Immigrant Investor Program: Additional Actions Needed to Better Assess Fraud Risks and Report Economic Benefits
Released: 2016-02-11T00:00:00

Letter

USCIS Had Taken Some Steps to Assess and Address Fraud Risks, but Regular Risk Assessments and Additional Controls Could Improve Fraud Prevention and Detection

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

In August 2015, we reported that USCIS had 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 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 to enhance the program’s ability to mitigate fraud such as through improved collaboration with the SEC and the FBI. Further, later in 2012, USCIS worked with FBI and the Department of Treasury Financial Crimes Enforcement Network, among others, to assess the benefits of incorporating enhanced security screenings to improve its vetting of EB-5 Program petitioners, including the need to provide dedicated fraud personnel to the EB-5 Program, according to FDNS personnel. Most recently, in early 2015, DHS’s Office of Intelligence and Analysis prepared a classified report, which updated the program’s 2012 assessment of the fraud risks to the EB-5 Program. USCIS officials said that they also identify potential fraud risks in the EB-5 Program through their day-to-day oversight work, and that law enforcement agencies such as HSI, the SEC, and the FBI may also uncover fraud through their own investigative efforts and may share the information with USCIS, as appropriate.

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, as we reported in August 2015, USCIS did 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. However, FDNS officials noted that fraud risks and schemes in the EB-5 Program were constantly evolving, and stated that the office regularly identifies new fraud schemes and that they must work to stay on top of emerging issues. We also reported that the EB-5 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, which creates additional opportunities for fraud.

According to the risk assessments and FDNS officials, the EB-5 Program possesses several risks that are generally not present in other types of immigration programs. Specifically, a senior FDNS official noted that, as is the case with other immigration benefits, EB-5 adjudications center on the eligibility of the petitioner or applicant, however, the EB-5 Program also has an investment component that creates increased program complexity and the potential for fraud risks. Fraud risks which USCIS and other agencies have identified for the EB-5 Program included those related to both the investors and regional centers, such as the following.

Uncertain source of immigrant investor funds. USCIS’s 2012 risk assessment identified the source of EB-5 petitioner funds as an area at risk for fraud. As previously discussed, to be eligible for the EB-5 Program, immigrant investors must invest a minimum of $1 million—or $500,000 in a targeted employment area—in a job-creating enterprise, and investors must provide documentation showing that these funds come from a lawful source. USCIS officials said that some petitioners may have strong incentives to report inaccurate information about the sources of their funds on their petitions or use fraudulent documents in instances when the funds come from illicit—and thus ineligible—sources, such as funds obtained through drug trade, human trafficking, or other criminal activities. USCIS and State officials noted that verifying a lawful source of funds was difficult as they did not have authority to access and verify banking information with many foreign countries, and USCIS officials said that therefore IPO and FDNS did not have a means to verify self-reported immigrant financial information stated to come from these foreign banks.

Legitimacy of investment entity. The amount of investment required to participate in the EB-5 Program, coupled with the fact that investors are making an investment in order to obtain an immigration benefit (i.e., green card), can create fraud risks tied to regional center operators and intermediaries. For example, SEC officials noted that immigrant investors may be vulnerable to fraud schemes because they may be primarily focused on obtaining their visas. As of May 2015, FDNS documentation tracking investigations by program stakeholders such as the SEC and HSI showed that over half (35) of the 59 open investigations were primarily focused on securities fraud. Moreover, in January 2016, the SEC’s Office of Inspections and Examinations identified the EB-5 Program in its examination priorities for 2016.

Given these identified fraud risks, and the constantly evolving nature of risks to the program, we recommended in our August 2015 report that USCIS plan and conduct regular fraud risk assessments of the EB-5 Program to better position it to identify, address, and mitigate emerging fraud risks to the program. DHS concurred, stating that the EB-5 Branch of USCIS’s FDNS would continue to conduct a minimum of one fraud, national security, or intelligence assessment on an aspect of the program annually. In February 2016, USCIS officials stated that they had completed the data collection for their first review, which they estimated completing by September 2016. This review will focus on all identified national security concern cases initiated in the Fraud Detection and National Security Detection System from fiscal years 2011 through 2015. They also provided draft policy documents demonstrating their intention to require a minimum of one fraud assessment annually; however, these documents had not yet been finalized. To fully address the intent of our recommendation, USCIS needs to conduct at least one review, as planned, and document plans for future assessments.

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

In August 2015, we reported that USCIS had taken some steps to enhance its fraud risk management efforts. These included establishing a dedicated entity to design and oversee its fraud risk management activities, creating an organizational structure conducive to fraud risk management, conducting fraud-awareness training, and establishing collaborative relationships with external stakeholders, including law enforcement agencies. In November 2013, USCIS established a fraud specialist unit for the EB-5 Program within FDNS. 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, bringing the total FDNS EB-5 Program staff to 21. According to FDNS officials, as of January 2016, the FDNS EB-5 Division included 22 full-time equivalent staff, of which 18 positions were currently occupied. We further reported in August 2015 that in 2013 USCIS also colocated staff who screen and adjudicate EB-5 petitions within IPO and began having FDNS officers and intelligence professionals work alongside EB-5 Program adjudicators to facilitate fraud-related information sharing. FDNS established training opportunities to include specialized fraud training at the Federal Law Enforcement Training Center related to money laundering and an internal “EB-5 University” to provide staff with monthly presentations on specific fraud-related topics believed to be immediately relevant to EB-5 Program adjudication. According to SEC, ICE, FBI, and USCIS officials, USCIS also increased its level of coordination with law enforcement agencies to cross-train staff with additional expertise and increase communication and collaboration on investigations and enforcement actions that can be taken when potential fraud, criminal activity, or national security threats are detected in the EB-5 Program.

However, in our August 2015 report we also reported that USCIS faced significant challenges in its efforts to detect and mitigate fraud risks. Specifically, we found that 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 risk trends across the program. USCIS relies heavily on paper- based documentation. While USCIS personnel 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. USCIS officials stated that the agency will be able to collect and maintain more complete data on EB-5 Program petitioners and applicants through the deployment of electronic forms in its new system, the Electronic Immigration System (ELIS). However, USCIS has faced long-standing challenges in implementing ELIS, which, as we reported in May 2015, was nearly 4 years delayed and $1 billion over budget.

As we reported in August 2015, USCIS has taken alternative steps to gather information to mitigate fraud risk while improvements to its information systems are delayed, 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. 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 had not conducted an interview at the I-829 stage. We reported that 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. USCIS officials said they anticipate conducting these interviews in the near future, but had not developed plans or a strategy for conducting interviews at this stage primarily because IPO was relatively new and began adjudicating I-829 petitions in September 2014.

In August 2015, we also reported that USCIS does not collect certain applicant information that could help mitigate fraud. Specifically, 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 underlying businesses, or information on advisers to investors such as foreign brokers, marketers, attorneys, and other advisers receiving fees from investors. According to USCIS officials, at the time of our August 2015 report, USCIS was drafting revised Forms I-924 and I-924A that would 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. 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, we concluded that collecting additional information would better position USCIS to identify and mitigate potential fraud. We recommended 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, as of February 2016, officials reported that USCIS continues to take steps to develop and implement a strategy to expand information collection that includes revisions to the Form I-924, I-924A, I-526, and I-829 applications and petitions to capture more information. In addition, these officials stated that USCIS had not yet conducted an interview at the I-829 stage, but they were finalizing an interview process and planned to begin conducting interviews in the third quarter of fiscal year 2016.

USCIS Had Increased Capacity for Verifying Job Creation but Did 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

We reported in August 2015 that USCIS had 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 agency’s methodologies for verifying such estimates were not rigorous. In particular, 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 applications for adjudication. For example, in fiscal year 2013, USCIS increased its staffing from 9 adjudicators to 58, including 22 economists, and 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.

Further, as we reported in August 2015, USCIS provided its economists with access to data from the Regional Input-Output Modeling System (RIMS II) economic model in fiscal year 2013 that increased their capacity to verify job creation estimates reported by investors for investments in regional center projects. IPO program managers estimated that as of fiscal year 2015, about 95 percent of EB-5 Program participants used economic models to estimate job creation, with about 90 percent of those investors using RIMS II. The RIMS II model is widely used across the public and private sectors and is considered to be among those valid to verify estimates of indirect and induced jobs reported for investments in regional center projects, according to USCIS and Department of Commerce (Commerce) economists, as well as industry and academic experts. Indirect jobs include jobs that are not directly created by a regional center business, 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.

However, we also reported in August 2015 that the use of RIMS II data alone does not provide USCIS with the capacity to determine the location of jobs created, such as the number of jobs created in targeted employment areas that most immigrant investors use to qualify for a lower investment amount. USCIS’s May 2013 policy memorandum notes that Congress expressly provided for a reduced investment amount in a rural area or an area of high unemployment in order to spur immigrants to invest in new commercial enterprises that are principally doing business in—and creating jobs in—areas of greatest need. IPO program managers stated that approximately 90 percent of immigrant investors qualify for a reduced investment amount—$500,000 instead of $1 million—to participate in the EB-5 Program because they are claiming investment in a commercial enterprise which 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 input-output models that do not have this capacity and program regulation and policy require that the investment capital be made available to the job creating entity which is principally doing business in the targeted employment area. IPO economists we interviewed also 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 Did Not Have a Valid and Reliable Methodology for Reporting Program Outcomes and Economic Benefits

In August 2015, we reported that USCIS’s methodology for reporting EB-5 Program outcomes and economic benefits was not valid and reliable because it is based on the minimum program requirements for job creation and investment. 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 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 circumstances. For example, USCIS officials stated that 90 percent 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 investor, while USCIS counted only the 10-job minimum per investor, a total difference of 6,000 jobs. Additionally, according to DHS’s 2013 Immigration Statistics Yearbook, about 32 investors paid $1 million instead of $500,000 into the program in fiscal year 2013, a total difference of $16 million not counted by USCIS.

Conversely, USCIS’s methodology may overstate some economic benefits derived from the EB-5 Program. For example, the methodology assumes that all 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 IPO officials and our analysis of EB-5 Program data, there are far fewer 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 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.

As we reported in August 2015, 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 by their investment on the Form I-829. However, USCIS officials said that they reported 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 program benefits. We concluded that 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. We therefore recommended in our August 2015 report 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, as of February 2016, officials anticipated developing a data system that will enable USCIS to track and report data immigrant investors report in fiscal year 2017.

USCIS-Commissioned Study to Assess Overall Program Benefits Addressed Some Past Limitations but not the Costs of the EB-5 Program

We reported in August 2015 that USCIS had commissioned the Economics and Statistics Administration (ESA) of the Department of Commerce (Commerce) to conduct a study of the economic impact of the EB-5 Program. 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 outlined a preliminary methodology and study steps that would address some, but not all, shortcomings of prior studies of the overall EB-5 Program benefits. We reported that ESA officials planned to finalize the study methodology once they completed a review of the program data submitted by IPO, and to issue a final report in November 2015.

However, the study was not intended to address the program’s costs, which are important for assessing a program’s net economic impact. Both USCIS and ESA officials confirmed the study would be an economic valuation which, unlike an evaluation, considers only the benefits of economic activity, and does not assess the program costs. USCIS officials said the decision was made not to assess the program costs due to associated challenges and because the information may not justify the investment. Our review of the draft methodology, however, showed some potential to include some cost information. Specifically, ESA officials said that after consulting with USCIS officials, they planned to collect information related to the permanent residence of the immigrant investors and their dependents to estimate the value of household spending. IPO officials said that ESA may also collect information that may help to estimate or disclose some of the costs associated with the program. To help provide Congress and other stakeholders with more comprehensive information on the overall economic benefits of the program, we recommended in our August 2015 report that USCIS include a discussion of the types and reasons any relevant program costs were excluded from the Commerce study. DHS concurred and said that USCIS IPO would recommend to Commerce that a description of potential costs not assessed as a part of the study be included when the study is published. In February 2016, USCIS officials stated that the study had not yet been published and estimated it would be completed by May 2016.

Chairman Goodlatte, Ranking Member Conyers, and members of the committee, this completes my prepared statement. I would be happy to respond to any questions you or members of the committee may have.

GAO Contact and Staff Acknowledgments

For questions about this statement, please contact Rebecca Gambler at (202) 512-8777 or gamblerr@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this statement included Seto Bagdoyan, Director; Cindy Ayers; Krista Mantsch; Taylor Matheson; Jan Montgomery; Jon Najmi; Edith Sohna; and Nick Weeks. Other contributors to the report on which this statement is based are listed in the report.

This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.