This is Part 2 in a 3-part series on corruption in the EB-5 Regional Center Program. In Part 1 (which you can read here), we examined some revelations of corruption in the program. In this post, we will discuss governmental efforts to make the program more transparent. And, in Part 3, we will guide investors regarding efforts that they can make to avoid becoming the victims of EB-5 fraud.
As we discussed in Part 1 of this series, the EB-5 Regional Center program has benefited immigrants, U.S. workers, and American communities alike. However, it has also been abused by some individuals working for, with and through Regional Centers. Some inexperienced and/or dishonest developers have seen the EB-5 program as “an easy way to score funding” for risky or unrealistic ventures. They’ve been helped by brokers who may direct foreign investors to such projects in return for a commission that is paid regardless of how the investment plays out.[1] In recent cases of fraud, both developers and brokers have misled foreign investors by providing false information and making unrealistic promises.
With recent attention drawn to a number of scandals in the EB-5 space, the government is starting to crack down on corruption in an attempt to protect the integrity of the program.
To this end, the SEC and USCIS are increasingly working together to stop alleged investment scams. In recent years, the two agencies have “built a strong partnership with an emphasis on fostering EB-5 program integrity.” They coordinate on issues at the case-specific and programmatic levels, and have participated in joint public engagement events to raise awareness among EB-5 developers and investors regarding these issues. An example of their public awareness campaign includes the issuance of Investor Alerts (such as this one) to make potential investors aware of ongoing problems and how to avoid them.[2] Interested parties can sign up for free Investor Alerts and bulletins from the SEC here.
The SEC has also set up an incentive for investors and other individuals to report possible fraud and problems concerning their investments. One may be even be eligible to receive a whistleblower award, amounting to 10-30% of the money collected in a case, without reducing the amount returned to harmed investors.[3] Tips can be submitted anonymously, and even when they are not, the “SEC is committed to protecting your identity to the fullest extent possible.”[4] For more information and to report possible fraud, visit SEC’s complaints and tips page here. [5]
Unfortunately, the SEC and USCIS often get involved after investors have been denied even a visa and lost hundreds of thousands of dollars, including their EB-5 investment dollars and any administrative fees paid along the way.[6] While the SEC may be able to recover some or all of the wrongfully invested monies, as in the Sethi case (see Part 1 of this series), there is no guarantee of the same.
Because of these dangers to investors, lawmakers have called for an investigation of the EB-5 Regional Center Program and its possible reform. Senior Republican Senators Chuck Grassley of Iowa, Bob Corker of Tennessee and Tom Coburn of Oklahoma requested that the U.S. Government Accountability Office (GAO), an independent watchdog for Congress, conduct an audit of the program. The audit began in November 2014 and will be wide-ranging. Among other things, the review will look at instances of fraud in the EB-5 program, the economic models used by EB-5 investors to forecast job creation, and the program’s broader impact on the US economy. [7]
The Congressional audit will help lawmakers determine whether to extend the EB-5 Regional Center program when it expires in September 2015. As we previously reported on our blog The EB-5 Regional Center program has a temporary status that must be renewed every few years. According to Sen. Grassley, “There are a number of flaws in the program itself and in how the program is run. The GAO can help Congress sort through the vulnerabilities as we look at reauthorizing the program.”
Many ideas have been circulated regarding how to restore integrity to the program. For instance, Ann Lee, an expert on China’s economic relations, wrote in a NYTimes op-ed writer that: “The federal government needs to rein in freewheeling brokers with heavier penalties for misrepresenting investments, hire more business-savvy administrators and make the entire process more transparent, so that applicants know why their money was accepted or rejected.”[8] Others have suggested that the program should be run by the Department of Commerce.[9]
Whatever the ultimate recommendations, almost all interested parties agree that some level of reform is needed, and also, that the EB-5 Regional Center program “needs to be made permanent to give certainty to investors and to compete in the global marketplace.”[10] Other nations, like Canada, the UK, and Australia, have structured visa programs to attract capital for targeted economic growth. They, too, use permanent residency as a “carrot” to draw investors to their shores. The integrity and permanence of the US program is an important factor in attracting foreign capital to our country.[11]
In the meantime, interested investors should be aware that the audit will not affect the processing of I-526 petitions, and they should file their petition as soon as possible. In case the program does not get extended, the sooner an investor files his/her petition, the more likely (s)he will be grandfathered in and receive a green card.
Stay tuned for Part 3, where we will discuss how you can – and SHOULD – appropriate vet any EB-5 offering before investing your money and hoping to become a lawful permanent resident of the United States.
To find out about our range of expert EB-5 services and business visa solutions, designed to specifically address USCIS’s concerns, contact e-Council Inc.com at info@ecouncilinc.com.
e-Council Inc.com’s website, newsletter and other forms of communication contain general information about legal matters. The information is not legal advice, and should not be treated as such. You must not rely on the information on this website as an alternative to legal advice from your attorney or other professional legal services provider. If you have any specific questions about any legal matter you should consult your attorney or other professional legal services provider.
[1] http://fortune.com/2014/07/24/immigration-eb-5-visa-for-sale/; http://www.nytimes.com/2012/04/16/opinion/reform-the-eb-5-program.html?_r=0
[2] http://www.sec.gov/investor/alerts/ia_immigrant.htm
[3] http://fortune.com/2014/07/23/whistleblower-unmasked/
[4] https://www.sec.gov/about/offices/owb/owb-faq.shtml#P19_5641
[5] According to the SEC’s tips page, “If you submit your information online through the SEC’s Tips, Complaints and Referrals Portal, and would like to (1) be eligible to apply for a whistleblower award and/or (2) receive additional confidentiality protections (even if you do not wish to be considered for an award), you must answer “yes” to the question “Are you submitting this tip, complaint or referral pursuant to the SEC’s whistleblower program?” on the “About You” page of the online questionnaire. You must also complete the whistleblower declaration at the end of the questionnaire.” http://www.sec.gov/about/offices/owb/owb-tips.shtml
[6] http://www.sec.gov/investor/alerts/ia_immigrant.htm
[7] http://seattletimes.com/html/businesstechnology/2025210624_eb5auditxml.html
[8] http://www.nytimes.com/2012/04/16/opinion/reform-the-eb-5-program.html?_r=0
[9] http://seattletimes.com/html/businesstechnology/2025210624_eb5auditxml.html
[10] http://seattletimes.com/html/businesstechnology/2025210624_eb5auditxml.html
[11] http://www.realtor.org/sites/default/files/publications/2014/global-perspectives/global-perspectives-2014-03-investment-visas.pdf