The Failures and Future of the EB-5 Regional Center Program: Can it be Fixed?

The below was authored by Howard Schweitzer and Robert Freeman, the Managing Partner and Government Relations Principal, respectively, of Cozen O’Connor’s Public Strategies group.

The Failures and Future of the EB-5 Regional Center Program: Can it be Fixed?

Senate Committee on the Judiciary Hearing

February 2, 2016

The Senate Committee on the Judiciary (“Committee”) held a hearing on February 2nd regarding the future of the EB-5 Regional Center Program. The hearing was led by Senators Chuck Grassley (R-IA) and Patrick Leahy (D-VT); the two witnesses were Nicholas Colucci, the Chief of the Immigrant Investor Program Office (IPO) for U.S. Citizenship and Immigration Services (USCIS), and Stephen Cohen, the Associate Director of the Enforcement Division of the U.S. Securities and Exchange Commission (SEC).

In 1990, Congress created the EB-5 Immigrant Investor Program to stimulate the U.S. economy through job creation and capital investment by foreign investors. Two years later, it created the Regional Center pilot program, which allows investors to use regional centers to pool their investments. Through the EB-5 program, foreign investors can obtain permanent residency in the United States by investing capital, the amount depending on whether the investment is in a high-unemployment area called a Targeted Employment Area (TEA), and directly or indirectly creating a certain number of jobs.

In December 2013, the Department of Homeland Security (DHS) Office of Inspector General issued a report on the results of an investigation to determine whether the EB-5 regional center program is administered and managed effectively. The report’s major finding was that USCIS was in fact limited in its ability to prevent fraud or national security threats and could not adequately demonstrate that the program is improving the U.S. economy and creating jobs for U.S. citizens, as originally intended. Another report was issued in March 2015 in response to whistleblower allegations of improper influence and favoritism by then-USCIS Director Alejandro Mayorkas. The report concluded that, while not taking a position as to the legitimacy of Mr. Mayorkas’ actions, they did create a perception within the EB-5 program that certain individuals had special access and received special consideration.

Several bills in Congress last session sought to reform and reauthorize the EB-5 Program by, among other provisions, increasing the level of capital investment, revising the definition of TEAs, and adding reporting and compliance requirements. However, despite what many in Congress see as a clear need for reform to prevent fraud and corruption, the EB-5 program was reauthorized in its current form under the fiscal year 2016 omnibus appropriations bill.

Senator Grassley, in his opening statement for the hearing, listed a number of the program’s problems and vulnerabilities, many of which were reiterated by other committee members in their opening statements and questions, including concerns over the source of capital funds, the reliability of job creation data, the possibility of foreign government involvement in

regional centers or projects, and the problem of “gerrymandering” of regional centers to include low-employment areas. Senator Grassley and others also mentioned Senator Jeff Flake’s (R-AZ) EB-5 Integrity Act, which has widespread support within the Committee to reform the EB-5 program before it is up for reauthorization at the end of September 2016.

Among the Committee members, there was widespread agreement that the EB-5 visa program should be reformed rather than ended. One notable exception was Sen. Diane Feinstein (D-CA); she opposes the program entirely, saying that America shouldn’t sell a path to citizenship when so many are in line for visas and green cards. She cited numerous cases of fraud and questioned Mr. Colucci about the ability of his agency to verify the source of EB-5 funds, since the U.S. government often doesn’t have access to information from foreign financial systems. She gave an example of a case in which funds were tied to a brothel in China, and expressed concern about the possibility of funding sources having ties with the drug trade, human trafficking, or terrorism.

Among the rest of the senators who support reforming the program, there was unanimous agreement that issues of fraud, corruption, and national security need to be addressed in order for the EB-5 to be reauthorized. When asked what tools could help USCIS address fraud, Mr. Colucci responded that the program’s integrity could be improved if USCIS had the authority to terminate regional centers in cases of fraud or national security concerns. Currently, centers can only be terminated for failing to file paperwork or create the requisite number of jobs. Mr. Cohen agreed with a statement by Sen. Richard Blumenthal (D-CT) that among many government programs there are problems with fraud, but that the response should be to reform the programs and not to eliminate them entirely.

Another issue that came up repeatedly was how states designate TEAs and where the money ultimately goes. Often, states will connect wealthier, urban tracts to unrelated poorer ones in order to attract more investment at a lower capital level. Mr. Colucci acknowledged that USCIS defers to the states to create TEAs, but the agency is currently contemplating changes to regulations so that there is consistent guidance for states. This is one way that the program can be improved with USCIS’s existing authority and without legislative action.

A related issue came up about urban versus rural regional center funding. Senators from rural states such as Sen. Grassley and Sen. Leahy questioned the tendency for capital to go to projects in wealthy, urban areas rather than distressed areas that could benefit most from investment. Sen. Chuck Schumer (D-NY) argued that the urban poor also benefit from investments in cities, for example those who commute from the South Bronx to work in office buildings in Manhattan. He urged his fellow senators to work for balance and a compromise for rural versus urban investment, which was mostly met with agreement by the other senators. Mr. Colucci noted that coming up with new guidelines for designating TEAs to encourage investment in disadvantaged areas is a top priority for EB-5 regulators, and that they have a large amount of data at their disposal about issues such as commuting patterns.

Another question, raised by Sen. Jeff Sessions (R-AL), was whether USCIS had the authority to raise the investment level, in order to get more investment with the same number of visas. Mr. Colucci responded that this was within the agency’s power to do without Congressional action, and that the issue was being addressed in forthcoming regulations.

In his closing questions, Sen. Grassley made several additional points about what he saw as shortcomings to the program. One was the fact that USCIS doesn’t deny investment for TEAs that have clearly been “gerrymandered”; the agency ensures that proper data is used, but doesn’t question the construction of the tracts. He again raised concerns about the source of funds, since USCIS’s “source of funds review” only ensures that funds are legitimate, but doesn’t discriminate beyond that. Additionally, he asked about whether the available data and methodology were sufficient to determine that job creation requirements had been met, mentioning the problem that arises when all jobs associated with a project are counted even when EB-5 money only makes up a fraction of total investment. Mr. Colucci acknowledged this limitation and noted that regulations differentiate amongst jobs created in different industries in an attempt to address the issue. Lastly, Sen. Grassley asked if USCIS would commit to performing site visits if given sufficient resources. Mr. Colucci responded that the visits are already being planned, and he hopes routine visits will begin this year.

Overall, the hearing was less substantive than reiterating the support of the senators in the Committee to reform rather than end the EB-5 visa program. Everyone agreed that there are problems with fraud, corruption, and national security concerns. However, with the exception of Sen. Feinstein, they also agreed that the program delivered enough economic benefits that it was worth continuing. Little new information was presented at the hearing, since Mr. Colucci often declined to take a stance that could potentially contradict official policy positions. He also often didn’t have detailed data about the program, but offered to submit requested information following the hearing. Mr. Cohen, in his capacity at the SEC, spoke about the agency’s role in prosecuting fraud, but noted several times that their influence over the program itself is limited.

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DOS and DHS Announce Changes to the Visa Waiver Program

The Department of State and Department of Homeland Security issued a joint statement on January 21, 2016 on the implementation of certain changes under the Visa Waiver Program Improvement and Terrorist Travel Prevention Act of 2015. The Visa Waiver Program (VWP) permits citizens of 38 countries to travel to the United States for tourism or business for stays of up to 90 days without needing a visa. In return, those 38 countries must allow U.S. citizens and nationals to travel to their countries for a similar length of stay for tourism or business purposes without requiring a visa. With the implementation of these new regulations, any foreign national of VWP countries who have traveled to or been present in Iran, Iraq, Syria, or Sudan on or after March 1, 2011 are no longer eligible to travel or be admitted to the United States under the Visa Waiver Program. In addition, nationals of VWP countries who are also nationals of Iran, Iraq, Syria, or Sudan will now need to apply for a visa using the regular immigration process to enter the United States. However, under the new law these individuals may be eligible for a waiver from the Secretary of Homeland Security based on a case-by-case basis. These exceptions may apply to individuals who traveled to Iran, Iraq, Syria, or Sudan on official duty on behalf of certain organizations (humanitarian NGO, international and regional organizations) and sub-national governments or who traveled as a journalist for reporting purposes.

To read more about these changes, please visit the DHS and DOS joint press release.

Rachel is an intern with the firm and is not a practicing attorney.

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DHS Announces Final Rule Improving Certain Programs for Highly Skilled Workers

Last week, the Department of Homeland Security published a final rule that improves the programs for the H-1B1 (specialty occupations from Chile, Singapore), E-3 (specialty occupations from Australia) and CW-1 (CNMI-Only Transitional Worker) nonimmigrant classifications and the EB-1 (employment-based first preference) immigrant classification. The amended regulations remove unnecessary obstacles that place these workers at a disadvantage when compared to similarly situated workers in other visa classifications. Some of the highlights of the amended DHS regulations include:

  • H-1B1 and E-3 nonimmigrants are allowed to work for the sponsoring employer without having to separately apply for employment authorization.
  • DHS is authorizing continued employment with the same employer for up to 240 days for H-1B1 and E-3 nonimmigrants whose status has expired while their employer’s timely filed extension of stay request remains pending.
  • DHS is providing the same continued employment authorization for CW-1 nonimmigrants whose status has expired while their employer’s timely filed Form I-129CW remains pending.
  • Employers petitioning for EB-1 may now submit initial evidence comparable to the other forms of evidence already listed in 8 CFR 204.5(i)(3)(i).

For more information on these amendments and to read the final rule, please visit the DHS’ Enhancing Opportunities for H-1B1, DW-1, and E-3 Nonimmigrants and EB-1 Immigrants in the 1/15/16 Federal Register.

Rachel is an intern with the firm and is not a practicing attorney.

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Posted in Immigrant Visas, In The News, Nonimmigrant Visas

Immigration Legislation Update for 2015

2015 was another year in which the Obama administration tried to fix the immigration system by presidential decree, since Congress failed to come to any kind of consensus on how to mend the broken system. The bills that were introduced in Congress this year did not even try to overhaul the immigration system and continued to show the division in the immigration policies of the Republican and Democratic parties. In this article we discuss the current legal challenge to the president’s executive actions on immigration. Accompanying this article is a chart summarizing the major immigration legislation proposed in 2015, some highlights of which include “Presidential Executive Orders: Texas v. United States,” “Congress: Another Year with a Lack of Progress,” and “Prediction for 2016.”

To read the full article written by Marcy Stras with assistance from Rachel Coyne, please visit page 29 of Cozen O’Connor’s year-end Labor and Employment Observer 2015/2016.

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New Bill Increases L-1 and H-1B Visa Application Fees for Certain Companies

Last week, the President signed the Consolidated Appropriations Act of 2016 which provides full-year appropriations through September 2016 for all government agencies. Included in this bill are fee increases for certain L-1 and H-1B petitions for companies with more than 50 employees where 50% or more of the employees hold H-1B or L-1 status. Supplemental L-1 fees for these companies increase from $2,250 to $4,500 and supplemental H-1B fees increase from $2,000 to $4,000.

For more information on the fee increases, visit AILA’s article on H.R. 2029: Consolidated Appropriations Act, 2016.

To read more about the new bill, click here.

Rachel is an intern with the firm and is not a practicing attorney.

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Posted in In The News, Nonimmigrant Visas

Proposed Changes to Visa Waiver Program, Enhanced Security Measures Will Impact Airlines

The following post was written by Rachel Welford, an associate in the Cozen O’Connor Aviation Regulatory Practice Group.

The White House is proposing changes to the Visa Waiver Program (VWP) as well as enhanced security measures that would tighten the entry requirements for U.S.-bound alien travelers. Under VWP, travelers from 38 countries may enter the United States without a visa and stay for up to 90 days. The changes, proposed in the aftermath of the November 13, 2015 terrorist attacks in Paris, contemplate greater scrutiny of travelers under the VWP, as well as other security changes that could significantly increase costs and operational burdens for airlines.

Currently, U.S. law requires airlines operating international flights to or from the United States to provide travel document data for all travelers to U.S. Customs and Border Protection (CBP) via the Advance Passenger Information System (APIS) or face a $5,000 fine per violation for failing to do so. The White House is now asking Congress to give the Department of Homeland Security (DHS) authority to increase the fine amount to $50,000 per violation, a tenfold increase in the cost of non-compliance for airlines.

The White House also seeks to expand the use of DHS’s CBP preclearance program at airports in Belgium, Japan, Norway, the Netherlands, Spain, Sweden and the United Kingdom. At countries with preclearance facilities, CBP law enforcement officers inspect passenger documentation and baggage at foreign airports prior to departure to the United States. Because airlines are responsible for removing any inadmissible or deportable aliens with inadequate documentation at the airlines’ expense back to the aliens’ points of departure, expanding the number of preclearance countries could reduce the risk that airlines will need to transport such passengers and incur associated costs.

In addition to changes that would directly affect air carriers, the Obama administration seeks to modify the Electronic System for Travel Authorization (ESTA), the process by which every prospective VWP traveler undergoes counterterrorism screening and receives preliminary approval to enter the United States. Under the new rules, VWP travelers would have to provide ESTA information regarding past travel to countries constituting a terrorist safe haven, including Iraq and Syria. DHS would also accelerate its review of VWP partner countries and expand the collection and use of passengers’ biometrics (fingerprints and/or photographs).

The Obama administration is working closely with Congress to enact statutory authority for the planned VWP enhancements, and legislation to implement such enhancements has already been introduced.

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K Visa Process

The press has been reporting that the woman who carried out the San Bernardino massacre with her husband came to the U.S. last year on a K visa, raising questions about whether the K visa process can adequately vet people who may sympathize with terrorist groups. However, this is one of the harder visas to get.  To get the K visa the foreign national must go through a Consular process that includes an interview with the couple and background checks that are more stringent than probably for any other visa. While we can improve any process, it would be an error to abolish the K visa process as a whole for one error.

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Legislation Proposed to Reform H-1B and L-1 Visa Programs

In November, Senator Dick Durbin (D-Ill.), Chairman of Senate Judiciary Committee, and Senator Chuck Grassley (R-Iowa), Assistant Democratic Leader, introduced a new bipartisan legislation seeking to reform and reduce fraud and abuse in certain programs for foreign workers working temporarily in the United States. This bill, or the H-1B and L-1 Visa Reform Act, stems from ongoing criticism of the H-1B Visa Program, among other programs, because of the accusation that large outsourcing companies have been abusing the system. Senators Durbin and Grassley have said that the abuse is “real” and the need for reform is urgent. Senator Grassley has also said that the media are validating the fact that Americans are training their replacements, something that Grassley and Durbin have been arguing against for years.

Senator Durbin and Senator Grassley have been trying to reform the H-1B program since 2007. In the spring of 2007, they introduced “The H-1B and L-1 Visa Fraud and Abuse Prevention Act of 2007” to overhaul the H-1B and L-1 visa programs by giving priority to American workers and regulate employers who may be depriving qualified Americans of high-skill jobs. Senator Durbin said that the United States’ immigration policy should “seek to complement our U.S. workforce, not replace it.” Today, Durbin and Grassley continue to argue that large foreign outsourcing companies may use loopholes in the laws to displace qualified Americans and facilitate the outsourcing of American jobs. These and other concerns are echoed today through the H-1B and L-1 Visa Reform Act.

For this current legislation, they have more support than they did several years ago because they have three senate co-sponsors: Sen. Bill Nelson (D-FL), Sen. Richard Blumenthal (D-CT), and Sen. Sherrod Brown (D-OH). The proposed legislation addresses reforms to increase enforcement, modify wage requirements, and ensure protection for American workers as well as visa holders.

A few highlights of the bill include:

  • Requiring all employers who seek to hire H-1B worker to first put a strong effort to recruit American workers before turning to other countries
  • Prioritizing the annual allocation of H-1B visas: Currently, many large IT services companies receive more than half of the annual visa allotment which lowers the chances of employers trying to hire a smaller number of workers. The bill will prohibit large companies from hiring H-1B workers if more than 50% of their employees are on H-1B or L-1 visas.
  • Prohibiting the replacement of American workers by H-1B or L-1 visa holders.
  • Giving graduates of United States universities preference in the visa distribution.
  • Giving the Department of Labor enhanced authority to review, investigate and audit employer compliance as well as to penalize fraudulent or abusive conduct.

This bill is just one of many proposed legislation related to immigration that are circulating around the Senate and the House this year. Senator Orrin Hatch (R-Utah) is sponsoring the Immigration Innovation (“I-Squared”) bill which would raise the annual cap on H-1B visas from 65,000 to between 115,000 and 195,000. Senator Blumenthal is a co-sponsor for this legislation as well. Senator Ted Cruz (R-Texas) has also said he is working on an H-1B reform bill.

Read the full text of the H-1B and L-1 Visa Reform Act of 2015 here.

For further information on the proposed legislation, refer to the articles below:

Rachel is an intern with the firm and is not a practicing attorney.

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Posted in In The News

New Speaker Paul Ryan Postponing Talks About Immigration Reform Until 2017

Newly elected speaker, Paul Ryan (R-Wis), is already busy settling into his role and deciding what major policies he wants to tackle first. Excluded from his policy list is immigration reform. Ryan has decided to hold off on advancing any immigration legislation until after the 2016 elections because he deems President Obama as “untrustworthy” when it comes to immigration policy. Ryan has said in an interview, “I think it would be a ridiculous notion to try and work on an issue like this with a president we simply cannot trust on this issue.” Ryan cites that President Obama’s “untrustworthiness” stems from the fact that the President has issued executive orders on immigration reform thereby “circumventing the legislative process” as Ryan says. Ryan’s decision to postpone focus on immigration reform comes from the desire to balance his promise to tackle difficult issues with the political reality of lawmakers who are suspicious of his positions, specifically on immigration policy. Ryan’s stance on the matter is one that will not change until at least January 2017 once a new president is sworn into office. However if another Democrat is elected to office it is likely that immigration negotiations would continue to be postponed.

Rachel is an intern with the firm and is not a practicing attorney.

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BALCA Affirms CO’s Denial Where Beneficiary Has an Ownership Interest in Closely Held Company

The Board of Alien Labor Certification Appeals (BALCA) upheld a Certifying Officer’s denial of an  Employer’s Application for Permanent Certification due to the fact that the beneficiary and her husband each had a 50% ownership interest in the sponsoring entity. The CO stated that when an employer is a closely held corporation in which the alien has an ownership interest or a familial relationship with the stockholders, officers, incorporators, or partners, and is one of a small number of employees, a presumption exists that the job opportunity is not open and available to U.S. workers, which is in violation of 20 CFR §656.10(c)(8).

Rachel is an intern with the firm and is not a practicing attorney.

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About ABCs of Immigration Law
The global economy has become increasingly transactional and transcontinental. Since 9/11, there have been many amendments to immigration laws in the United States that have largely affected both individuals and businesses. Cozen O'Connor's immigration law blog, ABC's of Immigration Law, focuses on the interests and the challenges faced by those individuals and business impacted by immigration laws.
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