Fraud-Plagued “Pay to Stay” Immigration Program Didn’t Stay Dead

(Chuck Muth) – Buried at the end of the recently passed 2,741-page omnibus spending bill – that virtually no Member of Congress read before voting on – was a provision resurrecting from the dead a “Pay to Stay” immigration program called “EB-5.”

“EB” stands for “employment based” in DC-talk, and “5” refers to its number on a list of different types of immigration visas.  But it’s also referred to by a number of other less-than-flattering terms, such as: scam, scheme, fraud, con, racket, hoax and sham.

In short, wealthy foreigners could obtain an EB-5 visa – allowing them and their families to get “green cards” (legal residency) and establish a pathway to U.S. citizenship – by investing a minimum of $500,000 into qualified economic development projects that create a specified number of jobs.

Cash & Carry.  Pay-to-Stay.

The Federation for American Immigration Reform (FAIR) describes the program as “frequently exploited by rich urban developers who siphon off investment money from rural and economically distressed areas to fund ritzy projects in some of the nation’s wealthiest neighborhoods.”

The investments, often big-city real estate deals, are pooled into one big pot to finance large construction projects.  The pooled money is administered by private “Regional Centers” which are overseen by the SEC (Securities and Exchange Commission).

While well-intended, the program – established back in 1990 and administered by the U.S. Citizenship and Immigration Services (USCIS) – has been riddled with fraud and abuse, including embezzlement.

It’s often referred to as a “Ponzi scheme” and, because it usually involves Chinese nationals, also raises national security concerns.  That’s why the program involves the Department of Homeland Security.

To give you an idea of just how bad things have been and why the program was axed last year, here are just a few examples I found from an SEC whistleblower website…

• A California-based attorney was charged with stealing over $9.6 million from EB-5 investors and using it “to purchase a yacht and finance his own business and lifestyle.”
• A former Tibetan monastery student diverted $14 million from EB-5 investors and used $3 million of it “for personal use, including the purchase of his $2.5 million home and cash withdrawals at casinos.”
• A California regional center owner was charged with misusing at least $9.6 million of EB-5 investments “to purchase his home and personal items and improperly fund several personal business projects” unrelated to the EB-5 program.
• A husband-and-wife team in southern California allegedly misappropriated at least $7.7 million from an EB-5 project “and transferred more than $11.8 million to three marketing firms in China, including $3.5 million to a firm of which the husband is CEO and chairman of the board.”
• A California attorney and her father were suspected of orchestrating a $50 million EB-5 visa scheme whereby they “hired high school students to pose as full-time employees for bogus projects and used the investors’ funds for personal expenses, including buying million-dollar homes and other improper uses.”
• The operator of a $140 million EB-5 project had to “pay back more than $5 million dollars that he stole from the EB-5 investors funds…to purchase two personal residences, a Range Rover, a BMW and invest in an unrelated zip line operation.”

And that’s just the tip of the iceberg.  John Binder of Breitbart News details questionable use of the EB-5 program for a project in Florida…

“The foreign EB-5 investor’s only requirement is to claim to have created ten U.S. jobs and revitalize ‘distressed’ areas. Those areas, though, are often in wealthy zip codes to build luxury shopping centers and condos for the wealthiest of Americans.

“In the latest case, luxury condos known as Saltaire St. Petersburg, located in downtown St. Petersburg, is getting help from foreign EB-5 investors…  The luxury condo building will be 35 stories high with nearly 200 ‘expansive luxury’ units, starting at $1 million a unit.”

I visited downtown St. Petersburg on a business trip last summer.  “Distressed” it ain’t.

A little further north, Kriston Capps of Bloomberg detailed problems with a major EB-5 project in New York…

“Hudson Yards, of course, is nobody’s idea of distressed. Located at the source of New York’s High Line, it’s the most expensive real-estate project in U.S. history. It could not possibly qualify as distressed under the terms of the program, or any understanding of the word.

“In order to buy EB-5 visas at the lower rate ($500,000), immigrant investors must put their money behind projects in areas with high unemployment – a proxy for need.

“The Related Companies, the developer behind Hudson Yards, raked in at least $1.2 billion in EB-5 funds for this project. To qualify, Related needed a work-around to bypass the distressed-area requirements – a pass that New York authorities were happy to issue.”

What they did was take some small “distressed” neighborhoods and added them to the wealthy neighborhoods to artificially create a non-contiguous TEA (targeted employment area) that would qualify for the visa program.

Call it “EB-5 gerrymandering.”

Then there’s Riverside, California, which, in 2013, had the entire county designated as a TEA region.  “That made us the blue-light special,” foreign trade specialist Richard Dozier told the Desert Sun at the time.  “That’s what made several investors seek us out.”

Alas, one of those investors was the owner of a China-based real estate development company who admitted to ripping off EB-5 investors to the tune of $23 million for a hotel/condo project in Coachella Valley.  According to KESQ.com…

“(The woman) used $2.2 million of investor money to pay a company that provided luxury travel and concierge services, nearly $295,000 to purchase two Mercedes-Benz automobiles, and hundreds of thousands of dollars for designer clothes purchases, restaurant meals and hotel stays in Beverly Hills, France, Thailand and China.”

To be fair, a number of Riverside’s EB-5 projects have been successful.  But at least one of the projects highlighted in the Desert Sun story remains unfinished almost nine years later.

The planned Hyatt Andaz hotel in downtown Palm Springs – which initially included $29 million in EB-5 funding and was supposed to “create 594 jobs” – is embroiled in nasty bankruptcy litigation that includes suspicions of EB-5 funding shenanigans and unpaid construction costs.

“The (EB-5) program was dead,” said RJ Hauman, FAIR’s head of government relations, about the program’s renewal, “and it should have stayed that way.”

But Congress saw it differently.  Let’s at least hope they tighten up controls to avoid future abuse and continue to investigate and prosecute questionable projects initiated under the old program.

Mr. Muth is president of Citizen Outreach, a non-profit, non-partisan public policy grassroots advocacy organization.