Report To Congress On The Eb-5 Investor Visa Program

INTRODUCTION

The Omnibus Consolidated and Emergency Supplemental Appropriations Act for Fiscal Year 1999, Public Law 105-277, directs the Immigration and Naturalization Service (INS) to report to Congress "to propose any legislative remedies that may be necessary to provide the INS with the tools to ensure that a person gaining citizenship pursuant to the EB-5 program has actually made, and is personally liable for, the required investment and is sufficiently involved in the management of the business invested in, consistent with the intent of Congress when the EB-5 program was created."

Accordingly, this report discusses the need for amendments to sections 203(b)(5) and 216A of the Immigration and Nationality Act (the Act) that establish specific standards designed to ensure that the EB-5. employment creation program promotes investments in U.S. businesses, and creates and preserves employment in the United States in the manner that Congress intended.

Preliminarily, the INS notes that Public Law 105-277 states "[I]t is understood that serious allegations have been made concerning fraudulent activities designed to aid persons in gaining U.S. citizenship pursuant to the EB-5 program without making the contributions to U.S. business that Congress intended." Although the INS maintains data on the total number of EB-5 petitions that are denied for failure to comply with statutory and regulatory requirements, there is not consistent or complete data available on denials that are due, wholly or in part, to fraud. For this reason, the INS is unable to quantify the incidence of fraudulent activity in the EB-5 program. Where appropriate, INS initiates investigations of suspected fraudulent activity and seeks prosecution under applicable statutes. Ongoing investigations are not subject to public disclosure and, therefore, are not discussed in this report

BACKGROUND

From 1965 to 1978 investors were eligible to immigrate to the United States in the nonpreference category. The INS regulations exempted applicants for nonpreference immigrant visas from the general labor certification requirement based on an investment of at least $40,000 (initially $10,000) in a U.S. based business employing at least one U.S. worker.

Because investors were not differentiated from other nonpreference immigrants, data on the number of investors entering as nonpreference immigrants, or any information about their investments, is not available. In late 1979, nonpreference visas became permanently unavailable, effectively ending this means of immigration for investors.

The Immigration Act of 1990 created the immigrant investor program as the fifth preference within the employment-based category (EB-5), marking the first time a category specifically facilitating the admission of investors as lawful permanent residents was included in U.S. law. This preference category allots up to 7-1 percent of the worldwide level of immigration (approximately 10,000 visas annually) to qualified investors and their spouses and children. At least 3,000 of the visa numbers are reserved for investments in targeted areas, defined as rural areas or areas of high unemployment. An investment of at least $1 million in a new commercial enterprise that is established by the immigrant investor, and that employs at least 10 U.S. workers, is required; the required investment is lowered to $500,000 in targeted areas.

Immigrant investors are admitted for 2 years in conditional permanent resident status. During that time they must invest the required capital and create the required employment. Section 216A of the Act provides that, at the end of the 2-year period, the conditions may be removed if the investment was sustained throughout the period of the investor's residence in the United States. Final regulations providing requirements for petitions for employment creation were published at 8 CFR 204.6 on November 29,1991, effective immediately. Final regulations providing requirements for petitions to remove the conditional basis of lawful permanent resident status were published at 8 CFR 216.6 on May 23, 1994.

Prospective immigrant investors petition for themselves on INS Form I-526, "Immigrant Petition by Alien Entrepreneur," which is filed with the required fee and supporting documentation with the INS' Texas or California Service Center, depending on which office has jurisdiction over the area where the commercial enterprise will principally be doing business. The required documentation must show that the immigrant investor has invested, or is investing, the required lawfully-gained capital in a qualifying new commercial enterprise within the United States that the investor has established, and that the investor will create full-time jobs for at least 10 workers. At the end of the 2-year period, the investor must file INS Form I-829, "Petition by Entrepreneur to Remove the Conditions," and demonstrate that the investment has been completed and sustained for the conditions to be removed.

Under current INS regulations, the investment must be in a for-profit commercial enterprise for the conduct of lawful business. The business may be a sole proprietorship, a limited or general partnership, a holding company, a joint venture, a corporation, a business trust, or other public or privately owned entity. A new commercial enterprise may be established through the creation of an original business, purchase of an existing business and restructuring and reorganizing it into a new commercial enterprise, or the expansion of an existing business through a 40 percent net increase in its net worth or in the number of employees.

The Immigrant Investor Pilot Program was created by Section 610 of the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Art, 1993 (Pub. L. 102-395, October 6, 1992, 106 Stat. 1874) as an adjunct to the employment creation immigrant investor classification. Under this pilot program, immigrant investors may invest the required capital in INS-designated regional, centers, which use the investment capital to create jobs indirectly through revenues generated from increased exports resulting from the pilot program. The pilot program originally authorized up to 300 visas annually for investors whose required capital is invested in approved regional centers established to promote economic growth, export trade, job-creation and increased domestic capital investment on a regional basis. Interim regulations governing this pilot program were published on August 24, 1993.

The pilot program includes a modified job-creation requirement that enables investors in regional centers to credit their investment with indirect job-creation through revenues generated from increased exports. This policy expanded opportunities for investor participation in the immigrant investor program. On November 13, 1997, an amendment to Section 610 of the Departments of Commerce, Justice, and State, the Judiciary and Related Agencies Appropriations Act, 1993, changed the number of visas to be authorized annually in the pilot program. from 300 to 3,000, and extended the pilot program for an additional 2 years, until October 1, 2000.

STATISTICS

As discussed above, the Immigration Act of 1990 allocated approximately 10,000 visa numbers annually to the immigrant investor category. As shown in the following table, participation in the investor program has been far below the numerical limit since the inception of the program, both in terms of petitions received for investor status and immigrants admitted as investors.

*Excludes spouses and children of investors who are also subject to the numerical restrictions.

Close to half (45 percent) of the investors admitted during fiscal years 1994 through 1996 were admitted based on investments in targeted rural or high unemployment areas where a minimum $500,000 investment was required. The remaining 55 percent made their investments in businesses in non-targeted areas requiring a minimum $1 million investment.

Participants in the investor program have come primarily from Asia, with countries from that continent accounting for 81 percent of all immigrant investor admissions during fiscal years 1994 through 1996. During that period, an additional 9 percent of investors came from Europe, and 5 percent came from South America. Approximately three quarters of immigrant investors are males.

Immigrant investors, like other immigrants, tend to concentrate in certain parts of the United States. During fiscal years 1994 through 1996, 44 percent of all immigrants admitted as investors reported that they intended to live in California, followed by 9 percent destined for Florida, 7 percent to the State of Washington, 6 percent to Texas and 5 percent to New York.

INITIAL LOW PARTICIPATION IN THE EB-5 PROGRAM

The following characteristics of the immigrant investor program may help explain why participation in the program has been below authorized levels.

• Investor uncertainty over removal of conditions. The statute provides for a 2-year conditional residence period, but does not guarantee investors that they will obtain lawful permanent resident status at the, end of that period. The required investment and the required employment creation must be established to the satisfaction of INS prior to the removal of conditions. Potential investors may be deterred out of concern that they will be unable to create the 10 or more jobs, or that other factors may impede their ability to sustain their investment over the 2-year period, resulting in their failure to meet the terms of the program and, subsequently, loss of status. In this regard, INS has received comments from the domestic and international business community that the average commercial enterprise may not be able to create 10 fulltime, permanent jobs with the minimum required amounts of capital in a 2-year period.
• Investor worldwide income subject to U.S. taxation. During the 2-year conditional period, the immigrant investor is subject to U.S. taxation of his or her worldwide income. This policy may serve as a disincentive to investors who have substantial holdings outside the United States.
• Availability of alternative nonimmigrant classifications. Potential immigrants may have other routes to achieve lawful permanent resident status that are less expensive and more certain. If an immigrant wishes to enter the United States by means of an investment, he or she may choose an alternative nonimmigrant classification, such as the B, E, or L nonimmigrant classifications, provided in sections 101(a)(15), (B), (E), and (L) of the Act.
• Availability of attractive investor programs in other countries. Investor programs in other countries may be more attractive to investors than the U.S. program in that they may require a. lower capital investment and lower standards for job-creation. (See Appendix for information on the Australian and Canadian programs.)
• Limited program information and outreach. Participation in the EB-5 program depends on the availability of information to potentially interested persons overseas. While U.S. Embassies generally make information on EB-5 requirements available to interested parties, the U.S. Government has not engaged in significant outreach and promotional activity. This role has been filled in some instances by the private sector without Government oversight.