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The Government Accountability Office (GAO) recently reviewed the risks and economic benefits of the EB-5 program. The report addresses several challenges related to the EB-5 program that have been highlighted in recent years, and which are addressed in legislation currently pending in Congress.

The congressional requesters asked the GAO to examine the following:

  • The extent to which U.S. Citizenship and Immigration Services (USCIS) and its sister agencies have assessed risks of fraud in the program, and what risks have been found;
  • The extent to which USCIS has put into place procedures to address and identify risks within the program;
  • The extent to which USCIS has expanded its capacity to verify job creation, including the use of reliable methodologies to report economic benefits of the programs.

The report’s top line findings were as follows: while USCIS had worked with its partner agencies to identify fraud risks, such assessments are not ongoing. The GAO reported that USCIS acknowledged that it did not have current plans to systematize such assessments. The GAO noted that USCIS stated that fraud-related risks were evolving. Specifically, the GAO received information from agency officials relative to areas of concern for fraud risk that included determining an investor’s source of funds and the legitimacy of an investment entity. The GAO made clear that USCIS had taken steps to enhance its oversight and focus resources effectively, but also noted that weaknesses in its information systems present challenges to most effectively using data collected to identify such risks.

The report also focused on USCIS’ ability to report the program’s economic benefits, noting that USCIS’ increase of its EB-5 workforce, and its enhanced technical sophistication, has increased its capacity to verify job creation through the program.  The GAO reported that USCIS’ reporting methodology can both overstate and understate economic benefits resulting from the program. The GAO recommended that USCIS implement better information collection procedures; though it also acknowledged that USCIS does not believe it has the statutory authority or mandate to develop a more elaborate mechanism to collect such information.

As part of its study, the GAO interviewed numerous parties associated with the EB-5 program, from USCIS adjudicators and economists, to regional center principals and FDNS and IPO supervisory officials to gain insight to its queries.  The GAO also reviewed the economic models to estimate job creation and interviewed the appropriate subject-matter experts. The GAO also reviewed two reports issued by the DHS Office of Inspector General (OIG) on the EB-5 program: a report published in December 2013 focused on USCIS’ ability to terminate a regional center based upon national security concerns and determining whether the program was benefiting the U.S. economy and fulfilling job creation requirements. The second report, from March 2015, found that a former director created the perception of favorable action toward some program stakeholders.

The GAO’s Findings

As a result of its inquiry into the fraud risks and economic benefits of the EB-5 program, the GAO found the following, summarized below:

Source of Immigrant Investor Funds

The GAO reports that it can be difficult for USCIS adjudicators to verify the lawful source of investor funds, which is then identified as a fraud risk. The GAO assessed 150 petitions designated as “high risk” for fraud concerns, and the Fraud Detection and National Security Unit (FDNS) determined that the source of funds contained a risk of fraud, including counterfeit documents and the inability to verify information from foreign banks. The U.S. currently has some limits in verifying foreign banking information, though it does have agreements with certain countries to exchange financial information.

Legitimacy of Investment Entity

Regional centers and their operators have been under recent scrutiny by USCIS for potential fraudulent investment schemes. The GAO report cites two instances where the regional center was found to have defrauded investors. According to the report, there are concerns relating to the inability of the U.S. government to fully investigate foreign-based sales and marketing practices abroad.

Appearance of Favoritism in Program Administration

The GAO referenced a report issued by the DHS Office of Inspector General that examined actions by a former USCIS director, which concluded that the former director created an appearance of favoritism. The GAO noted that following the issuance of that report, the Secretary of Homeland Security instituted protocols to prevent agency actions that could give rise to such an appearance of favoritism.

Steps Taken by USCIS to Address Fraud Risks

In response to the risks identified above, the GAO recognized that the USCIS has taken some steps to mitigate fraud risks, including:

  • Changing its organizational structure: USCIS restructured its EB-5 program operations and moved all activities from California to Washington, D.C. USCIS also established a fraud specialist unit within FDNS, in addition to increasing its staff to be well equipped to ensure program integrity.
  • Establishing fraud awareness training: USCIS is committed to deterring fraud, and has invested in training programs. Examples include programs focused on detecting evidence that may indicate money laundering, and developing an “EB-5 University” to address evolving fraud issues.
  • Law enforcement collaboration: USCIS has increased its coordination with law enforcement agencies, and as such, has expanded the scope of background checks.

The GAO identified some shortcomings regarding the USCIS ability to collect information to detect and mitigate fraud risks. Specifically, the GAO identified certain programs and processes that it believed merited improvement, summarized below, and noted that USCIS is taking steps to address the concerns:

  • Electronic Database

The report found that USCIS does not have the appropriate electronic databases to conduct fraud-mitigating activities. For example, the information on Form I-924 concerning regional center principals is not required to be entered into the database, and as such, this information is never run through a database or background checks. To remedy this, USCIS will begin utilizing its Electronic Immigration System to capture all data, though the system has been delayed for nearly four years and costing over $1 billion.

  • FDNS Site Visits Are Limited

FDNS currently conducts site visits if the Immigrant Investor Program Office (IPO) staff uncovers a material concern regarding the project and the information cannot be verified. In response, USCIS plans to implement additional random site visits in 2015, and to hire eight additional EB-5 program staff for this purpose.

  • Interview of Investors Applying to Remove Conditional Permanent Resident Status

The GAO found that USCIS has not interviewed any immigrant investors applying to remove the conditions on his or her permanent resident status. The GAO recommends that interviews could lead to more information gathering and could lead to corroboration with the information given at the I-526 stage of the petition process. USCIS agreed with the GAO’s recommendation, and will develop a plan to implement enhancements to data collection procedures, including the possible use of interviews, to be completed by September 30, 2016.

  • USCIS Does Not Collect Certain Applicant Information

The GAO reported that USCIS is not capturing certain information that may help mitigate fraud. Specifically, USCIS does not collect information from third parties associated with the regional center or the project, including the businesses supported by the regional center, advisors, foreign brokers, marketers, attorneys, and advisors. USCIS has stated that it is currently drafting a revised Form I-924 to capture this information. 

National Security

A large part of the GAO report is dedicated to national security issues and USCIS’s ability to terminate or deny an application based solely on credible concerns. USCIS recognizes that national security concerns are grounds for denial at the adjustment of status stage, but it does not believe it has the authority to terminate a regional center on national security grounds unless there is an eligibility ground (relating to EB-5 eligibility) that has not been met. The GAO reported that there are some regional centers that are allowed to operate by USCIS despite national security concerns, and recognizes that currently pending legislation in Congress will address these issues. USCIS currently conducts a minimum of one fraud, national security, or intelligence assessment on the program on an annual basis, and will continue to do so.

Methodology for Calculating Jobs

The December 2013 OIG report claimed that USCIS lacked the necessary means to evaluate job creation. In response, USCIS hired 22 economists who have all undergone training. In addition, USCIS has provided its economists with access to data from the RIMS II economic model, noting that it is the model most often utilized and measures indirect and direct jobs. The GAO reported that the RIMS II data does not provide USCIS the ability to determine the exact location of the indirect jobs created through the program.

Reporting EB-5 Outcomes

The GAO reported that USCIS does not have the proper tools to track the outcomes of investment and job creation, and that as a result it may overstate or understate the economic benefits of the EB-5 program. The GAO found that 26 percent of investors have not finished the program, and as such, recommends that USCIS track all data entered on Form I-526 and I-829. USCIS concurred in the recommendation and will develop a plan to collect data on investment amounts and job creation, to be done by September 30, 2016.

A concern reflected in the GAO’s report is whether immigrant investors should be able to claim jobs created by other investors in the project who are not seeking a green card, as permitted by controlling regulations. The GAO reported the views of the IPO, which recognizes that EB-5 capital is critical to the viability of many projects. There GAO recognized that there are numerous industries, including manufacturing, that would not be able to generate the required number of jobs if it relied solely on jobs created by the EB-5 investment at current investment levels.

Study to Address Overall Program Benefits and Cost of the EB-5 Program

The GAO report recommends that the Department of Commerce’s Economics and Statistics Administration (ESA) should complete its study on the EB-5 program and its associated costs, specifically weighing the cost of running the program against the benefits that immigrant investors bring to the United States, such as tax payments, consumer spending, and job creation. The GAO believes it is important to measure a program’s net economic impact, and the GAO recommends that this study strive to do so. The USCIS IPO concurs and will include relevant program costs in the study, to be published November 30, 2015.

Conclusion

The GAO’s report highlights a number of areas for improvement within USCIS. These recommendations are largely directed toward ensuring program integrity and better collection and use of data received from regional centers and immigrant investors to measure program performance. It is noteworthy that USCIS, in its letter response to the GAO, concurred in all four of the GAO’s recommendations.

Given the breadth of the GAO’s report, please check back for additional posts following up on this overview, including examining the way in which legislation currently pending in Congress, if enacted, would address the GAO’s findings.

The EB-5 Investment Coalition, co-chaired by Managing Shareholder Laura Foote Reiff, joined forces with key members of the EB-5 industry to advocate the reauthorization of the program before the September 30, 2015 expiration date.

On August 5, 2015, an EB-5 Stakeholder Letter was hand-delivered to key Members of Congress of the Senate and House leadership and chairmen and ranking members of the Senate and House Judiciary Committees. A copy of the letter was widely circulated to various staff members in Congress, as well as staff of both the Senate and House Judiciary Committees.

The EB-5 Stakeholder Letter encouraged these key leaders to continue the dialogue on extending or making permanent the EB-5 program, and in coming to a consensus on the necessary reforms and changes needed for the program as the program gains even more momentum and use. With the September 30, 2015 expiration date looming, the letter brings attention to the benefits of the EB-5 program by highlighting the key projects and industries it assists through foreign capital investment. The letter also highlights the economic impact the program has had on the U.S. economy, both in terms of job growth and capital investment. Finally, the letter commends Senators and Representatives for their leadership so far and encourages continued bipartisan cooperation to achieve the program’s timely reauthorization. Continue Reading Key EB-5 Industry Leaders Encourage Congress to Reauthorize the EB-5 Program

On Sept. 28, 2012, just two days shy of its expiration, the EB-5 Regional Center Program was extended for three years when President Obama signed S.3245 into law.  The bill was sponsored by Senator Patrick Leahy, and cosponsored by Senators Grassley, Kohl, Hatch, Rubio, Schumer, Lee, Conrad, and Collins.  It had no short title, listed as a bill “[t]o extend by 3 years the authorization of the EB-5 Regional Center Program, the E-Verify Program, the Special Immigrant Nonminister Religious Worker Program, and the Conrad State 30 J-1 Visa Waiver Program.”   

Senate bill 3245’s unanimous approval in the Senate and overwhelming passage in the House on a vote of 412-3 did not reflect the challenges and compromises that were made along the way.  For example, when the bill was first introduced in the Senate on May 24, 2012, it provided permanent reauthorization for the four expiring programs.  Section 5 of the bill, which provides that “nothing in this Act may be construed to authorize the planning, testing, piloting, or development of a national identification card,” was an addition by a senator, who leveraged the ability all senators have to single-handedly block a unanimous consent agreement. 

In the years following the enactment of S.3245, the EB-5 Regional Center Program has experienced tremendous growth.  According to a recent report commissioned by the EB-5 Investment Coalition, and authored by U.S. Policy Metrics/Hamilton Place Strategies, which Laura Reiff wrote about here, the EB-5 Program generated $5.2 billion in private investment between 2005 and 2013, with $1.6 billion invested in 2013 alone.  It is only since 2008 during the height of the financial crisis that the program began approaching its full potential as a driver of economic growth. The U.S. Department of State’s collection of annual visa issuance data is illustrative of the program’s trends.  By all accounts the upward trajectory will continue as EB-5 has increasingly become a credible and mainstream source of capital for developers and other entrepreneurs.  In light of the EB-5 Program’s growth between 2012 and 2015, the senators and representatives who voted in favor of S.3254 over-delivered on the promise of jobs and capital investment.    

The EB-5 Regional Center Program’s economic track record since 2012 is impressive.  But recent increased scrutiny on the program from lawmakers, the Government Accountability Office, and the Department of Homeland Security Inspector General—in part symptoms of its own rapid growth and success—have made the reauthorization process more complex.  This, combined with a variety of competing policy ideas about improving the program, counsels all stakeholders to expect an equally, if not more unpredictable and bumpy road to the next reauthorization.   

Even against a complicated legislative backdrop, however, the impending sunset of the EB-5 Regional Center Program presents lawmakers with a real opportunity to work together to strengthen the economy, reduce unemployment, and bolster the confidence of those who wish to invest in the United States.  And this opportunity is an entirely deficit-neutral way for elected officials to benefit the national interest in a very direct and immediate way.  As senators and representatives return to their states for the August recess, EB-5 stakeholders should take the opportunity to share the good work they have been doing with their elected officials.   

September 30, 2015 is edging closer as the legislative days in Congress are waning.  But there is time for Congress to act swiftly to sustain the EB-5 Regional Center Program as a vital engine for economic growth and avoid the disruption a lapse would cause.  If we have observed anything over the past few years in Congress, it is that senators and representatives are capable of coming together and making law where and when it counts. 

 

shutterstock_74614888Immigrant entrepreneurs and investors have always been at the core of the American economy.  Immigrant-founded companies have generated billions of dollars in revenues and contributed intellectual property leading to significant socio-economic advancements within the United States.  Foreign-born entrepreneurs are a critical component to the advancement of the U.S. emerging technology space and it is important to note the variety of visa options available.  This initial post will provide an overview of the nonimmigrant and immigrant visa options available to entrepreneurs and investors in the emerging tech space with future posts focusing on the visa specifics. Continue Reading U.S. Immigration Visa Options for Entrepreneurs and Investors in the Emerging Technology Space

EB-5 has been alive for 25 years. As part of the program’s silver anniversary celebration, we should be working diligently towards making the Regional Center program permanent. This is not just a wish, but a distinct possibility with the right efforts made by the stakeholders.

The Regional Center program has grown much more popular in recent years. It has attracted the majority of EB-5 capital and aided in the most job creation in the history of EB-5. The Regional Center program has remained a pilot program subject to renewal every three years, and it is scheduled to expire Sept. 30, 2015.

The regional center program has been extended every three years since 1993.

While the program has come under political attack in recent months with a few members of Congress intimating that it should expire or be revamped, the EB-5 Coalition, a broad-based group of trade associations and stakeholders, believes this opinion is misplaced as a result of a small number of bad actors in the EB-5 space.

Continue Reading Why EB-5 Legislative Reform is Very Possible This Congress

The EB-5 program is currently at risk of expiring Sept. 30, 2015.  Congress needs to act immediately to reauthorize this program which has a proven record for stimulating the economy and creating hundreds of thousands of jobs. On March 23, 2015, Congressman Jared Polis (D-CO) released a statement explaining the merits of the EB-5 program and the reasons why this program should not be further delayed in partisan debate.

On Jan. 28, 2015, Congressmen Jared Polis and Mark Amodei (R-NV) introduced The American Entrepreneurship & Investment Act of 2015 [HR 616] in a push to permanently authorize the EB-5 Immigrant Investor program.   The bill has received strong support from the real estate, business, and tourism industries, also evidenced by the EB-5 Coalition’s final letter supporting HR 616 released earlier this month.  The legislation makes the following proposals: Continue Reading Legislation Needed to Make EB-5 Program Permanent

On March 7-8, 2015 Greenberg Traurig, LLP served as co-hosts of the third annual U.S. Investment Immigration Forum (USIIF) in Shenzhen, China.  The event brought together over 70 migration agents, regional centers and attorneys to discuss the latest updates in EB-5 including the issues in source of funds processing for Chinese nationals, status of the Regional Center Pilot Program reauthorization on Capitol Hill, as well as a report from migration agents regarding the Chinese investment climate.  Kate Kalmykov delivered a keynote address on the topic of EB-5 visa retrogression which discussed the impending backlog, the process for pending cases when retrogression is imposed, and alternative solutions for eligible Chinese applicants to process for their immigrant visa.  Immigration attorneys Laura Reiff, Jennifer Hermansky and Kate Kalmykov also served as panelists over the course of the two days on various panels related to hot topics in EB-5.  Securities attorney Batya Goodman participated on the securities law panels and discussed the importance of proper disclosure in the drafting of EB-5 project-related private placement memorandums, broker/ dealer issues, and due diligence concerns.  The event was co-hosted by the Shenzhen Cable TV company and was televised to millions of viewers across China.

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Greenberg Traurig attorneys Jennifer Hermansky, Batya Goodman and Kate Kalmykov at the USIIF 2015 Conference in Shenzhen. Hermansky, Goodman and Kalmykov presented on various EB-5 topics throughout the day.

Continue Reading Greenberg Traurig Co-Hosts U.S. Investment Immigration Forum 2015 Conference in Shenzhen, China

On Jan. 28, 2015, Congressmen Jared Polis (D-CO) and Mark Amodei (R-NV) introduced the American Entrepreneurship and Investment Act of 2015, which seeks to update and permanently authorize the EB-5 Immigrant Investor visa program. The bipartisan measure follows long-standing calls from numerous groups in the commercial, residential, hospitality, retail, and real estate industries to make the EB-5 Immigrant Investor visa program, currently due to expire at the end of Fiscal Year 2015 (Sept. 30, 2015), a permanent feature of U.S. immigration law.

The new legislation, among other goals, aims to improve the EB-5 Program by addressing key administrative and substantive concerns with several key proposals, including: Continue Reading Congressmen Polis (D-CO) and Amodei (R-NV) Introduce Bipartisan Legislation to Permanently Authorize the EB-5 Program

International law firm Greenberg Traurig, LLP announced this week the opening of a new office in Tokyo, Japan. The Tokyo office is the firm’s third in the Asia region and will work collaboratively with existing teams in Shanghai, China and Seoul, Korea. As Greenberg Traurig’s 37th office worldwide, Greenberg Traurig Tokyo Law Offices will be operated by Greenberg Traurig Horitsu Jimusho, an affiliate of Greenberg Traurig, P.A. and Greenberg Traurig, LLP.

The Tokyo office will be led by an award-winning team of English-speaking Japanese lawyers. Shareholder Koji Ishikawa, managing shareholder of the new office, joins from DLA Piper, and shareholders Yuji Ogiwara and Koichiro Ohashi, co-chairs of the firmwide Japan Practice, join from White & Case.

The office opening is responsive to client needs and the global business community’s growing interest in Japan. Against the backdrop of the questionable viability and time horizons of various so-called “emerging markets” and major investments therein, the long-term strength and stability of the Japanese economy, government, and culture paint a compelling picture for Greenberg Traurig and its client base.

The attorneys opening this office are experienced practitioners in their fields and licensed in both Tokyo and New York. Ishikawa advises clients on corporate finance and capital markets transactions. Ogiwara focuses on Japanese employment litigation, labor negotiations, and compliance matters. Ohashi is an expert in the world of investment funds and also specializes in advising financial institutions, both Japanese and international, on a variety of financial matters, particularly M&A transactions.

While the team will pay particular attention to helping clients navigate their needs outside Japan by utilizing the firm’s expansive resources and platform elsewhere in Asia and in the United States, Latin America, Europe and the Middle East, they will also help clients navigate Japanese opportunities, with a particular focus on corporate & securities, capital markets, fund & invest management, dispute resolution, labor & employment, intellectual property, energy and infrastructure.

Greenberg Traurig’s Business Immigration & Compliance practice announced today its role in the formation of The EB-5 Immigration Coalition together with Pathways EB-5, The National Association of Homebuilders and The Real Estate Round Table. The Coalition is a broad-based organization of businesses and trade associations with the shared mission to support and promote the continuation and improvement of the EB-5 Immigrant Investor Program. The EB-5 Regional Center program is set to expire in September of 2015.

According to the Coalition’s website, it will address critical stakeholder needs, both legislatively and administratively, and is supported by trade associations, project companies, regional centers, financial groups and professionals assisting in the EB-5 process. Specific goals of the Coalition include, but are not limited to:

  • Permanent authorization of EB-5 Program, providing investors and businesses with certainty and predictability;
  • Market based immigrant visa numbers tied to demand;
  • Elimination of numerical limitation on individual foreign state;
  • Improved definition of Targeted Employment Area (TEA) designations;
  • Codify the current TEA Designation Authority, which leaves such designations up to the states, which are best equipped to determine local employment needs;
  • Reasonable capital requirements;
  • Assure there are reasonable capital requirements;
  • Respect for economic modeling and job creation calculations;
  • Respect and deference for project preapprovals and deference to prior decisions; and
  • Reasoned enforcement to deter bad actors and enforcement against fraud and abusers.

“We are encouraged by the tremendous and broad support we have received, which speaks to the success of and need for crucial changes to the EB-5 Program,” said Laura Reiff, Co-Chair of Greenberg Traurig’s Immigration Practice and a member of the Coalition’s Board of Directors. “The members of the Coalition believe that the program greatly benefits the economy of the United States with job creation in some of the nation’s most unemployed areas and provides companies with investment options that otherwise may not be available. The Coalition’s goal is to support this program’s continued success and growth in a smart and forward-thinking manner.”

For more information about The EB-5 Immigration Coalition, visit www.eb5coalition.org.