Buying in

If you’re desperate to emigrate to the US, have half a million dollars you’re willing to park with an American property developer without earning much of a return, and can’t qualify otherwise, you might want to take a look at the EB-5 Immigrant Investor Programme and then consider another plan.

In the decade ending September 30 last year, EB-5 visas were the ticket to a green card for just 166 South Africans, or 1,1 per cent of the 13 141 who received US immigrant visas because they, or someone in their immediate family, had what America considers to be the right stuff.

The programme is up for renewal by Congress at the end of this month. While it has not been without controversy, it is one of the few facets of US immigration policy which most politicians can agree to like, especially when it’s sending bacon to their constituents.

The quid pro quo sounds simple enough. Invest $500 000 and create jobs in a part of the country the authorities have targeted for a economic leg-up; show your investment has directly or indirectly created at least 10 full time jobs; and, bingo, you and yours get to stay in the US.

The reality is a lot more convoluted, especially if you try to do it yourself. Few do. 90 per cent of EB-5 applicants invest via things called Regional Centres.

Neither regional not particularly central, these are intermediary entities licensed to collect the programme’s rents. They take the visa-seeker’s money, plus fees of varying heftiness, channel it to approved projects, and churn out paperwork to satisfy the bureaucracy that all the i’s have been dotted.

Regional Centres come in many flavors — some are public entities, others public-private partnerships, others for-profit enterprises which take a cut for connecting providers of EB-5 capital, as it is known, to people who want it. It is not uncommon for developers to launch their own in-house Centres to raise bridging finance. That way they save themselves the expense of middlemen.

Between 1990, when the EB-5 visa was created, and 2008, few would-be immigrants sought one. Then came the Great Recession. As a recent study out of New York University’s Stern School of Business put it, “when traditional capital markets evaporated…demand for alternate capital sources rejuvenated the programme.”

Rejuvenated is an understatement. The number of licensed Regional Centres has rocketed. In 2012, there were 205. Now there are 697. It’s a multi-billion dollar business.

The attraction of EB-5 capital is that it’s cheap. Its owners aren’t looking for a financial return; what they want is to be allowed to live in the US. “Consequently,” say the authors of the Stern report, “many developers routinely consider EB-5 capital as a potential source to fill a major space in the capital stack.”

Where’s the capital coming from? China, overwhelmingly. In 2007, 793 EB-5’s were issued worldwide. By last year that had soared to 10 375. Of those, 9 128 — 88 per cent — went to mainland-born citizens of China. One in four of Chinese people receiving a US immigrant visa in 2014 did so via the investor programme.

Some may be trying to launder ill-gotten gains. The Government Accountability Office, an official watchdog, reported last month that one Chinese EB-5 applicant had been turned down when he failed to disclose “potential ties to a number of brothels”.

ICE (US Immigration and Customs Enforcement), in a heavily redacted report released by Senator Charles Grassley, the Iowa Republican who chairs the Senate Judiciary Committee, said it had evidence that “this visa programme may be abused by Iranian operatives to infiltrate” the US.

More demonstrable has been abuse on the US side. The Securities and Exchange Commission has had to go after more than a handful of dodgy Regional Centres and developers.

Sen. Grassley and the senior Democrat on his committee, Sen. Patrick Leahy, have introduced the “American Job Creation and Investment Promotion Act of 2015” to keep the EB-5’s coming while notionally making it harder for fraudsters to game the system. Before the House of Representatives is a bill that would do much the same while creating an EB-6 for venture capital-funded start-ups.

Scrap the program entirely, thundered the Washington Post on Monday. “Let hotel developers compete for capital in the marketplace like everyone else. And let the thousands of visas set aside for EB-5 applicants be reassigned to immigrants who are worthy even if they aren’t rich.”

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