What’s Ahead For The Fraud-Tainted U.S. EB-5 Visa Program?

Steve Albert

The fraud-tainted U.S. EB-5 visa program is set to expire at the end of next month. For all of its faults, it has allowed thousands of Chinese to gain U.S. permanent residency. What’s ahead? To learn more, I recently exchanged with Steve D. Albert, JD. Steve is a graduate of the University of Wisconsin, and managing director of East West Path, a U.S. immigration consulting firm.

Q. What so far has gone right and wrong with the U.S. EB-5 program for Chinese participants?

A. What’s gone right: Thousands of Chinese nationals have been able to obtain US permanent residency (green cards) since the program’s inception in 1990. Approximately eighty-five percent (85%) of EB-5 green cards have been issued to Chinese nationals.

What’s gone wrong: There has been rampant fraud in the program. In 2013, the U.S. government’s securities enforcement agency published an Investor Alert and Bulletin, officially titled: “Investment Scams Exploit Immigrant Investor Program.” The Alert highlighted multiple scams and lawsuits in the EB-5 area. Since then, the problem did not stop and actually got worse. In the last three years, the U.S. Securities Exchange Commission has brought hundreds of millions of dollars’ worth of actions against EB-5 fraudsters, including: a $350 million assets freeze against a Vermont ski resort, a $79 million charge against an unregistered Boca Raton, Florida broker-dealer, a $125 million asset freeze against a Seattle skyscraper developer, a $68 million judgment against a U.S. energy company, and an $89 million fraud case against a Chicago immigration attorney.

Q. What’s ahead for the EB-5 program from here?

A. The current EB-5 law is set to expire September 30, 2018. But, is likely to be renewed. If the law is not extended by Congress, the EB-5 will cease to exist. If the law is extended, the USCIS is working on updating the EB-5 regulations. Their proposed regulatory changes include: the EB-5 minimum investment is expected to increase from $500,000 to $1,350,000; the new EB-5 rule will limit investments in highly-desired urban areas, such as Southern California, Seattle, New York City, and San Francisco; encourage rural investment and raise U.S. government fees.

Q. What are the differences between the EB-5 and EB-1 (C) visa programs, and who might be interested in the latter?

A. The EB-1 (C) is a fast-track to U.S. permanent residency — 10 years faster than current EB-5 filings. The EB-1 can be issued within 36 months, which is particularly attractive to families with children aged 6 to 17. Better yet, families can begin living and working in the U.S. temporarily within 90 days on the EB-1’s mirror image, the non-immigrant L-1 and L-2. Both visas are available to foreign business owners – but only 50% of affluent Chinese own a business. It appeals to those seeking more active, rather than purely passive involvement in a U.S. business. It reduces the chance of fraud because the Chinese visa beneficiary directly controls the U.S. business, which likely may present a larger investment upside than the EB-5, and at a minimum, presents the opportunity for a faster return on investment and of capital. But it is vulnerable to retrogression — as its popularity grows, the time to obtain green card by way of the EB-1 will increase. This will inevitably occur over several years as the EB-1 replaces the EB-5, as the near-term “investor”-type visa of choice.

Summary: EB-5 Versus EB-1(C)

Annual Number of Visas:

EB-5: 10,000+ (700+ maximum to Chinese, subject to 7% country cap)*

EB-1(C): 40,000+ (2,800+ maximum to Chinese, subject to 7% country cap)

Minimum Investment:

EB-5: $500,000 to $1,000,000

EB-1(C): $250,000 to $800,000**

Proposed Increase to Minimum Investment Level:

EB-5: $1,350,00 to $1,800,000

EB-1(C): No minimum

Time to Green Card:

EB-5: 15 years (projected for current filers)

EB-1(C): 2-3 years

Time to (conditional or temporary) U.S. Entry:

EB-5: 13 years (on conditional green card)

EB-1(C): 90 days (on L-1 visa) when appropriate

Business Risks:

EB-5: Fraud risk common

EB-1(C): Fraud risk mitigated by 51% direct ownership of the U.S. business

Political Risks:

EB-5: “Expires” Sept. 30, 2018 (but renewal likely)

EB-1(C): Law is permanent

*Legislation and litigation is pending to expand the number issued annually, by counting families rather than individual family members against the country cap.

**No statutory minimum investment amount for EB-1(C). Rather, the above estimate is based on minimum investments required by a limited number of experienced exclusive mergers and acquisition brokers. This amount does not include related fees and expenses. The SEC requires 25+% to 51+% equity transfers, for safe harbors to apply to exclusive mergers and acquisitions brokers.

Source: East West Path, Ltd.

–Follow me @rflannerychina



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