It is a system touted as one that benefits both the United States and foreigners that are interested in immigrating. It allows foreign investors to invest in developing projects in the United States. In exchange, if the project meets certain criteria, the investors receive the ability to legally enter the United States.
Critics of the program, referred to as the EB-5 visa program, argue that it allows wealthy foreign investors an opportunity to buy their way into the United States. They also claim the program is ripe for opportunities for fraudulent practices.
How does the program work?
The program requires investors to providing funding for projects in the United States. Not just any project qualifies. In order to qualify, the project must meet certain criteria.
In urban areas, like New York City, the proposed project must result in 10 full-time positions for citizens of the United States and investors must provide at least a $1 million investment.
The requirements for rural areas are a bit more lax. The law defines a rural area as those which have a population of less than 200,000 residents. In these areas, the investment must be $500,000 or more.
Is EB-5 fraud a problem?
The Securities and Exchange Commission (SEC) has recognized the potential for abuse. In 2013 the federal agency released an investor warning. This warning was designed to educate investors of possible scams, including proposals to fund fake projects.
One example: The SEC claims a couple from California misappropriated funds intended for inclusion in the program. According to the allegations, the couple proposed a project that would result in the development of a cancer center. This cancer center was allegedly cutting age, treating cancer with protons instead of x-rays. When developed, the project was expected to result in over 4,500 full-time positions.
Based on this proposal, investors believed they could provide funds and be eligible for the EB-5 program. The SEC states the couple raised almost $30 million in funds from approximately 50 Chinese investors. Instead of beginning development, the SEC claims the funds were transferred into firms and private accounts owned by the couple.
What can the SEC do?
The SEC takes allegations of EB-5 fraud seriously. In this instance, all accounts and assets owned by the entrepreneurs, as well as their business entities, were frozen. The couple is also barred from collecting any additional funds. According to a piece by Reuters, the couple now faces “preliminary and permanent injunctions as well as disgorgement of ill gotten gains plus interest and penalties.