EB5 Investor Program Criticism by Office of Inspector General02 Jan 2014
The problems with the U.S. economy have brought renewed focus on options for attracting foreign investors. Similarly, the opportunities created by economic woes in the United States have attracted the attention, and money, of many foreign investors. However, a recent audit report by the U.S. Department of Homeland Security (DHS)’s Office of Inspector General (OIG) voiced serious concerns regarding the regional center program used by many seeking permanent resident status via the employment-based, fifth preference (EB5) investor visa category.
Background: EB5 Investor Option and Overview
The EB5 category allows foreign nationals to pursue permanent residence (green card status) based upon making substantial investments in American businesses that create jobs for U.S. workers. The minimum investment generally is $1,000,000, but an investment of $500,000 is sufficient if it is made in a targeted employment area. The vast majority of EB5 investments are made in designated regional centers. This is because the EB5 regulations related to job-creation requirements are more relaxed if the investment is made in a regional center. See the MurthyDotCom NewsBrief, EB5 Regional Center Program Extended to September 2015 (22.Oct.2012), for a more detailed discussion of this program.
OIG Finds Ineffective Regional Center Administration
The OIG audit harshly reviewed a number of aspects of the regional center program. The OIG concluded that the U.S. Citizenship and Immigration Services (USCIS) lacks the legal authority to effectively administer and manage the program. For instance, the OIG noted that the USCIS has no means of terminating a regional center from the EB5 program, even if fraud or national security concerns arise. The OIG found that the USCIS cannot demonstrate that the investments made through regional centers benefit the U.S. economy, which is one of the principal purposes of the program. The OIG also found that the USCIS struggles with assuring program integrity and lacks consistency in reviewing regional center program compliance.
Investors Must Assess Risks, Beware of Scams
The OIG’s report comes on the heels of warnings issued by the USCIS and the U.S. Securities and Exchange Commission (SEC) regarding investment scams aimed at would-be EB5 applicants. One of the key requirements in the EB5 program is that the investments must be “at risk.” Thus, investors must engage in due diligence to determine whether a particular regional center appears to be a good investment. Part of this due diligence includes checking to ensure that the regional center has been officially designated as such by the USCIS. However, when the USCIS designates a business as a regional center, this does not mean the government is endorsing the quality of the investment. Rather, it simply means that the regional center has demonstrated that it complies with certain EB5 regulatory requirements. Investors should also avoid any EB5 programs offering a guaranteed investment return, as this likely means the investment does not meet the requirement of that investments be “at risk.” Moreover, such guarantees may be a sign of fraud.
EB5 Remains Viable
The EB5 program remains viable and, in fact, is being used more than in prior years. Investors obviously should be cautious in their investments, and the USCIS needs to focus on measures that can be implemented to ferret out fraud and noncompliance within the EB5 program. Foreign nationals interested in pursuing the green card through this program are encouraged to schedule a consultation with a Murthy Law Firm attorney experienced in representing EB5 investors.
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