Letter to Congress Regarding the EB-5 Program: Is DHS Improperly Overreaching?

By: Mona Shah, Esq. and Lory Rosenberg, Esq.

The upcoming EB-5 Regional Center reauthorization process affords an opportunity to examine and adjust many facets of the EB-5 program, from its structure to aspects of the adjudication process.  On April 27, 2015, Mr. Jeh Charles Johnson, the current Secretary of Homeland Security, sent a letter to Congress[1]  containing a range of proposals that warrant discussion.

While DHS states its support for the reauthorization of the program, it has taken this opportunity to request significant changes and enhanced police powers that border on being overreaching. Director Johnson’s proposals for “strengthening the integrity of the program during the EB-5 regional center reauthorization process,” while well-intended, will weaken rather than strengthen the EB-5 program and the undeniable impact it has had in creating American jobs. In addition, Johnson’s suggestion that Congress extend authority for enforcing exclusionary aspects of the program to USCIS simply goes too far and places too much authority over the program in the hands of USCIS. At the same time, other proposals simply ignore business realities.

1. Authorization for USC1S to Act Upon Criminal and Security Concerns By Providing It With Sanction Authority

 USCIS primarily serves as the grantor of the benefits available under the EB5 program. In that capacity, it may accept or reject applications based on their compliance with the terms of the statute and regulations. Johnson’s letter to Sen. Grassley and Sen. Leahy, however, seeks a measure of agency control over the entire program that does not exist in the context of other immigration benefits programs.

In particular, Johnson asks the committee to authorize USCIS to terminate a regional center’s designation where there is criminal activity or national security concerns. He proposes further that USCIS be given the authority to deny regional center applications “where USCIS finds a significant risk of fraud and/or abuse, as well as to deny or revoke any EB·5-related application or petition due to fraud, misrepresentation, criminal misuse, or threats to national security.”

Likewise, Johnson contends that “USCIS should be authorized to sanction regional centers with fines or temporary suspensions where appropriate,” to complement USCIS’s existing authority to terminate regional centers on the basis of no longer promoting economic growth.

This is at odds with the allocation of authority in the context of other program management.  For example, USCIS is authorized to adjudicate adjustment of status applications. However, if the burden of proof is not met and fraud is suspected, any corresponding investigation or imposition of sanctions is conducted by a different component of DHS.  In other programs activities relating to benefits adjudications are separated from enforcement activities that may become necessary should lack of eligibility for benefits in question be determined.

Indeed, the current statute itself provides a role for the Immigration Courts to handle EB5 petitioners’ cases once benefits have been denied.  Thus, as with other status-based immigration benefits programs, USCIS’s authority to manage the EB5 program should not include enforcement authority to address violations of the EB5 statute.

These proposed powers raise numerous questions concerning how, by whom and according to what standard such criminal or national security violations will be investigated and determined. The proposal that USCIS administer these added functions improperly conflates the positions of adjudicator, prosecutor, and judge into one, and gives no regard to the due process protections that must be afforded center directors, developers, and other interested parties.

2. Improve Integrity of Targeted Employment Areas (TEAs).

The current definition of “Targeted Employment Area” is unique to the EB-5 program, and does not include other federal or state economic-incentive designations designed to promote economic development.

The Regulations at 8 CFR 204.6(i). state in part:

The state government of any state of the United States may designate a particular geographical or political subdivision, located within a metropolitan statistical area or within a city or town having a population of 20,000 or more within such state as an area of high unemployment (at least 150 percent of the national average rate). Evidence of such designation, including a description of the boundaries of the geographic or political subdivision and the method or methods by which the unemployment statistics were obtained, may be provided to a prospective alien entrepreneur for submission with Form I-526.”

The control of a TEA has been expressly given to state agencies. Although it has been argued by some that there is a manipulation of census tracts by some state agencies, which may be considered to be inappropriate scheming or gerrymandering, the ultimate goal and purpose of the EB-5 program is to create jobs and in turn, stimulate the economy.  Seasoned practitioners[2] have argued that there is no better authority than a state department of labor or workforce agency to designate TEAs, primarily as it is in every state’s interest to lower unemployment and enhance the workforce. Furthermore, state agencies have been following a well-defined body of law currently being used by federal and state governments[3] to advance economic development policy. In doing so, it is necessary to have a broader definition for TEAs. States should have the power to determine what areas they want to promote economic growth and development in.  Forcing states to focus on the unemployment rate on the specific census tracts that a project is located on ignores the fact that the created jobs will benefit individuals in surrounding areas as well.

The purpose of the EB-5 program is job creation. Over the last few years, EB-5 has welcomed major players. It is apparent that since the shift has moved away from the Mum and Papa style project, the program has taken on a different image – a more credible image. The large corporate developer is, after all, putting his own money into the project as well. This alone accounts for the popularity of the large urban projects.  It should not be overlooked that it is these large scale projects that have trickled down to water many smaller unremarkable projects that would otherwise have been unnoticed.  The choice is not between job creation in urban areas and job creation in rural areas, it is between job creation in the United States or job creation abroad.

Curtailing TEA’s would be prevent large scale projects in all urban areas. The consequence would be to immediately reduce the appeal to many EB-5 Investors.  Risk and loss of the investor’s money has been a central theme of the EB-5 program. Economic-incentive designations designed to promote economic development already carry tax incentives, wage credits, or other investment incentives.  Why not include immigration incentives?”[4]

In general, both Congress and state governments have defined areas, such as Empowerment and Enterprise Zones, to target disadvantaged areas with economic incentives to encourage businesses to locate in certain areas. If a project is located in a highly populated location where more people are affected, it is more likely to stimulate the economy than if it is established in a rural area with a low population density.  Integrating these existing federal and state geographic definitions with the TEA definition makes common sense and will align the EB-5 program with broader economic-development policy goals.

3. Increase Minimum Investment Amounts.

Today, around 90% of all EB-5 project investments are at the $500,000 level.  The current EB-5 investment program has evolved into a full-fledged industry, revolving around the $500,000 investment, which brings billions into the US. The current minimum amount is outdated and unrealistic in smaller stand-alone projects – however, it has been proven to work in pooled projects and large scale developments. The majority of EB-5 practitioners, agents, brokers and attorneys have been relatively unified in their view that any significant increases in the minimum investment would price many investors out of the market. The “at risk” element undoubtedly will make the US projects less attractive for a higher investment amount, whereas the $500,000 investment encourages a higher volume of investors. There has been discussion among EB-5 stakeholders and politicians about using EB-5 to fund large scale investments in American infrastructure, which has been drastically underfunded over the years.  The potential of infusing EB-5 capital into America’s aging infrastructure is a very exciting potential development, and leaving the minimum investment amount at $500,000 will make it easier to pool large amounts of money for these projects.

It also should not be overlooked that the majority of these $500,000 investors infuse fresh capital into the American economy by paying taxes on their global income, purchasing real estate, engaging professionals, paying for education, and making alternative investments into the stock market, as well as expanding their businesses in the U.S.  For example, in 2010, new immigrant business owners had a total net business income of $121.2 billion, representing 15 percent of all net business income in the country.[5] Furthermore, once the initial EB-5 investment money is returned, there is a great likelihood that it will be reinvested in the U.S.

4. Require Business Plan Filings in Advance of Investor Filings.

Director Johnson asks the committee to give USCIS the power to require regional centers to file investment proposals with business plans and other organizational documents in advance of individual investor filings.   Given the current timelines for adjudication – a requirement of this nature could delay a project by years. This proposal ignores the realities of business, where actual time constraints would unquestionably affect the viability of a project.

Conclusion:

The proposals offered by Director Johnson are overreaching in many respects and should be evaluated with the purpose of the EB-5 program in mind.  Thorough consideration is necessary to ensure that USCIS not be afforded unilateral authority that could undermine health of the EB-5 program.  Although Director Johnson’s proposals contain some adjustments and improvements that would be universally welcomed, Congress must insist on agency accountability, transparency and efficiency as the touchstone of the reauthorization. Above all, it should not be forgotten that in a short period of time, EB-5 has accomplished a tremendous amount, bringing billions of dollars into the United States for the primary benefit of the citizens of the United States.

About the Authors:

Mona Shah, Esq. is the principal of Mona Shah & Associates in New York City. The firm is an established source for EB-5, assisting numerous Regional Centers / EB-5 Projects and Investors in navigating this complex, nuanced and constantly changing area of immigration law. Mona has more than 18 years of legal experience in immigration law and extensive knowledge in EB-5 law. Mona’s substantial litigation background includes her representation of clients in both state and federal courts. She has handled complex immigration law appeals before the US Circuit Courts of Appeal nationwide.  Before coming to the US, Mona was a Crown Prosecutor in the UK. Mona is the author of a published book for investors on EB-5 laws and procedures, she has authored and published numerous articles and has spoken extensively both in the US and overseas. Mona was also voted one of the top 25 EB-5 attorneys in the US, on EB-5 Investors.com, for two years in a row. Mona is an adjunct professor, teaching EB-5, at Baruch College, part of the City of New York Universities.

Lory D. Rosenberg, Esq. : Lory is presently is an attorney entrepreneur and owner of IDEAS Consultation & Coaching, LLC, an expert consulting and mentoring practice in immigration & refugee law.  She has extensive experience of over 30 years.  Lory served as an appellate immigration judge on the United States Department of Justice Board of Immigration Appeals (BIA) between 1995-2002, deciding over 20,000 appeals.

Lory was also was an adjunct professor of immigration and refugee law at American University Washington College of Law, and recently served as interim Policy and Advocacy Director of Refugee and Migrant Rights at Amnesty International USA.  She directed groundbreaking, non-profit immigration law,  policy and mentoring programs at the Defending Immigrants Partnership and AILF Legal Action Center in Washington, D.C., and at Centro Presente, a Central American refugee center in Cambridge, MA, and provided direct business, professional and family immigration,   and naturalization representation, as well as criminal removal defense and appeal services, to private and non-profit clients.  Ms. Rosenberg is co-author of the leading treatise, Immigration Law and Crimes, the author of numerous articles and manuals on a variety of immigration law topics, and was a featured columnist for Benders Immigration Bulletin between 2002-2008.

Lory works as an of counsel attorney with Mona Shah & Associates.

Mona Shah & Associates reserve and hold for their own use, all rights provided by the copyright law, including but not limited to distribution, producing copies or reproducing, sales of this document. This article is a general summary of complex legal issues. No legal advice is provided in this article. Please consult the securities attorney for advice applicable to your particular circumstances.

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[1] The letter was sent to Senator Charles E. Grassley Chairman of the Committee on the Judiciary Grassley and Patrick J. Leahy, Ranking Member Committee on the Judiciary

[2] Carolyn Lee

[3] 10 USCIS Office of Ombudsman, Employment Creation Immigrant Visa (EB-S) Program Recommendations (Mar. 18, 2009), posted on AILA InfoNet at Doc. No. 09031868), available at http://www.dhs.gov/xlibrary/assets/CIS_ Ombudsman Bender’s Immigration Bulletin 1292 October 15,2009

[4]  Angelique Brunner &  David Morris: Realizing the Economic-Development Goals of EB-5 through an Integrated Targeted Employment Definition (2009)

[5] http://www.immigrationpolicy.org/just-facts/immigrant-entrepreneurs-and-innovators-across-united-states