The EB-5 TEA “Doping” Scandal: What Investors Need to Know

A letter written by two key Congress members regarding the urgent need to reform EB-5 laws which are being abused has triggered a massive online response, primarily from lobbyists and EB-5 Regional Centers who stand to lose their basic business model if and when the reforms take place.

The issue relates to TEAs, “targeted employment areas”, and how they are defined.  When the EB-5 law was first drafted by Congress and enacted in the Immigration Act of 1990, the concept of creating TEA zones was the cornerstone of the EB-5 investor visa program: in order to attract investors to those financially-challenged parts of America where the need for new job creation was most urgent, certain areas which were poor could attract EB-5 investment by cutting the investment amount in half.  So, for example, an EB-5 investor wanting to enter a “safer” project in a normal economic zone would come up with the full $1M at-risk investment defined by the law, but those willing to put their money to work in poor urban areas or rural areas could do so with $500,000, half the amount. It was an incentive to stimulate EB-5 jobs where they REALLY were needed.

Except that is not what happened.  The determination of what is a “TEA” was intended to reflect the economic reality of the particular U.S. census tract – the actual geographic location and its population base — in which a job would be created.   The logic was that some EB-5 investors would prefer, for example, to invest in a luxury high rise in Manhattan with their $1M while others would take perhaps the riskier decision of investing in a poor area.  But when the Regional Center program was developed several years later, everyone soon learned the reality: no one wants to invest $1M on an EB-5 program when they can get the same visa for $500,000!

That’s when things went very wrong for TEA…but very WELL for developers of expensive luxury properties in the richest neighborhoods in America.  Through the deceptive practice of “gerrymandering”, such developers quickly learned that if they could link their ritzy project census tract with enough contiguous census tracts leading into truly poor neighborhoods, they could fabricate an “average” level of poverty/unemployment so that the entirety of the linked tracts fell below the TEA guidelines.  So, for example, an oceanfront hotel project in the most affluent part of South Beach could be defined as a TEA and access the $500,000 investment level by linking together numerous tracts across Miami – even across the bay, Fisher Island, Star Island, and the many millionaire homes therein — until they reached the poorest parts of Overtown…bringing the “average” levels down to satisfy TEA rules.

If that sounds familiar, it’s because it’s pretty much what got the Russians thrown out of the Olympics, and there is one word for it: cheating.

But that’s been the story of EB-5 for the past decades:  the abusive manipulation of TEA zoning by megadevelopers in order to corner 95% or more of the total EB-5 dollars annually, leaving zero slots left for the truly impoverished parts of America for which the concept of a TEA was created!  Spending millions on lobbying, opening expensive offices all over China, and cutting high-dollar (often under-the-table) compensation deals with China’s immensely corrupt migration agency industry, TEA abusers have made it impossible for LEGITIMATE TEA projects – those in remote, rural, or poor urban areas – to compete.

Since I established American Venture Solutions Regional Centers in 2010, we have played by the TEA rules:  we have only offered projects in truly rural, poor or federally defined TEA-eligible areas.  We’ve delivered on EB-5 to the dozens of families who have entrusted us with their U.S. immigration.    We remain the first and only EB-5 Regional Center which exclusively raises EB-5 funds for Forbes pedigree U.S. development partners.  And although our projects based in Canal Point, Florida – a remote, economically-disadvantaged agricultural part of South Florida — are a tough sell when they are up against midtown Manhattan high-rises, AVS has proven time and again that properly structured, transparent and successful EB-5 projects CAN be undertaken in bona fide TEA areas without increasing investor risk.  (We just have to work twice as hard to find half as many investors!)

The truth is that when you crunch the numbers, out of the 700+ Regional Centers in existence today (we were #39 approved), only a scant handful of us don’t rely on TEA manipulation/abuse to qualify our projects for the lower investment threshold.  Right now the lobbyists, lawyers, and developers who feed off TEA abuse are bombarding you, prospective EB-5 investors, with rubbish justifying their posh projects as being in “blighted areas” and saying that they are making a difference.  The only difference they are making is they are providing cheap money to rich developers building high-rises in wealthy neighborhoods, keeping that money from impacting the very areas it was designed to impact.  Hey, these giant EB-5 operators are  WELCOME to raise EB-5 money!  But how about they do it fairly,  without relying on TEA cheating?  The truth is this: they KNOW that when a savvy investor vets a truly eligible TEA project like those AVS works so hard to identify, structure, and offer, very few investors will spend $1M on another glitzy high-rise.  EB-5 money will logically flow into true-need areas because the playing field will be, for the first time in the 26 years of EB-5, level.

Today, the handful of EB-5 Regional Centers who don’t rely on TEA fraud have a hard time competing. Tomorrow, if Congress has the political will to reform the law and end the abuse, we’ll be the only guys left in the game.

Wouldn’t that be a welcome change to EB-5?

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