Last Updated on March 15, 2018
Legislation has been introduced in the U.S. Senate to bring to an end the EB-5 visa program, that awards American residency in return for a job-creating investment.
Democrat Dianne Feinstein and Republican Chuck Grassley jointly introduced the bill, that would terminate a program that has drawn billions of dollars in investment to the U.S. from mainly-Chinese candidates.
The 27-year-old program awards green cards in return for either a $500,000 investment in an area deemed to have high unemployment (TEA), or $1 million in other designated projects, provided they create at least 10 jobs for Americans.
Some 85 per cent of the average 10,000 visas awarded annually go to Chinese investors, forcing the U.S. to put a cap on the number of candidates from the Far East country.
Several unsuccessful attempts have been made to modify the current EB-5 in a number of areas. It has been subject to repeated temporary extensions during this process, with the latest set to expire on April 28, 2017.
Industry experts expect U.S. President-elect Donald Trump to favour the continuation of the program, the future of which has been under threat over the last two years.
Trump’s knowledge of the real estate industry and understanding of the importance of capital inflow will mean his outright support for the program, many are predicting.
This is despite an anti-immigration stance that saw the new president sign an executive order banning immigration from seven Muslim-majority countries in January.
US EB-5 Investment Requirements
- An EB-5 investor must invest in a new commercial enterprise.
- The investor must invest at least $1 million when investing in a general area of business or at least $500,000 when investing in a targeted employment area (“Regional Centres”).
- Within two years of admission as a Conditional Permanent Resident, the investor must create or preserve at least 10 full-time, direct or indirect jobs belonging to qualified US workers.
- See Tax Implications of Gaining Permanent Residence Through US EB-5 Visa.
Two different proposals have been table to increase the investment thresholds by differing amounts.
One would see the TEA threshold rise to $800,000 and the general investment to $1.3 million. A second proposal called for new thresholds of $1.3 million for TEAs and $2 million in the general category.
The program has faced criticism from several sources, who want it abolished.
One of three key arguments against the EB-5 is that well-informed companies manipulate the rules to allow them to attract investment for major projects through the TEA class.
Major companies have funded projects worth billions in some of America’s richest areas by using a wider combined area to set unemployment rates.
Provided they can prove a certain level of unemployment, they can open themselves up to TEA investment.
Representatives of rural areas, who say they are desperate for such funding, have been overlooked as a result. Investors are more likely to opt for a safer major company investment rather than a riskier one in a smaller city or town.
To fix this, the US government is understood to be working on how it can redefine what constitutes a TEA.
The second argument is that there are not enough fraud protection controls in place, resulting in many examples where EB-5 investment dollars have been apparently misused. There are several ongoing court cases along these lines.
Fraud Cases Linked to EB-5
- The developer behind a biomedical research facility in Vermont, which benefitted from EB-5 funding, is currently being investigated for misusing the money. The project had attracted $83 million of investment from 166 foreigners, many of them Chinese, who now risk losing their money. Developer Ariel Quiros, and several of his associates, stand accused of using the funding to buy a ski resort, a luxury New York condo and to pay tax bills.
- Developer Lobsang Dargey was accused of defrauding Chinese investors out of money for a tower in Belltown. Dargey no longer has control of the project and denies any wrongdoing.
- American Life, a recipient of more than $1 billion in EB-5 investment money, was fined $1.2 million for facilitating payments to unlicensed intermediaries in the U.S.
There are calls for a body to be formed to oversee these transactions, to ensure transparency.
A third argument centres around waiting lists, particularly for Chinese investors, who make up 85 per cent of the candidates for the program, and must now wait up to eight years for their applications to be processed.