Sat January 26, 2013
Investing In Citizenship: For The Rich, A New Road To The U.S.
Originally published on Thu January 31, 2013 1:17 pm
The traditional immigrant story is a familiar one.
Someone who longs for a better life makes the tough journey, leaves behind the hardships of his or her native land and comes to the United States to start again. That story, in a lot of ways, helped build this country.
These days, however, there's a very different kind of immigrant who wants to come to this country — the rich — and they have a different set of dreams.
Anthony Korda was a barrister, or lawyer, in England who vacationed frequently in the U.S. with his family.
"Each time we left the nice weather of Florida, we were more depressed about having to leave," Korda tells NPR's Robert Smith.
Korda says they did not look forward to slogging through the London rain, so he made a lifestyle choice: He was going to immigrate to the U.S. and live in a place where you could get a real tan.
Korda found pretty quickly, though, that the last thing the U.S. needed was more lawyers, so a standard or employment-based visa was unlikely. But then he saw a shortcut to becoming an American in a small, obscure federal program called EB-5, designed for people like him to get into the country — if they had enough money.
"It looked too good to be true," he says.
All Korda had to do was cash out most of his savings — about $500,000 — and invest in an American business. If he could help create 10 jobs, then he would get a green card.
Korda's investment was a ski resort in Vermont that was looking to improve its infrastructure. So he put down his money and got to move to Florida and vacation in Vermont. He and his family got the American dream, but what did America get in return?
A Path For Rich Immigrants
The immigration program for the rich was designed to provide a boost to the U.S. economy, and it costs very little to give out the visas. The program allows 10,000 people a year to immigrate using the investment method. It's never reached that limit, but it is getting more popular every year. In 2012, about 7,600 made use of the program.
Some of those dollars are going to the Barclay's Center, the new home of the NBA's Brooklyn Nets.
Bloomberg News reports that more than $200 million of the loans to build the arena came from foreigners who were using the investment to get into the U.S. The business plan predicts that in the end, it will create more than 5,000 jobs.
That's how it's supposed to work, but often the projects funded by the EB-5 visas are not quite as glamorous.
David North, a fellow at the Center for Immigration Studies, says the government's rules for these visas encourage investment in depressed areas, rural places and inner cities. These are places where private investment is scarce and often risky.
"The investments that are open to an EB-5 investor are really rock-bottom, marginal investments," North says. "These are essentially small, usually real estate investments of some kind [and] small construction investments."
North says one of the other problems with the rules is that the investors have very few responsibilities to make sure the project works.
"We're not bringing entrepreneurs to this country in this program," he says, "we're bringing passive investors."
Economic Or Immigration Program?
The federal government doesn't release numbers to show how many of the investments succeed or fail. Dune Lawrence, an investigative reporter with Bloomberg News, has tried to figure it out. She tells NPR's Smith that the program has several problems.
"The basic problem starts with the fact that it's an economic development program run by an immigration agency," Lawrence says. "The immigration agency is focused on immigration."
That focus by the agency, of handling the applications and paperwork concerned with the investor's immigration status, makes it unprepared to handle the economic side of the program, Lawrence says.
The only data released by the government is how many green cards were issued through the program, she says, which doesn't tell you how many investments actually succeeded in the long term.
"It's all based on the economic assumptions that were made at the beginning of the project," she says, "and if they can show that they're in the process of spending the money then that's that."
Despite all the questions, defenders of the program say that money is money. Maybe some rich foreigners could lose their stake and perhaps some won't create the right number of jobs, but it is a real — if relatively tiny — bump in investment in U.S. businesses.
Mark Jones, a political science professor at Rice University in Texas, says that overall he thinks the program is good for the economy.
"It is bringing in money ... and investment to the United States that otherwise might not have come here," he says.
Jones says just as you can find anecdotal evidence of failure, you can find a bunch of examples of successful projects funded with foreign investment. In Texas, he's looked at successful strip malls, horse-racing enterprises and real estate projects funded by immigrants that seem to be working.
Korda, the lawyer who wanted to live on the beach, says he has seen only a modest return on his investment in the ski resort, between 1.5 and 2 percent.
Though he could have done much better in the stock market or bonds, the tradeoff for Korda is he's now living in Florida instead of London. He now consults with other wealthy foreigners wanting to use the program to come to America.
ROBERT SMITH, HOST:
It's WEEKENDS on ALL THINGS CONSIDERED, from NPR News. I'm Robert Smith. We are all familiar with the traditional immigrant story - leaving a tough life somewhere, to find something better in the United States. Well, today, we tell the story of a very different kind of immigrant, those with lots of money to spare.
ANTHONY KORDA: Yes, I was a barrister in the United Kingdom. Actually, I should say England and Wales. We had a vacation home here, in Florida. And we - I say we; my wife and I, and my two children - we came here frequently. And each time we left the nice weather of Florida, we were more and more depressed about having to leave.
SMITH: Because Anthony Korda didn't like the London rain. And so he made a lifestyle choice. He was going to immigrate to the United States, and live in a place where you can get a real tan. But Korda found out pretty quickly that the last thing the United States needs is more lawyers.
KORDA: There are, obviously, professional visas; there are employment-based visas. But they are difficult to qualify for.
SMITH: Korda could have waited in line for a regular visa. But then he saw something - a shortcut, really, to becoming an American; a small, obscure, federal program designed for people like him to get into the country, if they had enough money.
KORDA: Truthfully, it looked too good to be true; you know, the idea that you would pay somebody either a million dollars or $500,000, and then be able to come and live here. It sounded to me, at that time, to be fanciful. So I did more research, and realized that it actually was a genuine program.
SMITH: All Korda had to do was cash out most of his savings, invest in an American business. And if he could help create 10 jobs - 10 jobs - he would get a green card. And oh, yeah, the investment that Korda picked?
KORDA: It was a ski resort that already existed, up in Vermont; that was looking for funding to improve its infrastructure.
SMITH: Korda plunked down his money, got to move to Florida, vacation in Vermont, and is on the road to citizenship. He got the American dream. But what did America get back in return? That's our cover story today - buying citizenship.
The immigration program for the rich was designed to provide a boost to the U.S. economy. Makes sense. Bring an investment, real money from around the world to help businesses grow, create jobs. But try to figure out if it's actually working - ask how many real, permanent jobs were created - and nobody has good figures.
First, let's show you how the program works. It's officially called an EB-5 visa. We let 10,000 people apply here, if they have the cash. Last year, 7,600 took us up on the offer. If you want to see the kind of places where the money goes, you can turn on your TV set when the Brooklyn Nets are playing hoops.
(SOUNDBITE OF BASKETBALL BROADCAST)
UNIDENTIFIED ANNOUNCER: Yeah. I think this is going back to Joe Johnson.
IAN EAGLE: Four seconds left. Double overtime. Nets looking for the win. Johnson, the step back....
UNIDENTIFIED ANNOUNCER: Oh!
EAGLE: He buries it!
SMITH: The team just moved to Brooklyn, and they needed a place to play; and the developer had a plan. Take a crummy neighborhood with abandoned railroad tracks; put in housing, offices, and that glorious new stadium for the Nets, Barclays Center. Bloomberg News reports that more than $200 million of the loans to build the project came from foreigners who were using the investment to get into the United States. The business plan predicts that in the end, it will create more than 5,000 jobs. That's how it's supposed to work.
But often, the projects funded by the EB-5 visas - they're not quite as glamorous. David North is with the Center for Immigration Studies, which often advocates for lower immigration levels. He says that the rules that the federal government set up for these visas encourage the investment in depressed areas: rural places, inner cities, places where private investment is scarce. But the result is, these are often risky loans.
DAVID NORTH: The investments that are open to an EB-5 investor are really rock-bottom, marginal investments.
SMITH: Well, what do you mean rock-bottom, marginal investments? It's not...
SMITH: ...it's not the IBMs; it's not the gold-star companies?
NORTH: Certainly, it's not that. It's none of the above. These are essentially, small - usually real estate investments of some kind, small construction investments.
SMITH: North says one of the other problems with the rules is that the investor - the one who wants to move to the United States - has very few responsibilities to make sure the project works, in the end.
NORTH: We're not bringing entrepreneurs to this country, in this program. We're bringing passive investors. Now, I was retained by the Australian embassy, at one point. And they demanded that you speak English, that you be relatively young, that you run a company, and you put in some money. OK? We don't do any of those things. All we care about is just the money. And we don't care whether they start a business, or they just sign a check.
SMITH: The federal government doesn't release numbers, to tell us how many of these investments succeed or fail. Dune Lawrence, an investigative reporter with Bloomberg News, spent months trying to figure it out.
DUNE LAWRENCE: The basic problem starts with the fact that it's an economic development program run by an immigration agency. And the immigration agency is focused on immigration. So their big concern is - sort of handling the applications from each immigrant. And this whole economic development side of it has grown up that - I think they're pretty unprepared to handle.
SMITH: So as an investigative reporter, you're looking to see this basic question, how's the economic side of this working? You know, is it, in fact, you know, creating jobs; is it, in fact, creating successful businesses. What data was available to you? There's not an end-of-the-year, annual report that the immigration agency puts out that says, we were good - or we weren't?
LAWRENCE: You know, they'll tell you how many of these immigrant investors actually got the green card, which would imply that their money was spent properly and created the proper number of jobs. But there's, literally, no one going out and saying oh, this actually happened; or, this has actually created any jobs. I mean, it's all based on the economic assumptions that were made at the beginning of the project. And if they can show that they're in the process of spending the money, then that's that.
SMITH: Yeah. So in your research - because there's not any official way to do this, you did something very smart. You went out and looked for lawsuits, which, of course, tells you what went wrong; what is the worst-case scenario. And you mentioned the South Dakota dairy farm. There's just nothing more American to me, than a South Dakota dairy farm. Explain to me what the plan was.
[POST-BROADCAST CORRECTION: The question about a dairy farm investment in South Dakota is answered with information regarding another, unrelated lawsuit. The dairy farm lawsuit was brought by South Korean investors. The lawsuit described below involved Chinese investors and a cattle-processing plant.]
LAWRENCE: This involved Chinese investors. In that lawsuit, it seemed to come down to a dispute with the agent. The agent who had gone and solicited these Chinese investors wanted more money. And that was my understanding - is that there was a dispute over the fee. And so the agent then - and this gives you a sense of how little the investors in these projects understand - the agent was then going back to the Chinese investors and saying look, you've totally been duped. You've got to sue this guy. He didn't tell you what was going on.
And if you're a Chinese person, and all you want to do is buy a visa and move to the United States so your kids can get an education here - you don't have the means, likely, to really understand all that, especially if you're going through all these layers. You've got the agent who recruited you and then their international office somewhere, and then the regional center and the immigration authority in the U.S. I mean, it's a really confusing process.
SMITH: And there's no information on what's working, and what's not.
LAWRENCE: Yeah. I mean, it's definitely a complex process. Something called the North American Securities Administrators Association, they put EB-5 investment scams as one of their top five new threats to investors. That's not so good, not a good sign for the program.
SMITH: That's Dune Lawrence, investigative reporter with Bloomberg News. Despite all the questions, defenders of the program say look, money is money. Maybe some rich foreigners could lose their stake. Maybe some won't create the right number of jobs. Maybe a lot of the projects don't make sense. But it is a real - if relatively tiny - bump in investment. Mark Jones is a political science professor at the Baker Institute, at Rice University in Texas.
MARK JONES: Overall, I think it's good for the economy because it is bringing in money to the United States, and bringing in investment to the United States, that may not otherwise have come here; people who are overall making a contribution to the United States both directly via these investments but as well through other spending, once they actually arrive here.
SMITH: You know, if you weren't talking about investment - you were talking about gambling, there's a word for this in Las Vegas. They're whales.
JONES: Well, in many way - they are whales. And just like with Las Vegas, you have competition from Atlantic City; casinos in New Orleans, and elsewhere in Louisiana. There's a lot of competition for these investors. The United States isn't the only country that's trying to lure them with the promise of some type of residency status. The United Kingdom does it. New Zealand does it. Canada does it. The Bahamas does it. In the Bahamas, it's a lot easier because there, all you have to do is build a $1.5 million house, and you're done.
SMITH: So if the U.S. reaches the cap, if they end up giving away or selling - depending on how you want to look at it - the 10,000 visas, then is there a possibility that they could just make more of them?
JONES: It would require new legislation, or at least an amendment to the existing legislation by Congress; say, raising the cap from 10,000 to 15-, at which time, they may also raise the price. So there are sort of two ways Congress could address this. One is to raise the amount of visas; say, from 10,000 to 15-. The other is to raise the minimum amount, from 500,000 to a million or 1.5 million. I think either of those options would reduce the numbers below 10,000.
SMITH: But there's a political problem about expanding this program, isn't there? I mean, for a lot of people, this looks bad. It feels bad to be essentially, selling U.S. citizenship.
JONES: I think this legislation was passed in a different political climate related to immigration, back in 1990. It would be a tougher sell today, unless it was put as part of a broader, comprehensive immigration reform - in which case, it may disappear into the weeds in terms of being a relatively minor component of a much broader type of reform.
SMITH: That's Mark Jones from Rice University. He says just as you can find anecdotal evidence of failure, you can find a bunch of examples of successful projects funded with these kind of visas. In Texas, he's looked at strip malls, horse-racing enterprises, even real estate projects that were funded by immigrants, that seem to be working.
But what about Anthony Korda? He's the British lawyer who wanted to live by the beach. He invested half a million dollars in a ski resort, to get his visa. So how did it work out?
KORDA: It's been a fairly modest return on investment. I would say, maybe over the six years that we've been invested, we've maybe had about 1.5 to 2 percent back.
SMITH: OK, Korda could have done much better in the stock market or bonds. But then, he would have been living in the gloom of London instead of on the beach in Florida, where he wants to be.
KORDA: It's a trade-off. I mean, this is why I say, in answer to the critics, you have to be able to offer these investors something in return because they are investing in industries that the banks don't want to invest in but, you know, U.S. investors may not be looking at as a great rate of return. You're certainly not going to find investors at the - you know, the 500,000 or a million-dollar level who are going to be satisfied with, you know, between naught and 1 or 2 percent, and who are going to have their money tied up for indefinite period.
SMITH: By the way, Korda has found another way to make that initial investment pay off. As a lawyer, he now consults with other wealthy foreigners wanting to use the program to come to America.
(SOUNDBITE OF MUSIC)
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