Global Policy Forum

By Eric Schmitt

A Federal program that grants wealthy foreign investors permanent residency in the United States is being manipulated, the Immigration and Naturalization Service says, with investors' money being pooled so that most of them obtain residency visas making the required investment. The program, established by Congress in 1990, envisioned wealthy foreigners investing directly in American businesses. But in recent years, a cottage industry of consultants has rung up to pool money in creative from the foreigners, who under program must invest at least $500,000 in an American business that creates or saves jobs. In return, foreigners receive a permanent residency visa, or green card, the document that is the first toward American citizenship.

A six-month Government review concluded last month that many of the consulting firms that link the immigrants to business opportunities in the United States had improperly exploited loopholes to guarantee rates of return and limit investor risk . Under some consultants' plans, for example, foreigners would only to pay about one-third of the required $500,000 investment, with a missory note for the rest that could eventually be forgiven by the consulting firm or the American business. "These plans do not meet either the spirit or the letter of the law established by Congress," said Russell Bergeron, a spokesman for the immigration service.

But when immigration officials moved this year to revoke more than 5000 visas granted under the proam, mostly to immigrants from Taiwan, China, South Korea and Hong Kong, a number of influential lawmakers from both parties, including Senator Edward M. Kennedy, Democrat of Massachusetts, protested that the Government was changing the rules in midstream. The immigration service, the lawmakers said, knew all along what the investors were doing and never raised an eyebrow when the Government approved the visa petitions. The lawmakers criticized a freeze the agency has imposed on most new visas until it sorts out what kinds of investments are allowed. They contend that the freeze has stymied growth in economically depressed parts of the country that the program was intended to help invigorate. "For months, American jobs, created by the investor visa program, have been ensnared in bureaucratic red tape," said Representative Lamar Smith, a Texas Republican who heads the House Judiciary subcommittee on immigration. "Job opportunities have been stifled by a heavy bantled Government agency."

In response to the criticism, the immigration service backtracked a bit late last month, allowing 1,500 investors and their families, who had received conditional green cards and completed a two-year waiting period, to stay in the United States. But hundreds of other applicants in the pipeline will have to refile their visa petitions under new guidelines being developed. Critics say the immigration service did not publicize this decision, leaving immigrants and their lawyers in limbo. "The immigration service is wreaking havoc on everyone's lives, and it makes zero sense to me," said Denyse Sabagh, a former president of the American Immigration Lawyers Association, who now represents one of the consulting firms. The issue has rekindled a fierce debate over the propriety of using permanent residency visas to attract foreign capital and create, or at least save, American jobs.

The uproar also underscores deficiencies in the immigration service. Its loosely worded regulations are an easy target for consulting firms looking for loopholes. And its examiners, who are trained to ferret out most routine immigration fraud, are ill equipped to address increasingly complicated financial plans. "The I.N.S., unlike the I.R.S., isn't typically an agency that has to police against highly sophisticated investment devices," said David A. Martin, the former general counsel of the immigration service whose blistering 36-page memorandum last December became the centerpiece of the Government's review of the program.

For the immigration service, the visa program is the latest in a string of contentious issues to catch the attention of the Republican-led Congress, which over the past year has criticized the agency for wrongly naturalizing tens of thousands of immigrants and which has even suggested abolishing the service. The immigrant investor program, which offers 10,000 visas a year, has never caught on the way its proponents had hoped. Until two years ago, the immigration service never issued more than 600 visas a year to investors and members of their immediate families. Congress created the program to compete with other countries, including Canada and Australia, that offered similar visas to attract foreign capital and create jobs. But the American model required larger investments, the hiring of at least 10 employees who were not related to the investor, and an audit two years after the visa was issued to insure the investment and employees were still in place.

In the past two years, immigration officials say consulting firms have devised savvier business plans for immigrants to use and stepped up their marketing, particularly in Asian and Middle Eastern publications. The number of visas issued to investors jumped to 1,110 in fiscal year 1997 from 295 visas in fiscal year 1996. At the same time, American consular officials in Tokyo, Taipei, Guangzhou, Seoul and Hong Kong raised questions about dozens of visa petitions. Consuls found that many plans called for a down payment, typically $150,000 on a $500,000 investment, and arranged a promissory note for the rest. After two years, the investor would get a green card and then, the plans suggested, remaining $350,000 would be forgiven.

Last month, the California Department of Corporations ordered a Virginia-based firm, Interbank Immigration Services, to stop offering investment programs to wealthy immigrants. The company, California officials said, promised qualified immigrants a green card within eight weeks if they bought a stake in a Delaware limited partnership. The stakes were in turn sold to a Bahamian enterprise for an annuity that matured in five years. But state officials said investors had no guarantee that they would realize the promised benefits. Reports like this prompted the imigration service to conduct its review "Little by little, the program may have gotten out of control," said a State Department official familiar with the visa program.

But many consulting firms say at they have followed the rules and that they are being penalized for the abuses of a few or by lax oversight immigration officials. One such firm, American Export Partners of Charleston, S.C., has pooled more than $8 million in cash and promissory notes from investors, mostly from Asia, and, with the Government's blessing, created a commercial financing company to make loans to American exporters. Thirty-eight of the firm's investors ave received green cards, said Timothy D. Scrantom, a managing director. One loan was a $750,000 line of redit to Pillow Perfect, a bedding manufacturer in Woodstock, Ga. "They're providing financing for my company to grow and hire more people," said Paul Ratner, president of Pillow Perfect, whose work force has increased to 50 employees from 20 employees in the past two years.

Mr. Ratner said that he had consulted several local banks but that American Export was "more competitive and easier to deal with." Other middlemen are changing their marketing practices to address the Government's complaints. One of the largest consulting firms, AIS of Greenbelt, Md., said it sent a revised business plan to the immigration service in February. ' 'Things are continuing to evolve," said William P. Cook, a lawyer for AIS who was the immigration service's general counsel when the visa program was created.

The immigration service insists that it still supports the program but with several changes - and plans to ask the Commerce Department and Small Business Administration for technical help in reviewing future immigrant-investor financial packages. But immigration lawyers and their clients say the program will stay stuck in neutral until the immigration service drafts a clear set of rules for the industry and immigrants to follow. "What we need now is for the I.N.S. not to issue more general counsel memos, but regulations", Mr. Cook said.