six major problems with the E-2 program: 1) there are no numerical limits on the visas to be issued; 2) there are no hard and fast rules on the minimum investment that must be made; 3) there is no on-the-ground supervision of the program; it is managed, to the extent it is, by diplomats often stationed on the other side of the world; 4) there is minimal data collected on the program; 5) there is evidence of substantial abuse of the "essential employees" of E-2 investors; and 6) the program creates a population that wants to, and which argues that it has a right to, stay in this country.

1. No Numerical Limits. One of the advantages of the EB-5 program is that it is numerically limited — no more than 10,000 visas can be issued each year. There are no limits on the number of E-1 or E-2 visas. There were more than 44,000 of them issued in 2014; and there were also another 65 issued to E-2C investors, a tiny subset of the program that deals only with alien investors in the Commonwealth of the Northern Mariana Islands, which lies just north of Guam.

E nonimmigrants may, and usually do, renew their visas at two-year intervals, and there is no outer limit on the number of times that they can do so. Since this is the case, one can assume that the total population of E-visa holders in the United States at the moment is well over 44,000, and somewhat lower than 88,000; my guess would be in the 75,000-80,000 range.

2. No Minimum Investment. If the rule in the EB-5 program is that an investment of $500,000 (said to create 10 U.S. jobs and thus warrant a visa) is unrealistically low, compare that to the total lack of a minimum in the E-2 program. As I reported in an earlier blog, one lawyer's website speaks of investments as low as $40,000 securing a visa, but $100,000 is often said to be the smallest that is generally acceptable and $200,000 is a more likely number.

One of the reasons there are so many Korean dry-cleaning establishments, one informant (probably Korean) told me, is that an alien with $200,000 or so can start such an operation and secure visas and work permits for the whole family.

3. Long-Distance Supervision. Since the only program supervision involves re-issuance of the visa, usually conducted in the alien's home country thousands of miles from where he or she is working, and since the visa decision has to be based on what the applicant has to say and perhaps records provided by the applicant, there can be only the slightest scrutiny of these operations. (An E-2 alien may also seek a visa extension from the Department of Homeland Security, but then can no longer re-enter the United States without securing a new visa; I was unable to locate any statistics as to how often DHS, rather than State, extends visas.)

Unfortunately, there are other State Department-run nonimmigrant programs, such as the distribution of J visas, that have this same problem — the agency simply does not have any agents on the ground to conduct investigations on the outcomes of its visa issuances.

4. Minimal Data Collection. Data collection by the government is so casual that there are no statistics available to support or refute my informant's comment about the dry cleaners; there is nothing reported as basic as the size of the E-2 population at any one time. Last year the Chairman of the Senate Judiciary Committee, Sen. Chuck Grassley (R-Iowa), wrote to the secretaries of State and Homeland Security, asking:

Does either the Department of State or USCIS keep track, or even inquire, how much E-2 "essential workers" are being paid. Are there any mechanisms in place to flag cases in which the "essential workers" are being paid wages below the prevailing wage or even below the minimum wage?

The State Department replied, in prose as crisp as bread pudding:

All E-2 applicants are asked on the DS-160, Online Application for Nonimmigrant Visa, to provide his or her annual U.S. Salary and benefits package. The applicant provides two separate numbers: salary and allowances/benefits. If in the application or the visa interview the applicant reports being paid below the prevailing or minimum wage, this would call into question whether the applicant is an essential employee.

In an initial interview the worker would not have any first-hand knowledge of what he would be paid because he is being interviewed in his home country before being hired, and thus would only know what his employer promised him. This is a highly important variable State ignores.

5. Substantial Abuse of E-2 "Essential Workers". There was a sound basis for the senator's inquiry, as there have been several instances in which treaty investors have used the "essential employee" gambit to hire workers, usually from the investor's home country, at exploitative wages. One such practice, including the hiring of $3-an-hour welders as "essential workers" for a Louisiana shipyard, was exposed a few years ago in the federal courts.

I do not have documentation for this, but there were widespread reports for years that a similar practice, again involving Filipino welders and their Filipino treaty investor bosses (as in the Louisiana case), took place on Guam.

6. E-2 Status Leads to Pressures to Make that Status Permanent. While a short-term visa is perfectly appropriate for a foreign college student, who is supposed to be here for a fixed length of time and then go home after getting a degree, I wonder about the practice of giving alien investors a temporary (and easily renewed) visa to start a business in the United States. Is not that alien, if successful, going to want to stay in the States? Does not that arrangement mean that there will be efforts on behalf of those aliens to secure a green card? Why build more pressure for more permanent immigrants through such a system?

The answer to that would involve thinking ahead, a skill set that our Congress sometimes lacks.

Terminating any one of these treaties would be difficult as some of them are more than a century old. On the other hand, the administration could unilaterally establish some standards — and collect some data — that would reduce some of the more glaring abuses, such as those inflicted upon some of the "essential workers".

For another view of this program, see this report by the Congressional Research Service: "Foreign Investor Visas: Policies and Issues".