by Courtney Creedon and Jinhee Wilde
The regional center program is undoubtedly central to the EB-5 program—with some 90 percent of investors investing their capital through regional centers, and nearly 450 EB-5 Regional Centers in existence, it is no wonder that regional centers have become the face of EB-5. Despite their prevalence, the history of the pilot program that created the EB-5 Regional Center is not commonly known. Here we will trace the EB-5 Regional Center from its establishment, through the turbulent years, to today and beyond.
The EB-5 Regional Center was born as an extension of the original U.S. Immigrant Investor Program (EB-5), first established by Congress in 1990. The program was established to stimulate the economy, spur job creation, and dually benefit American citizens and immigrants. In exchange for a capital investment of at least $500,000 that leads to the creation of 10 U.S. jobs, foreign nationals are welcomed to the United States. Despite the enormous potential of EB-5, interest in the program lagged in the early years. To ensure that the benefits of EB-5 were being realized, Congress enacted the Immigrant Investor Pilot Program, more commonly known as the regional center program, in 1992.
The EB-5 Regional Center is an officially designated organization that sponsors investment projects for EB-5 investors. EB-5 Regional Centers not only do more leg work for the investor, but also allow investors to pool their money together to invest in larger projects that create more jobs. Because regional centers allow for the counting of indirect jobs, it is easier for projects to qualify as EB-5 compliant in this regard.” The regional center program may have changed the face of the industry, but sustained interest in the program would not come about until a decade later.
The early days
The industry often describes the early years of the program as the days of the Wild West. While not an entirely laissez-faire environment, getting designation as a regional center was nowhere near as involved as it is today. Developers interested in the not-yet-coveted regional center designation could attain it by writing a letter to the Immigration and Naturalization Service (INS)—the predecessor of USCIS—explaining their project and attaching documentation, including an economist report and a business plan (the I-924 application would not be put to use until 2010). Despite the ease of the program, only a handful of regional centers were established in the early 90s. People did not fully understand the possibilities of regional centers, or did not want to risk it. Nonetheless, the program crawled along, and as interest in the program grew, processing times in Washington increased—you might say history repeats itself.
The relaxed atmosphere in the EB-5 program made the program a perfect target for misuse and abuse. Less scrupulous actors took advantage of the program and got investors green cards while only committing a fraction of the required investment amount, with virtually no money going to actual projects. The placid early days would quickly give way to controversies that shuttered the program for years.
The turbulent years
The lack of strict regulations in the early 1990s provided the perfect opportunity to test the waters of EB-5. Although the program required a minimum $500,000 investment, some actors found a way to bring investors to the United States with only $125,000, accounting for the remaining amount through promissory notes. While the two most infamous companies participating in such schemes—AIS and InterBank—would later be investigated for (and in the case of InterBank, convicted of) fraud, INS allowed such practices at the time. Paul Virtue, then executive associate commissioner of INS, made the practices official in two legal opinions issued in 1993 and 1995, allowing for investment requirements to be met through the use of promissory notes, and permitting investors to pool their money into limited partnerships. Lax regulations piqued interest in the program, and groups such as AIS took advantage, bringing many investors to the United States with a fraction of the required investment amount.
AIS was supported by a group of politically connected individuals—bankers, developers, a former president’s sibling, and an ex-INS commissioner. Rather than asking for a $500,000 or $1 million investment, AIS marketed EB-5 to the middle class—structuring their deals such that investors only had to put up $125,000 in cash, with the rest accounted for in promissory notes. Investors bit, oftentimes believing the investments were a safe, and even guaranteed, path to U.S. citizenship. After AIS took fees off the top, a small amount of money trickled down to the actual business, enough to keep it alive just long enough for INS to remove conditions on investor green cards. Upon receipt of their permanent green card, investors could cash out of their partnerships. Such maneuvering, while not illegal, shifted the program’s priority from creating jobs and stimulating the U.S. economy to providing green cards at bargain prices.
As petitions filed in to U.S. consulates abroad, consuls questioned the complex legalese that allowed investors to receive a visa on the cheap. In 1997, with too little knowledge to dissect the complicated documents, the consuls deferred to INS headquarters in the United States. Then general counsel of INS, David Martin, realized that little of the investor’s already minimal investment was ever at real risk. He issued a memo on December 19, 1997 clarifying that such techniques were in violation of the law, effectively shuttering the EB-5 Regional Center program. Countless investors were left in limbo.
The next year, INS issued a series of precedent decisions that became hallmarks of the program. The decisions—matters of Ho, Hsiung, Izummi, and Soffici—clarified regulations, restricted the use of promissory notes, prohibited the promise of returns to the investor, limited what qualified as capital to- ward the minimum investment amount, and required that the investor be personally involved with the business, among many other important decisions. They aimed to refocus the program on its original goals of infusing capital into the U.S. economy and creating U.S. jobs.
Nonetheless, the EB-5 world would soon be hit with yet another scandal. In 2001, James F. O’Connor and James A. Geisler, of InterBank, were convicted of 48 counts of immigration, tax and wire fraud, among other charges, in connection with their abuse of the EB-5 program. The InterBank Group, LLC marketed EB-5 projects to international investors by misrepresenting the program. The con didn’t last long before Geisler and O’Connor were investigated. According to court documents, the two “jointly devised a scheme” to market the EB-5 program to individuals without the necessary funds to participate. Furthermore, they falsified documents to convince INS that the investors had made the requisite investment. From 1996 to 2000, InterBank subscribed about 335 investors, none of whom invested the full required amount, and collected about $21 million in EB-5 funds. Most of the investors involved lost all of their original investment, and none were found complicit in the scheme.
Unfortunately for investors, they not only suffered at the hands of unscrupulous business, but also at the hands of INS, who put the brakes on their pending immigration cases. The guidelines established in the matters of Ho, Hsiung, Izummi, and Soffici were applied retroactively, and halted cases that had already passed hallmark obstacles of the EB-5 process, leaving many investors stranded. In order to remedy this, Congress passed a law in November 2002. This special EB-5 legislation allowed investors who had filed their I-526 petitions between January 1995 and August 1998 an additional two years to fulfill the requirements of the program. Despite the legislation, investors had to wait years for regulations to be put in place while their immigration status remained uncertain.
During this time, all petitions associated with regional centers were put to a halt. While INS was still adjudicating direct investment cases, the flow of investors was a trickle at best, with only 44 I-526s approved in 2001, and 69 in 2002—the lowest approval numbers in EB-5 history.
Despite the setbacks that plagued the young EB-5 industry, proponents of the program recognized its potential. In the early 2000s, the program experienced a resurgence through regional centers. These pioneering regional centers confronted negative perceptions of the program, hesitation on the part of government officials, and general ignorance of the program (for more on this, see our interview with Tom Rosenfeld on page 50). Some of the early regional centers that are still active today are American Life Inc., Vermont EB-5 Regional Center, CMB Export Regional Center, Seattle Regional Center, CanAm Enterprises, and California Consortium for Agricultural Export. All of these regional centers have demonstrated the benefits of the program by pooling $500,000 investments into projects that have spurred economic growth in run-down areas of a city, county and other metro areas by developing infrastructure, hotels, and other commercial businesses to bring jobs into those areas. As USCIS demanded stricter proof of job creation, as set forth in a USCIS policy guidance memorandum on tenant occupancy dated Dec. 20, 2012, some of these pioneers encountered difficulties with proving indirect jobs through tenant occupancy or documenting whether their projects were located in a targeted employment area. However, most of the successful regional centers drew upon lessons learned in the early days and have properly applied the EB-5 principles to benefit the American economy and provide investors with a safe path to obtaining their green card.
Further solidifying the role of regional centers in the EB-5 program, USCIS established the Investor and Regional Center Unit (IRCU)—now Foreign Trader, Investor and Regional Center Program—in 2005, to ensure appropriate oversight, and consistent standards in the adjudication process as related to regional centers. The addition was part of a wider movement to reestablish and strengthen the program and signaled future growth to come. One aspect of this movement was the phasing out of the INS, and the transferring of its immigration duties to USCIS, following perceived weakness of the INS. This absorption of its duties into other entities left USCIS perhaps better poised to take the reins on EB-5 matters, as its main focus is immigration, not national security as a whole.
In each year since 2007, the number of USCIS-designated regional centers has increased rapidly. Regional centers welcome a wealth of EB-5 investors willing to provide funding even in the wake of the economic downturn.
Throughout the past decade, USCIS has repeatedly issued policies to regulate the program. Whereas in the early days, regional centers could attain designation simply, in 2010,USCIS released Form I-924 and the yearly follow-up, Form I-924-A.
Now, a regional center must submit a proposal using Form I-924, clearly demonstrating how a regional center will promote growth and job creation in a specific area of the United States, and providing verifiable detail of how the center will create jobs. Because the Form I-924 projects can be “hypothetical” projects with just general proposals and predictions, the number of designated regional centers has grown to nearly 450 from 20 since 2007. Not only has the number of regional centers exploded, but also interest in the program. USCIS reported that the number of applications being submitted through regional centers has more than quadrupled from 2009 to 2012.
Despite attempts to strengthen the program and protect against its misuse, some actors still try to abuse the program for personal gain. The recent Chicago case reverberated throughout the industry and recalled early scandals. The SEC cracked down on A Chicago Convention Center, announcing charges in February 2013, for misleading investors, falsifying documents, and pocketing investments. The case demonstrates the program’s vulnerability, but also the SEC’s and USCIS’s focus on oversight, regulation and security. Though the scandal had a chilling effect on the industry, and has made investors more cautious, the regional center program continues to develop and nurture success stories.
Because many of the early setbacks stemmed from unclear regulations, stakeholders in the industry have pushed USCIS to is- sue clear guidelines on the program. In what may be the most illuminating policy release to date, USCIS clarified their position on key aspects of the EB-5 program in their EB-5 Adjudications Policy Memorandum issued on May 30, 2013. While a number of the stipulations applied directly to regional centers, the general clarity offered by the May memo has allowed regional centers to operate with more realistic expectations and consistency.
Steady success and growth over the past decade has not protected the EB-5 program from political attacks. Senator Chuck Grassley (R-IA), ranking member of the Senate Judiciary Committee, has reservations regarding the EB-5 program, particularly in light of former USCIS director Alejandro Mayorkas’s nomination and subsequent confirmation to a high-level position at the Department of Homeland Security. Furthermore, the Office of the Inspector General, an arm of the Department of Homeland Security, recently released a report on their audit of the EB-5 program, concluding that USCIS was incapable of appropriately administering the regional center program. The report was criticized for ignoring key reforms that USCIS had made in recent years to strengthen the program and increase security. Nonetheless, the report issued four recommendations that included updating regulations to give USCIS the authority to terminate regional center status, establishing inter- agency cooperation, measuring the economic effects of the pro- gram, and establishing quality assurance checks (for further discussion on this report see The Tug of War Between the Hill and the Agency on page 22).
The DHS is not the only body voicing opinions on how the EB-5 program should be administered and reformed. Government agencies and stakeholders continually reevaluate
the program, especially in light of the comprehensive immigration reform debate. Some of their suggestions include regulating the gerrymandering of TEAs, increasing the minimum required investment each year according to the Consumer Price Index, and hastening USCIS’s adjudication process. One of the biggest frustrations for regional center operators and investors is lengthy USCIS processing times; developers are often paralyzed and forced to sit on funds in escrow until investors’ petitions are adjudicated. It is hoped that in streamlining the adjudication process, clarifying regulations, and disseminating information about the program, USCIS can handle the applications more quickly.
Though the regional center program has grown over the past decade, it has not done so without a few growing pains. In light of political positioning and industry scandals, participants are exercis- ing caution, and rightly so. Smarter investors and project investors who do their homework are a key to guarding the program from misuse. Reforms on the table are all pointing in the direction of a safer, stronger EB-5 program in the years to come.
Courtney Creedon would like to thank David Hirson and Henry Liebman for their guidance on this article.
Editor’s Note: Any references to the Jay Peak Resort and its developers in this article predate allegations of misuse of EB-5 funding, which emerged in April 2016. All potential investors and members of the EB-5 program community are urged to complete extensive due diligence when choosing a regional center or partner in the EB-5 process.
 See http://www.uscis.gov/working-united-states/permanent-workers/employment-based-immigration-fifth-preference-eb-5/eb-5-immigrant-investor
 See 610 of Public Law 102-395 (October 6, 1992)
 See http://articles.baltimoresun.com/2000-02-20/news/0002220371_1_investor-visa-program-immigration-program-immigration-laws/3
 See Newman, Barry. “INS Clampdown on Visa Program for the Rish Creates Controversy.” The Wall Street Journa. 26 Feb. 1999
 See INS General Counsel Memorandum, HQCOU 70/6.1 & 70/9-P (Dec. 19, 1997).
 See http://www.eb5immigration.com/library/files/00707899.pdf
 See http://www.leagle.com/decision/20041043321FSupp2d722_1972.xml/U.S.%20v.%20O’CONNOR 8
 See 21st Century Department of Justice Appropriations Authorization Act, §§ 11031-37, Pub. L. No. 107-273 (Nov. 2, 2002)
 See http://www.uscis.gov/sites/default/files/USCIS/Laws/Memoranda/Static_Files_Memoranda/Archives%201998-2008/2005/eb5unit011905pub.pdf
 See http://www.sec.gov/litigation/litreleases/2013/lr22615.htm
 See http://www.uscis.gov/sites/default/files/USCIS/Laws/Memoranda/2013/ May/EB-5%20Adjudications%20PM%20(Approved%20as%20final%20 5-30-13).pdf
 See http://www.gpo.gov/fdsys/pkg/BILLS-113hr2131ih/pdf/BILLS-113hr2131ih.pdf
 See http://www.oig.dhs.gov/assets/Mgmt/2014/OIG_14-19_Dec13.pdf