Has the US's EB-5 visa programme served its purpose?

Change is coming to a US 'immigrant investor' FDI programme that is fuelling extravagant real estate development in many US cities but is also “deeply flawed, lacks adequate oversight, and has veered away from congressional intent”, in the words of senator Charles Grassley, the co-sponsor of a bipartisan reform bill. 

The EB-5 visa programme offers foreign nationals the prospect of permanent residence for themselves and their family members in exchange for a $1m investment in a new US business that creates or preserves at least 10 direct jobs, or a $500,000 investment in a targeted employment area (TEA) in a rural area or one with high unemployment.

Ups and downs

Little used before bank lending dried up in the aftermath of the 2008 recession, EB-5 investors poured at least $8.7bn into US FDI between October 2012 and February 2016, creating 35,140 jobs, according to the US Citizenship and Immigration Services (USCIS) agency. Real estate has been the biggest beneficiary.

While EB-5 investors can choose to go into business on their own, most invest through government-approved regional centres – usually private companies – that identify projects and fund them partly by recruiting a pool of EB-5 visa seekers. From 11 regional centres in 2007, the number has grown to 847 by July 2016, and is still rising.

However, despite its apparent FDI success, the EB-5 visa programme has many critics. Federal investigators reported that it creates unique fraud and national security risks, and that poor information systems mean its reported outcomes and economic benefits cannot be trusted. The regional centre programme drew heavy criticism.

Rural areas complain they are not seeing the intended investment. In some cities, one small area of high unemployment has been squeezed into an otherwise wealthy TEA, with the EB-5 project located in the upscale section. High-profile scandals involving fraud against foreign investors have emerged.

Indeed, the Securities and Exchange Commission warns investors that federal authorisation of a regional centre does not mean the investments it offers have been approved, and is bringing charges against EB-5 fraudsters.

Stalled reforms

For its part, IIUSA, a regional centre trade association, wants the US Congress to increase the number of EB-5 visas beyond its current 10,000 a year limit and improve USCIS’s turnaround time. Peter D Joseph, executive director of IIUSA, cites a backlog of 22,000 applications.

Yet efforts to pass a reform bill stalled amid disagreement in 2015, when the programme was due to expire. It was extended through to September 2016, and competing bills are being debated.

Mr Joseph welcomes congressional leadership on reforms. “We really want to see a policy on TEA that is more in line with other federal economic development programmes and uses more than one economic measurement,” he says.

“The big problem going into reauthorisation is the role of the TEAs and how they are constructed and justified,” says Audrey Singer, a senior fellow at think tank the Urban Institute. “The vast majority of regional centres do not have a public purpose and have never had one. They are speculative.”

Among the few exceptions is the state of Michigan EB-5 regional centre, now being set up to focus on projects designed with state and regional economic development priorities in mind, according to Andrea M Robach, a Michigan strategic fund administrator. “We have abandoned and vacant facilities that need help, and we do give preference to investors that want to redevelop and repurpose them,” she says.