On Feb. 2, 2016, the Senate Judiciary Committee held its first hearing of the year regarding the EB-5 Program. The Committee took testimony from Chief of the U.S. Citizenship and Immigration Services Immigrant Investor Program Office, Nicholas Colucci, and the Associate Director, Division of Enforcement of the Securities and Exchange Commission, Stephen L. Cohen. Mr. Colucci made a number of noteworthy remarks during his testimony and in response to questions from committee members.
- Regulatory Increase in Program Investment Levels: Mr. Colucci acknowledged that an increase in the investment levels could be accomplished by regulation under the Administrative Procedures Act. He stated that USCIS was working on accomplishing this.
- Issuance of Regulations Regarding Targeted Employment Area (TEA) Designation: Mr. Colucci indicated under questioning that USCIS possessed existing authority to define how TEAs are determined. He expressed a desire by USCIS to draft and issue regulations to provide consistency in the way TEAs are determined across states. He specifically acknowledged that commuting patterns could provide a solution. He also spoke of how USCIS has the knowledge base on staff with their economists.
- Fraud Concerns Trigger Adjudication Holds while Other Agencies Become Involved: Mr. Colucci responded under questioning that if USCIS had concerns about a particular application, the agency would place the application on hold while officials work to involve other investigative agencies.
- Random Site Visits and Auditing of Regional Centers: Mr. Colucci indicated that USCIS will institute random site visits. He also discussed the development of a program for auditing regional centers. USCIS staff confirmed these developments during an EB-5 Program stakeholder call on Feb. 3, 2016.
- USCIS Needs More Authority To Terminate Regional Centers: As Mr. Colucci previously noted during EB-5 Program stakeholder engagements, the current statute and regulations do not provide legal authority to terminate a regional center based on fraud or national security concerns. Mr. Colucci made it clear that USCIS would like Congress to provide this authority.
- Texas, California, Florida and New York Receive the Most EB-5 Investment: What comes as no surprise is that the lion’s share of projects and investment occur in the most populous states in the U.S. (and which have most of the large urban centers).
- 20 Fraud Detection and National Security (FDNS) Experts On-Site with Access to Classified Information: Mr. Colucci stated that the 20 on-site FDNS workers are able to vet regional centers and their principals upon application and on an annual basis. Additionally, these workers have on-site access to classified information to conduct background checks.
During the question and answer portion of the hearing, there were instances when more facts regarding the EB-5 Program could have enhanced the clarity of the discussion. For instance, in almost all of the examples of bad actors, the bad behavior stemmed from the issuer of the securities as opposed to bad actions or other misconduct by an investor. Indeed, many of the investors themselves have been the victims of unscrupulous actors and would also benefit from increased regulatory compliance and oversight.
Another example involved discussion about an EB-5 investor who was believed to have potential financial ties to brothels in China, and whether the agency could ascertain that the investor’s funds were legitimate. However, what the discussion failed to make clear is that the Department of Homeland Security conducts background checks on all applicants under the EB-5 Program, including a rigorous examination of the potential investor’s source of funds. This review potentially entails four separate programs through the Department of Homeland Security, Federal Bureau of Investigation, and the Department of Justice to review an individual’s background. The Immigrant Investor Program Office also has individuals on-site to review classified information against EB-5 Program applicants. Additionally, the Department of State investigates all applicants for a visa through its Security Advisory Opinion process (sometimes known as Washington Special Clearance or administrative processing). This entails special checks, which automatically review certain information against government databases (e.g., individuals born in certain countries will automatically undergo further scrutiny). Moreover, prior to the U.S. government conducting such background checks, applicants under the EB-5 Program will likely be required to comply with U.S. banking regulations, which require strict scrutiny of the origin of deposits, such as Office of Foreign Asset Control (OFAC) restrictions, Know Your Customer (KYC) procedures, Special Designated National checks, among other banking regulations.
Job creation was another point of contention during the hearing, with some skepticism expressed by members of the panel about indirect job creation and underlying methodologies. However, it is worth noting that the most widely used economic methodology to estimate the impact of the investments under the EB-5 Program, known colloquially as “RIMS II,” is administered by the U.S. Department of Commerce’s Bureau of Economic Analysis. In fact, RIMS II is one the most widely used input-output models to measure economic impact across industries, and the man credited with developing this type of economic methodology, Wassily Leontif, won a Nobel Prize in Economics.