Why Does EB-5 Have Such a Bad Reputation?
On new construction projects in the United States – as well as new non-real estate investments – it has become common practice to generate partial funding from the EB-5 program. Since 2008, a total of $36.9 billion has been invested in the U.S. economy via EB-5. For those who are uneducated about how the program works, false beliefs tend to spread denouncing the program as an exploitation of our immigration system that hurts U.S. citizens in the process.
As the fastest growing regional center in Texas with nearly a billion dollars of projects under its belt, Houston EB5 is not only able to demystify wrong information about why EB-5 has such a bad reputation but explain what makes the program so powerful for both investors and the future greatness of America.
CLAIM #1: EB-5 is rampant with fraud.
The ultimate calling card of the critic is that the EB-5 program is overrun with fraud. In actuality, between 98-99% of EB-5 projects are not fraudulent. Since the EB-5 program relies on foreign investments of a certain minimum amount being placed into the U.S. economy – $900,000 for a targeted employment area (TEA) and $1.8 million for a non-TEA zone – the biggest false assumption is that foreign investors are creating scams.
This is the main point that gets misconstrued all the time. When there is fraud, the fraud is being committed by an American business which is misusing the funds. As Houston-based attorney Christian Triantaphyllis of Jackson Walker explains, in the rare cases where fraud does occur, that fraud is not being committed by the foreign national who is investing his or her hard-earned money.
“For a program that’s raised billions of dollars helping the U.S. economy,” says Triantaphyllis, “the fraud is an incredibly small percentage of that. Fraud is predominantly done by those who are raising the money.”
REALITY: The vast majority of EB-5 projects are legitimate investments – just be sure to choose a reputable EB-5 regional center with an extensive track record of success. Regional Centers reported for fraud are promptly reprimanded by the U.S. Securities and Exchange Commission (SEC).
CLAIM #2: The U.S. is letting in terrorists and money launderers.
Critics of the EB-5 program often throw out the example that anyone with money, even someone like Osama Bin Laden, could buy his way into American citizenship. The truth of the matter is that many investors are turned down since the background checks are so extensive.
“Someone who is a terrorist is not looking to become a lawful permanent resident by going through a thorough USCIS and FBI background check,” Triantaphyllis says. “Those with bad intentions are more interested in finding their way into the U.S. as a visitor.”
REALITY: EB-5 investors go through rigorous background checks to obtain their green cards.
CLAIM #3: EB-5 gives jobs to foreign nationals.
Some visa options are looked at by certain anti-immigrant groups very poorly because they claim that U.S. jobs are being given away to foreign nationals. When this is said about EB-5, that is misinformation.
In order for the individual investor behind every EB-5 investment to receive a non-conditional green card, their investment must be proven to have created a minimum of 10 full-time jobs for U.S. workers. There are no exceptions to this requirement, proving that EB-5 funds promote national job growth.
Additionally, the formula USCIS uses to calculate job creation on EB-5 investments is the same one used by the U.S. government to measure the impact of large infrastructure projects on the U.S. economy.
REALITY: The EB-5 program is only creating jobs for U.S. workers.
CLAIM #4: Projects don’t even need the EB-5 money.
Many critics also lambast the EB-5 program by saying these jobs will be created anyway by the developer and the foreign investments are just being taken anyway as an unnecessary form of capital. According to immigration attorneys who help foreign investors, that criticism is completely misguided.
“I’ve worked on lots of projects over the years,” says Triantaphyllis, “many of which needed another form of financing and EB-5 was able to step in and provide it. Those projects would not have gotten off the ground otherwise.”
It’s important to note the EB-5 program did not rise in popularity until after the 2008 financial crisis when banks were unwilling to lend. This proves that EB-5 has helped hard-to-finance projects get going.
REALITY: To say that every project would happen with or without EB-5 financing is entirely false. The majority of projects depend on the EB-5 investments.
CLAIM #5: EB-5 projects don’t help the areas where the projects are built.
While many projects are being completed in areas that aren’t as in need as others, this issue has been addressed by USCIS when they made the territories more restrictive in terms of where you can do business at the lower TEA investment amount of $900,000. However, if a non-TEA project gets off the ground in an already heavily developed area like Downtown Houston, for example, critics argue this is not helping the real targeted employment areas. Attorney Christian Triantaphyllis disagrees.
“Wherever the project is being built,” he explains, “for those who are getting those construction industry or service industry jobs, why does it matter if they aren’t living in those areas? They’re coming from parts of town where they need the jobs. They get to take the paycheck back to their community. What does it matter if they are commuting 20 or 30 minutes to the jobsite?”
In other words, a new building in Houston using EB-5 money will still help neighboring communities because many workers are taking the payback to Katy, Stafford, Conroe – anywhere else they happen to be from.
REALITY: Every project boosts the U.S. economy, whether in the same zip code or the surrounding areas.
A Program Perfect for Investors, Strengthening the U.S.
Publicly, EB-5 often gets a bad reputation as a program, and this is unfortunate, as it could deter potential investors from making a wise financial decision that will help them and their families realize their dreams of immigrating to the United States. When both the project developer and regional center do as they promise, the investor will receive a green card along with the strong possibility of return on investment. With EB-5, these business investments also heavily benefit the American economy and can be a huge asset to developers and U.S. workers throughout the entire nation.
