Direct EB-5: The Safer Alternative to Regional Center Uncertainties

For the last few months, I’ve been telling AVSEB5 readers about the upcoming EB-5 regulations, which are to address a comprehensive number of abuses in the existing EB-5 Regional Center program (which, unlike the permanent Direct EB-5 program,  remains a “pilot” program with an uncertain future).  While changes like the new TEA definitions and investment amounts will apply to both Regional Center and Direct EB-5, Big EB-5 – as in the giant Regional Centers operating in wealthy U.S. urban areas which consume 90% of all EB-5 visa allotments – are in political overdrive in Washington, desperately fighting to protect the abuses they have institutionalized, which range from relying on fraudulent TEAs (Targeted Employment Area) to illegal kickbacks to foreign migration agents to the funneling of EB-5 funds to the most-employed parts of America, as the U.S. General Accounting Office statistically confirmed in 2016.

COMPETING EB-5 REGIONAL CENTER INTERESTS COLLIDING IN WASHINGTON

According to my good friend Sam Udani of ILW.com, Big EB-5’s lobbying efforts are at fever pitch as they scramble to undermine the Office of Information and Regulatory Affairs’ promised enactment of these desperately needed regulatory reforms by the end of this month. Sam is describing an urban interests vs. rural interests political divide, to me reminiscent of Hamilton’s Federalists vs. Jefferson’s Republicans when the United States was a brand new nation.  As Sam sees it, powerful senators from rural states – the kind of states for which Congress specifically created the EB-5 program back in 1990 – are pitted against Senators from the densely populated, wealthy urban states which, under the current system of abuses, get 90% of all EB-5 investor dollars.  Put simply: as strong and economically important as the EB-5 program has become for U.S. investment, the Regional Center part of the program remains mired in political muck and greed and 90 cents of every EB-5 dollar arriving in America goes exactly where it is LEAST needed: into the hands of megadevelopers of rich cities.

This troubles me greatly, and as AVS Regional Center wraps up the last of our storied Lake Point EB-5 investor slots, the uncertainties facing future RC EB-5 investors are disturbing:

·        What will the new, higher investment amounts be?

Will Will the TEA abuses which have kept EB-5 funds out of poor urban and rural areas be addressed meaningfully?

·        Will these TRULY poor areas finally get the set aside/reserved EB-5 spots they have been promised for decades? (90% of the market isn’t enough for Big EB-5…they want it all.)

·        How the USCIS untangle the vast network of complex abuses perfected by Big EB-5 over the past decade, including maniupation of complex job creation methodology calculation, reinvestment/divestment problems, and global disregard with U.S. securities laws by Big EB-5, which continues to perpetuate its business model through flagrant kickbacks to unlicensed foreign “finders”? 

FINDING SAFE PASSAGE: DIRECT EB-5 FOR TODAY’S NEW INVESTORS

These perilous waters are unlikely to affect existing EB-5 Regional Center investors given that no one expects retroactive application of new regulations, but it makes for shifting sands for new EB-5 investors choosing a way forward.  Vetted, proven Regional Center projects located in TRUE high-unemployment areas like our own Lake Point project, with a history of proven investor approvals and excess job creation remain, in my opinion, the safest and surest EB-5 path forward.  But there are a scant handful of projects meeting those standards; Big EB-5 controls the overwhelming majority of projects with good approval and job creation records, and pretty much all of them will be out of business if the proposed reforms are implemented.  Because of our commitment to raising Regional Center EB-5 funds exclusively for the only Forbes pedigree U.S. EB-5 operating partner in the industry, when AVS places these last few investor slots in the coming weeks....our Regional Center EB-5 shelf” will be empty.  And that's where AVS Direct EB-5 comes in.  Based on this atmosphere of uncertainty and the dramatic stakes at play, it is my personal belief that, barring the availability of a vetted EB-5 Regional Center project in a poor urban/rural area with proven investor approvals and job creation, today’s EB-5 investor is safest in choosing a Direct EB-5 project.  Why?  Here are the principal reasons:

1. The political cat and mouse game being played in Washington is not going to end anytime soon. 
2. If this was not America, the tens of millions of dollars Big EB-5 is pouring into political offensives designed to keep their illicit control of EB-5 intact would certainly mean the end of meaningful reform.  But this IS America, and all that Big EB-5 money will NOT buy the votes Congressional leaders like Senators Grassley and Leahy -- the former a Republican and the latter a Democrat -   who represent those rural states which have been getting the short end of the EB-5 stick since 1990.  Reform WILL come, but now much and when are questions we cannot answer.
3. Irrespective of the reforms, the underlying complexity of Regional Center EB-5 cases – which rely on immensely complex econometric job creation calculations, depend on steady project cash flow to realize job creation, and are subject to an ever-increasing number of regulatory stipulations created to stem the rampant abuse the industry has seen means that Regional Center EB-5 visa processing will become increasingly complex for USCIS when compared to Direct EB-5 

Finally, as Sam so well put it in his article, “an investment-stream of billions of dollars does not go gently into the night.”  TRANSLATION:  the amount of EB-5 money being generated by massive projects in the most luxurious communities in New York, California, and Florida means that Big EB-5 has a veritable legion of lawyers and lobbyists who move to pierce two new holes in the integrity of the EB-5 Regional Center Pilot Program for each corrective regulation created in response to their blatant disregard for existing EB-5 laws.

There is no doubt in my mind that we are entering a new season for EB-5.  The Regional Center program is the single most powerful conduit for creating U.S. jobs via direct foreign investment, but the program's laudable effects have been corrupted by a Regional Center culture which disregards Congressional intent, violates U.S. securities laws globally, and continues to fight ferociously for the continuity of its own unfair advantage…without so much as a single dollar of lobbying effort to remedy the situation of their investors, waiting years now for their approvals.  I hope and pray that one day Congress and the executive branch of the government will be able shut down the unscrupulous and well-funded lobby to perpetuate the disgrace of the status quo, but it won’t be any day soon. 

In the meantime, AVSEB5 will be putting some NEW, Direct EB-5 offerings on our shelf, offering the same level of investment and job-creation security we’ve been delivering to our investors since 2011.  Contact us to learn more.

JL

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