Unveiling the Prevalent Misconceptions Regarding EB-5

The EB-5 Immigrant Investor Program, which draws investors globally, has garnered both attention and criticism for its susceptibility to fraudulent activities. Here are prevalent misconceptions and myths surrounding the program.

1: The EB-5 visa is often perceived as a means to purchase citizenship.

No, acquiring an EB-5 visa and gaining citizenship isn’t as straightforward as a simple purchase. Purchasing typically involves exchanging money for goods or services, with the understanding that the money won’t be returned.

Conversely, the EB-5 program entails investment, offering investors the chance to obtain a permanent U.S. green card. Unlike a purchase, an investment carries the potential for returns, although it also involves risks and returns aren’t guaranteed.

Therefore, likening the EB-5 Immigrant Investor Program to buying citizenship isn’t accurate. It’s more appropriate to describe it as providing a pathway to citizenship for aspiring immigrant investors.

2: An EB-5 firm cannot assure me of obtaining a green card or a return on investment.

Incorrect. Your participation in the EB-5 program does not guarantee a green card, as no one can assure the outcome of any immigration petition. The requirements of the EB-5 Program stipulate that an investor’s capital must be “at risk for the purpose of generating a return on the capital.” This indicates that besides the potential for profit, there is also a risk of loss.

Hence, any assurances of guaranteed returns, including a fixed interest rate, would disqualify your EB-5 application. To combat fraudulent activities, the United States Securities and Exchange Commission (SEC) has issued an alert detailing the indicators of EB-5 investment fraud.

• Assurances of assured visa or permanent residency
• Assurances of risk-free investment returns
• Investments lacking registration as regional centers
• Unlicensed vendors (being designated as a regional center doesn’t confer licensing)
• Successive layers of companies controlled by the same individuals
• Consistently high investment returns without variation

Although EB-5 investors shouldn’t demand assurances, there are methods to minimize risk while ensuring peace of mind. For instance, a New York-based EB-5 company offers a distinctive alignment of interests—this entails the firm investing alongside foreign investors in the same EB-5 projects, thus subjecting their own funds to equivalent risk. This is an uncommon trait among firms confident in the thorough financial analysis of their projects, actively engaging as investors in their own ventures to seek profit.

Another aspect investors need not compromise on is the potential for above-average returns. Historically, EB-5 projects have seldom yielded returns exceeding a quarter point for investors. However, some EB-5 firms, particularly prominent real estate investment management firms, frequently offer returns surpassing the average.

“Unlike traditional EB-5 projects where investors receive minimal fixed returns without any upside potential, our projects deliver an appealing risk-adjusted return on investment,” states Rich Marquard, Executive Vice President of Investment Operations at The LCP Group, L.P., a 45-year-old New York-based real estate investment management firm specializing in EB-5.

3: Fraud is widespread in the EB-5 Program.

Incorrect. While the EB-5 program has faced significant controversy and critics argue that it is highly vulnerable to abuse and fraud, the truth is that only a very small fraction of EB-5 projects are fraudulent.

One of the concerns raised by critics in the U.S. is that the program may enable individuals with dubious backgrounds and illicit funds to obtain residency. However, USCIS imposes stringent regulations requiring proof that investment funds are acquired through lawful means, such as earnings from employment, real estate, stocks and bonds, private businesses, inheritance, or gifts.

Foreign investors have expressed concerns about fraudulent EB-5 projects where purported regional centers have misappropriated funds. To thoroughly vet any EB-5 offering, it is advisable to follow the recommended steps outlined by the U.S. Securities and Exchange Commission’s Office.

Just as there are measures to avoid scams, investors can also take steps to ensure the optimal outcome of their EB-5 application by conducting thorough research and selecting a reputable EB-5 partner with a proven track record and expertise in real estate investment.

“It’s crucial for foreign investors to thoroughly research a credible and experienced EB-5 Regional Center partner before committing to a project,” emphasizes Rich Marquard, Executive Vice President of Investment Operations at the LCP Group, specializing in EB-5 projects. “Investors should assess both the EB-5 firm’s investment history and the project’s viability. Our investors value the heightened transparency we offer and feel secure in their decision to collaborate with us given our extensive track record.”

4: The EB-5 visa process is excessively time-consuming.

Not accurate. Compared to other employment-based visas, EB-5 is indeed one of the quickest routes to pursue permanent residency in the United States.

Following the selection of a project and an EB-5 partner, the initial step is to submit an I-526 application to USCIS. The processing time may vary but typically ranges from twelve to thirty-six months. Upon approval of the I-526 application, the investor and their immediate family can relocate to the U.S. and obtain two-year conditional green cards (subject to country-specific backlogs). The investor’s immediate family comprises their spouse and unmarried children under the age of 21. Following two years, one can petition to have the conditions removed and acquire their permanent green cards. Once the investor has resided in the U.S. for five years with a permanent green card, they become eligible to apply for naturalization and attain U.S. citizenship.

In contrast, the employment-based EB-2 and EB-3 visas entail an 11-year wait for Indian-born applicants, while the EB-5 visa currently has no backlog (or wait time) as of July 2020. Chinese-born applicants also face a 5-year wait for the EB-2 visa. Another popular visa is the nonimmigrant H-1B visa, which necessitates employer sponsorship. In addition to the yearly quota, lottery system, and escalating denial rates, the H-1B visa has been recently impacted by the President’s Proclamation and travel ban, prohibiting new H-1B visa issuance and entry into the U.S. until December 31, 2020.

Considering the aforementioned factors, the EB-5 visa remains one of the swiftest paths to relocate permanently to the United States and enjoy the privileges of a U.S. permanent resident: the ability to work for any employer without sponsorship, establish a new business, enroll in premier American educational institutions, access high-quality healthcare, and enjoy enhanced travel flexibility with a U.S. passport or green card.

Addressing the prevalent misconceptions about the EB-5 program and distinguishing EB-5 myths from realities is indeed imperative for every investor. It represents a crucial step before selecting the appropriate EB-5 partner and project.

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