A Legislative
History
by Cynthia Lange
The EB-5 program’s tremendous rise to popularity following
the global financial crisis in 2008 makes it easy to forget the
tumultuous and winding path its laws took to get the industry
where it is today. The program was expected to stimulate the
economy, bring foreign investment dollars to the United States,
and drive new business and job creation when it was enacted
in 1990. But the early results of the EB-5 program were disappointing. At times throughout its history, it appeared that the
government might shut down the program to avoid giving visas
to wrongdoers and fraudulent applicants. As we again await
the Regional Center Program’s reauthorization, it’s helpful to
understand the past to better anticipate where the program
might be headed in the future.
EB-5’s Optimistic Start and
Troubled Adolescence
The EB-5 visa was designed to inject foreign capital into
the U.S. economy and create jobs for American workers. The
program’s legislative history suggests that Congress anticipated
that as many as 4,000 foreign investors and their families would
seek U.S. lawful permanent residence (“green card” status) per
year, bringing in fresh investment funds totaling an estimated
$4 billion and creating 40,000 jobs annually.[1] However
Congress drastically overestimated the initial popularity of
the program. Between FY 1992 and FY 2004, a grand total of
6,024 EB-5 visas were issued, an average of just over 460 visas
per year. Between FY 1999 and FY 2004, the program’s participation levels fell dramatically. In that timeframe, the number of
visas issued never exceeded 260 per year.[2] This sharp decline
in program was caused by several factors.
The significant drop in the number of applicants in 1999 can
be traced to a few key court decisions surrounding the EB-5
program. In 1998, the legacy-INS Administrative Appeals
Office published four influential precedent decisions over a one
month period that significantly restricted the interpretation of
the EB-5 rules: Matter of Soffici, Matter of Izummi, Matter of
Hsiung, and Matter of Ho. [3] In the two years following the
decisions, there were 2,018 I-526 forms filed and 1,848 I-526
forms denied.[4] What appeared to be an attempt by the agency
to create clarity and uniformity within the EB-5 program nearly
crippled the program. As a result, the number of investors that
successfully completed the program – and subsequently successfully injected their investment into an American enterprise and
created the required 10 jobs – dwindled. During this time, the
EB-5 visa still functioned as a tool to kick start the economy,
but its capacity to do so was severely limited by regulation
within and doubt surrounding the program itself.
Another blow to the EB-5 program came in 2001 with the
ruling in the U.S. District Court case of U.S. v. O’Connor[5].
The case revealed fraudulent EB-5 investment schemes in a very
public manner, which blemished the entire program and some
of its participants. Findings of wire and immigration fraud,
money laundering, and conspiracy[6] put project developers,
migration agents, middlemen, and immigration attorneys in a
dubious light and EB-5 usage subsequently contracted. In FY
2002, there were only 147 immigrant visas issued in the EB-5
category and in FY 2003, only 71 visas were issued.[7] If one
were to use the metric of total visas allotted as the benchmark
for the program’s success, its future would have been cloudy at
best after 14 years of existence.
EB-5’s Maturity and Transformation
In 2002, Congress took action by passing the 21st Century
Department of Justice Appropriations Authorization Act,
which was intended to restore and reform the EB-5 program.
[8] Much-needed regulatory guidance was issued and some of
the restrictive rules from the 1998 precedent decisions were
ameliorated. The EB-5 regulations we see today are the result of
the statutory amendments made during that time.
Interest in the EB-5 program surged after 2008 when
traditional domestic bank financing became difficult, if not
impossible, to access. Creative minds sought out creative solutions, and ultimately settled on EB-5 financing. As the program
grew, these solutions made way for a sophisticated model of
uniting joint investments from large groups of foreign investors
to finance large proj