On Aug 04 2014 by H. Ronald Klasko
Correcting Another Misguided EB-5 Article
Add Fortune Magazine to the list of publications publishing one-sided tirades against the EB-5 program. I would have expected better of Fortune.
Barely paying lip service to the hundreds of successful EB-5 projects creating tens of thousands of jobs, the article focuses on the thankfully aberrational example of the fraudulent Chicago Convention Center case. Focusing more than 80% of the article on a single fraudulent project that was stopped by the SEC 18 months ago is the epitome of old news – trying to make broad generalizations based on one fraudulent operator whose scheme was successfully thwarted by government oversight.
The purpose of this blog is not to defend the EB-5 program, which I have done on many occasions. Rather, the purpose is to correct the incorrect statements in the article, of which there are many.
To state that “the EB-5 industry is virtually unregulated” is a gross inaccuracy. It may have been true some years ago; it is certainly not true today. USCIS now has a vast array of immigration adjudicators, securities lawyers, economists, and other professionals adjudicating the legal qualifications of investment projects and investors’ lawful source of funds. In addition, USCIS has made it clear that it has been cooperating with the SEC for more than two years, and anecdotal evidence has shown that this partnership is more than merely pretextual.
The article states that “deal documents receive no SEC scrutiny and face little due diligence.” In fact, the deal documents are scrutinized by the SEC and face an exceptional level of due diligence by the USCIS and other agencies. USCIS vetting of projects generally goes beyond evaluation of the evidence provided by applicants, and frequently involves examination of the public record.
The article states that regional centers “usually charge a developer about 2% annual interest for at least five years.” I have been involved in many deals between developers and regional centers. While I cannot state that there has never been a regional center that has charged a developer 2% annual interest on all of the immigrant capital, I can state that, in my experience, many regional centers’ fees are significantly lower than that amount.
The article states that a regional center “doesn’t have to report publicly on its performance, identify its principals, or disclose any financial, legal or regulatory problems they have encountered.” This is only partially correct. A regional center does have to file an annual compliance report, which is subject to public disclosure, with USCIS. This report does identify the principals of the regional center, as well as various aspects of its performance. Any changes in ownership must be reported within 30 days. Unfortunately, USCIS has not chosen to make this information easily accessible to the public, requiring instead the filing of a Freedom of Information Act request.
The article states that “Chinese agents typically conduct little due diligence.” Again, while the article may have been correct at some point in the past, it is not at all correct today. In my experience, most Chinese agents now conduct substantial due diligence on projects, often retaining firms like ours to perform the due diligence before they agree to take on the project.
Finally the title references the “Visa-for-Sale Program.” It might be stated correctly that many of the other countries in the world that compete for foreign investment dollars have a visas-for-sale program. Fortunately or unfortunately, the U.S. does not. The U.S. program requires at-risk investments that produce jobs for U.S. workers. This is very different than buying a visa. Rather, it is a classic example of a successful government program that attracts foreign investment dollars in a program that creates employment. One could certainly argue that there is at least as much or more benefit to the U.S. from an immigrant who invests money in the U.S. and creates jobs for U.S. workers as compared to an immigrant who takes a single job offered by a U.S. employer.
There are many aspects of the EB-5 program that could be improved. Unfortunately, Fortune Magazine chose not to address them.