One “takeaway” from my trip was that interest in immigration to the US and the EB-5 program is certainly growing. This was obvious from the number and sophistication of the businessmen that I met. While the number of EB-5 investors will never reach the level of the Chinese or Koreans, EB-5 is still in its nascency in Russia. Discontent with the general political situation, as seen in the large protests after the elections, and the desire to provide for a better future for their families certainly motivates many. This trend was highlighted by a couple of recent articles in the press. Russians Leaving the Country in Droves;

As Putin Plans to Stay, Many Russians Want Out

I see at least two reasons for the lack of the development of the EB-5 program in Russia to date. The main problem is that there is a lack of information about Regional Centers. Many of the businessmen that I met with sought advice on where they should invest their money. Which RC is the “best”? Which is the most “reliable”? Which will provide a good return on the investment? A quick search of the Russian search engines turns up mention of very few RCs, with Russian-language information particularly scant. There have been very few EB-5 seminars conducted.

The second related problem is that, unlike China, Russia has no established network of reputable immigration consultants or agents. There are hundreds of travel agencies and a few visa consultants, but their visa advice ranges from the amateurish to the outright fraudulent, with many providing bogus documents. (I know because their clients come to us for legal advice after the consular officer discovers the fraud.)

There are of course other factors at play in the relatively minimal Russian interest to date in EB-5: Russian short-term mentality; high US taxes; US physical presence requirements for obtaining US citizenship; and the recession in the United States. The list goes on.

But the US remains attractive to Russians. Education for their children; political stability; lack of institutionalized corruption; cheap real estate; visa-free travel; and economic opportunity – all are factors cited by Russians in pursuing an EB-5 investment. Russia is an untapped EB-5 market, full of potential. It is now up to RC representatives and EB-5 entrepreneurs to seize that potential.

In one of our previous posts, we discussed projects in which our clients have invested: they not only received their green cards but were participants in real, tangible commercial projects. The results of those investments can be seen in the pictures that we posted. Unfortunately, for those who are not our clients, they may be unaware that there is another side to EB-5 – a risky side which could lead to a loss of $500,000 and no green card. For example, four EB-5 Regional Centers have recently encountered serious problems, and a review of the problems is instructive for anyone contemplating an EB-5 investment.
Let’s start with the worst…

The Mamtek Regional Center was supposed to build a factory and infrastructure projects in Moberly, Missouri. The city and state were so desperate for investment that the state offered more than $17 million in tax incentives and the city offered $39 million in bonds to support the project. The EB-5 aspect was supposed to attract at least 15 investors ($7.5 million). The project was spearheaded by a company called Mamtek International, which supposedly had a manufacturing operation in China. Upon investigation, no such company in China nor office location was found in the United States. More information can be found here: http://www.columbiatribune.com/news/2011/sep/23/mamtek-pushed-visa-deal-to-chinese-investors/ Incredibly, USCIS continues to list this Regional Center as approved!

The El Monte Regional Center was recently closed down by USCIS. The Center was originally set up to attract funds to build a real estate project in El Monte, California. However, the developers, John Leung and Jean Lang, are being investigated by the FBI and the Housing and Urban Development Agency for misuse of public funds. What is most instructive for investors is that simple due diligence on these operators would have turned up a previous bankruptcy and an arrest record from 2009 – when they were arrested for fraud and embezzlement. Fortunately, only two investors fell victim. More information can be found here: http://www.sgvtribune.com/news/ci_19050660

Another problem regional center is the Victorville Regional Center, which was de-certified, i.e., had its approval revoked, by USCIS after it changed its business plan and failed to convince USCIS of the legitimacy of its job creation methodology. The city of Victorville planned to construct an industrial wastewater treatment plant and attracted funds of more than a dozen investors. After the de-certification, Victorville has sued USCIS in Washington, DC, where the case is currently pending.

Finally, a large real estate project in Florida, promising ownership in apartments in exchange for investments, has pending more than 70 petitions, with the first petitions filed more than 18 months ago. USCIS has called into question the redemption agreement offered by the promoters, stating that the project cannot unconditionally promise a return on investment to an investor. Currently, the project continues to seek out and attract investors, who may be unaware of these problems.

The overwhelming majority of EB-5 promoters are well-intentioned, but as you know, the road to hell is paved with good intentions… Before investing, check with us or a certified financial specialist for a second opinion. We can set you on the right road.

In 2009, one of our clients invested in the expansion of the Pennsylvania Convention Center in Philadelphia. The EB-5 group loaned $100 million for the project, part of a nearly $800 million development.  In March 2011, the expansion opened to rave reviews and great fanfare.  Here are some photos and articles about the expansion:

http://www.philly.com/philly/gallery/The_new_Pennsylvania_Convention_Center_.html
http://www.paconvention.com/the-center/photo-gallery
http://www.philly.com/philly/business/116910088.html
http://www.paconvention.com/userfiles/news/030511_CityOpensExpandedCC.pdf

In another EB-5 project, a client invested in the construction of a 120-room hotel, water park, bowling alley, ice arena, and golf clubhouse at the Jay Peak Resort in Vermont (http://www.jaypeakresort.com/).  The EB-5 investor group contributed $75 million to the project.  The ice arena and golf clubhouse have already opened, with the hotel scheduled to open after the new year.  Here are some pictures:

http://www.jaypeakresort.com/images/galleries/photos/YA9V9638.jpg
http://www.jaypeakresort.com/images/galleries/photos/THL1.jpg
http://www.jaypeakresort.com/images/galleries/photos/THL3.jpg
http://www.jaypeakresort.com/images/galleries/photos/THL2.jpg

In 2008, another client invested in the reconstruction of a historic building in downtown Seattle. The building became a Marriott Courtyard Hotel, with overall investment totaling more than $80 million.  Here is a picture and video of the hotel after its grand opening in the summer of 2010.

http://www.marriott.com/hotels/hotel-photos/seaps-courtyard-seattle-downtown-pioneer-square/
http://www.youtube.com/watch?v=-jX-3rew0ZM

Two of these clients received their permanent green cards, with the conditions removed.  The other is awaiting approval of the condition removal.  The latter two are part owners of the real estate projects and receive small dividend checks for the profit from the projects.  The first investor receives a dividend check for the interest on the loan, and expects his principal to be returned in 2014.

These are just a few examples to illustrate that the EB-5 program is not smoke and mirrors.  It truly is a program with investments in the development of real projects creating real jobs, with immigration benefits for investors and economic benefits for the United States.  But don’t take my word for it.  Let these pictures do the talking…

But as is often the case with government, the actual implementation has become bogged down. Clearances must be received; a form must be prepared; other priorities have come to the fore. During the September 15, 2011 EB-5 teleconference, USCIS director Alejandro Mayorkas was noncommittal about when premium processing will commence. His “non-announcement” greatly disappointed the attendees, including yours truly. Reading between the tea leaves, it appears that premium processing will not be implemented until at least the first half of 2012.

Waiting for the implementation of premium processing has created a deterrent effect as investors have bided their time on the sidelines. They believe that there is no point in enduring the 5-6 month review period if premium processing will soon be introduced. This belief is premised on two erroneous assumptions: 1) that premium processing is on the brink of being introduced. As discussed above, that is not the case; and 2) that a petition cannot be converted to premium processing once it has been filed. In the past, USCIS has allowed for already-filed petitions to be adjudicated under premium processing after the payment of the additional fee and indications are that this will be the case for EB-5 as well.

If you are considering a potential EB-5 investment, don’t wait on the sidelines for “good news” on premium processing. It may be a long time coming.

2009 seems like ages ago for EB-5. Since that time, it has exploded in popularity, with the number of investors growing substantially every year and the number of Regional Centers increasing by 400%. 90% of all EB-5 petitions are filed through a Regional Center. The expansion of Regional Centers across the United States means that there are now more interested parties – businesses, communities, politicians – in the success of the EB-5 program. This EB-5 lovefest was on display recently at the packed congressional hearing on September 14, 2011, when the issue of permanent authorization of the EB-5 Regional Center program was discussed.

And so the idea that EB-5 won’t be reauthorized is almost incomprehensible; the only question is when. To those who will “believe it when I see it”, it is important to note that even in an absolute worst-case scenario in which the Regional Center program is not extended, those investors in the EB-5 pipeline before the deadline may still be in a position to receive EB-5 status. USCIS and the State Department may expedite processing of EB-5 investors before September 30 and Congress may approve a technical amendment allowing for the finalizing of processing of already-filed petitions. Thus, as with premium processing, to wait on the sidelines in anticipation of government action is not advisable. A smart Congress would permanently authorize the EB-5 Regional Center program immediately; a dithering one may wait until the deadline. Regardless, the focus of potential EB-5 investors should be on their own circumstances – does an EB-5 investment make sense personally and financially? – and not on a “deadline”, which is in all likelihood a date that will only serve to focus the attention of Congress circa 2009.

Just in the first 6 months of fiscal year 2011 alone, the number of EB-5 visas issued has already surpassed the total for all of 2010. 2,129 visas have been issued in 2011, while a total of 1,885 were issued in 2010. The number of petitions filed in the first two quarters of 2011 totals 1,601; in 2010, less than 2,000 petitions were submitted.

The number of Regional Centers has also mushroomed. There are nearly 150 Regional Centers, with another 90 applications pending. Given the advantages of the Regional Centers, it is understandable that 90-95% of all investments are made through the RCs.

One cautionary sign is that the percentage of approvals at the initial petition stage has dropped – from 89% to 81%, although the percentage of approvals at the condition removal stage has increased – from 83% to 86%. While it is certainly the case that more individual investor petitions are denied as a percentage than petitions filed through a Regional Center, it only takes the problems of one Regional Center with a multitude of investors to negatively impact these statistics.

The lesson: These statistics underscore the need for due diligence to be conducted before making an investment in a Regional Center.
Please contact us to put our 15 years of EB-5 experience to work in helping you to make sense of the overwhelming amount of EB-5 information and proposals out there.

The motivations are obvious: they understand that the United States may offer a better future, education, career, or lifestyle than their home countries. A typical situation is a wealthy, middle-aged or older entrepreneur who gives a gift to an adult child, so that he/she and family may obtain green cards, so that future grandchildren born in the US will be automatically granted US citizenship. The entrepreneur may not have an interest in re-locating to the US – he lives well in his home country and has a successful business. He will only visit periodically. He may understand that if his adult child obtains US citizenship, the adult child may petition for a green card later on if he so desires.

In pursuing an EB-5 green card through a gift, it must be kept in mind that the requirement for confirmation of the lawful source of funds applies to the donor. It is up to the investor to present documentation from the donor showing that the funds were lawfully earned. This may be bothersome and burdensome to the donor, but necessary. If this were not the case, then donors with illicit funds would be able to launder their money through the EB-5 program by donating to family members and relatives.

In addition, when making a gift, it is imperative to either show that taxes were paid on the gift, or if not, the legal basis for not paying taxes. This can take the form of a Legal Opinion or excerpts from the appropriate tax laws.

By permitting gifts to serve as the source of an investment in the EB-5 program, the US government is opening up the program to thousands of individuals who may not otherwise qualify. It also gives the US a competitive advantage over other programs, such as Canada’s, which requires immigrant investors to have a larger net worth (C$1.6 million) and to have management experience. The green card is the gift that keeps on giving, but the donor must understand up front that in order for his loved one to obtain the green card, he will be scrutinized. For most, the scrutiny is worth it.

But we also tend to lose sight of the big picture. Over the past two years, USCIS has approved more than 85% of the EB-5 petitions. For those investors in Regional Centers, that percentage is higher. From start to finish, the EB-5 process usually takes less than one year. EB-5 has become a relatively painfree, fast means of immigrating to the US. Of course, not many individuals can qualify, but for those who do, it can reduce the stress inherent in any immigration process.

EB-5 favorably compares to the other immigrant options available: a 4-5 year wait for those immigrating through a job offer, as well as Department of Labor and USCIS scrutiny; the tightening of USCIS interpretations of standards in the extraordinary ability category; the extreme difficulty of qualifying for a national interest waiver of the job offer requirement; the recent change in interpretation of the term “employee” in the multinational executive/manager category, making it more difficult to immigrate for owner-operators (those who having substantial shareholdings in the American employer). About the only “mine-free” category for those without a relative in the US is the Diversity Lottery: it has minimal education, financial, and procedural requirements. However, I would not hang my hat on winning: only 1% of Lottery participants actually “win” and receive green cards; on average, more than 10 million apply for the Lottery with only 50,000 receiving green cards. Even for family immigration, the only category of individuals accorded preferential treatment – processing that takes 9-15 months – is for the parents, spouses, and stepchildren of US citizens. The other family categories have quotas, and waits of 3-12 years.

So if you are one of the lucky ones with the financial means to participate in EB-5 and do have other immigration options, don’t sweat the details or the long wait. Consider EB-5.