A Visit to the EB-5 World — Same Old, Same Old

By David North on March 29, 2019

While there is much action in other parts of the immigration field — such as the ever-changing crisis at the southern border — the world of the EB-5 (immigrant investor) program remains remarkably stable. That makes a small group of big city real estate magnates very, very happy.

Let's look at the price, beneficiaries, backlog, legislation, regulations, and crimes, in that order.

The Price. The minimal investment for a family-sized set of green cards, set at $500,000 back in 1990 when the program started, remains the same today, as the U.S. middlemen who dominate policy in this area stubbornly and successfully resist all efforts to increase that figure. You might think that they would welcome more dollars for their developments, but they do not.

The actual cost of a visa per alien is much lower than the $500,000 as the half-million gets a full set of visas for the family, and usually they come in bunches of 2.5 or 3.0 people; at the latter rate, the investment per individual is $166,667.

The U.S. Beneficiaries. The people getting the most from the program are a small group of big city real estate developers who get bridge (or mezzanine) financing at about 1 or 2 percent a year from the EB-5 investors, rather than paying the market rates of something like 10 percent. Needless to say they are both wealthy and very enthusiastic about the program, exactly as it is.

The Backlog. With the de facto value of the minimal required investment falling in real terms, and a limited number of visas available each year (nearly 10,000), one might expect a surplus of buyers, and that is exactly what has happened.

The wait times are getting longer with the passage of each month, and the State Department official (Charlie Oppenheim) in charge of the visa numbers said late last year that the EB-5 waiting time for someone from China who applied on October 30, 2018, would be 14 years; if the investor's home were Vietnam, the wait would be 7.2 years. There is currently no waiting period for aliens from other nations but one is expected soon for people from India.

The only way to do away with the backlog, without lifting the annual ceiling, would be to stop issuing new EB-5 visas for several years, which would let the backlog diminish. That is such a sensible solution that no one has even hinted at it.

The Legislation. The central part of the EB-5 program, bundled investments made through the Homeland Security-designated regional centers, is based on temporary legislation and for years the life of the program has related to short-term extensions of it, always arranged through riders on spending bills, which means that there are no floor votes or committee hearings. EB-5 was briefly out of business, at least nominally, during the government shutdown, but was revived when that ended. These quiet, nearly secret program extensions have become so much of a pattern that I (and others) have ceased to write about it.

Two years ago there was a solid legislative bloc in favor a series of sensible changes to the EB-5 program, making cheating harder and putting more of the investor's money into someplace other than downtown Manhattan and similar areas. That bloc included, to use the D.C. term, the "four corners", i.e., the chairs and the ranking members of the relevant committees in both the House and Senate, in this case the Judiciary Committees.

Even with this powerhouse behind it, reform got nowhere; Senate Minority Leader Schumer (D-N.Y.) was and is vigorously opposed to change of any kind and the GOP leadership does not seem to care. Now all four of those key players have either left Congress (Reps. Robert Goodlatte (R-Va.) and John Conyers (D-Mich.)), or have moved on to other committee assignments (Sens. Chuck Grassley (R-Iowa) and Pat Leahy (D-Vt.)). But Schumer has stayed in his catbird seat.

If EB-5 cannot be killed (is it moral to sell the right to immigrate to this country?), then the second best approach is that of Sen. Tom Cotton's (R-Ark.) RAISE Act, which was introduced in the last session and, we gather, is about to be introduced again. Cotton proposes that the United States follow the lead of Australia, Canada, and other nations and use a point system to select most immigrants. In that context, one would get six points toward a visa if one invested in and managed a $1.35 million business; the alien would get six more points if the investment was at the $1.8 million level or above. A total of 30 points would be needed for a green card.

This would bring the nation about three times as much new foreign investment as the current program, without increasing the number of visas. It would bring business operators, not passive investors. It obviously would be better for the nation, but it would have a huge disadvantage politically; all of the big city middlemen would be denied their bargain-rate loans from the EB-5 investors, and would surely seek to kill the provision.

The Regulations. Some important changes in EB-5 could be made through regulations, such as the elimination of the currently accepted economic gerrymandering that allows EB-5 funds, originally supposed to go to depressed areas, to be placed in lush urban neighborhoods. The Obama administration moved more than two years ago to change the regulations, and those new rules got good support from the previously mentioned "four corners". Recently, some version of those proposed rules moved from the Department of Homeland Security to the Office of Management and Budget, but we do not know what will happen next.

Meanwhile, the lack of action pleases the big-city middlemen just fine.

The Crimes. I was more or less stimulated to write this posting by a headline on the Law360 website: "Calif. Man Pleads Not Guilty in EB-5 Visa Fraud Scheme".

The story, yet again, is taking place in California; New York rarely generates such an article. Yet again, we have a set of investors, presumably from China. They were, according to the Securities and Exchange Commission, hoodwinked by two people with Chinese names who had been, according to the story, "illegally pocketing more than $10 million" in investor funds. The duo had, among many other things, hidden the fact that they owned the Golden State Regional Center. They also falsified a number of real estate documents.

It all followed the time-honored formula for such thefts with the possible exception of one angle: Jianyun "Tony" Lee, now out on $750,000 bond, was one of two major players in the scheme. The other was his wife Jean Chen, an immigration lawyer, whose current location is unknown. In the complaint, filed in October 2018, they are identified as man and wife. In the news report, six months later, she is identified as "his then-wife".

Did their alleged criminal cooperation outlast their marriage? Did the SEC complaint lead to their divorce? The court records, after a brief search, did not seem to answer these questions. (It is PACER case5:19-cv-00111.)

But whatever happened to their relationship, the scheme of Lee and Chen, the slimy techniques they used, and the home country of the victims, like so much of EB-5, was the same old, same old.