EB5 Investors Magazine Volume 2 Issue 1 | Page 9

Is EB-5 more vulnerable to security concerns than other programs ?
The internal memo first came to public attention with Sen . Grassley ’ s letter , and is highly critical of the EB-5 Regional Center program . Among its most notable claims are the assertions that the EB-5 program is vulnerable to fraud and use by terrorists and foreign government agents . It also asserts that participants ’ backgrounds cannot be verified . Overall , the memo claims that other permanent residency classifications provide more checks against security concerns . Specifically , it states that other employment-based classifications “ require proof of education and / or experience , while family-based visas require positively demonstrating bona-fide relationships ,” and the EB-5 program does not require this . The memo mentions the legal source of funds requirements of EB-5 in passing , but discounts the stringent requirements as being too hard to verify .
The regional center program
The memo also targets regional centers specifically . It asserts , inter alia , that “ indirect job growth is problematic ,” and that not “ having to provide evidence of jobs created ” creates an “ opportunity for fraud .” Both of these assertions need further analysis — especially the former assertion , because neither I nor the team that wrote the memo are economists .
The latter statement regarding fraud seems somewhat untrue . When using economic analysis to show job creation , the models and the inputs are clear . For example , the RIMS II model uses multipliers to calculate job creation , and the inputs are actual expenditures or actual revenues . In such a case , the only opportunity area for fraud lies in misstating expenditures or revenues . A simple solution is to require audited statements . However , applications are currently submitted under the penalty of perjury , which is typically considered sufficient to keep professionals and business owners honest .
The information required to show a legitimate source of funds for the EB-5 visa , under 8 CFR 204.6 ( j )( 3 ), includes , among other items : foreign business registration records ; corporate , partnership , and personal tax returns , including income , franchise , property ( whether real , personal , or intangible ), or any other tax returns of any kind filed within five years , with any taxing jurisdiction in or outside the United States by or on behalf of the petitioner ; and evidence identifying any other source ( s ) of capital ( emphasis added ). It would appear that requiring five years of personal tax returns would provide a substantial amount of information to be “ researched , vetted , or cross-checked .”
Illegitimate activity exists in all visa classifications — just as illegitimate activity exists in all sectors — but the idea that the EB-5 program is more vulnerable to abuse remains unfounded . The memo suggests that there is “ greater information ” in the other categories that can be “ researched , vetted , or crosschecked .” That assertion is simply inaccurate , as many employment classifications only require little or no experience , or just a university degree . Clearly , there would be little information to be “ researched , vetted , or cross-checked ” in such classifications .
The argument misses the point and highlights the issue . If the United States aims to guarantee the safety of its citizens — one of the primary purposes of government — it should focus on developing a system to perform background checks on all visitors and immigrants , rather than shutting down a beneficial program and sweeping legitimate security concerns , ones that apply just as equally to other visas , under the rug .
Misguided recommendations Based on its observations about the EB-5 program , the memo makes some recommendations that do not address the core issues .
The memo first recommends raising the required minimum investment amount and claims this will make fraud more inconvenient . However , those committing fraud or other illegal activity often have access to such resources , and simply raising the investment amount does not rectify the issue . If the authors are concerned about combatting fraud , they might suggest putting measures in place to prevent fraud at all investment levels .
The second recommendation suggests that investors be actively involved in the day-to-day operations of the business in which they invested . This recommendation is said to “ provide a heightened degree of certainty regarding the intentions of the alien applicant .” It has long been accepted in the industry that the intent of the majority of EB-5 investors is immigration to the United States , while minimizing the risk of losing their capital ; the memo is calling for a day-to-day role in the business to be the investor ’ s primary motivation . I am unsure as to how this requirement would improve the program ; the intent behind the investment does not affect the profound benefit that it provides the American people . If Sen . Grassley and the DHS are concerned about the benefits of the EB-5 program under the current regional center program , they only need to look to David Kay ’ s peer-reviewed impact study commissioned by The Association to Invest in the USA . In the study , Kay , of IMPLAN Group , LLC , demonstrates that spending associated with EB-5 investors supports over 16,000 U . S . jobs each year and contributes $ 1.3 billion to U . S . GDP . Additionally , investor spending adds $ 713 million in federal tax revenue , annually , and $ 109 million in state and local tax revenue .
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