BTW, That Really Cool Building in the Background...

...is the Bitexco Financial Tower in steamy, sultry, lemongrass-y Ho Chih Minh City (a/k/a Saigon), location of my favorite flavor of Harvey Law Group's international offices. (-:

Wealthy Asians: PLEASE Read This Before Entering the US as an EB-5 Conditional Resident

Between the greedy US developers, the greedy US lawyers out to make a quick I-526 buck and the greedy Asian migration agents, affluent folks from all over the Far East are being led down the primrose lane to US tax poverty.  Today is Tuesday and in two business days this week, I have personally spoken with three high net worth individuals who have been told by all of the above that "the EB-5 is your best option".

Horsefeathers!

Here's the deal: 

1) US tax residency is based upon physical presence in the US, not migration status; the only individuals exempt from the "substantial presence" test are bona fide full time F-1 student visa holders...not a practical solution for most entrepreneurs.  See the The IRS Substantial Presence Test if you want details.  Even a person in the US for just casual travel becomes liable for worldwide income, capital gain, and estate taxes if they meet this threshold.

2) The vast majority of EB-5 investors from Asia aren't interested in full-time migration to the US but are talked into it.  In most cases -- and forgive the sexist stereotype but, realistically, the investor is the husband not the wife in 90+% of EB-5 situations -- it is best to have Mrs. Investor and children secure EB-5 status while Dad hangs on to his B-1 visa and counts his days in the US.

Please please please do your homework and find an honest US attorney before making the leap to a US green card and global taxation.  There are still a waning handful of honest US attorneys who can wisely advise you regarding your pre-immigration tax options, offshore trust mechanisms, and lawful insulation from the consequences of global taxation...before you sign on the dotted line.  BE CAREFUL OUT THERE!

EB-5 Primer: Understanding the Tax Consequences of U.S. Residency

The accents are for the most part different these days, but the issues are the same: wealthy entrepreneurs from troubled nations writing and calling me as they scramble to relocate their hard–earned assets before corrupt politicians steal what is not theirs.  Twenty years ago the financial exodus was occurring in Brazil, Russia, and the UK.  These days, it’s more than likely a client in China, Vietnam, or a Venezuelan finally pulling the trigger after years of sitting on the fence.   (I should also note that the past month did trigger a fresh round of inquiries from Russians with fast–disappearing assets in Cypriot banks.)  Soon, I believe, as the true measure of the Euro zone crisis becomes impossible to whitewash, a new exodus of European cash will be next.

As a U.S. Atty., one would think that the majority of these folks contact me to discuss U.S. immigration options.  At this stage of globalism, that is not the case.  The very high net worth clients I counsel are generally sophisticated enough to distinguish between immigration objectives and sound financial planning...and know that the two do not necessarily go hand-in-hand.   These days, I would estimate that 75% of those who contact me are looking for a solution designed to protect their investments and assets from expropriation, inflation, and devaluation, most often the result of corrupt politicians and their home country. 

The more problematic clients are those who are looking at U.S. immigration options, most of whom find me after being ill-advised by a swarm of commission-starved U.S. developers, U.S. attorneys, and foreign migration agents who are far more concerned with profiteering than with protecting the client and finding the best solution for his or her particular needs.  At least once a week I will tell a client that if I were secure to U.S. residency for someone with his or her foreign assets and income, I would be committing malpractice.  IMHO, that is exactly what is happening in China on a daily basis, primarily through EB-5 "force feeding" by the increasingly fractured and greedy migration agency system required by the GOC.

So, more often than not, instead of directing that very high net worth client toward EB-5 – even my beloved, hand-crafted Lake Point EB-5 – I advise them on the implications of becoming a U.S. tax resident and help them relocate assets to an appropriate tax free jurisdiction – pricey Singapore and ever-reliable Bahamas are my favorites these days – so they can park their assets, quit stressing out about the local financial chaos in their home country, then take a deep breath and intelligently consider U.S. immigration from an intelligent and informed standpoint.

It is striking to me that, by my estimates over the past 2-3 years, 3 out of 4 EB-5 investors have given zero consideration to the issue of global taxation as it relates to their U.S. residency.   As a result, many of these folks – especially those from the Far East and Russia, as my Middle Eastern, Latin American, and European clients are generally more informed about U.S. tax laws – have no idea that after they get their conditional green card, the sale of the family farm back home will generate capital gain tax liability in the U.S.; that the earnings of their profitable factory in a third country are considered taxable in the U.S.; that U.S. estate taxes can devour foreign assets after the death of a new U.S. resident who did not plan ahead.

It is, therefore, CRITICAL for a prospective U.S. resident having a substantially high net worth to examine these issues BEFORE they immigrate to the U.S. There are many folks I can help and guide on the subject of pre-U.S. immigration tax planning, and then there are some folks who require a level of expertise which goes far beyond my own.  When that is the case and the stakes are particularly high, I send them all to Steve Cantor, who is the best in the business.

Don’t get me wrong...I would love to see you invest in our Lake Point EB-5…but I would much prefer to see you do so with the peace of mind which comes from advance planning and guidance on the impact of U.S. tax residency on your assets.

Jose Latour Wins ALM International Law Recognition

Those of you who have known me over the years know that in the past decade my law practice focus has gradually shifted from a comparatively tame investment-based U.S. immigration focus toward a rather complicated, frequent-flyer-mile-racking, odd fusion of:

1) EB-5 project structuring for private and public U.S. clients;
2) International asset management for high net worth foreign clients;
3) Analytics and sourcing of public funds/grants for U.S. projects and;
4) Private equity sourcing and international joint venture structuring.

It has become increasingly difficult to describe "what I do" succinctly (as if I could ever do anything "succinctly"...(-:)

But fortunately for me, the good folks who publish Corporate Counsel and The American Lawyer magazines have managed to squeeze this chorizo-esque mishmash of practice areas into the category of "International Law & International Trade", and I am humbled to receive this peer-driven award.  A big "Thank You!" to my unknown colleagues out there who's quiet faith in me made this happen...

 Press Release for Jose's American Law Media Award

The Inexcusable I-526 Limbo

When even a Senator can't get the Director of USCIS to "unstick" inexcusable I-526 adjudication delays, it's time to write the White House.  Let's see if Mr. Obama is serious about his "Invest in America" agenda...or whether USCIS inaction will lead to an exodus of EB-5 investment capital and ghosts of jobs that never were...

Dear Mr. President:

I am a former Reagan FSO who has practiced investment immigration law for over 20 years.  I am also co-owner of American Venture Solutions Regional Center, a USCIS-approved EB-5 Regional Center in Florida, the only EB-5 Regional Center owned & managed by a Forbes 400 group.  The EB-5 program has been the most successful foreign direct investment (FDI) initiative in the history of the U.S.  Unfortunately, USCIS delays are costing local communities tens of millions of dollars in FDI because of drastic adjudication delays in EB-5 investor petitions.

EB-5 investors, promised 8 month adjudication timelines by USCIS, are now waiting in excess of 14 months with no end in sight.  In December I was promised in writing that our first two long-delayed investor's cases would be adjudicated "within 30 days".  To date, three more inquiries have resulted in polite responses, saying essentially "we are sorry, we are indeed behind."

Since last year, Florida Senator Bill Nelson has done his best to get answers for our investors...only to receive the same response I received.  Senator Nelson has even personally spoken to USCIS Director Mayorkas several times regarding the "stuck" EB-5 cases and millions in job-creating capital the delays are causing Florida but to no avail.  As a result, hundreds of frustrated foreign investors are saying "give us our $500,000, we do NOT want to invest in a country which breaks its promises."  And for every investor who comes to that conclusion, that's ten American jobs which will never be.

Numerous approved EB-5 Regional Centers are losing or close to losing their EB-5 investors as a result of these inexplicable delays.  Their pending I-526 petitions are exceedingly simple adjudications, with a single focus: "can the investor document full the legitimacy of their source of funds?"  The rest - the Regional Center and its project --has been approved and adjudicated by USCIS already.  Instead of getting these funds to work in creating American jobs, USCIS continues to prioritize the adjudication of pending I-924 applications from more Regional Centers, the vast majority of which invariably fail to raise EB-5 capital.  If we can't meet our end of the EB-5 bargain for the investors risking their capital, an even smaller percentage of Regional Centers will actually be able to raise EB-5 investment funds...which is the critical component of the program.  We need the investors visas approved for funds to break escrow and American jobs to be created.  That, Mr. President, should be USCIS resoundingly clear adjudication priority.

Mr. President, your Invest in America efforts have sparked a new interest in FDI in the US, and EB-5 is a big part of that.  But these efforts are foundering over a very simple matter.  If we want to create jobs with EB-5 at-risk capital, you need to directly order USCIS to approve these long-past-due I-526 investor petitions immediately, before our national credibility is destroyed and tens of thousands of US jobs vanish in the wake of an impenetrable bureaucracy.

Respectfully,

Jose E. Latour

 


 ALSO:

Take a look at Ron Klasko's incisive analysis of the inactivity in 526 processing:

Ron Klasko First Quarter Review of EB-5 Processing on ILW

Proliferation of EB-5 "Funds" Spells Trouble for Developers

There is one indisputably clear "job creation" impact of this whole EB-5 business:  it is sure opening one heck of a lot of new collateral businesses within and without the U.S.  Consider:

• While there were but a handful of immigration attorneys creating complex EB-5 Regional Center structures just a few years ago, we suddenly have hundreds of self-proclaimed experts all to happy to put together an RC.
• China has the only organized, government-licensed (if somewhat less than ethically pristine) immigration agency structure on earth, but there are suddenly of "immigration agents" in Russia, Brazil, you-name-it aggressively marketing their proven EB-5 results (??) to U.S. EB-5 projects
• The notion that there is this big, long-line of prospective EB-5 investors lined out the door of each of us who work in this business has triggered a rapid growth in mezzanine debt providers who claim they can use EB-5 investment "pools" to provide short term venture capital to desperate U.S. developers.

I'm not going to get into the cornucopia (hey, give me a break, it's almost Thanksgiving and I never get to use that word) of SEC violations associated with the notion of collecting money from an investor as the law requires (i.e., via a Reg D or Reg S exemption to registration) and putting that money elsewhere.  I won't dwell on the notion that you can raise venture capital via a private placement without fulling disclosing the specific use of the funds under U.S. securities and state blue sky lies (you CAN'T.)  And I won't harp on the AMPLE adjudicatory history, stakeholder dialogue, and regulatory guidance which makes it crystal clear that USCIS wants to see a specific EB-5 investor's money go into a specific, USCIS-approved EB-5 project and NOT into some vague, general-purpose capital stack distributed for multiple, unrelated projects.

I will simply leave you with a blog entry from my friend Boyd Campbell, who finds this whole mess as downright absurd as I do.  Be careful out there, my sophisticated developer friends, the investors in China aren't the only ones getting bamboozled. 

Boyd Campbell's excellent blog about USCIS policy wavering

EB-5 Marketing: Time for a Post-China Vision

Last June, I had the privilege of serving as discussion leader in Nashville at ILW's annual EB-5 Summit, held in concurrence with the American Immigration Lawyers' Association's annual national convention.  During a morning break between sessions, my dear friend Sam Udani -- the founder of ILW, the Web's foremost resource on U.S. immigration law -- leaned over and whispered something he'd said to me a year earlier, in New York:

"Jose, never mind the expiration of EB-5; next year we are going to RUN OUT OF EB-5VISA NUMBERS!"

It made sense the first time he'd said it in New York, I'd had time to think about it...and history was rapidly proving him right: we knew that FY 2012 EB-5 numbers were going fast compared to FY2011 (in the end, 7500+ EB-5 slots went in '12, an increase of 3500+ in '11; what an awful lot of people in the EB-5 world don't seem to remember is that the 10,000 cap doesn't just count the EB-5 investors...it counts spouses and children as well, and that looming 10K cap is pretty much around the corner!).  I agreed with Sam, so I brought up the subject of hitting the 10,000 cap later that day at the seminar in Nashville; we echoed each other's comments, but, alas, we were two lone voices crying in the wilderness: the fear of the looming September 30th termination of the last EB-5 Pilot Program extension was all anyone wanted to talk about.

Well, fast forward a few short months and, as Sam predicted, we are there:  the December 2012 Visa Bulletin issued by the State Department -- the monthly calculation on the consumption of U.S. immigrant visa numbers --  says the following about EB-5 visa availability (excerpting the EB-5-specific language and highlighting key points excerpted):

Employment Fifth:  Current*

*The following advisory is based strictly on the current demand situation.  Since demand patterns can (and sometimes do) change over time, this should be considered a worst case scenario at this point.

It appears likely that a cut-off date will need to be established for the China Employment Fifth preference category at some point during second half of fiscal year 2013.  Such action would be delayed as long as possible, since while number use may be excessive over a 1 to 5 month period, it could average out to an acceptable level over a longer (e.g., 4 to 9 month) period.  This would be the first time a cut-off date has been established in this category, which is why readers are being provided with the maximum amount of advance notice regarding the possibility.

The above projections for the Family and Employment categories are for what could happen during each of the next few months based on current applicant demand patterns.  The determination of the actual monthly cut-off dates is subject to fluctuations in applicant demand and a number of other variables which can change at any time.  Those categories with a “Current” projection will remain so for the foreseeable future, with the possible exception of the China Employment Fifth preference category mentioned above.  

As someone who has spent roughly 50% of the past 12 months in and around China, I can tell you this: the momentum for interest in the EB-5 has never been greater, and the capping of investor visa opportunities in China's key historical outlets for this type of migration -- Canada and Australia -- has only increased demand.  It is my personal opinion that just as key family and work visa categories have historically backlogged from high-demand countries, the same will happen with EB-5...and China is the number one demand market for the EB-5 investor visa.

So, as a Regional Center just entering the EB-5 game or even pending approval, what do you do?  You develop a multinational marketing plan which identifies investor opportunities in different global regions.  While it would be silly to say that any one or even cluster of these other markets can numerically compete with Chinese EB-5 demand, consider the damage that has been done within the China market by unscrupulous projects, agents, and structures.  Chinese investors and the agents who, under Chinese law, MUST represent them, view even the most bulletproof deals with a jaded perspective as a result of all the really bad EB-5 deals pushed upon them.  (When I was Fraud Officer in Ciudad Juaraz, Mexico 20+ years ago, about 80% of the marriage-based visa interviews I conducted revealed sham marriages for visa purposes only; it is human nature to become cynical after repeated negative experiences, and I remember having to remind myself daily about the 20% of couples, the bona fide marriages...).

Add up this new reality, long ago foreseen by the inimitable Mr. Udani to this embattled China EB-5 market and the logistics of getting investment funds legally out of China after the accredited investor is on board and you have to ask yourself:  "is there an easier way?"  I'm not going to pretend I know the answer to that but I do know this:

• There is increasing interest in the EB-5 materializing in countries like Mexico and Brazil, powerhouse economies with LOTS of qualified EB-5 prospects looking for a Plan B;
• Chavez' reelection will trigger an assured continued exodus of the country's affluent business leaders, who are increasingly concerned about the careening Venezuelan economy;
• Russian, Kazakh, and Pakistani business owners and professionals -- the men and women who meet the SEC definition of "accredited investor" not by virtue of bloodline but by virtue of decades of tireless hard work and relentless saving, often as expatriates in remote locations -- are seeing the respective implosions of their own nations in various ways, shapes and forms.

I've spent more than half my time this past year focusing on marketing Lake Point Capital Partners in the Far East, and it's been an amazing year.  Five years ago, when I was first carefully educated into even believing that EB-5 could really work fairly by Pat and Kraig of EB-5's game-changer, CMB, we experimented with marketing EB-5 in the Latin markets I knew so well.   Later, when Lake Point was an infant EB-5 deal in diapers, Jud and I hit Dubai.  The results in both cases were, candidly, less than spectacular.  But this past September, when I visited Pakistan, it was a different story.  The world, my friends, is catching up with EB-5 and America is still the best place on earth to assure a bright future for your children.

The point is this:  I'll still be pounding out seminars in the Far East, but I truly believe it is time for diversified marketing approaches for EB-5 projects.  As so many more legitimate U.S. developers understand and delve into EB-5 structures, it is MHO that, for new projects entering the world of EB-5, a China-only model is no longer feasible.