Taking Stock of 2013 and Charting the Year Ahead
by Dawn M. Lurie
This year is certain to be a year of change and, with any luck, clarity for the EB-5 program. While the fate of comprehensive immigration reform remains unclear, I hope that Congress will set partisan politics aside and take action. Stakeholders must demand this. The program is ready for clearer regulations and enhanced safeguards to reduce fraud, increase accountability, and further guide adjudications. It is critical that additional information, similar to the May 2013 policy guidance, be made available to anyone interested in the EB-5 investment category. After working with the EB-5 program for two decades, I offer you my thoughts on the year in review and commentary on the year to come.
The EB-5 events of 2013 read like a script for a Hollywood movie, with allegations of abuse, congressional investiga- tions, SEC indictments and fraud in the news. The media also reported on the delay in the DHS Deputy Secretary’s presidential appointment based on EB-5 related queries, an alleged EB-5-related suicide, and the resignation of the inspector general. This political sandstorm in Washington, D.C. spurs reform for 2014.
What can we expect?
Increased project quality
The EB-5 program now has an array of high-quality proj- ects and impressive regional centers to choose from, which means the industry continues to raise the bar to the benefit of investors. Over the next year, the quality of projects will improve, and they will offer more favorable terms to help protect EB-5 investments. Investors will become savvier, and the dynamics of using overseas project finders and agents will change. With an influx of accessible EB-5 information, investors will continue to demand more transparency in the EB-5 process, and projects will have to keep up.
Stricter due diligence
Increased EB-5 information will also help foreign investors perform their own due diligence, and encourage them to hire professional advisors to research project offerings, principals, and management. Due diligence by impartial third parties will become more commonplace, and attorneys will be called to represent individual stakeholders. Unquestionably, conflicts will emerge that will cause investors, developers, and regional centers to hire attorneys that represent their interests alone. While the foreign markets will never truly be tamed, the Wild West will see lawmakers in town who will make EB-5 investments a little safer.
One of the biggest changes of 2014 will be increased interagency cooperation. The OIG report released in December 2013, and the subsequent USCIS response, will serve as road maps for these improvements. The SEC will work closely with USCIS and whistleblowers concerned about misdeeds plaguing the program. We will see further collaborative efforts between agencies, such as in the joint USCIS-SEC investor alert issued last year, which warned investors about fraudulent EB-5 investments.
Enforcement of policy and regulations
USCIS will also collaborate with other agencies in an effort to ensure that security issues are addressed. Former USCIS Director Mayorkas stated that USCIS is working with Immigration Customs Enforcement, Customs and Border Protection, the FBI, and the Treasury Department on EB-5 cases. The USCIS EB-5 office is also working closely with the SEC enforcement division in Washington, D.C. This trend will only continue as the agencies begin to review the program further. Regional centers, finders and others involved in EB-5 will need to consider their responsibilities as gatekeepers. Furthermore, there will be filings for more broker dealer licenses and regional center affiliations with registered broker dealers will become commonplace. Investment advisors and other professionals will have a permanent seat at the table next to the other new guests—the SEC and FINRA.
There will also be an increasing understanding of EB-5 as a multifaceted program that takes numerous skill sets to manage. USCIS already has on-staff corporate attorneys, seasoned economists, and officers from the Fraud Detection and National Security Directorate who help adjudicate applications and create new agency policy. The appointment of the new EB-5 director, Nicholas Colucci, is a strong indication of USCIS’ s mission to increase enforcement. Director Colucci previously served as the associate director at the Department of Treasury Financial Crimes Enforcement Network, which analyzes banks for evidence of financial crime.
The government has improved its interagency cooperation and public outreach over the past decade. Post-9/11, it be- came clear that agencies must communicate with each other to be effective, and there is nothing novel about applying this idea to the EB-5 program. Interagency cooperation will benefit the program across the board and make it easier for USCIS to administer, for investors to navigate, and for regional centers and project owners to operate.
The OIG report was spot on when identifying the limitations of USCIS resources, and it reminds readers that the adjudication of EB-5 petitions takes a village. The report also identified issues relating to the integrity of the program and security concerns, external and internal influence, lack of protocols, and USCIS’ s inability to quantifiably measure the impact of the EB-5 program on the U.S. economy. These is- sues can all be tackled by interagency cooperation. Although the report was criticized for ignoring steps that USCIS had already taken, it took stock of the big picture and set an agenda for USCIS to take up internally.
In its response to the OIG report, USCIS argues against the responsibility to gauge EB-5’s economic benefit. Frankly speaking, who can blame the USCIS for not wanting to be responsible for tracking the murkiest, most complex part of the EB-5 program? Clearly, this responsibility must be shifted to a different agency—an agency that possesses the necessary expertise and adequate resources to track indirect and direct job creation.
Let’s allow USCIS to focus on drafting new and improved EB-5 regulations that are consistent with the statute. Let’s let USCIS take their limited resources and cooperate with other agencies to keep everyone on the path toward integrity, consistency and overall improvements to the program forged by Deputy Secretary Mayorkas while he served as USCIS director. Let’s not dilute their ability to effectuate change by spreading their resources too thin. Let’s also hope that USCIS does not forget how important open and ongoing dialogue with the public is; surround sound communication is key.
As more foreign investors immigrate to the United States, there are sure to be sensational headlines. While the negative press of the year past was disheartening for the EB-5 community, it may serve as a catalyst for welcome reform. Because of recent investigations, the EB-5 community is wiser than we were a year ago. We have welcomed the increased transparency, dealt with the scrutiny, and are looking forward to increased professionalism and additional oversight by the government.
In order for the EB-5 industry to continue down the path to becoming a mainstream financing option, reputable developers and regional centers must continue to enrich the offerings of the program. The key to advancement of the EB-5 program lies in carefully orchestrated and committed interagency co- operation and ongoing, open dialogue with the stakeholders. This will only be effectuated with both legislative action and regulatory overhaul. Such collaboration needs to include ongoing dialogue between agencies. The coming year is certain to be a roller coaster, but I am confident that reform and interagency cooperation will foster the necessary confidence, consistency, and integrity that we need in the EB-5 program.