It was bound to happen.
Shamelessly hyped by the USCIS leadership, and much sought after by nervous Chinese millionaires, the immigrant investor (EB-5) program for the Chinese is about to reach a plateau because of two quite different forces:
- The automatic operations of our immigration law, and its numerical ceilings; and
- A conscious decision by Chinese authorities to protect their rich from our program.
The EB-5 program (for Employment-Based, fifth category) grants, after the passage of time, a family-sized set of green cards to aliens who (with nothing else to offer) provide a half-million-dollar investment in a government-approved, but not guaranteed, American development scheme, usually in real estate.
Let’s deal with the second program-inhibiting factor first because it is easier to explain.
In sum, officials in China have noticed that a lot of their rich people have been snookered by corrupt EB-middlemen, both there and here and as a result they have taken what appear to be substantial steps to regulate the operation of that program in their country. (Chinese aliens provide about 80 percent of the investments raised through this program.)
A key event, from the Chinese point of view, was the decision by our Securities and Exchange Commission last year to prosecute two EB-5 middlemen from Chicago who had created a totally phony real estate scheme. It was said to be a hotel complex near O’Hare Airport, largely funded by EB-5 moneys, as we reported in an earlier blog.
A total of 261 Chinese millionaires lost $11 million in the scheme, and were on the path to losing another $130 million or so when the SEC (not USCIS) stepped into the case. The agency found that the promoters did not have the contracts that they said they had with big-name hotel chains, had seriously overvalued a gritty piece of real estate they owned near the airport, and had deposited millions of fees generated from the Chinese into the pair’s own private bank accounts in Hong Kong . The indictment got huge press coverage in China. The trial is ongoing.reported earlier, and several similar, if smaller-scale, stories.
One of the reasons why these scams have gotten as far as they have is that the investors are much more interested in getting their visas than in obtaining financial profits from the investments so due diligence is often lacking. None, not one, of the 261 investors, for example, bothered to look up the value of the real estate in question, which is a matter of public record.
With all this presumably in mind, according to the reliable American EB-5 newsletter, EB5info, “The Chinese Supreme People’s Court and the China Banking Regulatory Commission have handed down a new interpretation of Chinese law that will have a significant impact on those marketing the EB-5 visa program to [Chinese] investors.”
The new interpretation will put the following restraints on the program, according to that article:
- All brokers must meet licensing and registration requirements.
- EB-5 marketers will no longer be able to use “public media” – television, radio, Internet, etc. to promote the sale of securities.
- Marketers will be barred from promising (or perhaps even discussing) any form of return on the investment.
- Marketers will be unable to promote financial products to the general public.
The article regards the new stance of the Chinese government as a serious obstacle to the program.
Meanwhile, back in the United States another set of obstacles to securing EB-5 money from the Chinese is about to arise from the intricacies of U.S. immigration law. As one American immigration lawyer explained recently, if a bit obscurely:
Retrogression for China may take place in 2014 for several months to one year. Essentially, this means the time it takes for an average Chinese EB-5 investor will increase significantly. It would not surprise me if it takes three years or more for Chinese EB-5 investors to obtain a conditional green card. This development will have all kinds of consequences.
To translate: there are two sets of numerical limits in the immigration law; one deals with individual programs (there is a limit of 10,000 on EB-5 visas) and then there is a more general rule that no more than 7 percent of numerically controlled immigrant visas may be issued to people from a given nation (like China). When these two elements are blended (in a frankly mystifying way), the government creates waiting lines for would-be immigrants at the nexus of the program and the nation of origin. When, in another complex feature, that blending causes the date at which a visa can be issued to move backward in time, that is called a regression.
So the waiting time for EB-5 visas is likely to become much longer in the immediate future.
As to “conditional” green cards; in this program (as in marriage cases) the first document to be issued to the alien is not the permanent green card, it is a version that is good for two years until the “conditions are released”, making it permanent. The conditions in the case of the EB-5 program relate primarily to the confirmation that the half-million-dollar investment has actually taken place, and that the alien has not become inadmissable for some other reason in the interim. (Many more conditional green cards are issued in this program than permanent ones, as problems, apparently, are noticed by USCIS staff as time passes.)
If the massive bill passed by the Senate (S.744) and written by the Gang of Eight were to become law, this particular traffic jam would be broken because suddenly the limitation on the visas, now set at 10,000 for investors and dependents, would become limited for investors only, expanding the EB-5 annual class to about 25,000 a year. This is one of the lesser problems with this terrible piece of legislation.
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