After a more than eight-month absence, Congress is on the verge of reauthorizing and reforming the main element of the EB-5 (immigrant investor) program.
This is now the section of the program that allows regional centers (typically headed by US citizens) to manage pools of investments from wealthy foreigners (mainly from China) in exchange for a family-sized set of green cards. Almost always, the investments are in large-city real estate transactions.
For years, the scheme has been rife with corruption, with many fast-talking Stateside developers preying on unsuspecting aliens. The Senate allowed these arrangements to expire in June of last year, as this portion of the scheme has always been temporary legislation. This occurred when proponents of EB-5 reform clashed with those who wanted the program, warts and all, to continue as is.
The reauthorization will improve the program in many ways, primarily for the better, but it will still enable affluent aliens to come to the United States with their families with no other criteria than cash. In recent months, the EB-5 program has been operating at roughly 4% to 5% of capacity, as a continuing component of the program enables only direct investments, rather than pooled ones. Such direct investments currently demand a $500,000 minimum investment; if and when the new rules are passed into law, the least expensive endeavor will be $800,000 in size.
The EB-5 program (the fifth employment-based category under the immigration law) provides nearly 10,000 visas per year for investors and their families; given that the average family size is 2.5 people, this means that approximately 4,000 new investments are made through this route each year, accounting for a tiny fraction of total annual alien investment in the United States.
The House of Representatives is set to pass a continuing appropriations measure that will achieve many things and devour more than 2,700 pages of text on Tuesday, March 9. Its primary goal is to keep the government-funded, but it also includes a number of other provisions, one of which is the reauthorization of the regional center program.
If there are conflicts between the Senate and House on any issues, they are anticipated to be overcome, and the danger of no government spending after the present deadline of March 11 will be lifted. The language of the law, which was just provided by the Rules Committee, contains 115 pages on EB-5, which is at the end of the package. Because the difficulties with EB-5 are numerous and detailed, a lot of ink is required to try to deal with them.
Among some of the reforms (which will be discussed in further detail in a forthcoming blog) are the following:
- Raising the minimum investment level for individuals from $500,000 to $800,000
- Making it much harder to gerrymander the location of investment opportunities; too many in the past included, for example, merging a Wall Street building with a chunk of the East River and then strips of territory to reach a public housing project deep in Brooklyn, all of which offered the number of unemployed people required to make the Wall Street building part of a “depressed” area
- Developing a comprehensive “integrity package” to address corruption issues
- Requiring investors and developers to pay a more reasonable set of fees, which will provide the cash needed to finance the integrity package.
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