EB5 Investors Magazine Volume 2 Issue 1 | Page 73

The regional center program is undoubtedly central to the EB-5 program— with some 90 percent of investors investing their capital through regional centers, and nearly 450 EB-5 Regional Centers in existence, it is no wonder that regional centers have become the face of EB-5. Despite their prevalence, the history of the pilot program that created the EB-5 Regional Center is not commonly known. Here we will trace the EB-5 Regional Center from its establishment, through the turbulent years, to today and beyond.

The EB-5 Regional Center was born as an extension of the original U. S. Immigrant Investor Program( EB-5), first established by Congress in 1990. 1 The program was established to stimulate the economy, spur job creation, and dually benefit American citizens and immigrants. In exchange for a capital investment of at least $ 500,000 that leads to the creation of 10 U. S. jobs, foreign nationals are welcomed to the United States. Despite the enormous potential of EB-5, interest in the program lagged in the early years. To ensure that the benefits of EB-5 were being realized, Congress enacted the Immigrant Investor Pilot Program, more commonly known as the regional center program, in 1992. 2

The EB-5 Regional Center is an officially designated organization that sponsors investment projects for EB-5 investors. EB-5 Regional Centers not only do more leg work for the investor, but also allow investors to pool their money together to invest in larger projects that create more jobs. Because regional centers allow for the counting of indirect jobs, it is easier for projects to qualify as EB-5 compliant in this regard.” The regional center program may have changed the face of the industry, but sustained interest in the program would not come about until a decade later.

The early days

The industry often describes the early years of the program as the days of the Wild West. While not an entirely laissez-faire environment, getting designation as a regional center was nowhere near as involved as it is today. Developers interested in the not-yet-coveted regional center designation could attain it by writing a letter to the Immigration and Naturalization Service( INS)— the predecessor of USCIS— explaining their project and attaching documentation, including an economist report and a business plan( the I-924 application would not be put to use until 2010). Despite the ease of the program, only a handful of regional centers were established in the early 90s. People did not fully understand the possibilities of regional centers, or did not

1

See http:// www. uscis. gov / working-united-states / permanent-workers / employment-based-immigration-fifth-preference-eb-5 / eb-5-immigrant-investor

2

See 610 of Public Law 102-395( October 6, 1992)

want to risk it. Nonetheless, the program crawled along, and as interest in the program grew, processing times in Washington increased— you might say history repeats itself.

The relaxed atmosphere in the EB-5 program made the program a perfect target for misuse and abuse. Less scrupulous actors took advantage of the program and got investors green cards while only committing a fraction of the required investment amount, with virtually no money going to actual projects. The placid early days would quickly give way to controversies that shuttered the program for years.

The turbulent years

The lack of strict regulations in the early 1990s provided the perfect opportunity to test the waters of EB-5. Although the program required a minimum $ 500,000 investment, some actors found a way to bring investors to the United States with only $ 125,000, accounting for the remaining amount through promissory notes. While the two most infamous companies participating in such schemes— AIS and InterBank— would later be investigated for( and in the case of InterBank, convicted of) fraud, INS allowed such practices at the time. Paul Virtue, then executive associate commissioner of INS, made the practices official in two legal opinions issued in 1993 and 1995, allowing for investment requirements to be met through the use of promissory notes, and permitting investors to pool their money into limited partnerships. 3 Lax regulations piqued interest in the program, and groups such as AIS took advantage, bringing many investors to the United States with a fraction of the required investment amount.

AIS was supported by a group of politically connected individuals— bankers, developers, a former president’ s sibling, and an ex-INS commissioner. Rather than asking for a $ 500,000 or $ 1 million investment, AIS marketed EB-5 to the middle class— structuring their deals such that investors only had to put up $ 125,000 in cash, with the rest accounted for in promissory notes. Investors bit, oftentimes believing the investments were a safe, and even guaranteed, path to U. S. citizenship. After AIS took fees off the top, a small amount of money trickled down to the actual business, enough to keep it alive just long enough for INS to remove conditions on investor green cards. Upon receipt of their permanent green card, investors could cash out of their partnerships. 4 Such maneuvering, while not illegal, shifted the program’ s priority from creating jobs and stimulating the U. S. economy to providing green cards at bargain prices.

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3

See http:// articles. baltimoresun. com / 2000-02-20 / news / 0002220371 _ 1 _ investor-visa-program-immigration-program-immigration-laws / 3

4

See Newman, Barry.“ INS Clampdown on Visa Program for the Rish

Creates Controversy.” The Wall Street Journa. 26 Feb. 1999

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