The United States of America's EB-5 Programme, labelled in a lighter vein as the 'Green Card for greenback' scheme, has been attracting oodles of eyeballs — including from India — of late.

However, many high net worth individuals the world over, including in India, are worried as the controversial immigrant visa programme for the wealthy is set to expire this month-end.

Money, citizenship

Simply put, the programme grants rich entrepreneurs — as well as their spouses and unmarried children below the age of 21 — an opportunity to bag the coveted U.S. Green Card (or status of permanent residence) and Citizenship. All they have to do is invest in just over half a million dollars in the U.S. and ensure that the funds help generate at least ten full-time jobs for qualified U.S. workers.

The visa, given in exchange for investments, grants the holder a conditional permanent residence status. After two years, the conditions may be removed, when it becomes permanent green card that can lead to citizenship, provided it has resulted in the creation of 10 jobs. The programme is named EB-5 as it is the fifth preference category under the Employment-Based (EB) immigration visas.

The EB-5 programme was created in 1990 with the approval of the US Congress — America’s highest law-making body. It aims to boost the American economy by attracting investment from foreign nationals and generating employment for locals. In 1992, its scope was widened through an Immigrant Investor Programme, or the Regional Centre Programme.

Regional Centres are certain designated organisations permitted to collect money from overseas investors seeking the EB-5 visas, and then pump such foreign investment (which is usually much cheaper than other forms of funds including bank credit) into officially approved projects. Though the EB-5 Programme has had similar ‘sunset’ periods earlier, 'Invest In the U.S.A.' (or IIUSA, a not-for-profit association associated with the programme) stated that it had been re-authorised ten times since 1992.

In order to be considered for permanent residency status in the U.S., the Programme mandates a qualified foreign investor to invest at least $1 million — or a minimum of $500,000 if the investment is made in certain rural areas or regions with high unemployment — and show that ten or more full-time positions were generated or preserved directly or indirectly as a result of that investment.

These EB-5 investments can be stand-alone or made through Regional Centres, with the former (direct investments) carrying a greater risk than investments made through over 860 approved Regional Centres that have more on-the-ground knowledge.

More Indians

In 2015, the U.S. authorities issued 111 EB-5 visas to Indians — that is 15 more than the previous year, and 74 more than the number of such immigrant visas issued in 2011. The rapid rise in the number of EB-5 visas to Indians in the last few years had led to the filing of over a thousand applications under that category from India this year.

In the backdrop of allegations of fraud and corruption — including against Indian-origin individuals — related to the programme, the U.S. Congress will soon have to consider whether to renew it or to pay heed to growing criticism and wind it up altogether.

If the EB-5 is given a new lease of life, it will most certainly be reformed through restrictions (such as a higher level for minimum investment), more stringent norms for fraud prevention, as well as steps to protect America's national security (through foolproof measures to prevent terror- and other illegal finance flowing into the programme). There could also be new clauses to ensure greater transparency in the functioning of 'Regional Centres'.

Under the programme, around 10,000 EB-5 visas are handed out every year to qualified investors. According to American authorities, there is a yearly limit of 700 visas per nation. However, if a country crosses that limit, there is a clause that allows U.S. authorities to make available the “unused visa numbers” to applicants from countries (such as China) that have crossed that limit.

‘Maximum’ country

Interestingly, like in several aspects of global business, the Chinese have been way ahead of others in taking advantage of the EB-5 opportunities so far. According to U.S. government data, applicants from mainland China managed to get 8,156 such visas (or 83.5 per cent of the 9,764 EB-5 visas issued in the year 2015.

This was followed by Vietnam (280), China/Taiwan-born (139), South Korea (116), India (111), Russia (88), UK (84), Mexico (77) and Iran (62). In what is a comforting factor for others, China’s share in the total EB-5 visas issued was lesser in 2015 when compared to the previous year.

Nevertheless, India has lots to do if it has to catch up with China. Foreign Direct Investment (FDI) from India into the U.S. under the EB-5 programme was worth only $161.5 million during 1992-2014, an analysis by the IIUSA showed. China, however, outshone the rest with $6.7 billion worth FDI into U.S. during 1992-2014, as per the IIUSA data.

Compliance alert

According to Mark I. Davies, Global Managing Partner, Davies & Associates LLC, a law firm specialising in immigration law, since the Chinese have ‘maxed out’ the EB-5 programme, there is now an effort to get more investors from India — a fast-growing economy with an increasing number of high net-worth individuals.

However, he said it was important for Indian investors to obtain proper legal advice on choosing the right Regional Centre especially since there have been cases of fraud and investment scams involving Regional Centres that have come to the notice of the U.S. Securities and Exchange Commission and U.S. Citizenship and Immigration Services (USCIS).

Mr. Davies said Indians, who planned to take money out of India for EB-5 purposes, will also need legal and tax-related advice on American and Indian tax laws as well as on the Reserve Bank of India’s Liberalised Remittance Scheme and India’s Foreign Exchange Management Act. Besides, Indians applying for such visas should also note that the U.S. authorities were keen on finding out if the source of funds is all “white money” backed by proper documents, he said.

Sanket Shah, Managing Director of NS Global, a tax advisory firm, said that though his firm received several enquiries from Indians on EB-5, about ten per cent of them back out when they get to know about the implications of the high level of tax scrutiny in the U.S. as well as the stringent penalties there for violations.

Balancing act

Meanwhile, the U.S. Congress will have a tough job on its hands when it takes up the EB-5 Programme for re-authorisation this time. On the one hand, in the ongoing American Presidential election campaign, immigration has become a topic of heated debate especially with Republican nominee Donald Trump calling for measures including building a border wall and a more rigorous vetting process to prevent illegal immigration. There is also a general backlash against globalisation.

On the other hand, the U.S. Congress has to take in account the fact that the EB-5 programme has attracted huge amounts of FDI into the U.S. using the same globalisation process.

The IIUSA, citing data from USCIS that administers the programme, has showed that the EB-5 programme has so far attracted FDI worth around $16.8 billion.

Of this, “$15.4 billion has been injected into the US economy” since 2008. The IIUSA has also highlighted that during FY2010-2013 the EB-5 programme had contributed $9.62 billion to the U.S. GDP, supported 29,300 jobs annually and generated $2.08 billion in tax revenue.

It remains to be seen how the U.S. Congress will do a balancing act especially since it is estimated that if the programme fails to get re-authorised, it could not only adversely impact over $20 billion worth of investments, but also lead to many court cases in addition to a loss of an estimated over three lakh jobs.

(This article first appeared in The Hindu dated September 19, 2016)

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