by Laura Foote Reiff
A review of the OIG Report and the potential impact on the EB-5 Regional Center program
The Office of the Inspector General (OIG) for the Department of Homeland Security recently released a long-awaited report analyzing the United States Citizenship and Immigration Services’s administration of the EB-5 Regional Center program.Although dated Dec. 12, 2013, lawmakers received a copy of the report during the week of former USCIS Director Alejandro Mayorkas’s confirmation as deputy secretary of the Department of Homeland Security, which took place on Dec. 20. The release of the report was yet another controversy in a contentious confirmation process that has scrutinized Mayorkas for evidence of favoritism and misuse of the EB-5 program, for which he is the subject of a separate, ongoing Inspector General investigation. In light of these allegations and Republican opposition, Mayorkas’s confirmation would have proved much more difficult if the Senate Majority Leader had not invoked the “nuclear option” in November 2013, rendering more difficult the ability to block certain nominations through confirmation process. The Dec. 12 audit, although expected by some to be a harsher rebuke of Mayorkas, looks at the EB-5 Regional Center program holistically and contains four specific recommendations, of which USCIS concurred with three.
The Fall 2013 issue of this magazine published an article looking ahead to legislation and policy changes anticipated in the EB-5 program. The OIG report contemplated many of the predictions found in that analysis, through regulation, guidance, and legislation.
The newly released OIG report makes four specific recommendations:
The first recommendation calls upon USCIS to update and clarify existing regulations to better reflect USCIS’s role in verifying and overseeing the program by giving the agency the power to deny or terminate regional centers on the basis of fraud or national security concerns, and to verify that funds invested went to companies creating U.S. jobs. Additionally, such regulations would ensure that the agency is applying EB-5 requirements consistently to all cases.
The second recommendation asks USCIS to make connections with the Departments of Labor and Commerce, and the SEC to “develop memoranda of understanding” to share best practices when adjudicating EB-5 applications and petitions.
The third recommendation asks USCIS to measure the program’s outcomes by determining “how EB-5 funds have actually stimulated growth in the U.S. economy,” working in concert with other agencies, if necessary.
The fourth and final recommendation encourages USCIS to take steps to ensure the quality and integrity of the program and to scrutinize regional centers’ compliance with CFR requirements.
USCIS issued a response to the report stating their commiseration with three of the above recommendations, agreeing to update regulations, build interagency collaboration, and establish quality assurance steps. However, the agency did not agree that it was within its scope to evaluate the impact of the EB-5 program, outside of adjudicating individual cases.
The response from USCIS is reflective of ongoing improvements within the agency. In fact, criticisms of the report called out the failure to include major reforms enacted within USCIS over the past four years. The OIG responded to such criticisms by stating that the audit was limited to the time period prior to Nov. 29, 2012, before details of the USCIS transformation were released. Nonetheless, it is important to note that actions initiated by USCIS after the release of the OIG report will be but a continuation of initiatives made within the agency to streamline the process, utilize professional expertise, bolster security, and ensure consistency.
In the wake of the OIG report, congressional leaders are already looking at additional legislation addressing the enforcement and compliance side of the EB-5 Regional Center programs. Both the House and Senate sides are drafting legislation to address these issues.
The Office of the Inspector General is not the first body to put EB-5 under the microscope and propose change. The U.S. Senate recently passed legislation addressing the EB-5 program through its comprehensive bill—S. 744, The Border Security, Economic Opportunity, and Immigration Modernization Act. However, it is common wisdom amongst immigration reform advocates that this bill will not be the vehicle through which immigration reform occurs. Although many of the reform provisions in this bill make sense, a separate piece of legislation is being contemplated in the Senate. It includes making the regional center program permanent, and dealing with some of the enforcement issues.
On the other side of Capitol Hill, the Supplying Knowledge Based Immigrants and Lifting Levels or STEM Visas Act (H.R. 2131), also known as The SKILLS Visa Act, was introduced by Rep. Darrell Issa on May 23, 2013. The SKILLS Visa Act was approved by the House Judiciary Committee on June 27, 2013 and contains EB-5 provisions. This might reflect the same concerns advanced in the OIG report. This bill may be brought to the floor of the House and amended to include some of the additional provisions deemed necessary in the EB-5 program by the agencies and policy makers.
As was predicted in the previous article, Congress will focus on the integrity of the EB-5 program and will most likely urge passage in 2014 of measures and changes including:
Fraud deterrence in regional centers: The Senate and House provisions about persons involved in regional centers are almost identical; no person is permitted to be involved with the regional center if the secretary determines that the person has violated fraud or deceit laws within the previous five years. If, at any time, this violation led to a conviction and sentence, the person violated any securities laws or regulations, or the secretary believes that person is violating or seeks to violate foreign financial transaction regulations, they are prohibited from being involved with a regional center. Persons involved with regional centers will be required to swear compliance and submit fingerprints to the FBI.
Terminations: The U.S. Department of Homeland Security (DHS) may terminate regional center participation in the investor visa program if prohibited persons are involved in the centers, or if the centers provide false information in the context of background checks.
Securities compliance: The bills require regional centers to certify compliance with federal securities laws. USCIS could terminate or suspend regional centers for failure to make the necessary certifications, or for securities law violations.
Impact on the economy: Mandates a review of the impact of the program on the U.S. economy— is it creating jobs and really encouraging foreign investment that will stimulate our U.S. economy?
National security: Include additional reviews of projects and individual investors, in order to protect against national security breaches that may have occurred in the program.
Interagency collaboration: USCIS has pledged that within the next six months it will develop and implement an interagency collaboration plan. This will involve input and collaboration between USCIS, the Department of Commerce, and the Securities and Exchange Commission. We anticipate this will also be mandated through legislation
Minimum investment: Legislation would provide for an adjustment to the amount of investment. The required capital investment would no longer be either $1 million or $500,000; instead, the amount would be controlled through the U.S. Department of Commerce and keyed off of the Consumer Price Index.
Targeted employment areas: The House bill includes changes to prevent the “gerrymandering” of low- unemployment areas into targeted employment areas. Specifically, the legislation states that: 1) the TEA must be situated in an area that the U.S. Department of Labor determines to have an unemployment rate of at least 150 percent of the national rate; 2) the U.S. Secretary of Labor should implement a uniform methodology for determining areas’ unemployment rates; and 3) USCIS has the final decision on whether a particular area has experienced high unemployment. This provision could hamper TEA designations as we know them today.
As Congress and the administration review the OIG report and legislate, the EB-5 community can be certain that there will be changes in how regional centers are administered, who administers them, and how they must comply with a new host of legal and regulatory and administrative requirements.