The popularity of the EB-5 Immigrant Investor Program is undeniable—since 2008, the program has skyrocketed in demand, becoming a popular means of obtaining U.S. permanent resident status for foreign investors around the world. Nonetheless, the program remains controversial in the United States, and a sea of policy issues undermine its effectiveness for EB-5 investment participants, project developers, other EB-5 stakeholders, and the U.S. economy alike. While foreign investors have flocked to the program to earn U.S. permanent resident status for themselves and their immediate family members, the ever-slower processing times at United States Citizenship and Immigration Services (USCIS) and the agency’s retroactively applied rule changes frustrate those who make EB5 investments.
Lawsuits from disgruntled EB-5 investment stakeholders are not uncommon and can have drastic impacts on the program, overturning previous regulations. One famous example is Zhang v. USCIS, where the courts ruled against USCIS’s assertion that unsecured loans constituted indebtedness and thus not a valid source of EB-5 investment capital. Even more dramatically was the case of Behring Regional Center LLC v. Chad Wolf et al., which resulted in the Modernization Rule being overturned. The Modernization Rule had increased the minimum required EB-5 investment amounts by 80% and tightened the rules governing targeted unemployment area (TEA) designation, making EB5 investments far more expensive and harder to qualify for the lower TEA investment amount.
Then, among the U.S. public, the EB-5 program holds a negative reputation of fraud and corruption. This is in part due to the negativity bias of the media, which capitalizes on any instances of fraud in the EB-5 program, while, naturally, not reporting on the many successful and honest EB-5 investments. Politicians are often reluctant to offer support for the program, despite its positive influences, due to its controversial nature. Some politicians have even taken a hardline stance against the program, alleging rampant fraud.
Indeed, the EB5 investment world is swirling with legislative problems and regulatory issues, which is pushing some would-be investors away to residency-by-investment programs in other countries. The program’s dire need for reform has been the pivotal EB-5 investment topic of the first half of 2021, with reform seen as the only way to save the EB-5 Regional Center Program from expiration on June 30, 2021. And sure enough, when the Senate failed to enact the much-needed reform, the program expired, causing major headaches and delays for EB-5 investment stakeholders of all kinds. So, there is no shortage of policy issues in the EB-5 program.
Fraud and National Security Concerns
Perhaps the most common criticism of the EB-5 program is the doors it opens for fraudulent activities and national security risks. One U.S. senator even noted the egregious possibility of the EB-5 program for spies from the Chinese Communist Party to gain U.S. permanent residency rights. When adjudicating petitions, USCIS may flag EB-5 investors with ties to foreign adversaries or with connections to organized crime or terrorism, but the agency may not deny immigration rights to an applicant simply based on national security concerns, indeed opening the door to abuse by malicious actors.
Fraud is also a major concern for EB-5 stakeholders and the U.S. public alike. A few famous cases of EB-5 investment fraud have tarnished the program’s image in the media, and while most EB-5 stakeholders are honest and act in good faith, the industry has been pushing for meaningful reform for years. For one thing, USCIS requires investors to show the lawful sources of their EB5 investment capital, but when records date back decades in countries with poor documentation systems, it’s hard for USCIS to truly verify the source of funds. Project developers may also defraud investors in Ponzi schemes, creating fake projects that simply siphon off EB-5 investment funds for the enrichment of the project leaders. Finally, EB-5 regional centers may also participate in fraud, fooling investors with aggressive promotion tactics that lead investors to believe regional centers are government-run.
USCIS has taken measures to confront and stem problems of fraud in the EB-5 program, but without comprehensive program reform, it’s difficult to truly move forward. Since 2018, the agency has worked more closely with the Federal Bureau of Investigation (FBI), Immigration and Customs Enforcement (ICE), and the Securities and Exchange Commission (SEC) to identify instances of money laundering or other fraudulent activities, as well as national security issues including potential terrorists or spies. Proposed changes, such as the ability to terminate regional centers involved in criminal activity, the ability to prevent individuals with criminal records from being principals of regional centers, and the authority to audit regional centers, could go a long way in allowing USCIS to more effectively root out EB-5 fraud.
USCIS Data Collection Issues
Another major area of policy issues in the EB-5 program is USCIS’s poorly organized data collection methods. USCIS’s failure to digitalize much of its data, instead relying on heaps of paperwork, makes it difficult to trace necessary tidbits of information and effectively identify irregularities that could indicate fraud. Historically, USCIS has also requested relatively little information from EB-5 investment participants, omitting even information that could aid in detecting fraud. Gradually, the agency has been expanding the amount of information it collects and the ways it interacts with it, but there remains much room for improvement.
In 2017, USCIS increased the number of in-person site visits made to EB5 investment projects, finding more than 30% to be “not operating as expected,” whether because they were deserted, had gone out of business, or were not undertaking the activities they had claimed to. A historical lack of site visits could mean there is a sizeable number of EB-5 projects who have gotten away with fraudulent activities undetected.
USCIS’s failures in data collection also impede the ability of EB-5 investment stakeholders to calculate the economic impacts and job creation figures of the EB-5 program. USCIS only verifies that at least 10 jobs have been created per investor instead of tracking the precise number of jobs each investor created, significantly undercutting the total number of jobs created. Overall, USCIS data provides stakeholders with little insight into where EB5 investment capital goes.
Petition Processing Issues
For EB-5 investment participants, one of the worst policy issues at USCIS has been the adjudication times for EB-5 petitions, which have steadily increased over the 2010s as program demand shot up. In particular, Chinese investors face extremely long processing delays, due to country-based restrictions on annual visa allocation. Some investors have grown frustrated at their long waits and even submitted lawsuits to withdraw their EB5 investment and give up their ambitions to immigrate to the United States.
In 2018, USCIS hired a slew of new employees dedicated to EB-5 petition adjudication to help speed up processing times, which did improve the situation. But in 2019, processing times increased significantly again, with USCIS attributing the delays to strengthened measures to ensure integrity. In April 2020, the immigration agency introduced a new I-526 petition processing strategy that prioritized petitions from applicants whose countries did not face an EB-5 visa backlog, asserting that this move would help streamline processing and speed up the process for those who don’t face backlogs. 2020 was an unusual year in many ways, and USCIS couldn’t have predicted the pandemic that swept the world—but the visa availability processing approach didn’t appear to decrease processing times. Processing times is one of the areas that most EB-5 reform initiatives target, pushing for USCIS to return to reasonable processing times.