Immigrant Investor Program: Additional Actions Needed to Better Assess Fraud Risks and Report Economic Benefits
Released: 2015-08-12T00:00:00

Letter

Background

Individuals seeking to establish a regional center under the EB-5 Program must submit an initial application and supporting documentation as well as an update for each fiscal year (or as otherwise requested by USCIS) showing that the regional center continues to meet the program requirements to maintain its regional center designation. Prospective regional center sponsors apply to the program by submitting Form I-924, Application for Regional Center under the Immigrant Investor Pilot Program. On this form, applicants are to provide a proposal, supported by economically or statistically valid forecasting tools, that describes, among other things, how the regional center (1) focuses on a geographic area of the United States; (2) will promote economic growth through increased export sales and improved regional productivity, job creation, and increased domestic capital investment; and (3) investors will create jobs directly or indirectly. Applicants must also include a detailed statement regarding the amount and source of capital committed to the regional center, as well as a description of the promotional efforts they have taken and planned. Once a regional center has been approved to participate in the program, a designated representative of the regional center must file a Form I-924A, Supplement to Form I-924, for each fiscal year, to provide USCIS with updated information demonstrating that the regional center continues to promote economic growth, improved regional productivity, job creation, or increased domestic capital investment in the approved geographic area. USCIS is to issue a notice of intent to terminate the participation of a regional center if it fails to submit the required information or upon a determination that the regional center no longer As of July 2015, serves the purpose of promoting economic growth.USCIS had approved approximately 689 regional centers spread across 49 states, the District of Columbia, and 4 U.S. territories; and USCIS terminated the participation of 34 regional centers for not filing a Form I- 924A or not promoting economic growth.

Prospective immigrant investors seeking to participate in the EB-5 Program must complete three forms and provide supporting documentation that USCIS or State officials, as appropriate, assess to ensure that they have met (1) the terms of participation for the program, (2) conditions for lawful admission for permanent residence on a conditional basis either through adjustment of status if already in the United States under other lawful immigration status or the immigrant visa process if abroad, and (3) requirements of the program to have lawful permanent resident conditions removed. (See fig. 1.)

USCIS and Others Have Identified Unique Fraud Risks to the EB-5 Program and Could Benefit from Planning and Conducting Regular Future Risk Assessments

USCIS has identified fraud and national security risks in the EB-5 Program in various assessments it conducted over time and in collaboration with its interagency partners. For example, in 2012, USCIS met with its interagency partners and National Security Staff to assess fraud and national security risks in the EB-5 Program. An internal memo discussing this effort also highlighted steps that USCIS was undertaking to mitigate fraud risks to the program, such as improving collaboration with law enforcement agencies such as SEC and FBI. In response to this assessment, later in 2012, USCIS worked with FBI and the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN),among others, to better understand the scope of EB-5 Program fraud risks and to assess the benefits of incorporating enhanced security screenings to improve its vetting of EB-5 Program petitioners. FDNS officials told us that one key determination of the study was the need to provide dedicated fraud personnel to the EB-5 Program, which, as discussed later, USCIS implemented. Most recently, in early 2015, DHS’s Office of Intelligence and Analysis prepared a classified report updating the program’s 2012 risk assessment, in response to congressional and USCIS requests, which assessed the fraud risks to the EB-5 Program.

In addition to conducting these risk assessments, USCIS officials told us that they identify potential fraud stemming from the EB-5 Program through regular oversight work such as producing reports on investors’ sources of funds. Additionally, law enforcement agencies such as ICE HSI, SEC, and FBI may also uncover fraud through their own investigative efforts and, as appropriate, will share this information with USCIS.

FDNS officials noted that fraud risks and schemes in the EB-5 Program were constantly evolving, and that updating their 2015 risk assessment helped them better understand the nature and scope of fraud risks to the program. Further, FDNS officials stated that the office constantly identifies new fraud schemes, and that they must work to stay on top of emerging issues. SEC training materials for EB-5 Program staff on securities fraud also stated that fraud scams are creative and constantly changing, and may make use of new distribution channels such as social media. Moreover, as noted previously, the program has grown substantially over time—the total number of EB-5 visas issued increased from almost 3,000 in fiscal year 2011 to over 9,000 in fiscal year 2014, according to State data; this creates additional opportunities for fraud.

Although the risk assessments conducted by USCIS and other agencies have helped provide information to USCIS to better understand and manage risks to the EB-5 Program, these assessments were onetime exercises, and USCIS does not have documented plans to conduct regular future risk assessments of the program because, according to USCIS officials, the agency would perform them on an “as needed” basis. Standards for Internal Control in the Federal Government provides guidance on the importance of identifying and analyzing risks, and using that information to make decisions. These standards address various aspects of internal control that should be continuous, built-in components of organizational operations. One internal control standard, risk assessment, calls for identifying and analyzing risks that agencies face from internal and external sources and deciding what actions should be taken to manage these risks. The standards indicate that conditions governing risk continually change and mechanisms are required to ensure that risk information, such as vulnerabilities in the program, remains current and relevant. Such mechanisms could include periodic risk assessment updates. Moreover, our executive guide for helping agencies identify effective strategies to manage improper payments notes the importance of periodically updating risk assessments because of constant changes in governmental, economic, industry, regulatory, and operating conditions that can affect program risks in their programs. Information collected through periodic reviews, as well as daily operations, can inform the analysis and assessment of risk. Furthermore, DHS’s Risk Management Fundamentals states that DHS and its component agencies should use a risk-based approach when managing programs that includes, among other things, identifying potential risks, assessing and analyzing identified risks, and using risk information and analysis to inform decision making. Planned regular or updated future risk assessments could help better position USCIS to identify, evaluate, and address fraud risks given the potential for changing conditions.

Unlawful Source of Petitioner Funds As one example, Fraud Detection and National Security (FDNS) Directorate officials told us about a case in which a petitioner did not report potential financial ties to a number of brothels in China, which would have raised questions about the legitimacy of the petitioner’s source of funds. FDNS’s fraud detection efforts ultimately identified this connection and the U.S. Citizenship and Immigration Services (USCIS) denied the petition.

See 8 C.F.R. § 204.6(e), (f), (g)(1), (j); 8 C.F.R. § 216.6(c)(2). In the Senate Judiciary Committee report accompanying the Immigration Act of 1990, it is stated that “the committee intends that processing of an individual visa not continue under this section if it becomes known to the Government that the money invested was obtained by the alien through other than legal means (such as money received through the sale of illegal drugs).” S. Rep. No. 101-55, at 21. This committee report was cited as a basis for changing the definition of capital to exclude assets directly or indirectly acquired by unlawful means. See 56 Fed. Reg. at 60,902.

EB-5 Program adjudicators to FDNS for fraud concerns.2015, on the basis of detailed reviews by FDNS staff located in headquarters and overseas, FDNS determined that the sources of funds in many of these petitions contained a high risk for fraud. In addition, ICE HSI headquarters officials provided us with cases of immigrant investors using overseas preparers to submit counterfeit documentation to fraudulently show that funds were lawfully obtained, which can make determining the legitimacy of the source of funds challenging. Further, ICE HSI officials stated that they are concerned that overseas document preparers and recruiters may try to use increasingly sophisticated methods to circumvent program controls. USCIS officials said that IPO and FDNS did not have a means to verify self-reported immigrant financial information with many foreign banks. In addition, both USCIS and State officials noted that they did not have authority to verify banking information with many foreign countries. For example, State officials said that because the U.S. government lacks access to many foreign financial systems, there is no reliable method to verify the source of the funds of petitioners.

Legitimacy of investment entity. The amount of investment required to participate in the EB-5 Program, coupled with the fact that EB-5 investors are making an investment in order to obtain an immigration benefit, can create fraud risks tied to unscrupulous regional center operators and intermediaries. According to SEC officials, they have identified instances of fraudulent investment schemes, including securities fraud, related to EB-5 investments. From January 2013 through January 2015, SEC officials reported receiving over 100 tips, complaints, and referrals related to possible securities fraud violations and the EB-5 Program. Just over half of these tips, complaints, and referrals resulted in further investigation by SEC staff or were referred to other state, local, or federal law enforcement agencies for further review. According to an SEC official, as of July 2015, SEC has initiated four civil enforcement actions alleging securities law violations by EB-5 Program participants. Moreover, according to FDNS documentation, as of May 2015, over half (35) of the 59 open investigations tracked by the program primarily involved securities fraud issues. In addition, SEC officials noted that immigrant investors may be vulnerable to fraud schemes because they may be primarily focused on obtaining their visas. SEC officials noted that, anecdotally, immigrant investors often accepted lower rates of return on their investment relative to other non-EB-5 Program investors in the same project as well as non-EB-5 Program investment opportunities. A 2015 academic study reported that EB-5 Program loans bear a lower overall interest rate than conventional loans because the immigrant investors are motivated by the visa rather than the maximization of financial returns.SEC officials said that investors sometimes did not exercise due diligence about their investment decisions, thus increasing the likelihood that immigrant investors could be taken advantage of by unscrupulous regional centers through fraud schemes or by being steered toward poor investments. Moreover, SEC officials told us that the U.S. government is limited in its ability to investigate foreign-based sales and marketing practices of EB-5 Program investment opportunities and that unrealistic or patently false promises are sometimes made to investors. For example, SEC cases have uncovered incidents of regional center principals defrauding prospective immigrant investors by misrepresenting the business investment. Additionally, USCIS and ICE HSI officials all reported that it can be difficult to verify whether funds are being invested in projects and commercial enterprises as reported in immigrant investor petitions and regional center applications and immigrant investors may also be involved in schemes to fraudulently portray job creation or economic activity. For example, ICE HSI officials reported on a 2014 investigation related to a business enterprise that did not provide employees any work and told the employees to sit in an office during business hours. In another example cited by ICE HSI, in 2013, an alleged future EB-5 Program hotel project site was actually a vacant lot; the owner of the location was not aware of any plans to build a hotel there.

Appearance of favoritism and special access. The DHS OIG reported in March 2015 that a previous USCIS director had created an appearance of favoritism by providing certain petitioners and stakeholders with special access to DHS leadership and preferential treatment for their EB-5 The OIG report also stated that Program applications or petitions. according to USCIS whistleblower allegations, which the OIG corroborated in some cases, the former director created special processes and revised existing policies in the EB-5 Program to accommodate specific parties. According to the OIG, if not for the intervention of the then director, the career staff at USCIS would have decided adjudication matters differently. According to the OIG report, some USCIS employees felt uncomfortable and pressured to comply with managers’ instructions that appeared to have come from the former director or those working directly for him. Not consistently following standard processes designed to identify potential fraud and other risks in adjudicating applications can increase the likelihood that those with criminal ties or those making fraudulent investments will go unnoticed. It may also create a control environment tolerant of not adhering to risk mitigation processes and could reduce trust and transparency in the overall adjudication process. Although the OIG report did not make specific recommendations, following its issuance, the DHS Secretary expressed further concerns about the program and asked Congress for help to strengthen the security and integrity of the program, stating that the EB-5 Program was frequently contacted by outsiders on behalf of those with an interest in the outcome of a particular EB-5 Program case. The DHS Secretary also announced the creation of a new protocol to help prevent the reality or perception of improper outside influence in the EB-5 Program. As of June 2015, USCIS officials had developed the protocol and anticipate that it will be fully implemented by August 2015.

Given these identified fraud risks, and the constantly evolving nature of risks to the program, planning and conducting regular fraud risk assessments of the EB-5 Program could better position USCIS to identify and evaluate emerging fraud risks to the program and address and mitigate these risks.

USCIS Has Taken Some Steps to Address Fraud Risks, but Additional Controls Could Improve Fraud Prevention and Detection

USCIS Has Taken Some Steps to Enhance Its Fraud Risk Management Efforts

USCIS has taken some steps to enhance its fraud risk management efforts, including creating an organizational structure conducive to fraud risk management, establishing a dedicated entity to design and oversee its fraud risk management activities, conducting fraud awareness training, and establishing collaborative relationships with external stakeholders, including law enforcement agencies.

USCIS established an organizational structure to better address fraud risks. In 2013, USCIS restructured the organization of its EB-5 Program operations to help better detect fraud, moving EB-5 Program activities from its California Service Center office and centralizing these operations in USCIS headquarters’ new Immigrant Investor Program Office in Washington, D.C. As of June 2015, nearly all EB-5 adjudication operations are now colocated in Washington, D.C., with the exception of adjudication for Form I-485 applications from immigrant investors who are already in the United States under other lawful immigration status and who are applying to adjust their status to conditional permanent residency under the EB-5 visa category. USCIS officials indicated they plan to move adjudication of the Form I-485 applications from the California Service Center to the National Benefits Center in Lee’s Summit, Missouri, by the end of 2015. These officials stated that because USCIS is primarily paper-driven, colocation also allows for relatively more efficient handling and examination of files for fraud and other risks. In November 2013, USCIS also established a fraud specialist unit for the EB-5 Program within FDNS. FDNS officials said that they increased the number of fraud specialists and hired individuals with specialized skill sets in areas that they consider critical to fraud prevention, including economics, finance, immigration, and national security, as well as relevant language skills. As of May 2015, FDNS was in the process of hiring an additional 8 dedicated staff with specialized fraud expertise to enhance its EB-5 Program fraud detection capabilities and oversight, which will bring the total authorized FDNS EB-5 staff from 13 to 21.

USCIS established fraud awareness training. GAO’s fraud control framework states that providing training on fraud awareness and potential fraud schemes to all key government staff is important in stopping fraud. FDNS’s training of its employees includes specialized fraud training. For instance, as of May 2015, FDNS had sent 8 of its 12 staff to Federal Law Enforcement Training Centers for specific training on detecting money laundering following an introductory course provided in headquarters in May 2014. FDNS has also developed an “EB-5 University” to provide staff with monthly presentations on specific fraud-related topics believed to be immediately relevant to adjudication of EB-5 Program petitions and applications. USCIS held six sessions from August 2014 through January 2015, each of which addressed a different issue, including an overview of FinCEN and the use of external agency data for investigating potential fraud.

USCIS took steps to improve law enforcement collaboration. USCIS took steps to improve its level of coordination related to EB-5 fraud risk with SEC, ICE HSI, and FBI. USCIS does not generally conduct enforcement actions and therefore coordinates with, and also makes referrals to, law enforcement when it detects potential fraud, criminal activity, or national security threats. According to SEC, ICE HSI, FBI, and USCIS officials, USCIS has increased its level of coordination with law enforcement agencies to cross-train staff with additional expertise. For example, in September 2014 USCIS held an interagency symposium to encourage collaboration among the government partners that have a stake in the EB-5 Program. These officials also said that USCIS has established more reliable avenues of communication among the agencies, which has led to increased communication and collaboration on referrals, investigations, and enforcement actions that can be taken when potential threats and fraud are detected in the EB-5 Program. As of May 2015, USCIS was also finalizing a memorandum of understanding with the Department of the Treasury’s FinCEN to improve USCIS’s ease of access to information related to financial fraud and related criminal activity. Moreover, since consolidating operations in Washington, D.C., USCIS officials stated that they have expanded the scope of their background checks to include a greater number of individuals associated with EB-5 investments and have increased the number of databases used to examine individuals considered high risk. These officials said that they are currently working with stakeholders to further enhance and automate checks across law enforcement databases.

Limitations in USCIS’s Information Collection and Use Hamper Its Ability to Detect and Mitigate Fraud Risks

USCIS faces significant challenges in its efforts to detect and mitigate fraud risks. Specifically, USCIS’s information systems and processes limit its ability to collect and use data on the EB-5 Program to identify fraud related to individual investors or investments or to determine any fraud trends across the program. While improvements to USCIS information systems are delayed, USCIS has taken alternative steps to gather information to mitigate fraud risk, such as expanding its site visits program to include random checks of the operation of EB-5 Program projects. However, opportunities remain to expand information collection through interviews with immigrant investors and expanded EB-5 Program petition and application forms.

Limitations in electronic data on EB-5 Program regional center applicants and immigrant investors. USCIS relies heavily on paper- based documentation. While USCIS contractors and employees are to enter certain information from these paper documents into various electronic databases, these databases have limitations that reduce their usefulness for conducting fraud-mitigating activities. For example, information that could be useful in identifying program participants linked to potential fraud is not required to be entered into USCIS’s database, such as the applicant’s name, address, and date of birth on the Form I- 924 used to apply for regional center participation in the EB-5 Program.Moreover, FDNS officials told us that some data fields are also not standardized, a fact that presents significant barriers to conducting basic fraud-related searches. For example, the “geographic location” field, which USCIS personnel use to record where a regional center intends to operate, variously contains counties, parishes, cities, states, ZIP codes, census tracts, and other abbreviations. USCIS’s rules guiding data entry leave many form fields “optional” in USCIS data-systems because, according to USCIS officials, the adjudication is completed from the paper application forms, so USCIS considers entering these data unnecessary. However, including such information in USCIS databases could better position USCIS to use information on investors to assess whether any potential fraud may exist with individual investors or across the program and initiate appropriate mitigating actions. For example, including in USCIS databases information on regional center principals and other Regional Center Program participants that is not consistently recorded in those databases, such as name and date of birth, could help USCIS better identify specific individuals who may be targeted for or are under investigation. Further, more standardized information in USCIS databases, such as for the geographic locations of regional centers, could help the agency better identify and assess any potential regional center fraud trends, for example, within and across geographic areas.

USCIS officials stated that the agency will be able to collect and maintain more readily available data on EB-5 Program petitioners and applicants through the deployment of electronic forms in its new system, the Electronic Immigration System (USCIS ELIS). USCIS officials told us in May 2015 that they expect USCIS ELIS capabilities for the EB-5 Program to become functional in 2017. However, USCIS has faced long-standing challenges in implementing USCIS ELIS, a fact that raises questions about its eventual deployment and thus the extent to which it will position USCIS to collect and maintain more readily available data. As we reported in May 2015, USCIS ELIS is nearly 4 years delayed and program costs increased by over $1 billion. In March 2012, USCIS began to significantly change its acquisition strategy to address various technical challenges with the system, and these changes have significantly delayed the program’s planned schedule. Changes made to the program’s acquisition strategy were intended to help mitigate past technical and programmatic challenges; however, at the time of our review, the plans had not yet been approved and USCIS was operating without a current and approved acquisition program baseline. USCIS subsequently approved the plans for an acquisition program re-baseline in May 2015. However, as we reported in May 2015, USCIS’s ability to effectively monitor USCIS ELIS program performance and make informed decisions about its implementation has been limited because department- level governance and oversight bodies were not using reliable program information to inform their program evaluations. While USCIS ELIS is under development, other actions could help USCIS mitigate fraud, as discussed below.

FDNS’s project site visits are limited in number and scope, but FDNS has taken steps to expand them. FDNS presently conducts EB-5 Program site visits when IPO staff have identified a material concern such as indicators that a project is behind schedule or nonexistent and that cannot be verified through other means such as database searches or requests for evidence from the petitioner or applicant. FDNS officials told us that during a site visit, they typically look for evidence to corroborate petitioner and applicant information such as loan documentation and invoices showing that a business project’s management staff use of investment funds is consistent with the approved business plan. USCIS, SEC, and ICE HSI officials and members of the national industry association representing regional centers said that additional site visits could enhance program integrity. In one example, USCIS officials stated that an EB-5 Program site visit was conducted because three stand-alone businesses claimed they were operating at the same address on their EB-5 petition materials. The businesses had placards on the door, but the owner of the property did not know the petitioners were using the space to run businesses. As a result, USCIS rejected these EB-5 Program petitions. GAO’s fraud control framework states that inspections and physical validations are important tools to help mitigate fraud.officials, even relatively simple site examinations, limited to a physical visit of the investment site, may catch indicators of fraud risk when the site is obviously unsuitable for the stated business purpose or when the petition or application includes falsified information. According to these officials, more comprehensive site examinations are staff intensive but sometimes necessary for detecting fraud. ICE HSI officials said that this includes cases when a business has not invested in physical property or is inactive even though the EB-5 documents show that spending is taking place. These more comprehensive examinations include gathering Further, according to SEC and ICE HSI sources of information related to the project site such as mortgage documents and local city records.

Recognizing the potential benefits of site visits, USCIS plans to expand the EB-5 Program site visits, which could enhance fraud detection and deterrence. FDNS officials stated that they would like to conduct additional scrutiny of cases based on indications of fraud risk, which may include site visits; however, because of the EB-5 Program data limitations described above, FDNS has been unable to develop risk indicators and therefore cannot conduct risk-targeted site visits. However, officials plan to pilot random site visits, which may also help to identify and deter fraud. According to FDNS officials, USCIS approved their request for EB-5 Program random site visits in 2015, but they were not granted the staff positions required to administer these site visits. As of May 2015, FDNS had received authorization to hire 8 additional EB-5 Program staff, a level that FDNS officials stated is sufficient to begin administering a random site visit program. FDNS requested an expanded site visit budget for fiscal year 2016, which is now pending approval. FDNS officials stated that if the request is approved, a pilot random site visit program will begin sometime in fiscal year 2016. While improvements to USCIS information systems are delayed, piloting a random site visit program is a step that could provide USCIS valuable information in its efforts to mitigate fraud.

USCIS does not interview immigrant investors seeking removal of permanent residency conditions. USCIS is statutorily required to conduct interviews of immigrant investors within 90 days after they submit the Form I-829 petition to remove conditions on their permanent residency. However, USCIS also has the statutory authority to waive the requirement for such interviews. As of April 2015, USCIS officials stated that USCIS IPO has not conducted an interview at the I-829 stage. Conducting interviews at this stage to gather additional corroborating or contextual information could help establish whether an immigrant investor is a victim of or complicit in fraud—a concern shared by both ICE HSI and SEC officials, who noted that gathering additional information and context about individual investors could help to inform investigative work. For example, interviews could present an opportunity to gather additional information on the extent to which the initial investment proposal offered to potential immigrant investors differed from the actual investments made and interest returned on investments. Further, these interviews could gather additional information from immigrant investors in cases where their associated regional center or commercial enterprise is suspected of fraud, such as whether investors were asked to recruit other investors as a condition of receiving a return on their investment. Thus, USCIS’s use of its authority to conduct interviews under the program could help collect information that would otherwise be difficult to obtain from investors. USCIS officials agreed that conducting interviews at this stage could be a source of relevant information and said they anticipate conducting these interviews in the near future. However, USCIS officials explained that they have not developed plans or a strategy for conducting interviews at this stage primarily because IPO is relatively new and began adjudicating I-829 petitions in September 2014. These officials added that IPO is in the process of determining whether or not to schedule an interview with a current immigrant investor but does not have a general strategy for conducting these interviews. While we recognize the establishment of IPO is relatively new, developing a strategy for conducting interviews on investors at the I-829 stage could, for example, help corroborate information those investors originally submitted to demonstrate that the investors have met program requirements before having their conditions for lawful permanent residency removed. Given that IPO is relatively new, this strategy could include an approach to focus on those investors at the I-829 stage who may be at higher risk for fraud.

USCIS does not collect certain applicant information that could help mitigate fraud. In fiscal year 2011, USCIS expanded reporting requirements to gather information about ongoing regional center activities such as information on the active projects managed by each regional center. According to USCIS and SEC officials, this information has helped identify potential incidents of fraud. However, USCIS does not require information on the Form I-924 about the businesses supported by the regional center and program investments coordinated by the regional center, such as the names of principals or key officers associated with the business, or information on advisers to investors such as foreign brokers, marketers, attorneys, and other advisers receiving fees from investors. According to USCIS officials, USCIS is drafting revised Forms I-924 and I-924A that will seek to address many of these concerns. However, as these revisions have not been completed, it is too early to tell the extent to which they will position USCIS to collect additional applicant information. SEC and FDNS stakeholders with whom we spoke emphasized that collecting additional information could be useful for USCIS to combat fraud. For example, according to these officials, the absence of information about businesses supported by regional centers limits USCIS’s ability to identify potential fraud such as misrepresentation of a new commercial enterprise. USCIS officials agreed that some additional information collection would enhance program integrity but have not done so because the process to add questions to application forms to capture information requires USCIS to document the rationale for such changes by directly connecting new questions to statutory eligibility criteria, and USCIS has dedicated its regulatory group to other priorities pending potential new legislation or expiration of the Regional Center Program in September 2015. We recognize these competing priorities currently exist; while these priorities are being addressed by USCIS’s regulatory group, the agency could also develop a strategy for identifying and collecting additional information on its petition and application forms to help mitigate fraud risks to the program, such as information on the businesses supported by regional centers.

GAO’s fraud control framework states that fraud prevention can be achieved by requiring registrants to provide information that is sufficient to provide reasonable assurance against fraud risks. Further, Standards for Internal Control in the Federal Government states that identified program risks, including fraud risk, should guide management’s planning and development of internal controls. Given that information system improvements with the potential to expand USCIS’s fraud mitigation efforts will not take effect until 2017 at the earliest and that gaps exist in USCIS’s other information collection efforts, developing a strategy to capitalize on existing opportunities for collecting additional information would better position USCIS to identify and mitigate potential fraud.

USCIS Has Made Efforts to Enhance Its Statutory Authority to Help Mitigate Risks Associated with the EB-5 Program

USCIS has recognized that the connection between national security concerns and specific EB-5 Program eligibility criteria may, at times, be tenuous. Specifically, USCIS has determined that it cannot terminate participation of regional centers, or deny immigrant investor petitions or regional center applications solely on the basis of national security concerns, unless such concerns lead an adjudicator to determine that the petitioner or applicant does not meet one or more EB-5 Program eligibility criteria by a preponderance of evidence. The preponderance of evidence standard requires petitioners or applicants to establish eligibility by demonstrating that it is more likely than not that they meet all EB-5 Program requirements. USCIS’s authority with respect to fraud or misrepresentation identified by an adjudicator in the petition or application process is less uncertain than that for national security concerns in that petitioners or applicants must show that their claims for EB-5 Program eligibility are more likely true than not (i.e., probably true), and potential fraud would generally bear on the truthfulness of petitioner or applicant claims. USCIS officials noted that USCIS has authority to deny a Form I- 485 application based on fraud, misrepresentation, and national security concerns as these constitute grounds of inadmissibility that would render an immigrant investor ineligible for adjustment to conditional permanent residency.

According to FDNS officials, some regional centers continue to operate despite concerns of fraud or associations with criminal activity. For example, FDNS officials cited a case involving a regional center principal against whom a federal grand jury returned a multiple count wire fraud indictment, and who was, at the time, in custody in a foreign country.

According to FDNS officials, USCIS terminated this regional center because the principal failed to file the Form I-924A application supplement as required by regulation rather than, for example, on grounds related to the charges upon which the regional center principal was indicted.

USCIS officials noted that if fraud or national security concerns either alone or in combination with other factors lead an adjudicator to determine, based on a preponderance of the evidence, that a regional center is failing to fulfill the statutory requirement of promoting economic growth, adjudicators can under those circumstances terminate the regional center or deny an application for regional center designation. However, USCIS believes that unless a connection can be made that the regional center is failing to promote economic growth, it does not have the authority to terminate a regional center. According to USCIS officials, the lack of authority to terminate a regional center or deny an immigrant investor petition or regional center application based solely on national security or fraud concerns is a major challenge and requires a significant amount of time to link findings to the statutory criteria.

In addition to S.1501, in January 2015 the American Entrepreneurship and Investment Act of 2015, H.R.616, was introduced in the House of Representatives, and would provide a permanent authorization of the regional center program. explicitly requires that fraud, misrepresentation, criminal misuse, and threats to public safety or national security be considered in establishing eligibility criteria for regional centers; and states that the Secretary of DHS shall deny or revoke approval of a regional center business plan application with any particular investment or business arrangement that, in his or her unreviewable discretion, presents a public safety or national security threat or significant risk of criminal misuse, fraud, or abuse.

USCIS Has Increased Its Capacity for Verifying Job Creation but Does Not Use a Valid and Reliable Methodology for Reporting Program Outcomes and Economic Benefits USCIS Strengthened Its Workforce, Guidance, Training, and Process for Verifying Job Creation

USCIS has taken action to increase its capacity to verify job creation in response to past GAO and DHS OIG reports that found that USCIS did not have staff with the expertise to verify job creation estimates and that the agencies’ methodologies for verifying such estimates were not rigorous. Specifically, in April 2005, GAO reported that USCIS adjudicators lacked the expertise to adjudicate EB-5 Program petitions, and were not sufficiently trained to properly adjudicate EB-5 Program petitions because of the complex business and tax issues involved.More recently, in December 2013, the DHS OIG reported that USCIS lacked meaningful economic expertise to conduct independent and thorough reviews of economic models used by investors to estimate indirect job creation for regional center projects, and recommended that USCIS coordinate with other federal agencies to provide expertise in the adjudication process.

USCIS took action over time to increase the size and expertise of its workforce, provide clarifying guidance and training, and revise its process for assigning petitions and applications for adjudication. For example, in 2014, USCIS began increasing its staffing from 9 adjudicators to 58 adjudicator officers and 22 economists as of June 2015, and in May 2013, issued a policy memorandum clarifying existing guidance to help ensure consistency in the adjudication of petitions and to provide greater transparency for the EB-5 Program stakeholder community, according to IPO officials. In addition, USCIS improved its training curriculum to better ensure consistency and compliance with applicable statutes, regulations, and agency policy, including an update in 2014 of the new employee EB- 5 training program and the establishment of an ongoing training focusing on recurring issues and petition cases that are novel in nature. IPO program managers stated that USCIS revised its application assignment process in 2015 to help improve the consistency and efficiency of its adjudication of large-scale, multi-investor regional center projects. Under the new approach, the same economist is assigned to review the business plan, economic analysis, and organizational documents for each project involving multiple regional center investors. We interviewed 8 EB- 5 Program economists who reported that they were satisfied with the guidance and that the training provided them with a high degree of confidence in adjudicating EB-5 petitions and applications.

Further, IPO program managers reported that USCIS has provided its economists with access to data from the RIMS II economic model since fiscal year 2013 that increased their capacity to verify job creation estimates reported by immigrant investors for investments in regional center projects. IPO program managers estimated that as of fiscal year 2015, about 95 percent of EB-5 Program petitioners used economic models to estimate job creation, with about 90 percent of those petitioners using RIMS II. The RIMS II model is widely used across the public and private sectors and is considered to be valid to verify estimates of indirect and induced jobs reported for investments in regional center projects, according to USCIS and Commerce economists, as well as industry and academic experts. Indirect jobs include jobs that are not directly created by the new commercial enterprise, but may result from increased employment in other businesses that supply goods and services to the regional center business as well as induced jobs created from workers’ spending of increased earnings on consumer goods and services. Under the law establishing the Regional Center Program, regional center investors are permitted to meet the job creation requirement using reasonable methodologies to estimate the number of jobs created, including jobs estimated to have been created indirectly through revenues generated from increased exports, improved regional productivity, job Further, the EB-5 creation, or increased domestic capital investment.Program regulation permits regional center investors to estimate direct and indirect jobs for regional center projects using reasonable methodologies, including multiplier tables that are based on input-output economic models—coefficients that when used in conjunction with inputs such as a specified investment amount, can estimate economic outputs, such as job creation. USCIS economists said that the use of the RIMS II multipliers in combination with other information, including the eligible project investment amount, the code that identifies the project industry, and project location, has provided them with the necessary capacity to better ensure investors meet program requirements for job creation. We conducted a technical review of articles and other documents on the model as well as interviewed subject matter experts, including industry and academic researchers who published studies of the EB-5 Program structure, Commerce officials with the Bureau of Economic Analysis who administer the RIMS II model, and USCIS IPO officials who review the various economic models used by EB-5 investors. On the basis of our reviews and interviews, we determined that IPO’s use of RIMSII data is a reasonable methodology to verify job creation as permitted in law and program regulation.

A targeted employment area is defined as a rural area or an area that has experienced unemployment of at least 150 percent of the national average rate. A rural area is defined as any area not within either a metropolitan statistical area (as defined by the Office of Management and Budget) or the outer boundary of any city or town having a population of 20,000 or more (based on the most recent decennial census of the United States). See 8 U.S.C. § 1153(b)(5)(B)(ii), (iii); 8 C.F.R. § 204.6(e), (j)(6)(ii). A technical limitation of input- output models as a whole is that they cannot predict when and where indirect jobs will be created. amount—$500,000 instead of $1 million—to participate in the EB-5 Program because they are claiming investment in a commercial enterprise that will create employment in a targeted employment area. The remaining 10 percent of immigrant investors pay twice that amount to participate in projects that are not limited to these locations. The IPO Economics Division Chief said that USCIS has not identified a need to verify the creation of jobs in a targeted employment area because the law permits regional center investors to use reasonable methodologies such as input-output models that do not have this capacity, and because program regulation and policy address the issue by requiring that capital be invested in a job-creating enterprise that is principally doing business in a targeted employment area.said that given the relative ease of proving job creation through economic modeling compared with documentation requirements to prove creation of direct jobs, immigrant investors generally claim indirect jobs, rather than direct jobs, to qualify for the program.

USCIS’s Methodology for Reporting Program Outcomes Is Not Valid and Reliable in Certain Instances

USCIS’s methodology for reporting EB-5 Program outcomes and economic benefits is not valid and reliable because it may overstate or understate results in certain instances as it is based on the minimum program requirements for job creation and investment instead of the number of jobs and actual investment amounts investors report on EB-5 Program forms. To estimate job creation, USCIS multiplies the number of immigrant investors who have successfully completed the program with an approved Form I-829, by 10—the minimum job creation requirement per immigrant investor. To estimate overall investment in the economy, the agency multiplies the number of immigrant investors approved to participate in the program with an approved Form I-526, by $500,000— the minimum investment amount, assuming all investments were made for projects in a targeted employment area. Accordingly, USCIS reported that from program inception in fiscal year 1990 through fiscal year 2014, the EB-5 Program has created a minimum of 73,730 jobs and more than $11.2 billion in investments.

Our review and past GAO and DHS OIG audits of the program have pointed out the limitations of this methodology to report reliable program outcomes in that the data can be understated or overstated in certain instances. For example, USCIS officials stated that the majority of immigrant investors reported creating more than the 10-job minimum, and 10 percent of immigrant investors pay $1 million instead of $500,000 because they invest in projects outside of a targeted employment area. Estimating economic outcomes using the minimum program requirements in these circumstances would lead to an underestimate of the program’s benefits. For example, we reviewed one project with about 450 immigrant investors that created over 10,500 jobs, or about 23 jobs per immigrant investor, while USCIS counted only the 10-job minimum per immigrant investor (totaling 4,500), a difference of 6,000 jobs. Additionally, according to DHS’s 2013 Yearbook of Immigration Statistics, about 32 immigrant investors paid $1 million instead of $500,000 into the EB-5 Program in fiscal year 2013, a total difference of $16 million not counted by USCIS.

Conversely, USCIS’s methodology may, in certain instances, overstate some economic benefits derived from the EB-5 Program. For example, the methodology assumes that all immigrant investors approved for the program will invest the required amount of funds, and that these funds will be fully spent on the project. According to our analysis of EB-5 Program data, there are fewer immigrant investors who successfully complete the program than were approved for program participation, and the actual amount invested and spent in these circumstances is unknown. For example, our analysis showed that approximately 26 percent of all EB-5 Program immigrant investors who entered the program from its inception year through fiscal year 2011 may not have completed the process to show funds spent and jobs created with an approved I-829 as of the fiscal year ending in 2014.

USCIS collects more complete information on EB-5 Program forms, but does not track or analyze this information to more accurately report program outcomes. Specifically, immigrant investors are required to report (and USCIS staff are to verify) the amount of their initial investment on the Form I-526, and to report the number of new jobs created (or expected to be created within a reasonable time) by their investment on the Form I-829. However, USCIS officials said that they report EB-5 Program outcomes using minimum program requirements because these are the required economic benefits stated in law, and that they are not statutorily required to develop a more comprehensive assessment of overall program benefits.

The Project Management Institute’s The Standard for Program Management states that programs need to establish monitoring and controlling activities to report on program performance.collecting, measuring, and disseminating performance information so program management has the data necessary to report on the program’s state and identify areas in need of improvement. Additionally, GAO’s Standards for Internal Control in the Federal Government states that activities need to be established to monitor performance, managers need This includes to compare actual performance against planned or expected results, and controls should aim at validating the propriety and integrity of performance measures. Further, transactions should be promptly recorded to maintain their relevance and value to management in controlling operations and making decisions throughout the entire process of an event from initiation through final classification. Tracking and reporting the investment and job creation data it collects on the Forms I- 526 and I-829 would better position USCIS to more accurately assess and report on the EB-5 Program’s outcomes, in line with the program’s mission to bring new investment capital and jobs into the country and to help Congress and others better evaluate the benefits of the program.

Views differ on whether USCIS methodology, as defined in EB-5 Program regulations, should allow immigrant investors to claim all jobs created by projects with EB-5 and non-EB-5 investors. We and the DHS OIG have previously raised questions about this practice because immigrant investors are to create 10 jobs based on their investment in the new commercial enterprise, and therefore including non-EB-5 Program investments in the enterprise can inflate the job creation benefit of the immigrant investment.program managers said that while they do not have resources to verify this fact for each project, it is possible that a regional center project would not occur or be viable without EB-5 Program investment funds, which provide an alternative source of capital for projects that might not be able to attract or afford investments from other foreign or U.S. sources. In the final rule implementing section 121 of the Immigration Act of 1990, legacy Immigration and Naturalization Service (INS) contemplated multiple investor scenarios in promulgating EB-5 regulations, and on the basis of The IPO Economics Division Chief and IPO comments in response to the proposed rule, permitted the practice of allocating only to immigrant investors the jobs created as a result of the establishment of a new commercial enterprise by multiple investors, some of whom may not be seeking EB-5 visas.

Additionally, according to the IPO Economic Division Chief, his analysis showed that projects in many industries could not generate the required number of jobs based on the minimum EB-5 investment alone, and otherwise would not be able to use and benefit from the EB-5 Program. Specifically, his analysis showed that about 160 industries, including manufacturing, are unable to create the required 10 jobs per investor based solely on the EB-5 Program minimum investment of $500,000. According to IPO officials, without the practice of allowing immigrant investors to claim jobs generated by investments from other sources, a higher investment amount would be required for investors to meet the job creation requirements in these industries and qualify for removal of their permanent residency conditions.

GAO did not independently corroborate the outcomes of this analysis.

Economic modeling for the project showed that 10,500 jobs were created by the total project spending. All 10,500 jobs were distributed on a pro rata basis such that each of the 450 investors was allocated 23 jobs each. This represents a “job cushion” of approximately 130 percent over the USCIS-required 10 jobs per investor. According to an IPO economist we interviewed, most projects build in a job cushion to ensure that all investors meet the job creation requirements and to increase the likelihood that investors achieve approval for lawful permanent residency. met the job creation criteria necessary to achieve lawful permanent residency.

USCIS-Commissioned Study to Assess Overall Program Benefits Addresses Some Past Limitations, but Not the Costs, of the EB-5 Program

USCIS has commissioned Commerce’s Economics and Statistics Administration (ESA) to conduct a study of the economic impact of the EB-5 Program. According to the IPO Economics Division Chief, USCIS undertook this action in response to a December 2013 DHS OIG recommendation that USCIS conduct a comprehensive review of the EB- 5 Program to demonstrate how investor funds have stimulated the U.S. economy. As of June 2015, USCIS and ESA had not yet finalized the methodology for the new study; however, ESA and USCIS approved a statement of work in November 2014 that outlines a preliminary methodology and study steps that would address some, but not all, shortcomings of prior studies of the overall EB-5 Program benefits. Past studies, for example, included small sample sizes that were not representative of the total population and may have overstated economic impact because of the use of national, instead of regional, multipliers in the analysis. ESA’s study is to assess the value of the EB-5 Program beginning at the EB-5 project level for all projects completed (or at least lasting 2 years) for fiscal years 2012 and 2013. According to Commerce officials, the study findings will include (1) the immigrant investor investments as well as the non EB-5 investments used in each job creation estimate; (2) the number of jobs created as well as the value of the jobs from each project, citing the geographic area for which the job creation was claimed in the economic impact assessment; and (3) the likely household spending of immigrant investor families while living in the United States. Commerce officials indicated that for the study, all projects within a state will be added to derive a state total and then the state totals will be aggregated to determine a national total. ESA will review a majority of the economic impact assessments that led to the job creation estimates for each of the projects to determine whether the models used for estimating job creation were applied correctly. ESA also plans to use information submitted by immigrant investors on EB-5 Program forms and entered into the Intranet Computer Linked Application Information Management System (iCLAIMS) to more specifically and reliably report program benefits. USCIS has provided ESA with data from the iCLAIMS database, including information from forms immigrant investors and regional centers use to meet program participation requirements—Forms I-526, I-829, I-924, and I-924A—which, according to an ESA official, ESA is beginning to examine in greater detail. ESA will review DHS’s data collection and reporting system prior to using the iCLAIMS data to determine the value of the program. USCIS officials said that ESA plans to finalize the study methodology once it completes a review of the program data submitted by IPO, and to issue a final report in November 2015.

Additionally, the level and mechanisms of the most prevalent forms of social support (the transfers made through Social Security payments and various forms of income assistance) in the United States are inversely related to income, and since incomes for an accredited investor are in, at minimum, the top 5 percent of incomes in the United States, it is unlikely that they receive any form of social assistance. currently collects to support. USCIS officials said that for these reasons, the costs to gather the information may not justify the investment.

The Office of Management and Budget Circular A-94 Revised, Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs, which applies to all analyses used to support government decisions to initiate, renew, or expand programs or projects that would result in a series of measurable benefits or costs extending for 3 or more years into the future, identifies actions agencies can take in cases where costs cannot Specifically, be quantified when measuring the impact of a program.OMB Circular A-94 provides that in analyses where not all benefits or costs can be assigned a monetary value, a comprehensive enumeration of the different types of benefits and costs can help identify the full range of program effects. For example, DHS costs to track and remove immigrant investors (and their families) from the United States who do not successfully complete the program, and costs to social programs such as Medicaid, Medicare, and Social Security may be associated with the program but difficult to quantify. Ensuring that the ESA study includes a discussion of costs that should be considered but cannot be quantified for the program would provide Congress and other stakeholders with more information on the overall value of the program.

Conclusions

The EB-5 Program seeks to stimulate the economy by promoting job creation and encouraging capital investment by foreign investors in the United States. However, these features of the program that can provide economic benefit to the United States can also create unique fraud and national security risks that must be identified and addressed. Planning to conduct risk assessments on a more regular basis would better position USCIS to identify, evaluate, and address future and changing risks to the program. This may be of particular importance as USCIS is unable to comprehensively identify and address fraud trends across the program because of its reliance on paper-based documentation and because it faces certain limitations with using available data and with collecting additional data on EB-5 immigrant investors or investments. Developing a strategy to expand its data collection efforts, such as interviewing investors who apply to remove conditions on their permanent resident status and requesting additional information on applicant and petitioner forms, could better position USCIS to address these limitations.

USCIS’s ability to apply a valid and reliable methodology for reporting EB- 5 Program outcomes and economic benefits is important for program accountability and to provide the public and Congress with more complete information to evaluate the program and make reauthorization decisions. Tracking and using more comprehensive information it collects on project investments and job creation on the Forms I-526 and I-829 submitted by immigrant investors and verified by USCIS would enable USCIS to more reliably report on EB-5 Program outcomes and economic benefits. Additionally, taking steps to ensure that the valuation it commissioned Commerce to conduct includes a discussion of the types of costs that should be considered, but could not be quantified by the study, would provide Congress and other stakeholders with more comprehensive information on the overall economic benefits of the program.

Recommendations for Executive Action

To strengthen USCIS’s EB-5 Program fraud prevention, detection, and mitigation capabilities, and to more accurately and comprehensively assess and report program outcomes and the overall economic benefits of the program, we recommend that the Director of USCIS take the following four actions: plan and conduct regular future fraud risk assessments of the EB-5 develop a strategy to expand information collection, including considering the increased use of interviews at the I-829 phase as well as requiring the additional reporting of information in applicant and petitioner forms; track and report data that immigrant investors report, and the agency verifies on its program forms for total investments and jobs created through the EB-5 Program; and include a discussion of the types and reasons any relevant program costs were excluded from the Commerce study of the EB-5 Program.

Agency Comments and our Evaluation

We provided a draft of this report to Commerce, DHS, DOJ, SEC, and State for their review and comment. DHS provided written comments, which are reproduced in appendix I, and Commerce, DOJ, SEC, and State did not provide written comments. In its comments, DHS concurred with the four recommendations and described actions under way or planned to address them. Commerce and DHS provided technical comments, which we incorporated as appropriate.

With regard to the first recommendation, that USCIS plan and conduct regular future fraud risk assessments of the EB-5 Program, DHS concurred, stating that the EB-5 Branch of USCIS’s FDNS will continue to conduct a minimum of one fraud, national security, or intelligence assessment on an aspect of the program annually, as it has done since 2012. DHS further requested that GAO consider this recommendation resolved and closed. While we believe that planning to continue conducting a minimum of one assessment on an aspect of the program annually is a positive step, to fully address the intent of our recommendation, USCIS needs to conduct at least one review, as planned. Thus, we continue to consider this recommendation open.

With regard to the second recommendation, that USCIS develop a strategy to expand information collection, including considering the increased use of interviews at the I-829 phase as well as requiring the additional reporting of information in applicant and petitioner forms, DHS concurred and estimated that actions to develop such a strategy would be completed by September 30, 2016. Upon completion of the strategy, these actions should address the intent of the recommendation to strengthen USCIS’s ability to prevent, detect, and mitigate fraud in the EB-5 Program.

With regard to the third recommendation, that USCIS track and report data that immigrant investors report, and the agency verifies on its program forms for total investments and jobs created through the EB-5 Program, DHS concurred and estimated that a plan to collect and aggregate additional data, including revisions to USCIS data systems and processes, would be completed by September 30, 2016. When USCIS implements this plan, this action should address the intent of the recommendation to more comprehensively assess and report program outcomes of the EB-5 Program.

With regard to the fourth recommendation, that USCIS include a discussion of the types and reasons any relevant program costs were excluded from the Commerce study of the EB-5 Program, DHS concurred and said that USCIS IPO will recommend to Commerce that a description of potential costs not assessed as a part of the study be included when the study is published later this year. Should Commerce include such a discussion of relevant program costs in its study that USCIS estimates will be completed November 30, 2015, this action should address the intent of our recommendation to more comprehensively assess and report the overall economic benefits of the EB-5 Program.

We are sending copies of this report to interested congressional committees; the Secretaries of Commerce, Homeland Security, and State; the Attorney General of the United States; as well as the U.S. Securities and Exchange Commission Chair. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact Rebecca Gambler at (202) 512-8777 or gamblerr@gao.gov or Seto Bagdoyan at (202) 512-6722 or bagdoyans@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix II.

Appendix I: Comments from the Department of Homeland Security

Appendix II: GAO Contacts and Staff Acknowledgments

GAO Contacts

Rebecca Gambler at (202) 512-8777 or gamblerr@gao.gov, or Seto Bagdoyan at (202) 512-6722 or bagdoyans@gao.gov.

Staff Acknowledgments

In addition to the contacts named above, Cindy Ayers, Joah Iannotta, David Alexander, Christopher Hayes, John Karikari, Andrew Kurtzman, Natalie Maddox, Jan Montgomery, Jon Najmi, Brynn Rovito, Edith Sohna, and Nick Weeks made key contributions to this report.