EB-5 Program up for Renewal

Written by Mona Chen

The EB-5 Program was established by the Immigration Act of 1990 to stimulate the U.S. economy by inviting foreign investment and spurring job creation. It allows foreigners to receive a green card by investing a minimum of $1M in a commercial enterprise in the United States—or $0.5M if the enterprise is in a Targeted Employment Area (TEA)—creating or preserving at least ten jobs for U.S. workers.

Since its inception, the Program has survived multiple reauthorization deadlines. However, some wonder if the Program is, or should be, on the chopping block.

On January 24th, Senators Dianne Feinstein (D-CA) and Chuck Grassley (R-IA) introduced bill S.232, which calls for the termination of the Program.

“[The Program] says that American citizenship is for sale, and that’s not what our country stands for,” Sen. Feinstein wrote in an op-ed last year. Legislators and the public alike have expressed such concerns over the concept of citizenship-by-investment inappropriately commodifying citizenship.

On the other hand, Stern sophomore Stephen Zheng—who performs EB-5 research in the Stern Program for Undergraduate Research (SPUR) under the supervision of Professor Jeanne Calderon and Scholar in Residence Gary Friedland—believes the expression “green card for cash” inaccurately reduces EB-5 investors to over-privileged individuals who buy their way into the country.

“The truth is that EB-5 investors face very real risk of not getting back their money on time or at all, having their money locked in an extremely low interest setting, and being victims of fraud, lack of transparency, and extremely long delays in their application processing,” Zheng said. “EB-5 isn’t ‘green card for cash’ as it is a properly deserved reciprocation for a very real economic sacrifice that promotes the wellbeing of America.”

Recent fraud lawsuits over unauthorized use of EB-5 funds and deception of investors also contribute to the negative press surrounding the Program.

In February, Chicago hotel developer Anshoo Sethi was sentenced to three years in prison for swindling over 290 foreign investors out of nearly $160M. In the process of misleading them, he forged documents and falsely claimed to have established franchise agreements with the InterContinental Hotels Group and other major hotel companies. Approximately $147M was returned to the investors, who collectively lost millions of dollars and were not granted the U.S. visas they had anticipated receiving when they decided to fund what ended up as Sethi’s failed $900M hotel and convention center construction project.

In addition, EB-5 developers engage in a practice dubbed “gerrymandering,” which further challenges the integrity of the industry. States can strategically join census tracts to encompass both distressed regions and affluent regions, with the resulting zone possessing an unemployment rate at least 1.5 times the national average and thereby receiving TEA designation. Consequently, projects in wealthy neighborhoods within TEAs qualify for TEA funding.

The $20B Hudson Yards real estate development, which will cover 1M square feet of retail and mixed spaced use and 18M square feet of commercial and residential space, is partially financed by $600M in EB-5 investments. The project’s qualification for TEA funding is a result of gerrymandering, which allows the upscale Hudson Yards to be linked with high unemployment sites, including ones in Harlem.

Critics denounce gerrymandering for enabling subsidization of luxury projects, which undermines the Program’s objective to aid particularly distressed regions by allowing foreigners to invest smaller amounts in projects in TEAs than in projects outside TEAs. Less than 10% of EB-5 investments are currently directed to true high unemployment areas.

With the EB-5 system under fire, legislators are growing convinced of the need to pass reform to ensure its viability. The March 8th House Judiciary Committee hearing on the Program explored possible future directions.

The committee examined a reform proposal the Department of Homeland Security (DHS) put forth on January 13th. One recommendation, which aims to curtail gerrymandering, calls for the DHS, not states, to determine TEA designation. Another recommendation is to raise the minimum investment amount to $1.8M, or $1.35M in a TEA, in order to account for inflation since 1990  and to increase foreign investments in the country.

On the recent April 28th reauthorization deadline, Congress extended the Program for another week, giving legislators more time to consider reform proposals and decide its fate.

“Reform is hindered due to the efforts of a few powerful members of industry that seek to maintain the status quo because they seek to continue to attract vast sums of EB-5 capital under the very favorable treatment accorded to them under the existing law,” Friedland said. Ultimately, he is hopeful, but not overly optimistic, that reform will be passed by September 30th, the end of the current session of Congress.

Click here to learn more about EB-5 research.