20 Apr USCIS Regional Center Audits are Coming
By Omar Hakim, Esq.
On March 20, 2017, United States Citizenship and Immigration Services (USCIS) announced a formal EB-5 Regional Center Compliance Audit program to, “enhance EB-5 program integrity and verify information in regional center applications and annual certifications.” This new regulation marks a significant change in policy, and indicates a major offensive to curb fraud and misuse of investor funds in the wake of several high-profile cases.
USCIS has indicated that prior to the audit, regional centers will receive a notice of audit and a request for production of records; though this step was not explicitly stated on the website or email notice released. The scope of these audits will be broad, with most of it related to the use of investor funds, however USCIS will specifically be checking to see if centers are complying with the original procedures they set forth in the initial regional center operational plans. Current practices should be consistent with the procedures identified when first applying for regional center designation.
According to the update on their website, USCIS will employ an audit team to carry out the following:
- “Review applications, certifications, and associated records,
- Review public records and information on the regional center
- Verify the information, including supporting documents, submitted with the application(s) and in the annual certification(s)
- Conduct site inspection
- Review and analyze documents
- Interview personnel to confirm the information provided with the application(s) and annual certification(s).”
Consequently, regional centers should provide any information originally submitted to with the application or certification, and updates, and any additional information that may be requested.
We recommend that regional centers have the follow documents ready to respond to an audit:
- the I-526 package for each project, including PPM;
- marketing and promotional materials for each project, to ensure accuracy; executed subscription and operating agreements for each investor;
- a chart of investors for each project including a) Priority date, b) I-526 Receipt Number and c) I-526 Status [Pending/Approved/Denied];
- NCE Escrow and Operating Bank Account statements;
- JCE Bank account statements;
- Bank Account statements of the Regional Center;
- Documentation of Transfers from NCE to JCE;
- Documentation of expenditures and disbursements made by the JCE;
- Statements to show interest payments made by the JCE to the NCE in accordance with the loan agreement;
- Copies of agreements with marketing agents; and
- if applicable, K-1s for approved investors as limited partners/members.
In addition, we advise our clients to have multiple copies of their records with any updates and material changes, as well as to come forward with any inquires they may have regarding this new process.
It is expected that USCIS’ core focus will be on expenditure reports made by the JCE, with a comparison made to what was stated in the PPM. In addition, USCIS will investigate whether the marketing agents are based overseas, and if not, whether any payments were made quid pro quo for referring investors. This will be verified using the Regional Center’s bank statements.
Following the audit, the team will then develop a report, which will be listed in the regional center’s record. This information will be used to assess the regional center’s compliance with applicable laws such as local, state, and federal laws, and the relevant authorities, including the SEC and Department of Justice. If fraud or wrongdoing is indicated by the conclusion of the audit, USCIS will assess whether a further investigation is warranted.
Despite the intention to promote transparency, USCIS may end up confusing successful and complaint regional centers in the process. Complicating matters, USCIS has categorized these audits as ‘voluntary.’ Thus, if regional centers decline to participate in a compliance audit, USCIS may follow up separately regarding compliance with program requirements using the information that it already has. This is the same case if the regional center principal expresses an unwillingness to participate in the site inspection, in which case, the visit in progress is terminated. However, despite this nominally voluntary element, failure to complete an audit will be indicated in an audit report.
Moreover, standards and regulations have not been expressly published for these Compliance Audits, nor has the policy manual been very detailed on expectations. Regional Centers may end up learning these requirements the hard way: by receiving a Notice of Intent to Terminate, or more leniently, a Request for Evidence. Therefore it is imperative that Regional Centers be as prepared as possible to minimize the chances of such an unpleasant result. Regional Center principals will do themselves a big favor by presenting themselves as diligent and organized professionals to the USCIS audit officers.
About the Author
Omar Hakim, Esq. is an attorney at Mona Shah & Associates, a top 25 EB-5 law firm, 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. Omar offers clients years of experience in corporate finance, the financial regulatory system, securities matters and in general corporate governance matters. He has successfully filed numerous entrepreneur, direct-pooled, and regional center projects and offering documents. Omar is experienced in EB-5 compliance and advising on policy and integrity measures, as well as handling the firm’s client regional centers I-924 annual filings.
With a wealth of knowledge in EB-5 and securities, Omar has spoken and presented at numerous conferences, and has published several articles. He is also a member of the President’s Advisory Council for Invest In the USA (IIUSA) and a member of the American Immigration Lawyers Association (AILA).
Omar earned his J.D. at the University of Virginia where he was a member of the Tax Review, and his Master of Laws in Securities and Financial Regulation at the Georgetown University Law Center. He earned his B.A. in Economics at Georgetown University with minors in Computer Science and Arabic, and has passed the Chartered Financial Analyst Level I exam.