Uncertainty and Ethics in EB-5 Project Development

Uncertainty

What makes the EB-5 program unique is the combination of development, immigration, and investment. However, with such an ambitious crossover between these three fields, the cost of creating a project, gaining the right certifications, and marketing the whole package to investors can be an expensive and time-consuming process. Learn more about what exactly these costs will amount to in Preparing a Project for EB-5. 

There is no guarantee of how many investors a project can attract, USCIS approval on project documents, or profitability of a development project. Therefore, opting into EB-5 is a calculated risk which must be weighed with the hundreds of thousands of dollars which must be spent on an EB-5 offering. Additionally, the EB-5 regional center program is temporary and must be renewed every five years by Congress to continue operating (the direct program is permanent). The risk of program lapse, as seen during 2021, may have critical implications on raising the required capital to complete a development project’s capital stack. 

Finally, required documentation for a viable and compliant EB-5 immigration process is a heavy burden for many EB-5 investment issuers to bear. With USCIS processing times already so long, investors anxiously seek our investment issuers and projects that provide them the best chance at a successful immigration, which puts further pressure on the regional center for diligent compliance with immigration regulations.

Ethics

The EB-5 program was created to help financially disadvantaged communities gain access to large amounts of capital for development. The benefits to the economy and job market are objectively impressive. However, the immigration program has incurred a bad reputation because of two underlying factors: lack of ethical practice and governmental oversight. 

News articles of fraudulent EB-5 deals; stories of “crafty” investors who use EB-5 for “nefarious purposes”;a litany of lawsuits related to slow processing and administrative opacity; even protests outside of EB-5 projects are numerous and well-documented.

Most of these stories talk about financial losses for projects, the charges facing wayward fund administrators, or high-ranking officials tied to scandal. What many of these stories don’t discuss is the plight of EB-5 investors affiliated with these projects; when the ship sinks, EB-5 investors go down with it.

EB-5 investors send a significant amount of capital abroad to a corporation with total control over their funds and must wait indefinitely until USCIS adjudicates their petition. With such a massive amount of trust and capital being placed in the hands of an RC, those affiliated with the RC must make sure all possible steps are taken to ensure the petitioner fulfills their immigration requirements and receives their capital back. Although engaging with the EB-5 program is sure to bring financial gain to any business or regional center, it is important to provide your investors with transparency, dignity, and respect in order to ensure an ethical exchange. Remember, the only return that EB-5 investors usually get is a green card and their original investment, with marginal financial gains at best. It is only under a reputable and trustworthy EB-5 program can investors, industry professionals, and developers achieve their Pareto efficiency that maximizes interests for all parties involved.

The 2022 EB-5 Reform and Integrity Act (RIA) imposed various requirements to help reduce fraud and legal loopholes in the program. However, those seeking to raise capital under the program should be very aware of the fact that investors remain concerned and like to find deals that give them as much assurance as possible, both that their investment capital will be preserved by mitigating as much risk as possible, and that the project will succeed in creating jobs.