EB-5 Visa Program Faces Calls for Reform Even as it is Extended by Congress

Key issues include reforming minimum investment amounts, stricter oversight and reclassification of targeted employment areas (TEAs), and visa-processing inefficiencies.

A stopgap funding bill passed by Congress April 28 to provide funds for the US government to continue operating has given the EB-5 investor visa program a new lease on life and set the stage for potential reforms.

The decision by Congress to extend the program in its current form through September 30, 2017, is being accompanied by a flurry of proposals for reforming its minimum investment amounts, stricter oversight and reclassification of targeted employment areas (TEAs), and visa-processing inefficiencies. Congressional reform also wanted to address the minimum investments amounts that must be made to qualify for the program.

While various proposals are being floated by members of both parties, the US Citizenship and Immigration Services continues to accept Form I-526 petitions based on investments through EB-5 regional centers through that date.

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Under the EB-5 program, entrepreneurs (and their spouses and unmarried children under 21) are eligible to apply for a green card (permanent residence) if they meet two requirements: make the necessary investment in a commercial enterprise in the United States and plan to create or preserve 10 permanent full-time jobs for qualified US workers.

But it has evolved since Congress created the program in 1990 to stimulate the US economy through job creation and capital investment by foreign investors. In 1992, Congress created the Immigrant Investor Program, also known as the Regional Center Program. This sets aside EB-5 visas for participants who invest in commercial enterprises associated with regional centers, or targeted employment areas, as approved by USCIS based on proposals for promoting economic growth.

Behind the scenes, the National Law Review reports, members of Congress and their staffs are negotiating an EB-5 reform package to include in the larger funding bill. The key issues being discussed are raising the minimum investment amount from the current $500,000; revising the definition of a “targeted employment area” to allow certain investments at the minimum investment level; establishing visa “set-asides” for investments in certain rural and blighted urban areas; and establishing effective dates for any changes.

According to a real estate industry publication, there are about 22,000 EB-5 immigration visas waiting to be approved. Getting the needed documentation and security approvals can take up to 16 months, but it is expected to take even longer as applicants have to be vetted in order to become residents.

But the concept of “citizenship by investment” is not clear cut. Micha Emmett, CEO of CS Global, a legal consultancy firm with expertise in citizenship and foreign direct investment, called the EB-5 program “the insurance policy of the 21^st century.”

Emmett said “immigrants are responsible for building the USA, and this story applies to many other countries in the world. Being fearful of immigrants is not conducive to growth.”

But she also said that as a professional in investor immigration, “I feel the program, as it currently exists, is flawed and requires tighter regulation and vetting of both the applicants and the investors creating the investment program.

“As countries face fiscal challenges, governments are seeking ways to attract human capital to their country as a way to stimulate their economies. Despite the ailing EB-5 industry that has been fraught with allegations of fraud, the program has provided a platform for foreign investment to be utilized to redevelop certain regional centers by building schools, hotels, etc.”

Emmett added that “citizenship or residence by investment programs, if properly developed and implemented, can be hugely beneficial for countries because they generate revenue for the government without needing to heavily tax their citizens. If properly structured, programs can contribute to infrastructure and social programs.”

Tags: EB-5, Immigrant Investor Program, investor visa, residence by investment, US Congress

Davide Serra sees the United Kingdom as the “divided kingdom,” one with a broken growth model, and says shorting the country’s government debt, or gilts, is a good bet.

Speaking at the Sohn Investment Conference in New York, the founder & CEO of Algebris Investments waxed negative on the UK’s prospects, with its “Brexit” from the European Union putting the country at an inflection point.

Within the EU, the country had the “best of both worlds,” as he sees it—an independent currency along with the benefits of participating in the EU. He expects that Brexit will cost the country about £140 billion, or about 7.5% of its gross domestic product (GDP).

Among the reasons for Serra’s negativity on the UK are:

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Its dependency on imports
Weak public finances
High level of household leverage
Stagnant productivity
Growing social imbalance

Expanding on these aspects, he explained that while half of the UK’s exports go to the EU, only 15% of EU exports go to the UK. In fact, about half of the UK’s food and energy are imported, according to Serra.

The country’s fiscal deficit sits at about 2.8% of its GDP and its public debt is about 89% of its GDP. Pointing to high credit card dependency in the country, according to Serra, “100% of sales equals a 100% rise in credit card spending debt.”

Moreover, the country’s productivity is stagnant, with UK productivity being well below the G7 average. And the top 1% of the country’s taxpayers pay 27% of the taxes, which makes for social imbalance. In addition, asset prices are high but productivity is low, and the gap between home prices in the country and consumer incomes is one of the highest in the world.

Considering all of this, he observed, “You are overinvested in the UK” and recommends shorting gilts. The yield on the 10-year gilt is more than 200 basis points below 10-year inflation expectations, according to Serra.

Another Sohn Conference speaker, Kevin Warsh, a visiting fellow in economics at the Hoover Institution and lecturer at the Stanford Graduate School of Business, is concerned about the “uniformity of opinion about what’s going to happen next” among policymakers. The last time that happened was 10 years ago, before the onset of the global financial crisis.

Warsh wondered if the current economic climate, which is reminiscent of a second gilded age, is nearing its end. While the Federal Reserve’s actions and dominance have been good for asset prices, and beneficial for those with risk appetites who have parlayed their balance sheets to benefit from the situation, these are not good times for people living on a fixed income.

He advises that investors be open to both upside and downside risks around the world. The indicator Warsh is paying the most attention to is capital expenditure spending, considering that if businesses are investing, it is a forward-looking indicator the economy is doing well. This is also a data-based indicator, not one based on sentiment.

Warsh is concerned about what will happen “when the next shock hits and it is time to loosen.” In fact, the Fed’s “institutional credibility is at stake” whenever the economy faces its next shock, he said.

Tags: Brexit, Sohn Investment Conference, UK