USCIS Does the Right Thing on Immigrant Investor Scam in the Mojave

By David North, January 2, 2011

Once in a while – if the situation is both very, very bad and very well-publicized – U.S. Citizenship and Immigration Services (USCIS) does the right thing regarding its bizarre immigrant investor program.

It did that recently regarding a dicey investment scheme involving the City of Victorville, on the edge of the Mojave Desert in Southern California.

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I have discussed the strange economics of the EB-5 immigrant investor program in several blogs, here, here, and here.

Essentially, an alien who is willing to invest $500,000 for a little more two years, in a project approved by a state-created EB-5 Regional Center, a project that can be said to produce ten jobs for people other than the investor's family, gets a green card for himself, his spouse, and all his non-adult children. (EB-5 is the fifth of a series of employment-based immigration programs, hence the initials.)

There is a two-year delay, while the investment is being made, before the initial conditional entrant status converts to permanent resident alien status for the investor and his family. Those in conditional status may work legally in the U.S.

Note that the investor need not be an entrepreneur; he (or she) does not have to actually run a business, or even visit the location; he simply needs to write a check for the approved investment and an economist hired by the Regional Center has to provide a rationale on how the half million will turn into 10 jobs, created directly or indirectly. We will return to that subject shortly.

What USCIS has done in the Mojave case is both long over-due and a bit gutsy. The agency did not simply turn down a single investor who wanted to put his half million into Victorville's sewage plant, nor did it turn down an application from an entity wanting to be an EB-5 Regional Center; it decided to terminate an existing, previously authorized regional center. USCIS never had done that before.

So USCIS was not just saying no to a prosperous alien, which the record indicates it hates to do, it was zapping a local American entity, one that was managed and staffed by genuine U.S. citizens and voters. (The decision thwarted a batch of would-be alien investors as well, but they may eventually thank the government because, as the record suggests, the sewage treatment plant could well prove to be a financial sinkhole.)

Let's look at the underlying finances of the sewage plant and the USCIS's rationale, to the extent that is knowable, for terminating the Victorville regional center.

I had two immediate reactions when I learned that the investment was to be in the waste-water plant: 1) this is not a financial transaction worthy of a visa, because these plants are routinely funded by the issuance of tax-exempt municipal bonds, usually (at least in the past) a very sound and conservative investment, and 2) how can half a million dollars invested in a sewage treatment facility possibly create ten continuing jobs, or even a single one?

If you have ever been inside of one, or even just looked at one carefully as you drove by, it is obvious that these are capital-intensive, not labor-intensive, operations. There are miles of piping, many settling pools, pumps, gates, and sluices, all spread over a large chunk of land, with very few workers, if any, in sight. And the construction of a typical facility would use up lots and lots of half-million-dollar checks.

Well, on the first point, it seems that the Victorville's finances are so shaky that just floating a batch of municipal bonds, like other communities do, was not going to work. To quote the local paper, the Daily Press, of June 15, 2009: "For more than two months the city has tried to float $55 million in bonds to pay for the plant without closing a deal with no credit rating and precarious finances . . . "

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Bond dealers must have started asking questions, and in the process they must have run into these other headlines in the local paper: "SEC investigating Victorville," "Audit shows city in deep financial hole," "Victorville credit ratings suspended," "Victorville is in default" and "Grand Jury focuses on Victorville."

The killer headline came earlier this fall: "Victorville's auditing firm under scrutiny for Bell reports."

That's Bell, a poverty-stricken town of 35,000 elsewhere in California that made headlines a little earlier because of the way that the city council, the city manager, and other insiders milked the little town of millions of dollars in illicit funds while getting clean audits. As I recall, the town was paying the manager more than $800,000 a year in salary. The news accounts said the population was largely Hispanic, including many illegals, and relatively few people voted in municipal elections. So, if Victorville relied on the City of Bell's auditing firm, what does that say about the quality of the audits Victorville had purchased?

You can see why, reaching for straws, the insiders in Victorville decided that they would try to use visas for 50 alien families, probably producing 200 or so new green cards, to raise $25 million for the sewage plant. That was the plan. One of the major contributors of waste water, incidentally, was (or was planned to be) a major Dr. Pepper-Snapple bottling plant.

According to a website concentrating on the EB-5 program, and presumably sympathetic to it generally, "Other EB-5 visa projects in Victorville's pipeline also caused skepticism among USCIS officials, most notably construction of a power plant for which the city of Victorville defaulted on needed equipment costs and a railroad project that never came to fruition."

The same website went on to say that a second USCIS termination notice was sent to the regional center "calling into question the jobs it was counting towards the totals needed to satisfy USCIS requirements that 10 jobs be created per green card issued. It seems the regional center attempted to include jobs created at the bottling facility among its totals since the plant was a consumer of the service provided by the wastewater treatment utility – a methodology ultimately deemed faulty by USCIS."

I find it ironic that a publication written by an immigration professional would state that only one green card goes with the investment, when the whole family, if there is one, gets in on the act. Further, and a lesser point, I suppose you could consider a polluting factory that creates the sewage a "consumer" of the sewage plant's services.

It is, of course, useful that USCIS has terminated the operation of this Regional Center, though it did so only after a mountain of evidence was on the table. The larger point is that it – and Congress – should also take a broader look at utility of the investor program generally.

Ours is a multi-trillion dollar economy; do we really need relatively tiny bits of alien money so badly that we sell admission to the United States, and sell it at such a low price?

Remember the terms: if there is a family of five doing the investing, each member gets a green card for a two-year-long investment of $100,000. Is that a good deal for the U.S.? Bear in mind that those with the new green cards are otherwise totally ineligible to come to the U.S. legally.

* * *

Since the above was written, the Victorville Regional Center has appealed its ordered demise to the USCIS appellate agency, the Office of Administrative Appeals. While that entity has never heard such an appeal, it is quite prepared to record its (partially censored) judgment on line, after it is written. It will be in folder K2, according to its webpage.

Presumably a judgment will be made and recorded sometime in the next 12 months or so, and when that happens go here and key in "Decisions_issued_in-2010."

There will be a single decision recorded, and though the name of the entity will be carefully blacked out, you can be sure that it is the Victorville case, as it is the only one of its kind.

While OAA has never decided a regional center termination case in the past, it has rejected two appeals from agencies that had been denied initial regional center status by USCIS. One of these was in 2008 and the other in 2009. A quick reading of OAA's lengthy judgments in these two cases suggests, as in the instance of Victorville, that the evidence against the two centers was quite impressive.

My favorite line in the 2008 decision, regarding the Coastal Washington Investment Company, Inc., in Washington State, was this: "The bases of denial included: (1) the appellant's failure to demonstrate that it existed . . ."

The 2009 denial involved a project proposed by Cormony Development, Harrison Development, and the Westport Waterfront Development in the Baltimore area; the judgment noted in passing that this one, rejected for other reasons, called for the installation of 3,750 slot machines.

As we have recorded before, OAA's censorship efforts are, happily, inept. Though the names of the two regional centers were carefully redacted in the headings of the two cases, their identities and/or those of their allies were not always obliterated in the texts of the decisions.

It will be interesting to see how OAA handles the Victorville case.