Is EB-5 more vulnerable to security concerns than other programs?
The internal memo first came to public attention with Sen. Grassley’ s letter, and is highly critical of the EB-5 Regional Center program. Among its most notable claims are the assertions that the EB-5 program is vulnerable to fraud and use by terrorists and foreign government agents. It also asserts that participants’ backgrounds cannot be verified. Overall, the memo claims that other permanent residency classifications provide more checks against security concerns. Specifically, it states that other employment-based classifications“ require proof of education and / or experience, while family-based visas require positively demonstrating bona-fide relationships,” and the EB-5 program does not require this. The memo mentions the legal source of funds requirements of EB-5 in passing, but discounts the stringent requirements as being too hard to verify.
The regional center program
The memo also targets regional centers specifically. It asserts, inter alia, that“ indirect job growth is problematic,” and that not“ having to provide evidence of jobs created” creates an“ opportunity for fraud.” Both of these assertions need further analysis— especially the former assertion, because neither I nor the team that wrote the memo are economists.
The latter statement regarding fraud seems somewhat untrue. When using economic analysis to show job creation, the models and the inputs are clear. For example, the RIMS II model uses multipliers to calculate job creation, and the inputs are actual expenditures or actual revenues. In such a case, the only opportunity area for fraud lies in misstating expenditures or revenues. A simple solution is to require audited statements. However, applications are currently submitted under the penalty of perjury, which is typically considered sufficient to keep professionals and business owners honest.
BUSINESSMAN OR OPERATIVE?
The information required to show a legitimate source of funds for the EB-5 visa, under 8 CFR 204.6( j)( 3), includes, among other items: foreign business registration records; corporate, partnership, and personal tax returns, including income, franchise, property( whether real, personal, or intangible), or any other tax returns of any kind filed within five years, with any taxing jurisdiction in or outside the United States by or on behalf of the petitioner; and evidence identifying any other source( s) of capital( emphasis added). It would appear that requiring five years of personal tax returns would provide a substantial amount of information to be“ researched, vetted, or cross-checked.”
Illegitimate activity exists in all visa classifications— just as illegitimate activity exists in all sectors— but the idea that the EB-5 program is more vulnerable to abuse remains unfounded. The memo suggests that there is“ greater information” in the other categories that can be“ researched, vetted, or crosschecked.” That assertion is simply inaccurate, as many employment classifications only require little or no experience, or just a university degree. Clearly, there would be little information to be“ researched, vetted, or cross-checked” in such classifications.
The argument misses the point and highlights the issue. If the United States aims to guarantee the safety of its citizens— one of the primary purposes of government— it should focus on developing a system to perform background checks on all visitors and immigrants, rather than shutting down a beneficial program and sweeping legitimate security concerns, ones that apply just as equally to other visas, under the rug.
Misguided recommendations Based on its observations about the EB-5 program, the memo makes some recommendations that do not address the core issues.
The memo first recommends raising the required minimum investment amount and claims this will make fraud more inconvenient. However, those committing fraud or other illegal activity often have access to such resources, and simply raising the investment amount does not rectify the issue. If the authors are concerned about combatting fraud, they might suggest putting measures in place to prevent fraud at all investment levels.
The second recommendation suggests that investors be actively involved in the day-to-day operations of the business in which they invested. This recommendation is said to“ provide a heightened degree of certainty regarding the intentions of the alien applicant.” It has long been accepted in the industry that the intent of the majority of EB-5 investors is immigration to the United States, while minimizing the risk of losing their capital; the memo is calling for a day-to-day role in the business to be the investor’ s primary motivation. I am unsure as to how this requirement would improve the program; the intent behind the investment does not affect the profound benefit that it provides the American people. If Sen. Grassley and the DHS are concerned about the benefits of the EB-5 program under the current regional center program, they only need to look to David Kay’ s peer-reviewed impact study commissioned by The Association to Invest in the USA. In the study, Kay, of IMPLAN Group, LLC, demonstrates that spending associated with EB-5 investors supports over 16,000 U. S. jobs each year and contributes $ 1.3 billion to U. S. GDP. Additionally, investor spending adds $ 713 million in federal tax revenue, annually, and $ 109 million in state and local tax revenue.
Continued on page 8 www. EB5Investors. com 7