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Sunday, December 22nd, 2024

EB-5 program renewed with reforms to fight fraud under House-approved spending bill

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The U.S. House of Representatives on Wednesday night passed a $1.5 trillion omnibus spending measure that includes the EB-5 Reform and Integrity Act, which now is reauthorized through 2027.

The larger legislation funding the government through September now heads back to the U.S. Senate, which is expected to act Friday on the measure.

“Now that the program will be back online, we should see a significant increase in demand from EB-5 investors in specific targeted regions around the world,” said attorney and national EB-5 expert Ronald Fieldstone of Saul Ewing Arnstein and Lehr LLC. “The legislation also attempts to prevent the opportunity for abuse and fraud in the industry.”

The EB-5 Reform and Integrity Act, S. 831, introduced in March 2021 by U.S. Sens. Chuck Grassley (R-IA) and Patrick Leahy (D-VT), would reauthorize the EB-5 Regional Center Program, the federal job-creation and economic development program that expired on June 30, 2021. U.S. Reps. Greg Stanton (D-AZ) and Brian Fitzpatrick (R-PA) introduced the identical bill, H.R. 2901, in their chamber in April 2021.

Grassley has been fighting for years to reduce fraud and abuse in the program, which was created by Congress in 1993 to attract investments from foreign individuals who meet specific capital and job creation requirements in exchange for a green card. And while EB-5 investments have filled funding gaps and provided capital for local economic development projects, concerns have continued to surface in recent years related to national security.

But despite Grassley’s efforts, the EB-5 Regional Center Program expired on June 30, 2021, putting a halt on new applications for regional center designation and any pending petitions dependent on the lapsed process.

Frank Manheim, director of the Delaware Valley Regional Center LLC (DVRC), a Pennsylvania-based EB-5 Regional Center that provides public infrastructure investment opportunities for foreign nationals using the EB-5 program, said he’s only just begun to thoroughly analyze the House-approved bill.

“I think the bill shows that the United States government supports using the EB-5 program for public infrastructure projects,” Manheim told Homeland Preparedness News. “Overall, I believe that the bill includes many provisions to improve integrity measures. For example, regional centers are now explicitly required to be in compliance with securities and banking style regulations (five-year record keeping, SEC registration, etc.).”

The DVRC has successfully used the EB-5 program to raise more than $600 million for public infrastructure works in Pennsylvania and has created over 24,000 jobs. DVRC’s public infrastructure projects, said Manheim, include the Pennsylvania Turnpike highway interchange connecting the Pennsylvania Turnpike to the New Jersey Turnpike, capital projects for the Southeastern Pennsylvania Transportation Authority, and the Pennsylvania Turnpike Commission’s highway improvement program.

Manheim also said he thinks “we are seeing a reversion to a historical pattern whereby smaller programs like EB-5 are attached to must-pass vehicles” like the current government spending bill.

Aaron Grau, executive director of Invest in the USA (IIUSA), the national membership-based, not-for-profit industry trade association for the EB-5 Regional Center Program, told Homeland Preparedness News that his organization is “very excited and grateful” that the EB-5 program has been reauthorized.  

“The reauthorization not only provides program integrity, but market stability,” he wrote in an email on Wednesday. “It is immeasurably beneficial. The market stability and the new program integrity provide assurances for investors and protections for the country that will only stimulate more investment and job creation.”

Grau said there are numerous provisions in the EB-5 bill that would improve integrity measures and/or U.S. national security. 

For instance, there are several new authorities for the U.S. Department of Homeland Security (DHS), which would be tasked with conducting criminal background and national security checks and to obtain biometric information from individuals involved in the Regional Center Program to help root out bad actors.

DHS also would have the power to debar individuals and suspend or terminate regional centers based on various bad acts and non-compliance with new oversight requirements, Grau said. 

Additionally, DHS would be granted new powers to deny or revoke immigrant investor petitions for reasons including fraud, misrepresentation or national security concerns, which Grau said would help ensure that “individuals who seek to harm the U.S. cannot use the program to effectuate their nefarious goals.” 

An EB-5 Integrity Fund also would be established — funded by EB-5 Regional Center Program participants — to provide what Grau said is much-needed program oversight. The move would guarantee program participants have some “skin in the game” in making sure that “those with malevolent intentions cannot access the program,” he said. 

The included EB-5 bill also contains new compliance and oversight requirements for regional centers and investors.

For example, as Manheim mentioned, there are strict new compliance and reporting requirements to ensure regional center compliance with securities laws, as well as thorough annual reporting and accounting requirements for regional center operators “to ensure that investors’ money is not misappropriated,” Grau said. 

There also would be bans placed on individuals with criminal pasts and those found to have committed fraud from participating in the program.

And foreign actors, whether individuals or governments, would no longer be allowed to manage an EB-5 Regional Center, “eliminating a key security issue in the program,” added Grau. 

The EB-5 provisions also include new and enhanced requirements for third-party promoters or others affiliated with marketing or promoting regional center investment projects. “Had they been in place for several years now, [these requirements] would have prevented certain frauds from being committed,” Grau said. 

Strict new “source-of-funds” requirements also are included to ensure that an investor’s funds are derived from a legitimate and lawful source, which Grau said would prevent “bad actors from benefiting from their ill-gotten gains.” 

He also said that much-needed revisions were made to the administration of EB-5 funds by companies that could help the federal government spot and prevent fraudulent activity. 

Fieldstone said that “there has never really been a problem from a national security standpoint” with the EB-5 Regional Center Program. “The EB-5 process has a significant degree of background and security checks,” he said. “Therefore, the legislation is not changing investor qualifications. The one difference is that foreigners cannot own regional centers.”  

Regarding transparency, the EB-5 portion of the omnibus bill includes provisions to ensure that oversight agency USCIS, the U.S. Citizenship and Immigration Services within DHS, engages in a proper and non-preferential way with any person or entity involved in the EB-5 program. “There have been instances in the past where the agency’s credibility has been called into question,” Grau said. “These provisions address those matters.” 

Grandfathering provisions also would direct USCIS to continue processing EB-5 petitions if there’s another program lapse, however eligible EB-5 petitions must be filed by Sept. 30, 2026. And USCIS must audit regional centers at least every five years.

It’s beneficial that the bill includes grandfathering of investors whose EB-5 petitions and visas were not being processed prior to the legislation being passed, according to Fieldstone, who said that “investors are locked in at whatever dollar amount applied at the time they filed their I-526 petitions.”

Other provisions in the measure would increase the required minimum investment amount to $800,000 from the current $500,000 for targeted employment areas (TEAs) and rural areas. The minimum EB-5 investment amount would increase to $1.05 million from the current $1 million for non-TEAs for both regional center and direct EB-5 investments. The higher amounts are likely to take effect 60 days after the bill is enacted.

The bill also would set aside 20 percent of total EB-5 visa numbers for investments in rural areas, 10 percent for investments in high unemployment areas, and 2 percent for investments in infrastructure projects.

Fieldstone also pointed out some burdens related to the legislation that include higher filing fees for regional centers, and the TEA being extremely limited in scope based upon a new definition that is more consistent with the regulations that were invalidated in June 2021.

“The limited TEA will result in many projects not qualifying as a TEA that would have qualified prior to the legislation,” he said.