Ups and Mostly Downs in the EB-5 Neighborhood

By David North on June 9, 2021

The EB-5 (immigrant investor) program is having an interesting month.

The big downer for the program is that its major component may lose its congressional authorization at the end of the month and there may not be a piece of “must-pass” legislation to which its reauthorization can be tied. That’s how the reauthorization matter has been handled in the last few years.

The EB-5 program grants a family-sized set of green cards to investors who put $900,000 or more in a Homeland Security-recognized, but not guaranteed, project, usually in big-city real estate. Until late 2019, the minimum was $500,000. A small part of the program for alien-run investments will continue, but the heart of the program, dealing with the pooled investments, is due to expire on June 30.

The higher price, together with a provision barring the economic gerrymandering used to define targeted employment areas (TEAs) for these investments in earlier years, has brought the program to a near halt, as new applications for the 10,000 available visas fell to fewer than 10 in the first quarter of this fiscal year.

An industry website, Green Card by Investment, trying to make lemonade out of batch of lemons, has described the possible lapse in authorization in a way that suggests (my metaphor) that the program may go into an induced coma, not a death spiral.

A few years ago, there was a brief lapse in the authorization and during this period, according to the website, “pending I-526 petitioners ... would be held in abeyance until reauthorization; if reauthorization never occurred, they would be adjudicated for direct jobs only.” The reference to “direct jobs” is to non-pooled investments, part of the program that is rarely used.

A Small Upper. Another industry outlet, eb-5 investors’ magazine, has pointed out that recent (and higher) unemployment levels, as recorded by the government, will make it easier to draw TEAs more attractive to EB-5 investors than previously recognized. It’s an interesting possible silver lining for the middlemen in this program, the operators of the regional centers.

A Silenced Downer. Speaking of regional centers, the outfits that pool the aliens’ investments, the Department of Homeland Security used to announce every few months the number of such centers, and we had been reporting on their rapidly declining totals, from 880 in December 2018, to 673 on January 7, 2021. The Biden administration has not announced new totals since taking office, but my guess is that they now would be in the 650-660 neighborhood.

A Newly Revealed Downer. Most of our reporting over the years on the EB-5 program related to how States-side regional centers and developers had cheated the alien investors in myriad ways, sometimes being caught by the Securities and Exchange Commission. New evidence was uncovered by the Center in the files of USCIS’s semi-judicial review panel, the Administrative Appeals Office. In a sample of 20 of AAO’s 41 most recent decisions on alien investors’ appeals of denied applications, we found that 16 of them noted that the aliens’ lacked proof of legitimate sources for their proposed investments.

We decided to review the whole set of decisions filed from October 1, 2020, to May 24, 2021, regarding individual alien investors and found that in 31 of the 41 cases the legitimacy of the funds was questioned; in 28 of them this led to denial, in one case a remand back to USCIS for more decision-making, and, in just two cases, an affirmation of the alien’s appeal.

It should be noted that this was a review of only a subset of the EB-5 petitions before USCIS: those that had been 1) denied at the staff level and then 2) appealed. There must have been a number of cases in which the legitimacy of the funds was an issue in applications that were denied but not appealed. (That information is hidden by the government.)

An Historical Downer. Meanwhile, the huge, scores-of-millions, multi-project EB-5 scandal in Vermont is grinding its way through the courts, as we have reported from time to time (see here and here).

The most recent development, revealed by the hard-driving Vermont alternative news organization VT Digger, is that Vermont officials knew about the scam for about 12 months before the always faithful cops on the EB-5 beat, the Securities and Exchange Commission, broke the case. The scandal involved several businesses, notably ski resorts such as the one at Jay’s Peak.

Vermont was one of several states (including South Dakota) that decided to play the role of regional center, to their continuing embarrassment. Most state governments avoided that involvement. The Vermont scandal was so far-reaching, and so much of a problem, that Sen. Pat Leahy (D-Vt.), once a big booster of the program, has become a severe critic.

The author is grateful to Kathleen Sharkey, a CIS intern, for her research assistance.