A new study released last week provides new information about the success of the EB-5 visa program that allows foreign investors to gain permanent residency status by financing American businesses and public works. The EB-5 immigration investor program runs the risk of expiring at the end of September if Congress does not reauthorize it.
The Bipartisan Policy Center (BPC) study,“EB-5 Program: Successes, Challenges, and Opportunities for State and Localities,” looks at a program that has garnered billions of dollars of investment but also resulted in abuse and fraud since its popularity skyrocketed following the Great Recession.
According to the BPC’s study, the number of visas issued to investors and their dependents increased from 1,360 in 2008 to 10,692 in 2014.
Former Democratic Gov. Mike Beebe of Arkansas and former Republican Gov. Jim Douglas of Vermont announced the study’s release and were joined by George Olsen, co-founder of the New York City Regional Center, and moderator Theresa Brown, director of BPC's Immigration Policy, for a panel discussion.
Striking an optimistic tone, the former governors spoke on the benefits their respective states have seen from investment through the EB-5 program.
The program offers two ways for investors looking to gain permanent residency: a $1 million investment in a commercial enterprise or $500,000 in a business in a rural or high-unemployment area. Ninety percent of investors choose the option to invest $500,000 in a Targeted Employment Area, designated by each state as an area with unemployment at more than 150 percent of the national average, according to the report.
In Vermont, money from foreign investors went to the construction of ski resorts and hotels, which Douglas says brought in money and jobs to surrounding areas with above-average unemployment.
Estimations on the exact amount of investment and jobs created by the EB-5 visa vary. A Government Accountability Office audit estimated that the program brought in a total of around $1 billion. Brookings estimated that the EB-5 created at least 85,000 direct full-time jobs and attracted approximately $5 billion in direct investment since its inception. The U.S. Customs and Immigration Service estimates that more than $10 billion have been invested and 77,150 jobs created. The wide range of estimates is the result of different methodologies used in calculating the EB-5’s impact.
Cooperation between state and private entities has led to success in cities and regional centers. In 2004, Philadelphia’s regional development entity partnered with CanAm, a private company that runs regional centers around the country, to start a regional center. Since then, Philadelphia has overseen 30 projects, attracting $620 million in foreign investment.
Pennsylvania Convention Center raised $100 million in EB-5 funds for its construction. Contractors redeveloped the Philadelphia Navy Yard with the help of EB-5 funds, and companies have moved in and begun operations, employing 11,500 people, according to the BPC study.
With all this money flowing from foreign entities to American enterprise, the program is vulnerable to fraud.
EB-5 investments are often exempt from registration with the Securities and Exchange Commission (SEC), which means, the study notes, “investors are not protected by certain safeguards, like disclosure requirements.”
Just last month, the SEC froze assets belonging to a Seattle, Wash., man accused of defrauding Chinese investors looking to gain EB-5 visas. Lobsang Dargey raised over a $100 million for a skyscraper project in downtown Seattle and a residential development in Everett, Wash. According to the SEC, Dargey diverted $14 million for unrelated real estate projects and $3 million was used to buy a $2.5 million house and withdraw cash at casinos.
In November 2012, Anshoo Sethi garnered $160 million from investors looking for EB-5 visas through a construction project near Chicago’s O’Hare International Airport to build a multi-tower hotel and convention center. Investor money was used to buy luxury goods for Sethi and his family, and Sethi lied to investors about his own credentials.
Despite these setbacks, the BPC’s study concluded that with increased security and oversight, the program has potential to support regional economic development.
“Everybody wants a more robust system of insurance integrity in the program,” Douglas said during the panel discussion.
Beebe said that integrating more people with knowledge of securities might better serve the EB-5 program and its investors going forward.
“That securities background is absolutely essential,” Beebe said. “Otherwise you’re not going anywhere.”
*Correction: A previous version of this story incorrectly stated the Bipartisan Policy Center's acronym as BCP.