There is speculation on the Hill that lawmakers will not take on reforming or improving the EB-5 Program until January 2016. But don't think for a second that lawmakers will simply pass an extension of the Program and indefinitely shelve refashioning EB-5. Last month, the General Accounting Office (GAO) published a report on the Program (Immigrant Investor Program: Additional Actions Needed to Better Assess Fraud Risks and Report Economic Benefits). Congress is reading this report, which is a 58 page "gotcha" on EB-5. With recent SEC actions targeting EB-5 fraud, the EB-5 industry is at a point of inflection.
What are the findings of the GAO in three user-friendly sentences or less? Fraud detection at the investor and regional center levels is a major concern of the GAO's report, as is the measure by which jobs are counted. The current approach to targeted employment areas needs to be revisited. There is also concern in the report that USCIS has at high levels engaged in favoritism in adjudicating projects.
If the GAO's report is a blueprint for Congress on reform, the EB-5 industry is in for broad sweeping changes. Deals will be harder to qualify for EB-5 financing, and otherwise qualified investors may be unable to meet very high source of funds criteria.
Lawmakers should pass a bill that makes the Program permanent while holding all parties in EB-5 transactions accountable for following the law. We have laws and agencies in place already to coordinate administration of the EB-5 Program. Getting the SEC to the table is also important. The EB-5 Program creates jobs and opportunity. It is a win-win for investors and commercial enterprises needing foreign capital to propel development. We have a legal and administrative infrastructure that should, when coordinated, make the EB-5 Program work seamlessly and allow USCIS to focus on adjudicating immigration benefits.
One concern in the EB-5 industry is that with changes, USCIS and other agencies that are involved with the program will be more afraid than ever of making mistakes. This is especially true with ferreting out fraud. The fraud detection net can be cast too wide, as we have seen with L-1 visas, sweeping the wrong people and the wrong businesses into overly aggressive enforcement efforts. This could result in meritorious projects, law abiding regional centers and qualified investors being blocked from the program. While we do not know the exact shape EB-5 reform will take, regional centers and issuers of securities in the EB-5 space can look to the GAO's report to see what's coming down the pike for EB-5.