The EB-5 Investor Visa Program Deserves to Be Scrapped

(Bloomberg View) -- The omnibus spending bill currently before Congress includes a small but ill-conceived program that deserves to be noticed, then deleted. The EB-5 Regional Center program that gives visas to investors invites abuse and is failing to do what it's meant to.  

Since 1990, foreigners who invest $1 million (or, in rural or high-unemployment areas, $500,000) in a new enterprise that creates at least 10 full-time jobs can get an EB-5 visa and, after two years, a green card. In 1992, Congress modified the system, creating the Regional Center program to let investors pool their contributions to fund enterprises within designated areas. Last year, these regional centers accounted for 93 percent of the roughly 10,000 EB-5 visas issued.

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The program's goal of promoting inward investment and jobs is worthy, but this approach has worked badly. Almost all the investment goes to New York City, San Francisco, Houston and other metropolitan areas, where it provides cheap financing for real estate developments that achieve their "high-unemployment" designation through gerrymandered districts. The Department of Homeland Security says it can only "speculate" about the overall effect on investment and jobs. A plausible speculation is that the effect is minimal.

The program has fallen victim to fraud and abuse, not least by failing to scrutinize investors adequately. For instance, Chinese applicants, who were awarded 75 percent of EB-5 visas last year, face limits on the sums they can legally take out of China each year. They are obliged to resort to various maneuvers to come up with the cash. U.S. intermediaries then go fishing for business in these murky waters. (Last August, federal prosecutors subpoenaed the Kushner Cos., the property business owned by the family of Jared Kushner, for documents related to their courting of Chinese EB-5 investors.)

It might be possible to make the program work better, through clearer rules and more effective enforcement, but it would be better to end it altogether. As Senator Chuck Grassley has argued, it seems broken beyond repair. And its contribution to inward foreign direct investment is insignificant, anyway. Canada, for instance, junked its investor visa because of its poor economic benefits.

To be clear, the U.S. should do all it can to attract investors and entrepreneurs -- but with an immigration system tailored toward talent and experience, not with a scheme so open to abuse. 

Until a smarter skills-based system is introduced, a simpler and cleaner way to raise money from prosperous would-be immigrants would be to simply auction some visas to qualified applicants. That could easily raise more money than the EB-5 program -- money that the government could spend on, say, rural development -- and it would be a lot harder to subvert.

-- Editors: James Gibney, Clive Crook

To contact the senior editor responsible for Bloomberg View's editorials: David Shipley at davidshipley@bloomberg.net.

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