The Dark, Disturbing World of the Visa-for-Sale Program

Peter Elkind and Marty Jones, Fortune, July 24, 2014

Whether you’re a skilled technology worker or a poor laborer, it’s getting harder to become a U.S. citizen. But for those with $500,000 to buy their way in, it’s a different matter. That’s just the beginning of the problem.

On Nov. 15, 2012, about 100 people gathered in a parking lot near O’Hare Airport in Chicago for a ceremonial occasion: the demolition of a fleabag motel to make way for what was intended to be a world-changing construction project. Next door to a Hooters restaurant, just off the Kennedy Expressway, was to rise a commercial and environmental wonder–the “World’s First Zero Carbon Platinum LEED-certified and 100% Allergen Free convention center and hotel complex.” Lest anyone doubt its global eco-import, the project’s developer was branding it as a “Kyoto Protocol Centre.” At a projected cost of $913 million, it was to include three connected towers–14, 17, and 19 stories tall–containing five upscale hotels with 995 suites and rooms, four levels of convention space, a green roof with a spa and yoga studio, a miniature golf course, and a 1,720-car “automatic robotic” parking garage. All this would be financed with the help of a government immigration program known as EB-5, which allows wealthy foreigners to obtain U.S. citizenship by sinking $500,000 apiece into a venture that creates American jobs. Spellbound by the sales pitch–which included “guarantees” that the project would deliver visas and juicy returns–nearly 300 eager Chinese investors had anted up a total of $147 million.

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Immigration dominates the news today, and it’s just the latest crucial issue locked in a bitter Washington stalemate. The consequences have been dire. Whether it’s tens of thousands of impoverished children detained by border officials and clogging government facilities, or scientists and engineers highly coveted by technology companies who aren’t permitted to remain here, the U.S. is preventing countless foreigners from staying in this country.

Increasingly, the skilled and the poor are out of luck. But the rich are another matter. The program (EB-5 is short-hand for the government’s fifth employment-based visa “preference”) allows well-heeled foreigners to leap to the front of the line by simply plunking down $500,000.

From the law’s inception in 1990, selling potential citizenship to the rich struck many as a corruption of American ideals. “Have we no self-respect as a nation?” asked Texas congressman John Bryant on the House floor that year. “Are we so broke we have to sell our birthright?”

But that powerful objection was overcome with an even more potent counterforce: The program would generate jobs where they’re needed most. Immigrants seeking EB-5 visas must invest their half-a-million dollars in a new business that creates 10 full-time U.S. jobs in a high-unemployment or rural district. (Technically, one can obtain an EB-5 visa for $1 million with no requirement that the jobs benefit a struggling area; in reality, few apply under that provision.)

Today EB-5 commands bipartisan support–and it’s booming. Believers tout the program as a “win-win-win” that helps immigrants and U.S. workers, and provides valuable investment in American communities. A trio of billionaires–Warren Buffett, Bill Gates, and Sheldon Adelson–recently endorsed the program in an op-ed column in the New York Times.

But because the EB-5 industry is virtually unregulated, it has become a magnet for amateurs, pipe-dreamers, and charlatans, who see it as an easy way to score funding for ventures that banks would never touch. They’ve been encouraged and enabled by an array of dodgy middlemen, eager to cash in on the gold rush. Meanwhile, perhaps because wealthy foreigners are the main potential victims, U.S. authorities have seemed inattentive to abuses.

Certainly, there are thriving, completed successes (see “Five by EB-5”). An industry-funded study, using models and assorted economic-impact multipliers, claims that spending “associated with” EB-5 investors in 2012 contributed $3.4 billion to the U.S. economy and “supported” 42,000 jobs.

Others who have examined the program view it very differently. They question whether it generates many jobs–especially in needy areas. A December 2013 study by the Department of Homeland Security’s inspector general found that the government “cannot demonstrate that the program is improving the U.S. economy and creating jobs for U.S. citizens.” A February 2014 paper by the Brookings-Rockefeller Project on State and Metropolitan Innovation concluded that “knowledge of the program’s true economic impact is elusive at best.”

There are two reasons for that. First, the government is exceedingly generous in its employment tally. It gives EB-5 investors credit for all the jobs theoretically spawned by a project even when EB-5 money represents only a sliver of its financing. Second, for many mainstream ventures, EB-5 money isn’t really creating jobs–it’s merely saving developers money for projects that would be financed anyway. (Indeed, those big companies are actually “hijacking” money from worthy smaller investments in hard-hit areas, argues Michael Gibson, a financial adviser who vets EB-5 investments.)

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For the first 18 years of its existence, the EB-5 program was a dud. It fell dramatically short of projections that it would foster 40,000 jobs a year and never approached the program’s annual ceiling of 10,000 visas. In 2003 the government issued EB-5 visas to 65 immigrants.

Raising money through EB-5 was complicated, and plenty of traditional financing was available. For their part, immigrants found the program too dicey. In Canada’s competing offering, applicants simply lent money to the government and were guaranteed its return. But in the U.S. the $500,000 investment has to be “at risk.” Immigrants first apply for a provisional green card; then, to get their permanent visas, they have to submit evidence within two years that their money has provided 10 jobs. If the project fails to do that, immigrants and their families can be deported.

In 2008 the financial crisis hit, and everything changed. With banks refusing to lend, EB-5 took off–first because it offered the only capital, then because it was cheap capital. Today the program brings about $1.8 billion into the U.S. annually. The government is on pace to grant more EB-5 visas in 2014–closing in on 10,000–than it did in its first 17 years combined.

At the heart of the program is an unusual trade: Because the immigrants care far more about getting a green card than anything else (their families get visas too), they’re willing to accept a token financial return. In fact, when “administrative” fees of about $50,000 are added, they’re typically paying for the privilege of sinking $500,000 into a U.S. venture for five to seven years–with no guarantee that they’ll ever get it back. And in part because of distance and language barriers, the targets of EB-5 pitches seem ill-equipped (or disinclined) to assess the business risks.

Though the government issues the visas, private developers reap the benefits. After middlemen get their piece, the cost of EB-5 capital runs between 4% and 6% a year–less than half of what developers would typically have to pay for mezzanine debt or to equity investors. Raising $100 million through EB-5 can add $20 million to a project’s bottom line.

The growing demand for EB-5 financing is being met largely by new Chinese millionaires, eager for greater freedom and less pollution, or to send their kids to college in the U.S. More than 80% of the program’s applicants now come from China, making it the mother lode for EB-5 prospecting.

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EB-5 fundraising is a messy process, more like pitching vacation timeshares than any normal form of deal finance. Developers embark on road shows to big cities across China. With help from local “migration agents,” they use spam messages, slick websites, and telemarketing to round up potential investors for free dinner seminars featuring raffles for iPhones and lofty promises of a brighter future.

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The EB-5 program isn’t overseen by a financial regulator but by the U.S. Citizenship and Immigration Services (USCIS), part of the Department of Homeland Security. Accustomed to processing visas and conducting immigrant background checks, USCIS is ill-equipped to review business plans, job- creation studies, and securities offerings. The SEC retains the power to police fraud. What that means is the agency has no mechanism to sniff out a problem until it has exploded, at which point the agency can only clean up the mess.

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  • Whether you’re a skilled technology worker or a poor laborer, it’s getting harder to become a U.S. citizen.

    In an otherwise worthwhile article, this the first sentence is the only bad part.

    There’s a reason why this is so. The CSIT-STEM firms don’t want their legal immigrants to be citizens, they want them to have the legal immigrant visas like H-1B so that the employees are easily controllable and expendable.

  • Einsatzgrenadier

    From the law’s inception in 1990, selling potential citizenship to the rich struck many as a corruption of American ideals. “Have we no self-respect as a nation?” asked Texas congressman John Bryant on the House floor that year. “Are we so broke we have to sell our birthright?”

    ________________________________________________________

    American citizenship is worth less than toilet paper. Why have respect for something that can be sold to the highest bidder? Murika has literally become a cheap whore who spreads her legs for the world.

    • DonReynolds

      Ask John Bryant…..”Are we so stupid that we give away our country to anyone willing to come here?”
      Maybe John Bryant is the one who told the world this was a FREE COUNTRY, and then explained it was FREE FOR THE TAKING.

  • JackKrak

    Yeah, I don’t like it either but let’s do something about the river of illiterate peasants before we start worrying about the drip-drip of rich people buying their way in.

  • propagandaoftruth

    Zuck? Where’s the Zuck?

    • Marc Zuckurburg

      Counting my fresh billions.

      I’m now worth $33.3 billion, thirty three and a third, for the record.

      That means 1/30 of a trillion, which means all I need to do is repeat 29 more times and I’m there. Could you be a chum and give a needy guy a hand and ask your politicians to pass comprehensive immigration reform? It would make my life a lot easier and lift my many burdens.

      • dd121

        Why don’t you lend me two billion and I’ll buy the Rockies and Broncos for 1B apiece. I’ll have complete voting rights but you can come to the games free.

        • propagandaoftruth

          I wish he would buy EA sports. Those guys are awful.

          • dd121

            Remember, I didn’t ask him to lend money to buy a basketball team. I have my standards.

        • Marc Zuckurburg

          That sounds like a rotten deal. You use my money to buy something for yourself but I get hardly anything out of it? Who do you think you are? Me?

          • dd121

            Look you’ll get your money back as soon as I get the city to build new stadiums, Everybody thinks Coors field is relatively new but it is actually the 3rd oldest stadium in baseball.(not joking)
            I’ll also let you come down to the locker room and I’ll get the players to sign balls for you. We’ll give you box seats and make you and your wife, king and queen for a day.

      • propagandaoftruth

        I’m now worth $33.3 billion, thirty three and a third, for the record.
        —————-
        Is that like one of those infinity like things? Like the 666.66666666666…infinite layers of the Abyss?

        You know, like you, I’m quite the nerd. Once I played this “Weird War Two” game that was a lot of hokey fun, except that I had to play the vampire, and I hate vampires for any number of reasons, but, last to join, so I had to be the vampire.

        Well, as we’re running around fighting evil undead Nazis and liberating Jews, I hatch this plan to create 12 Jewish vampires and use them to destroy Hitler and rule the world, probly from New York. It was all in good humor, understand, but, the “game master”, a techie with a very pretty Hispanic wife, thought I was some kind of Nazi at first. Or Mel Gibson at least. Sometimes people don’t get my sense of humor.

        I don’t know what that had anything to do with but I thought you might enjoy it in your dark tea time of the soul, my friend.

        • Marc Zuckurburg

          33 and 1/3, think of LP records. “For the record.” I know they were well before my time, but I know lots of senior citizens who were once in the music industry.

      • me

        This just in: Hell adding a Tenth Circle due to the increase in arrivals.
        Marc, ol’ buddy, ol’ pal! Maybe you can make a deal with the devil and get a private luxury suite in the Tenth Circle. Better buy it now, because these spots are going fast! Congress is practically sprinting towards their own little bit o’ Hell.
        Beelzebub has a devil put aside for me…for me….for meeeee…..cue guitar solo.

        • Marc Zuckurburg

          I am planning on immortality. The goings on in the underworld will never be any concern of mine.

          • me

            Are you the Antichrist?

          • Katherine McChesney

            obama claims that title.

          • me

            Robot body? Or…….

          • propagandaoftruth

            Zuck is the false antichrist. Tr

          • me

            You must be a ‘diverse’ individual. You ruin your own neighborhood, then move into someone else’s and ruin theirs….

          • propagandaoftruth

            That’s not it at all. I’m like the ultimate immigrant. Look, pops is a bad guy, right? Look at him!

            So why am I not living with him like my “opposite” is with his old man? Maybe I’m more grey…you know? The moral mulatto?

          • propagandaoftruth

            I am the Late Blooming Antichrist, not Zuck. I have that copyrighted, as well as the phrase, “Gimme money” so if you ever say/write/think/hear that you legally gotta gimme money.

            Gimme money.

            That wasn’t for you, Zuck. It was for that insignificant little fly, “me”, below. Anyway, robot bodies are the way to go. Get a big one, transformer-like, and one that looks like me at 25. Nice.

            Gimme money. Say it. Type it. Do it.

          • dd121

            The first emperor of China, Qin Shi Huang, thought that too. He eventually wound up in a hill filled with mercury.
            If you lend me that 2B I can at least make the remainder of your life a bit more interesting. Once you get past that first seven or eight billion the rest is just an abstraction. Having a bit less won’t cut into your foie gras supply.

  • WR_the_realist

    John Bryant on the House floor that year. “Are we so broke we have to sell our birthright?”

    Are we so rich we should just give our birthright away? Selling citizenship at $500,000 a pop isn’t my idea of an ideal immigration policy but at least the people who use that program are unlikely to wind up on the dole.

    • me

      Yes, but they may try to fundamentally change the language, the culture, and the values that make….us…..Oh, never mind!

  • 4321realist

    “Whether you’re a skilled technology worker or a poor laborer, it’s getting harder to become a U.S. citizen. ”

    Not if you’re non-white and sneak across the border at night.

  • Bossman

    The biggest buyers of visas for the USA, Canada and maybe Australia too are the Chinese.

  • DonReynolds

    We need to auction off a few green cards and visas. Makes much more sense than the methods currently in use. I have no idea where anyone got the idea that poor, illiterate peasants somehow make great citizens for the USA. We need to be more selective…..nobody sick, or too old, unable to support themselves, no trade or skills or education. Immigration should serve the needs of the USA, not McDonalds and Burger King…..and certainly not the needs (or wants, or hopes, or dreams) of foreign citizens.

  • IstvanIN

    No country can actually value its citizenship of it sells or gives it away. Citizenship as a birthright, when the parents are citizens, I can understand, earning citizenship I can understand, a limited immigration and tough naturilization process I can understand, but selling and giving away? Like free samples in a supermarket?

  • HE2

    My former country, the one I loved, whose flag I saluted every day as a kid, is being pimped out.
    Get me outta here.

  • Fighting_Northern_Spirit

    $500K? They’re getting ripped off. You can buy a Canadian citizenship for a lot less, and you won’t have to deal with as many blacks and browns.

  • Adolf Verloc

    This is a rarity – an immigration measure that I can fully support.
    With a little oversight, we can ensure that we are getting wealthy law-abiding immigrants who will bring in capital and will never become public charges. Most of these wealthy folks are pretty cosmopolitan and would fit into US culture without disruption. There will never be so many of them that they would pose a cultural threat in any case.

    • IstvanIN

      They pose both a cultural and racial threat. They bring family. They have children and grandchildren. They become part of chain immigration. We have more than our share of Chinese, Indians and Nigerians, regardless of how wealthy they may be. Money isn’t everything. I’d rather live in a poor but civilized white nation than a rich multicultural Singapore East.

      • mobilebay

        istvanIN, just heard a discussion composed of the moderator and three panel members. Two of the members said there should be no problem absorbing the “children.” Suggestion was that every county could take twenty. No one seems to understand how much deeper this crisis goes rather than just accommodating the recent tsunami. Don’t have enough room here to list what this is doing to our country. You’ve already done a good job on that. I’ve heard several “talking heads” toss out Emma Lazarus’ words about the “huddled masses” being wanted. At the time, I’m sure Emma was thinking of immigrants from Europe, not the invaders from the south.

  • kjh64

    Why would anybody want to pay half a million dollars to come to America? I mean really, America has its’ problems just like anywhere else?