Renewal Of The EB-5 Program Could Spark Economic Recovery In America
When Congress passed the Consolidated Appropriations Act of 2021, it extended the current EB-5 Regional Center Program through to June 30, 2021. But in an extraordinary move, it also decoupled the program from an automatic renewal in the next round of new spending. In other words, unless Congress passes a separate bill authorizing the continuation of the EB-5 program by the last day of June of this year, the program will cease to exist. On the other hand, if the program is in fact renewed, particularly with the integrity measures currently proposed, it could give the American economy and employment a significant boost at a time when investment and jobs are badly needed and at no cost to the American taxpayers.
A few years ago, Canada faced a similar situation regarding its federal investor immigration program. It may be instructive to consider what happened in Canada to see what we can learn from that experience. This could help us avoid some of the problems Canada had, and improve our approach in dealing with the current U.S. EB-5 challenge.
In an article recently published, Vince Lalonde, the current Director of Immigration at Pace Law Firm in Toronto (full disclosure – I also practice immigration law there), laid out the history of the Canadian investor program and what went wrong there. Lalonde pointed out that under the Canadian program foreign nationals with a net worth of at least $1.6 million could get permanent residence in Canada if they made a five year interest free loan of $800,000 to the federal government. But, as Lalonde laid out, the program proved unpopular with the Canadian public because the idea of “buying” permanent residence was unappealing to Canadians. Lalonde then singled out a few of the other salient reasons for the program’s demise:
1. Low contributions as taxpayers. Most investor immigrants did everything in their power to avoid becoming Canadian tax residents, and even those who did get stuck paying tax in Canada, often found ways to under report their worldwide income.
2. Low integration levels. Investor immigrants had the lowest official language ability of any immigrant category, including refugees. “Astronauts” — mainly from China — would move their families to Canada but continue to conduct their business abroad. That resulted in families who were never really fully committed to Canada and often returned to their country of origin after their children had taken advantage of the Canadian education system and other social services.
3. House price inflation. Investors were blamed for spiralling housing prices especially in BC’s lower mainland. Rich investors, often from China, developed a reputation for paying cash for multi-million dollar homes at sticker price, turning home ownership into a pipe dream for average Canadians.
4. Use of investment funds. Despite the fact that the investor immigrants paid millions of dollars under the Program, capital investment levels were disappointingly low.
5. Processing times. Investor applicants were frustrated by slow processing times and changing requirements. Applicants often waited six to eight years for their applications to be processed by the government, with no guarantee of success. The uncertainty meant it was next to impossible for these families to plan their future.
At least some of these criticisms could very well be made of the American EB-5 program. When the Canadian program was finally cancelled in February of 2014, an inventory of 65,000 individuals were waiting for their applications to be dealt with, which would have taken up to six years to process. When the government closed down the program, it chose to repay the applicants their money, eliminate the entire backlog and not process any of the pending applications despite the fact that some applicants had been waiting years for their applications to be approved.
The result of the program’s closure was that a class action lawsuit of individuals who had their backlogged applications dismissed was started. The plaintiffs sued the Canadian government to have their applications processed or, failing that, for monetary compensation. The primary goal of the suit was to compel Citizenship and Immigration Canada to deal with the outstanding applications before officially scrapping the program, but if the government was not willing to process the backlog, the complainants sought monetary compensation for each applicant in the suit and for each of the dependents named on their investor immigrant applications, which was estimated to surpass $ 16 billion.
Needless to say, cancelling Canada’s investor program was not popular with foreign investors, particularly among Chinese investors who made up the largest group. At a news conference 10 Chinese investor applicants delivered their crestfallen message — that their faith in Canada as a “trustworthy country,” with its attractive rule of law, environment and welfare system, was wavering. The cancellation of the program ultimately did indeed damage the reputation of the Canadian immigration program and to this day there is no federal investor program in Canada.
Eventually the class action law suit was settled when the Canadian government agreed to expedite the processing of many of the plaintiff investor immigrant’s applications to provide them permanent residence status plus pay their legal fees and costs. Some of the claims were rejected, however. While the lawyers involved came out of the ordeal with their fees paid most of the others involved were not happy to have gone through the exercise. Despite these previous hardships, however, Lalonde now argues that the time has come for Canada to re-introduce a new improved federal investor program.
In terms of what can be learned from this experience for the U.S. EB-5 program, several points come to mind:
1. Foreign investors currently backlogged in the U.S. system may be able to launch due process or promissory estoppel legal claims against the U.S. government and EB-5 regional centers if the program lapses. The process could be unpleasant and very costly. America’s overseas image as a great place to do business could be significantly tarnished. There is little benefit to letting the program expire.
2. There is a need for reform on the EB-5 program along the lines of the Grassley and Leahy bill that was put forward in Congress not long ago. Other improvements can be made in the years to come. Staying current and competitive with other countries is important in this area.
3. If we bear in mind that the EB5 program is responsible for less than one percent of the immigrant visas issued by the U.S. government each year, but is a major engine of growth for the U.S. economy, estimated to contribute over $ 9 billion in new investment and 300,000 in new jobs per annum in the years ahead, it makes sense to continue it.
4. Putting the argument the other way, a sober consideration of the hardships a failure to renew would cause, not only to foreign investors but more importantly to America’s economy and job markets, leads to the conclusion that renewing this program is vital to America’s future. It is inconceivable given the amounts of investment and the number of jobs this program has generated in the United States during its lifetime that Congress would now allow it to expire.
Published: 23 February 2021