Department of Homeland Security �������������������������� United States Citizenship and Immigration Services’ Employment͈Based Fifth Preference (EB͈5) Regional Center Program OIG-14-19 December 2013 OFFICE OF INSPECTOR GENERAL Department of Homeland Security Washington, DC 20528 I www.oig.dhs.gov December 12, 2013 MEMORANDUM FOR: The Honorable Alejandro Mayorkas Director United States Citizenship and Immigration Services FROM: SUBJECT: United States Citizenship and Immigration Services' Employment-Based Fifth Preference (EB-5) Regional Center Program Attached for your action is our final report, United States Citizenship and Immigration Services' Employment-Based Fifth Preference {EB-5} Regional Center Program. We incorporated the formal comments from the United States Citizenship and Immigration Services in the final report. The report contains four recommendations aimed at improving the EB-5 Regional Center Program. Your office concurred with three of the recommendations. The OIG considers recommendations 1, 2, and 3 open and unresolved. As prescribed by the Department of Homeland Security Directive 077-01, Follow-Up and Resolutions for Office of Inspector General Report Recommendations, within 90 days of the date of this memorandum, please provide our office with a written response that includes your (1) agreement or disagreement, (2) corrective action plan, and (3) target completion date for each recommendation. Also, please include responsible parties and any other supporting documentation necessary to inform us about the current status ofthe recommendation. Based on information provided in your response to the draft report, we consider recommendation 4 open and resolved. Once your office has fully implemented the recommendations, please submit a formal closeout letter to us within 30 days so that we may close the recommendation(s). The memorandum should be accompanied by evidence of completion of agreed-upon corrective actions. Please email a signed PDF copy of all responses and closeout requests to OIGAuditsFollowup@oig.dhs.gov. OFFICE OF INSPECTOR GENERAL Department of Homeland Security � Consistent with our responsibility under the Inspector General Act, we will provide copies of our report to appropriate congressional committees with oversight and appropriation responsibility over the Department of Homeland Security. We will post the report on our website for public dissemination. Please call me with any questions, or your staff may contact Anne L. Richards, Assistant Inspector General for Audits at (202) 254-4100. Attachment www.oig.dhs.gov 2 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � Table�of�Contents�� Executive Summary............................................................................................................. 1 Background ........................................................................................................................ 2 Results of Audit ................................................................................................................... 5 The Laws and Regulations....................................................................................... 5 USCIS’ Mission Limitations ...................................................................................... 6 Foreign Investments and Job Creation ................................................................... 7 Program Integrity .................................................................................................... 9 Conclusion ............................................................................................................. 13 Recommendations ............................................................................................... 14 Management Comments and OIG Analysis ......................................................... 15 Appendixes �� Appendix A: Appendix B: Appendix C: Appendix D: Objectives, Scope, and Methodology ............................................ 19 Management Comments to the Draft Report ............................... 21 Major Contributors to This Report ................................................ 34 Report Distribution ........................................................................ 35 Abbreviations� CFR DHS EB-5 GAO iCLAIMS INA OIG U.S. USCIS www.oig.dhs.gov� Code of Federal Regulations Department of Homeland Security Employment-Based Fifth Preference Government Accountability Office Interim Linked Application Information Management System Immigration and Nationality Act Office of Inspector General United States U.S. Citizenship and Immigration Services OIG-14-19 � OFFICE OF INSPECTOR GENERAL Department of Homeland Security � Executive�Summary In 1990, Congress created the United States Citizenship and Immigration Services’ (USCIS) Immigrant Investor Program, also known as the Employment-Based Fifth Preference Program. The program’s intent was to stimulate the United States (U.S.) economy through job creation and capital investment by foreign investors. Three years later, the Departments of Commerce, Justice and State, the Judiciary, and Related Agencies Appropriations Act, 1993 created the regional center pilot program for pooling investor money in a defined industry and geographic area. Our audit objective was to determine whether the USCIS’ Employment-Based Fifth Preference regional center program is administered and managed effectively. Several conditions prevent USCIS from administering and managing the EmploymentBased Fifth Preference regional center program effectively. Specifically— • The laws and regulations governing the program do not give USCIS the authority to deny or terminate a regional center’s participation in the Employment-Based Fifth Preference program based on fraud or national security concerns; • The program extends beyond current USCIS mission to secure America’s promise as a nation of immigrants; and • USCIS is unable to demonstrate the benefits of foreign investment into the U.S. economy. Additionally, USCIS has difficulty ensuring the integrity of the Employment-Based Fifth Preference regional center program. USCIS does not always ensure that regional centers meet all program eligibility requirements, and USCIS officials differently interpret and apply Code of Federal Regulations and policies. Furthermore, when external parties inquired about program activities USCIS did not always document their decisions and responses to these inquiries, making the Employment-Based Fifth Preference regional center program appear vulnerable to perceptions of internal and external influences. As a result, USCIS is limited in its ability to prevent fraud or national security threats that could harm the U.S.; and it cannot demonstrate that the program is improving the U.S. economy and creating jobs for U.S. citizens as intended by Congress. Your office concurred with three of the four recommendations made to assist USCIS’ management and administration of the Employment-Based Fifth Preference regional center program. Our recommendations focused on strengthening regulations for oversight authority and consistent program application; better coordination with other Federal entities; comprehensive reviews of the program; and quality assurance procedures for program integrity. � www.oig.dhs.gov 1 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � Background�� USCIS’ mission is to secure America’s promise as a nation of immigrants by providing accurate and useful information to its customers, granting immigration and citizenship benefits, promoting an awareness and understanding of citizenship, and ensuring the integrity of the immigration system. In 1990, Congress created the USCIS Immigrant Investor Program, also known as the Employment-Based Fifth Preference (EB-5) Program. The EB-5 Program was created under 203(b)(5) of the Immigration and Nationality Act (INA) in 1990, Public Law 101-649, Section 121(a), to stimulate the U.S. economy through job creation and capital investment by foreign investors. Through the EB-5 Program, foreign investors have the opportunity to obtain lawful, permanent residency in the U.S. for themselves, their spouses, and their minor unmarried children by making a certain level of capital investment and associated job creation or preservation. Three years later, the Departments of Commerce, Justice and State, the Judiciary, and Related Agencies Appropriations Act, 1993 (The Appropriations Act) created the concept of the regional center pilot program for pooling investor money in a defined industry and geographic area to promote economic growth.1 U.S. citizens or foreign nationals can operate regional centers, which can be any economic unit, public or private, engaged in the promotion of economic growth, improved regional productivity, job creation, or increased domestic capital investment. As of October 1, 2013, USCIS reports that there are 325 approved regional centers. EB-5�Program�Requirements� The EB-5 program requires that the foreign investor make a capital investment of either $500,000 or $1 million, depending on whether or not the investment is in a highunemployment area. The foreign investors must invest the proper amount of capital in a business, called a new commercial enterprise, which will create or preserve at least 10 full-time jobs, for qualifying U.S. workers, within 2 years of receiving conditional permanent residency. Two distinct EB-5 pathways exist for a foreign investor to gain lawful permanent residency; each pathway differs in job creation requirements: 1) The Basic Immigrant Investor Program requires the new commercial enterprise to create or preserve only direct jobs that provide employment opportunities for qualifying U.S. workers by the commercial enterprise in which capital has been directly invested. 1 On August 3, 2012, Congress removed the word “pilot” from the regional center program’s name; however, the program expiration date is currently September 30, 2015. www.oig.dhs.gov 2 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � 2) The Regional Center Program, formerly known as the Regional Center Pilot Program, allows the foreign investor to fulfill the job creation requirement through direct jobs or projections of jobs created indirectly. Jobs created indirectly are the job opportunities that are predicted to occur because of investments associated with the regional center. Application�Process� Individuals or entities must file a Form I-924 with USCIS to become an approved regional center or amend a previous approval.2 Once the application is approved, USCIS requires the regional center to report operational and financial data annually on Form I-924A. The regional center can only operate within a self-defined geographic area and within a self-designated industry. USCIS documents show that regional centers generally collect unregulated management and administrative fees between $25,000 and $50,000 from each foreign investor. These fees include travel and marketing expenses, legal fees, and sales commissions. Each foreign investor must file an individual Form I-526 petition to apply to the EB-5 program. If the Form I-526 petition is approved, the investor obtains conditional permanent residency and has 2 years to fulfill the program requirements of job creation and capital investment. At the end of the 2-year period, the investor must file a Form I829 petition to demonstrate that the investor has met all of the terms and conditions of the program. When approved, the foreign investor becomes a legal permanent resident of the U.S. and is no longer under the jurisdiction of the EB-5 program. Table 1 describes the forms required for participating in the EB-5 program. Table�1:��EB-5�Forms� Forms�� I-924� I-924A� I-526� User� An individual or entity Approved regional center A foreign investor Purpose To request designation of the entity to be a regional center under the Regional Center Program. To demonstrate continued eligibility for the regional center designation. To petition for status as an immigrant to the U.S. under section INA 203(b)(5) as amended. A conditional permanent resident who obtained such status through To request U.S. residency. entrepreneurship Source: DHS OIG generated based on USCIS documents. I-829� 2 Prior to 2010, narrative proposals were accepted as requests to be a regional center under the regional center program. www.oig.dhs.gov 3 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � Figure 1 describes the general adjudications process for EB-5 petitions and applications. Figure�1:�EB-5�Adjudications�Process� Source: DHS OIG generated based on USCIS documents. The EB-5 program has been the focus of several reviews and media reports highlighting program concerns: • The Government Accountability Office (GAO) reported that there was a significant lack of information maintained by USCIS about the EB-5 program, including information on where immigrant investors established their business, the extent to which the businesses remained in the original location, the types of businesses established, the number of jobs created, or the number of immigrant investors who applied for U.S. citizenship.3 • The USCIS Ombudsman reported the need to streamline USCIS policy and strengthen the adjudication process for stabilizing the program and making it more attractive to investors.4 • The media have reported concerns with the EB-5 program’s operations. Appendix A contains the objective, scope, and methodology of our audit. � 3 Immigrant Investors: Small Number of Participants Attributed to Pending Regulations and Other Factors, April 2005, GAO-05-256. 4 Employment Creation Immigrant Visa (EB-5) Program Recommendations, March 18, 2009. www.oig.dhs.gov 4 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � Results�of�Audit� Several conditions prevent USCIS from administering and managing the EB-5 regional center program effectively. Specifically: • The laws and regulations governing the program do not give USCIS the authority to deny or terminate a regional center’s participation in the EB-5 program based on fraud or national security concerns; • The program extends beyond current USCIS mission to secure America’s promise as a nation of immigrants; and • USCIS is unable to demonstrate the benefits of foreign investment into the U.S. economy. Additionally, USCIS has difficulty ensuring the integrity of the EB-5 regional center program. Specifically, USCIS does not always ensure that regional centers meet all program eligibility requirements, and USCIS officials interpret and apply the Code of Federal Regulations (CFR) and policies differently. USCIS did not always document decisions and responses to external parties who inquired about program activities causing the EB-5 regional center program to appear vulnerable to perceptions of internal and external influences. As a result, USCIS is limited in its ability to prevent fraud or national security threats that could harm the U.S., and it cannot demonstrate that the EB-5 program is improving the U.S. economy and creating jobs for U.S. citizens as intended by Congress. The�Laws�and�Regulations� The laws that govern the EB-5 regional center program do not specifically allow USCIS to deny or terminate regional centers based on fraud or national security concerns identified during the adjudication process. The Appropriations Act, as amended, only describes the requirements to approve a regional center that submits a general proposal for the promotion of economic growth. The INA gives USCIS the authority to deny immigrants seeking a benefit or visa who are a national security concern. www.oig.dhs.gov 5 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � However, USCIS has interpreted that because regional centers are pooling funds from investors and not seeking an immigrant benefit or visa, these sections of the INA are not applicable. 5 USCIS has not developed regulations that apply to the regional centers in respect to denying participation in the program when regional center principals are connected with questionable activities that may harm national security. With stronger legal authority, USCIS would be in a better position to protect national security and U.S. citizens from harmful types of economic activities. USCIS’�Mission�Limitations� The EB-5 program extends beyond USCIS’ mission to provide immigration and citizenship services. When the EB-5 program was created, lawmakers acknowledged that USCIS did not have all of the expertise needed to implement the program and noted that USCIS should seek assistance from other agencies. Three years later, the Appropriations Act gave USCIS the oversight of the regional center concept, which further extended the EB-5 program from USCIS’ mission. For instance, adjudications of regional centers involve different complexities and expertise that align to missions of other departments and agencies, such as the Securities and Exchange Commission and the Departments of Commerce and Labor. Those adjudications involve responsibilities such as reviewing investments, business and economic plans, job creation methodologies, financial statements, funding, and legal agreements. According to the USCIS Director, the component has coordinated with other government agencies to assist with EB-5 program activities in the past, but acknowledged that more collaboration would help. Table 2 presents a comparison of the purpose of the EB-5 program to the mission of four government departments or agencies. The underlined text shows language that is applicable to the purpose of the EB-5 program. Because agencies other than USCIS have missions that USCIS could leverage to its advantage for the EB-5 program, USCIS needs to improve coordination and rely on the expertise at these agencies during the adjudication process. 5 Senate bill S.744, section 4804 has provisions intended to prevent individuals with national security concerns from participating in the EB-5 regional center program, as part of a substantial overhaul of the EB-5 program. S.744 would give the Secretary of Homeland Security the option to deny or terminate participation in the regional center program based on national security concerns. The bill was proposed on April, 2013, and passed by the Senate on June 27, 2013. www.oig.dhs.gov 6 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � Table�2:�Comparison�of�EB-5�Program�Purpose�and� Departmental�Mission�Statements� Department� Mission�Statement� and/or�Agency� United States Citizenship and Immigration Services Department of Commerce Securities and Exchange Commission To secure America’s promise as a nation of immigrants by providing accurate and useful information to our customers, granting immigration and citizenship benefits, promoting an awareness and understanding of citizenship, and ensuring the integrity of our immigration system. To promote job creation, economic growth, sustainable development, and improved standards of living for all Americans by working in partnership with business, universities, communities and our nation’s workers. To protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. To measure labor market activity, working conditions, and price changes in the economy. Its mission is to collect, analyze, and disseminate essential economic information to support public and private decision-making. Source: DHS OIG created from information published on USCIS and U.S. government websites. Department of Labor, Bureau of Labor Statistics In their application package, regional centers are supposed to provide USCIS with predictions of economic growth. To evaluate economic growth predictions, USCIS hired economists to participate in the adjudication process. However, according to the economists, they do not have access to data and systems needed to validate the support for these predictions. Foreign�Investments�and�Job�Creation� USCIS is unable to demonstrate the benefits of foreign investment into the U.S. economy. Although USCIS requires documentation that the foreign funds were invested in the investment pool by the foreign investor, the CFR does not provide USCIS the authority to verify that the foreign funds were invested in companies creating U.S. jobs. Additionally, the CFR allows foreign investors to take credit for jobs created by U.S. investors. As a result, USCIS has limited oversight of regional centers’ business structures and financial activities. USCIS cannot demonstrate that foreign funds were invested in companies creating U.S. jobs. Under the EB-5 Program, 8 CFR 204.6(j) requires a petition to verify that the foreign investor is investing lawfully obtained funds in a new www.oig.dhs.gov 7 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � commercial enterprise to create U.S. jobs.6 Under the USCIS precedent decision,7 Matter of Izummi, USCIS also allows the creation of jobs by other entities, but as shown elsewhere, USCIS is not given the authority by the CFR to oversee these other entities.8 Therefore, USCIS cannot verify that the foreign investments lead to the intended creation of jobs. For example, we identified 12 of 15 regional center files in which USCIS allowed the creation of new commercial enterprises that collected EB-5 capital to make loans to other job-creating entities. USCIS adjudicators confirmed that because the CFR does not give them the authority to oversee these additional jobcreating entities, they are unable to inquire or obtain detail that would verify foreign funds are invested in the U.S. economy via a job-creating entity. � Additionally, 8 CFR 204.6(g) allows foreign investors to take credit for jobs created with U.S. funds, making it impossible for USCIS to determine whether the foreign funds actually created U.S. jobs. Consequently, the foreign investors are able to gain eligibility for permanent resident status without proof of U.S. job creation. In one case we reviewed, an EB-5 project received 82 percent of its funding from U.S. investors through a regional center. The regional center was able to claim 100 percent of the projected job growth from the project to apply toward its foreign investors even though the foreign investment was limited to 18 percent of the total investment in the project. Every foreign investor was able to fulfill the job creation requirement even though the project was primarily funded with U.S. capital. When we questioned USCIS about this practice, the officials explained that the EB-5 project would not exist if not for the foreign investment. We also identified two cases in which foreign investments were loans for completed EB-5 projects. For example, in June 2010 a foreign national invested $500,000 to pay off an existing loan for the construction and operation of a hotel that had opened in December 2009. Total project costs for the hotel were about $28 million, in which foreign investments totaled $4.5 million. Four million of the foreign investments were used to pay off existing loans, and $500,000 was used 6 A new commercial enterprise is any public or private entity established for the purpose of promoting economic growth through the investment of foreign funds established after November 29, 1990. 7 Precedent decisions are administrative decisions of the Administrative Appeals Office, the Board of Immigration Appeals, and the Attorney General, which are selected and designated as precedent by the Secretary of the Department of Homeland Security (DHS), the Board of Immigration Appeals, and the Attorney General, respectively. 8 Matter of Izummi, 22 I&N Dec. 169 (Assoc. Comm’r 1998). www.oig.dhs.gov 8 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � to purchase existing equity. Although 84 percent of the funds were contributed by U.S. investors, the foreign investor was subsequently granted permanent U.S. residency based upon an investment in a project that had already been completed. � The flow of EB-5 foreign investments is a complex process. It starts with the foreign investor sending funds to the investment pool (i.e., the new commercial enterprise). The foreign investor may be required to send administrative fees to either the regional center or the new commercial enterprise for expenses related to managing the investment. The new commercial enterprise then transfers the funds to the job-creating entity for management of the project. At the jobcreating entity, the foreign investments are combined with investments from other sources, such as U.S. domestic funds. The numbers of estimated jobs created from that job-creating entity are not allocated among all investors based upon investment percentage, but are only attributed to the foreign investor. Additionally, current regulations do not require USCIS to track and verify that the foreign investment was invested into the job-creating entity. Recently, USCIS reported that since 1990, more than $6.8 billion has been invested in the U.S. economy through the EB-5 program, and a minimum of 49,000 jobs have been created. We attempted to validate these statistics and requested the supporting information. USCIS was not able to provide support for the statistics reported. USCIS officials said that they had to estimate these figures and assumed the minimum requirements of the program had been met. As a result, USCIS was only able to speculate about how foreign investments are affecting the U.S. economy and whether the program is creating U.S. jobs as intended. � Program�Integrity� USCIS has difficulty ensuring the integrity of the EB-5 regional center program. Specifically, USCIS does not always ensure that regional centers meet all eligibility requirements for the program. USCIS officials interpret the CFR and USCIS policies differently. USCIS does not apply the regulations effectively to the regional center program. Additionally, the EB-5 regional center program appears to be vulnerable to perceptions of internal and external influences when there is not adequate documentation that supports decisions made by USCIS. www.oig.dhs.gov 9 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � Regional�Center�Accountability� Although USCIS adopted 8 CFR 204.6(m) in 1994 to assist its efforts in implementing the Appropriations Act, as amended, it has not always held regional centers accountable to the CFR requirements. Specifically, 204.6(m) requires regional centers to submit business plans with verifiable detail on how jobs will be created, yet regional centers continue to provide general concepts with some applications. After 8 CFR 204.6(m) was created, Congress amended the Appropriations Act in 2002 to allow regional centers to submit a general proposal. In 2013, 20 years after the creation of the regional center concept, USCIS officials have indicated that there is obvious tension evident in the regulatory language requiring “verifiable detail” and the statutory language which allows for the proposal to be based on “general predictions.” Because of this language difference, it appears that USCIS may not always apply its CFR requirements to the regional centers. For example, the USCIS California Service Center asked regional center officials to provide additional information related to one proposed business plan. Center officials responded that they did not need to submit a detailed business plan according to the Appropriations Act. Subsequently, the USCIS California Service Center approved the regional center’s application without obtaining verifiable detail that complies with the CFR. As a result, there is no assurance that regional centers meet the qualifications to participate in the program. USCIS�Regulations�and�Policy�� USCIS officials interpret the CFR and USCIS policies differently, which prevents adjudicators from evaluating regional center applications and related petitions effectively. For example, an adjudicator requested additional evidence from a regional center applicant. According to 8 CFR 103.2(b)(8), the regional center application should have been denied for not responding in the mandated 12 weeks. However, the denial letter was refused by the USCIS legal department, stating that there is no language that provides the ability to go straight to denial. In another example, to generate a favorable decision, USCIS requested a regional center applicant to omit information from its application because the language was not in compliance with a USCIS precedent decision. By advising applicants to remove information because it may delay or prevent approval, USCIS may be circumventing measures in place to ensure applicant eligibility. An adjudicator must deny an application if the evidence establishes ineligibility. www.oig.dhs.gov 10 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � Another example is the designation of high-unemployment areas by state governments. The regulations provide for state governments to designate highunemployment areas for determining whether the EB-5 regional center project qualifies for the lower foreign investment of $500,000. However, the regulations do not instruct the states on how to make the designation. Because of how the regulations are written, USCIS adjudicators said that they must accept what the state designates as a high-unemployment area without validation even when it appears as if these designations are areas of low unemployment. For example, a regional center provided USCIS a letter from its state agency designating that one EB-5 project being built in a prosperous area qualified as being in a highunemployment area. The letter explained that employment data for the requested combination of areas did not qualify for the designation but provided an alternative combination of areas for the project to qualify. The area where the project was being built is included in both combinations. This places doubts on whether program requirements are met, and it allows the foreign investors to invest only $500,000 instead of $1 million to qualify for permanent residency. As a result of USCIS’ unclear regulations and policy, USCIS is unable to hold regional centers and foreign investors to a consistent standard, and adjudicators may approve applicants and petitioners that do not meet eligibility requirements. Internal�and�External�Influence� USCIS did not always document decision making and responses to external parties who inquired about EB-5 activities. Outside influence may require USCIS senior leadership to become involved in the EB-5 adjudication process, thereby creating the perception of special treatment and internal influence by senior managers. While the files we reviewed were not well organized and comprehensive, they appeared to contain sufficient evidence to support the final adjudication decision. However, USCIS employees provided supplemental emails that suggest internal and external parties may have influenced the adjudication of EB-5 regional center applications and petitions. Some parties may have compelling reasons for influencing decisions made regarding EB-5 participation. For example— • The estimated job creation and economic improvements to local economies are convincing and important reasons for lawmakers and citizens to have an interest in advocating the EB-5 program. • USCIS documents show that regional centers generally obtain between $25,000 and $50,000 in unregulated fees from foreign investors, and as such, www.oig.dhs.gov 11 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � we believe that may contribute to them losing sight of the integrity of the EB5 program in the interest of making money. USCIS did not have protocols to document all inquiries and decisions made during the adjudication process. During the course of the audit, we obtained records showing email communications from external parties who were contacting USCIS senior leaders with inquiries pertaining to specific EB-5 adjudications. The emails requested private discussions about regional center applications or expressed dissatisfaction with the time USCIS was taking for adjudication decisions. Based solely on the correspondence, we were unable to determine whether USCIS honored the requests. These emails referenced 3 of the 15 regional centers in our case file review along with other regional centers not covered in the scope of our review. The case files we reviewed did not contain evidence of the external or internal inquiries, whether the inquiries were addressed, or if anyone from USCIS ever met with or responded to the external parties. One set of emails contained inquiries about unwarranted delays and denials in processing applications. The regional center was amending its application to increase its area of operations. This amendment was denied by the USCIS California Service Center. The emails also discuss I-526 petitions that had been held awaiting the outcome of the Administrative Appeals Office. The emails discuss scheduling a meeting with a senior official and others at USCIS to discuss the inquiries and the decision of the Administrative Appeals Office. The emails do not discuss the outcome of this issue. In another email, a Congressman attached a letter asking a USCIS senior official to withdraw a request for evidence that USCIS sent to a regional center. In the same letter, the Congressman thanked the senior USCIS official for discussing the request for evidence with him. In the draft letter, the senior official responded to the Congressman saying that some items in the request for evidence were appropriate and some were not, and promises to clarify some of the issues in forthcoming EB-5 policy guidance. The emails do not discuss the outcome of this issue. One set of documents showed a president of a regional center emailed a senior USCIS official threatening a Federal lawsuit because a previously approved regional center project was in the process of being terminated by USCIS. The president of the regional center then asked to speak to the senior USCIS official personally. The emails do not discuss the outcome of this issue. www.oig.dhs.gov 12 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � In another example, there is indication of USCIS senior leadership with no direct involvement overturning an adjudicator’s decision to deny a foreign investor’s petition associated with a regional center. Senior management stated that the adjudicator did not give proper consideration to previous decisions made on other investor petitions associated with the same regional center. Consequently, the petition was approved even though the adjudicator had concerns that the proposed project would not meet the requirements of the EB-5 regional center program. USCIS senior managers reported that they were not making an adjudicative decision legally; however, they noted that functionally, the adjudicator must make decisions based on senior management’s guidance. Other examples of regional center advocates that may attempt to influence the adjudication process to benefit their own interest included a newspaper article, which reported that a lawmaker pushed for an adjudicative approval to be made within 15 days, while the regional center was approaching bankruptcy. We provided that information to our Office of Investigations for further review. As a result, USCIS decisions regarding the EB-5 regional center program may be questioned due to the perception of internal and external influences. USCIS needs to establish protocols to ensure all correspondence and discussions between external interested parties and USCIS leadership are documented and shared for transparency and accountability. Conclusion� Currently, USCIS cannot administer and manage the EB-5 regional center program effectively. The legislation establishing the regional center program did not give USCIS the necessary authority to prevent fraud and national security threats that could harm the U.S., and it assigned responsibility to USCIS for a program with mission areas outside USCIS’ immigration mission. Also, regulations were not always enforced, and USCIS did not always enforce its own regulations and procedures established to assist with managing the regional center program. To improve upon the administration and management of the program, USCIS needs to revise the regulations governing the EB-5 regional center program. USCIS also needs to execute memoranda of understanding with other agencies. www.oig.dhs.gov 13 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � Until improvements are made, USCIS is unable to prevent fraud and national security threats, and it cannot report the results of the program accurately or ensure the EB-5 program is benefiting the U.S. economy and creating jobs for U.S. citizens as intended by Congress. � Recommendations�� We recommend that the Director of the U.S. Citizenship and Immigration Services: Recommendation�#1:� � Update and clarify the Federal regulations to — • provide the U.S. Citizenship and Immigration Services with the authority to deny or terminate EB-5 regional center participants at any phase of the process when identifying known connections to national security and/or fraud risks without compromising any ongoing or potential investigation; • make explicit that fraud and national security concerns can constitute cause for revocation of regional center status under 8 CFR § 205.2; • give the U.S. Citizenship and Immigration Services the authority to verify that the foreign funds were invested in companies creating U.S. jobs; and • ensure requirements for the EB-5 regional center program are applied consistently to all participants. Recommendation�#2:� Develop memoranda of understanding with the Departments of Commerce and Labor and the Securities and Exchange Commission to provide expertise and involvement in the adjudication of applications and petitions for the EB-5 regional center program. Recommendation�#3:� Conduct comprehensive reviews to determine how EB-5 funds have actually stimulated growth in the U.S. economy in accordance with the intent of the program. If necessary, employ other specialists or work with other Federal agencies to assist and confirm the results. �� www.oig.dhs.gov 14 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � Recommendation�#4:� Establish quality assurance steps to promote program integrity and ensure that regional centers comply with the Code of Federal Regulations requirements. Management�Comments�and�OIG�Analysis� USCIS agreed with three of the four recommendations. USCIS acknowledged that additional statutory authorities would strengthen the program. USCIS also acknowledged concerns with the consistency in EB-5 adjudications, the lack of clarity regarding program rules and serious fraud and national security issues within the program. In USCIS’ management response, the Component indicated that it recently completed a transformation of how they administer the EB-5 Program. Our audit focus was limited to regional center applications as of November 29, 2012, which was before details of the transformation were announced. We will evaluate management’s reported changes as part of the audit recommendation follow-up process. USCIS noted that they previously had no meaningful economic expertise to conduct independent and thorough reviews of economic models, but had hired economists and corporate attorneys to support the EB-5 program. Our report recognizes that USCIS hired economists to participate in the adjudication process. At the beginning of our fieldwork, USCIS provided an organizational chart that showed the EB-5 program had seven economists. During our audit, we validated that two additional economists were hired. We did not audit program changes completed after our audit fieldwork. During fieldwork, five USCIS economists expressed concern that their expertise was not being used in the adjudication process because they did not perform any substantive analysis of economic plans or predictions. Instead they prepared checklist summaries of answers to a series of canned questions. USCIS’ response indicated that it reviewed each of the 22 regional center cases mentioned in our report and believed that all were adjudicated properly. Our conclusions are based on our analysis of documentary and physical evidence supported by corroborating testimonial evidence that showed limitations of the legislation for denying applications and consistency in EB-5 adjudications, which USCIS has also acknowledged. We did not make recommendations specific to the regional center cases identified. Our report does not make conclusions on whether cases had been decided properly or whether we concur with the statute, regulations, or policy. www.oig.dhs.gov 15 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � In its response, USCIS stated that the report suggests Component officials improperly urged an applicant to omit information from an application in contravention of the regulations and is incorrect. We provided the facts based on our review of documentation which showed that USCIS specifically requested removal of language to ensure that the regional center would meet eligibility requirements. USCIS responded that they are not in a position to quantify the impact of the EB5 Program on the U.S. economy. They also believe they are not charged with conducting a broader assessment of the program’s impact, something which has been the subject of both congressional hearings and private studies over the years. We disagree with USCIS’ position that it should not attempt to monitor or measure the performance of the EB-5 program. One of USCIS’ strategic objectives is to ensure the integrity, effectiveness, and responsiveness of its programs. The USCIS Strategic Plan provides integrated planning context for other USCIS initiatives, such as the business transformation plan, human capital strategy, management improvement plans, and the development of new immigration programs. USCIS defended its policy of deferring to prior agency decisions involving the same investment project, and believed our criticism was misplaced. USCIS indicated that an important element of consistency is that the agency must not upend settled and responsible business expectations by issuing contradictory decisions relating to the same investment projects. It disserves the public, undermines program integrity, and is fundamentally unfair to USCIS to approve a project, have developers and investors act in reliance on the approval, and then subsequently reverse course by determining that the agency’s initial approval was in error. USCIS provided technical comments to the draft report. When appropriate, we incorporated those changes into the report. A summary and analysis of the Component’s response to each recommendation follows. USCIS’�Response�to�Recommendation�#1: USCIS concurred with the recommendation. USCIS will update regulations to provide greater clarity regarding the requirements for establishing eligibility under the program. In particular, revised regulations will more clearly delineate the evidentiary requirements applicable to stand-alone EB-5 petitions versus regional centerbased applications and petitions. A revised rule will be drafted for interagency clearance within 9 months of the report. www.oig.dhs.gov 16 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � OIG�Analysis: Although USCIS concurred with the recommendation, the planned corrective action does not fully address the recommendation. This recommendation will remain open and unresolved until USCIS provides specific corrective actions and milestones to address the recommendation in its entirety. We need to review and analyze the corrective actions plans and evidence of their implementation. We need USCIS to provide actions taken to proactively address fraud or national security concerns by participants; verify funding and job-creation results; and ensure consistent application of the program. USCIS’�Response�to�Recommendation�#2: USCIS concurred with the recommendation. Within 6 months of the report, USCIS will develop and implement an interagency collaboration plan outlining liaison and collaboration roles and responsibilities among key Federal partners. This will include collaboration with the Department of Commerce and the Securities and Exchange Commission. OIG�Analysis: USCIS’ corrective action plan should resolve this recommendation. However, more details of the memoranda of understanding are necessary. This recommendation will remain open and unresolved until we have more information on the memoranda of understanding and have reviewed documentation of the interagency collaboration plan. � USCIS’�Response�to�Recommendation�#3: USCIS did not concur with the recommendation. USCIS stated that its mandate is to adjudicate EB-5 cases according to the eligibility criteria, including the statutory job creation requirements. USCIS responded that the Component is not charged with conducting a broader assessment of the program’s impact. While the Component agreed that an assessment may be beneficial, it did not believe USCIS, as the administering benefits agency, is best positioned to conduct a study. � OIG�Analysis: This recommendation will remain open and unresolved until USCIS provides an action plan and evidence of comprehensive reviews scheduled to validate how EB-5 funds have actually stimulated growth in the U.S. economy. Because program results and integrity assurance may be compromised and we identified concerns within the program, our recommendation included the option for USCIS to employ specialists or other Federal agencies to confirm the results of the EB-5 Program. We realize USCIS is facing challenges to ensure the program is meeting its goals and needs assistance and an assessment by internal groups or external specialists. � www.oig.dhs.gov 17 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � USCIS’�Response�to�Recommendation�#4: USCIS concurred with the recommendation. Within 6 months, USCIS will establish quality assurance steps to promote program integrity and ensure regulatory compliance. � OIG�Analysis: USCIS’ corrective action plan should resolve this recommendation. This recommendation is resolved, but will remain open until we have reviewed documentation of the implemented quality assurance steps. � www.oig.dhs.gov � 18 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � Appendix�A� Objectives,�Scope,�and�Methodology� The Department of Homeland Security (DHS) Office of Inspector General (OIG) was established by the Homeland Security Act of 2002 (Public Law 107-296) by amendment to the Inspector General Act of 1978. This is one of a series of audit, inspection, and special reports prepared as part of our oversight responsibilities to promote economy, efficiency, and effectiveness within the Department. This report provides the results of our work to determine whether USCIS administered and managed the EB-5 Regional Center Program (regional center program) effectively. We reviewed the INA; the Departments of Commerce, Justice and State, the Judiciary, and Related Agencies Appropriations Act, 1993; and other legislation to renew the pilot program. We also reviewed USCIS regulations, management policies, procedures, and other memoranda related to the EB-5 program and Fraud Detection and Nationality Security. We interviewed USCIS management and staff responsible for the administration of the EB-5 program at both USCIS Headquarters and the California Service Center. Our interviews included representatives from the Branches of Service Center Operations; Fraud Detection and National Security; Policy and Strategy; and the Office of Chief Counsel. We identified 336 I-924 regional centers with applications or amendments submitted during fiscal years 2010, 2011, and 2012. Our selection of regional center application files to review was based on the most foreign investor petitions filed as reported in the Interim Linked Application Information Management System (iCLAIMS) as of November 29, 2012. USCIS began using iCLAIMS in fiscal year 2010 as a database to store information related to EB-5 Regional Centers. The iCLAIMS database is updated manually when regional center applications, amendments, or annual updates are received on forms I-924 or I-924A by the California Service Center. The immigrant investor applications and petitions for permanent residency, forms I-526 and I-829, are maintained in other USCIS systems and transferred to iCLAIMS. We did not verify the reliability of the iCLAIMS system and do not draw any conclusions from its data. We used the National File Transfer System to identify the location of immigrant investor files related to the regional centers. We visited the California Service Center and reviewed 15 Regional Center application files and 6 immigrant files, either form I-526 or I-829, associated with the regional centers. Our selection was based on the location of the files and the timeframes needed www.oig.dhs.gov 19 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � for review. We evaluated internal controls to the extent necessary to address the audit objective. We conducted this performance audit between September 2012 and June 2013 pursuant to the Inspector General Act of 1978, as amended, and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based upon our audit objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based upon our audit objective. www.oig.dhs.gov 20 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security Appendix�B Management�Comments�to�the�Draft�Report�� U.S. DeJlartment of Homeland Security L.S. Citi:r.ensh..ip and Immigralion Services Office of the Din>ctnr (MS 2000) Wasllmgton, DC 20529-20.i ashington, DC, we have ensured that FDNS will be better situated to coordinate directly with critical enforcement and intelligence partners at other agcncics in the adjudication of EB-5 applications. Within the nell:t six months, all ED-5 work will transition away from the Califomia Service Center structure reviewed by the OIG and to the new structure at Headquarters. • On May 30, 2013, USC IS issued a comprehensi\'e EB-5 polic~' memorandum thr the first. tirm· in the progmm's history. Previously, there were several separate policy documents that applied to EB-5 adjudications and these doclmlents failed to address a wide range of critical issues that typically arise in EB-5 cases, leaving adjudicators without rom1al guidance on an array or complex questim1s. 'lltis was una..:ceptahle and, predid.ably, it undennined ..:onsisl.ency, timeliness or adjudications, and adllerence to law. The comprehensive policy memorandum was subject to several rmmds of public comment before it \Vas finalized, and it now gives agency officials as well as the public the prediclahiliLy and gLtidam;e they need. • www.oig.dhs.gov LISCIS has fortified the program with adYanccd expertise. EU-5 cases involve evaluation of business plans, econometric job creation models, and international financial nows. For too long, users failed its adjudicators by not Sllpporting them with the expertise needed to contend properly with these issues. 'l11at h~s now changed. In 2011, users began hiring full time federal economists and transactional attomeys to work the 22 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security Oil!cia] Comments to the Drafi Report Recommendations on U.S. Cilizenship and Jmmzgralwn Services ' Employment-Based F1 Preference (EB-5) Regional Center Program- For Otlicial .fth Cse Only (OIG-12-166) Page 3 F.R-5 caseload. Tn the new program office, we \vill for the first time have economists who actually serve as adjudicators (as opposed to simply consulting with adjudicators). • lJSCJS. in close consultation with other· enforcement and intelli::ence a::encies. has bolstered fraud and national secmity safeguards in the pl'Ogram. Historically, lJSCTS treated ER-5 like its other immigration programs when it came to fraud and national security. Tite consequence was a security infrastructure that was not properly tailored tor the unique needs of this program. In recent years. US CIS has implemented i.mpottant and substantial EB-5 integtity enhancements. For the fn·st time, the agency now conduo.:t~ secutity o.:hecks on regional center businesses :md certain exe<.:utives (instead of only potential investors). collaborates closely with partner agencies on program-level issues. conducts enhanced security checks leveraging a range of holdings rrom across Lhe l J.S. govemmenl lellllinates regional centers where rrand is detected, and refers wbslantialmmtbers or EU-5 o.:a~es lo OLLr interagency enlor~ement partners. Also tor the tlrst time, beginning in 2010. the agency began requiring use of a standard tonn by all regional center applicants, and in 2011 began requiring all regional centers to file an annual disclosme npdate to USCTS detailing regional center activities on a contitming basis. All or these are new developments. We are rnlly leveraging the range or statutory authorities we have at our disposal. TI1c progress on the fraud and security front has been substantial. The program is, unquestionably, more secure now than it has ever been. As we have before, we invite the OIG to review our new operations. We believe our new model addresses the deficiencies in the legacy program that the OIG reviewed, and would welcome an audit ofthc new structure. Unfmtunatcly, because of the ongoing changes, the present audit docs not ao.:o.:uratdy describe the current stale or the program. W c remain disappointed that the OIG did not interact more tl!lly with the senior career leaders who manage the ER-5 program and are responsible ror its integrity. Over the course or its ten month audit period, the OIU interviewed the Chief of Ute EU-5 Program lor jttst one honr, and only upon our express request that it do so after the OIG had already conveyed to us its initial audit findings. TI1e OIG interviewed the Associate Director for Fraud Detection and ~ational Secnrity jusl once, and only at the heginnittg or the audit process. We do not believe the andit or such a ~omplex program should o.:ondude on these knns. We respond to the draft repott' s findings and recommendations bdow. While we believe the draft rep01t ha~ a number of ittaccuracies and mischaractetizations as to how the program operates, we have focused our response on the high-level points that we believe are most critical from the perspectives of progran1 integrity, efficiency, and effectiveness. Th<' Laws and Rcgulrltions \Ve agree in significant part with the OTG's con cent that the "laws and regulations goveming the program do noL give LSCIS the authority to deny or temtinate a regional cenler's participaLimt itt the EB-5 program based on fraud or national security conccms," which is why last year, CSCIS www.oig.dhs.gov 23 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security Oil!cia] Comments to the Drafi Report Recommendations on U.S. Cilizenship and Jmmzgralwn Services' Employment-Based F1_fth Preference (EB-5) Regional Center Program- For Otlicial Cse Only (OIG-12-166) Page 4 offered e:>.'tensive legislative proposals to Congress to close these gaps, and to equip CSCIS with important authorities to enhance ED-5 program integrity. CSCIS already ha~ authority to deny or terminate a regional center based on fraud or misrepresentation, 1 but the statutory framework leaves other significant gaps in users authorities. especially with regard to national security. In anticipation of the regional center program's reauthorization, in June of2012 USCIS proposed to the Chairman and Ranking Member of the Senate Judiciary Committee specific statutory language that would, for example: ( 1) grant USCTS authority to deny or tenninate F.R-5 cm;es on a discretionary ha.~is: (2) require regional centers to certily their compliance with lhe lJ.S. securities laws; (3) penuit USClS to run security checks on a broader range of regional center patiicipants thatl is eunently authorized tmdcr existing statutes; ( 4) pcnnit USC IS to exclude from regional center participation individuals with prior record~ of crime or· fraud; and, (5) broaden lJSCIS authorities to condud oversight over job-creating bLL~inesses associated with regional centers. 2 The draft r·eport r·ecommends that CSCIS pnmmlgate regulations that would allow the agency "to deny or tenninate ED-5 regional center participru1ts at ru1y phase ofthe process when idcntif)'ing known connections to national security and/or tfaud risks without compromising any ongoing or potential investigation." and to "[m]akc explicit that fraud and national security concems can constitute cause for revocation of regional center status tmder 8 CFR ~ 205.2.'' 3 1n principle users agrees that explicit authority to tenninate a regional center based upon fraud and national security concerns is needed, but USCIS lacks authority to promulgate such regulations uttder current law. Statutory change is required, which is why l JSCIS over a year ago proactively proposed legislative language to Congress t.o secure these authorities and oU1er.;. CSCIS appreciates OIG's support tor this etlort. However, USC IS has taken substantial administr-ative measures to ensure ER-5 program security to the fullest extent permitted tmder existing law. The drart report roc uses on legal attthorities, and docs not address many of the operational steps- some transfonnativc -that USCIS has taken in recent years to counter fraud and national security risks in the EB-5 program with the limited authority that USC IS already possesses. \Ve are concerned that this omission may leave readers with the misimpression that users has done little to leverage the tools it already has. when in tact quite the opposite is true: • users has expanded its background vetting to include regional center entities and key executives, for the first time itt the program's history. 1 Soi!e Matter ofCTTAIY471TF:, 2'i 1&N Dec. 169, .176 (AAO 201 0). ., USCJS notes, as Joes the Jrart repurt, that the Senate earlier tills year passed kg~slation (S. 744) that woulJ significHntly improve ER-'i Huthorities in line with the recommendations that users offered S C-..F.R § 205.2 0st. .blishcs proccd11n~s for cx~~rc.i.smg the ~cr0tary' s authority pursuant to s-.,ction 205 of th0 1 3 Immigration and )Jationahty Act (1:\fA) to revoke approval of any petition approved under INA§ 204. Speciftcally, ~ C'.F K ~ 205 2(a) states "ralny Service offrcer m1thorized t.o approve a petition under section 21.14 oftli< Ad. may revoke the approval of that petit1on .. " CSCJS designates rogronal centers pl~SlJ:mtto the Appropnatroru; Act, as HJ11 ended. www.oig.dhs.gov and 11 Dt under section 204 of the TNA. 24 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security Oil!cia] Comments to the Drafi Report Recommendations on U.S. Cilizenship and Jmmzgralwn Services ' Employment-Based F1 Preference (EB-5) Regional Center Program- For Otlicial .fth Cse Only (OIG-12-166) Page 5 • users has required all regional centers to file annual disclosures on their business ac--tivities and m>~lership and management changes, for the first time in the program's histor:v. • USClS has dramatiL:ally enh;mL:ed collaboration with key government partners, induding ICE, CDP, the fDI, the Securities and Exchange Commission (SEC), the Treasury Department, and the intelligence community, on specific EB-5 cas.:s as well as pr-ogrammatic issues. • users has created a new EB-5 progrmn office at lwadquartcrs with embedded FD:-JS officers, who have the authority to liaise directly with other l .S. govennnent agencies, tor the tlrst time in the program's history. • Where lJSCIS develops J.l:ll-5 Progr:tm :tntl thl' LSCIS .Vlission We note the draft rep01t's conclusion that the EB-5 program "ell.1cnds beyond CSCIS's mission to prov ide immigration and citizenship services," at1d its observation that other agencies hav e mission statemenl~ closely aligned will1 ll1e program's goals. LSCIS (and its predecessor, the Immigration and Naturalization Service (Il\S) 1mdcr the Department of Justice,) has been charged by Congress with administering the EB-5 program since the program's inception in 1990. l:SCIS operates and will cm1tinue to operate the program as it is required to do by law unless Congress changes this mandate. www.oig.dhs.gov 25 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security Oil!cia] Comments to the Drafi Report Recommendations on U.S. Cilizenship and Jmmzgralwn Services' Employment-Based F1.fth Preference (EB-5) Regional Center Program- For Otlicial Cse Only (OIG-12-166) Page 6 We agree with the draft repmt that USCIS can benefit from collaboration with other CS. government agencies in administering the ED-5 program. A tew years ago, the CSCIS Director proposed to the Department of Commerce that the agencies explore possibilities for Commerce to take on a significant role in EB-5 adjudications. Since that time, US CIS and Commerce have partnered successfttlly on a munber of discrete issues in the EU-5 program, and we continue to disclL~s the optimal level of collaboration in the program. In support of its goal to reduce fraud, CSCIS has also forged a highly successful partnership with the SEC in recent years. The agencies have cm1ducted a joint public engagernent,jointly issued an Fll-5 investor alert to the investing public, and collaborated on investigation and enl(lrcement action in particular EU-5 cases. USClS has also collaborated with SLC staff in the development ofteclmical assistance to Congress that would enhance securities law compliance and investor protection within the ER-5 prog.-am. W c believe the OIG should have assessed the wide range of initiatives on which we arc currently engaged with the Department of Commerce and the SEC. We appreciate the OIG's general recommendatim1 that PSCTS execute memoranda of understanding with these agencies, but a memorandum is simply a procedural vehicle and not a substantive strategy for how to enhance collaboration. We welcome specific suggcstioll.S, as we arc focused on this goal. We ultin1ately defer to Congress as to wheti1er the program is properly housed aJ LSCIS or another agency. \Ve have tal,en tremendous strides to develop in-house expertise and to ensure that the program has all necessary resources to properly and effectively handle EB-5 cases. Historically, CSCIS had 110 significant economic or corporate tra11sadional expertise 011 hand to manage this complex casework. Culminating in U1e creal ion and ongoing sta111ng of the new 4 progrmn otlice, we now have 22 economists on stntr as well as business analysts and corporate artomeys to review the business and economic questions that EB-5 cases typically present. We continue to build up these resources i11 the new ER-5 pmgram office and are committed to providing our team wilh all the resources and expertise they need lo administer lhe program. Measurement of Overall Progr·am Impact \Ve note the draft report's finding that USClS is not in a position to quantity the impact of the EB-5 program on the U.S. economy. We agree. CSCIS administers a number of business visa programs that were designed by Congress to foster economic pmsperity, hut we do not attempt to measLtre the broader economic impact of' any of' those programs, inciLtding EH-5. LSCIS"s mandate is to adjudicate EB-5 cases according to the eligibility criteria, including the statutory job creation requirements. USC IS is not charged with conducting a broader assessment of the program's impact, something which has been the subject of both congressional hemings and private studies over the years. 4 The draft report criticizes CSCIS for not providing its economists with access to needed systems and data. We h ave \Vorkc>d dosdy with our economists to ensure they ru-e equipped to hruKJle the workload and we-re stlrprised by this Imding. Our economists have received access tu the IMPLA'.' econumelnc phmnmg tool •nd other resources. Tfthe om helieves ~dditi0.nal tooh are needed, it would he helpful to specify which ones. www.oig.dhs.gov 26 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security Oil!cia] Comments to the Drafi Report Recommendations on U.S. Cilizenship and Jmmzgralwn Services' Employment-Based F1.fth Preference (EB-5) Regional Center Program- For Otlicial Cse Only (OIG-12-166) Page 7 CSCIS therefore agrees with the OIG's recommendation to the ex-tent that fmther study of the EI3-5 program's impact may be warranted, but we do not believe users, as the administering b~ndits agency, is b~st position~d to conduct those studies. W c stand ready to provide any appropriate assistance to Congress and to U.S. govemment agencies that specialize in measurement of economic impacts in this regard. Velification of Job Creation '11te draft report observes, correctly, that it is often impossible for US CIS to conclusively verity job creation in EB-5 cases. Titis is a direct result of the statutory design of the EB-5 program, which pcm1its in1migrant investors to usc economic modeling to predict "indirect" job creation that will likely result rrom lhe regional center's economi<: adivily. The legislation creating lhe regional center program provides that L SCIS shall penuit immigrant investors to rely upon "reasonable methodologies tor determining the number ofjobs created ... including such jobs which are estimated to have been created indirectly."~ Ry definition, these indirect jobs cam10t each he verified, a.~ they are producL~ or an economic model. l·~conomist~ hroadly accept the use oflhe~e model~ (some of which are developed by U1e Department of Commerce), re concluding they are rea~onahle in their assumptions and predictions. Where the agency previously had no meaningt1tl economic <)Xpertise on hand to conduct this work, we have in recent years hired and continu<) to hire economists a11d corpol'ate attomeys to ensure the work is done properly and consistent with widely accepted standaJ'ds in the fidd. \.ISCIS regLtlal'ly denies cases rm lailul'e to meelthejoh creation requirements. ln FY 2012, for example, USClS denied 63 regional center applications for failure to satisfy the job creation or other eligibility requirements and approved 35 regional center applications. CSCrS agrees with the draft report's finding that users would bcndit hom additional authorities to oversee job creation in cntctpriscs associated with a regional center. USC IS has provided legislative proposals to Congress to expand those authorities. ' ScctJOn 610 of th<' Dq:>.'Utmonts of Commorco, Jtistlcc, and State, the JudJcJary, and Rotated Agcnc1os ,\ppropriations Act, 1993, Pub. L :-Jo. 102-395, 106 Stat. 1828 (1992), as amended by section 116 of Pub. L. No. liJ5-ll D, Ill Stat 244•.1 (l'i'!'l); ""ction 402 of Pub L No lll(>-3%, 114 Stat. 1(>3 7 (2000), section 11037 of Pub L. 1\o. I 07-273, 116 Slat. 1758 (20:)2); sect10n 4 of Pub. L. Nu I 08-156, 117 Slat. 1944 (2003): and seclton 1 uf Puh. !.. \·o. I 12-176, 126 Stat www.oig.dhs.gov l.l2.~ (2012). 27 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security Oil!cia] Comments to the Drafi Report Recommendations on U.S. Cilizenship and Jmmzgralwn Services' Employment-Based F1_fth Preference (EB-5) Regional Center Program- For Otlicial Cse Only (OIG-12-166) PageS The draft r·eport r·eferences instarrces in which CSCIS has granted ER-5 benefits to investors whose capital was used to pay off construction loans or other bridge financing t:rom projects that had already begun. Wc note that EB-5!rogram rules do allow EB-5 capital to replace bridge fmancing under certain circumstances. For example. a bank may approve a temporary construdion loan on the condition thallhe loaned funds will be replaced once a developer is able to secure EI3-5 timding. TI1ese types oftinancing arrangements pemtit shovel-ready projects to begin (and jobs to be created) right away. Of course, users has denied and will continue to deny ca<;es where a project is alr·eady completed and circumstarrces do not wan·ant attribution of jobs to a proposed late-stage investment. Progr·am Integrity '11troughout the draft report, the OIU has included references to casework that may leave the reader with the impression that these cases were adjudicated in error, even though the draft report states, with respect to at lea<;t a number of these cases, that there is evidence to support the adj udicalive decisions reached. ;\sa result ol'the ()[(f's willingness to provid~ a list ol'the actual o.:ase~ reH:reno.:ed, USC IS ha~ been able to look. inlo each of these ca~es further to detennine whether a case had been adjudicated properly. A total of twenty-two (22) regional center applications were identified by the OKr. CSCIS ha~ detennined that in each of the applio.:alions o.:ited in Lhe reporl in whidr a lirral deo.:ision has been made, that deo.;ision wa.~ irr accordance with the law, regulations, and policy. users thanks the OrG tor the opportunity to clarify this issue. Inasmuch as the ca~e review fomtd that each case cited by the OIG had been decided properly, cscrs must conclude that the orG's concern is not that cases arc being adjudicated improperly, but rather the OIG docs not concur with the statute, regulations or policy, as written. In the section below, LSCIS will directly address ea(;h ar~a ol'conc~m Lo provide clarirication orthe relevant law, regulation or policy. A, Re::ional CenteJ' Accountability We disagree with the draft report's finding that users does not require regional centers to meet all regulatory requirements, and in particular the requirement on which the draft report focuses: 6 See ED-5 Policy MomordndLun Cv!ay 30, 2013) at 15-16 ("Since tt is tho commercial cnterpmo that creates the johs, the developer m the principn1 of the nevt' commercial enterprise, either directly or through a. ~epa.mte johcroatmg entity. m"y utiltze mtenm, tempomry or bmlge financing- m the form ui etthor debt or equity- pnor to receipt ofF.R-5 capital. Tfthe project commences hased on the interim or bridge financing prior to the receipt of the RR-5 cflpiml m'd ;rul"equently replAces it wit], FR-5 capital, the new commercial emerpri'e may 'till receive credit for the JOb creation LLJJ.Llcr the rcgulalivn>. Generally, the replacement of bndgc iinancing with EB-5 investor ""pital should hnve 11een contemplated r1rim !.t..l acqulrlng the original non·ER-5 financing_ HC'J\\'ever, even if the F.R-5 wcmg.. as long as th.--; fin.. 'lliC.ing to be r0placcd flllancing was not cont~mplatcd prior to acqujrjng the temporary fm.. was contemplated as short-term tempomry financing which would be subsequently replaced, the infusion of ED-5 financing could still result in the creatjon of, and credit for, tk'W _ jobs_ For example, the> non HB-5 financing ongin"lly contemplated lu replace the temporary tinancmg may nu longer be av"tlablc tu the commerctal enterprise as fl result of changes in availability oftmd1ti0.nal financing.") www.oig.dhs.gov 28 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security Oil!cia] Comments to the Drafi Report Recommendations on U.S. Cilizenship and Jmmzgralwn Services' Employment-Based F1.fth Preference (EB-5) Regional Center Program- For Otlicial Cse Only (OIG-12-166) Page 9 that an application for a ne\V r·egional center must pm'>ide "in verifiable detail how jobs will he created indirectly." 8 C.F.R. ~ 204.6(mX3)(ii). The draft report suggests that US CIS should interpr~t its regulation to require that all n~w regional center applications includ~ a fully developed business plan. but that view is contrary to the statute, which permits creation of a regional center b;t~ed on "general proposals'' 'l11e regioruil center legislation sfl{t.es !hat the progrmn "shall involve a regional center in the Cnited States, designated by the Secretary of Homeland Security on the basis of a general proposal, tor the promotion of economic grow1h, including increa~ed export sales, improved regional productivity, job creation, or increa.~ed domestic capihtl im:estmenl" and that "l tjhe establishment or a regi(mal center may be based on 7 general predictions. " ln light of the controlling statute, US CIS has interpreted the regulation's reference to "verifiable detail" as requiring substantial evidence of how jobs will likely be cr·eated, but not necessarily a ii.tlly developed business plan, which is not a r·equir·ement authorized by the statLtte. It is i.mpottant to note that no alien is properly admitted as an immigrant to the C.S. under the ER-5 program if he or she cannot show a fully developed husiness plan and finn commitment of the required investment amomtt. At the stage at which an individual investor seeks approval to invest in an already-approved regional center, a fully developed business plan must be presented. Afatter ofHo, 22 !&1\ Dec. 206, 213 (Assoc. Comm'r 1998). The statute, however, docs clearly permit regional<.:ent.ers lobe approved at the oulsel, before any individual investors have been approved, on a lesser showing. Again, if Congress modified the statute to require a more detailed showing by the regional center, CSCIS would adhere to that new standard. In another example cited in the dra1l report, !he OIG suggests !hal USCIS improperly urged an applicant to omit intonnation from an application in contravention of the regulations. TI1e OIG is inconcct; in the case discussed, users followed ordinary evidentiary procedures in a manner consistent with law. users adjudicates ever·y regional center application to ensure thatthe docLtments submitted establish eligibility l'or the designation as a regional center as ol'the date of tiling. In addition to establishing eligibility tor designation as a regional center, Fonn I-924 applications arc sometimes accompanied by a Form I-526 Exemplar along with draft documents describing the proposed investment oppmnmity. The I-526 Exemplar is an avenue available to the regional center applicant to obtain a determination from users. in advmtce of the tiling of actual investor petitions, that the draft documents do not contain provisions that violate program requirements. Ifthe draft investment documents contain impennissiblc provisions. USCIS provides the applicant t.he opporhmit y to ;unend !he dra.fi in vestment. dm:ument~ through a Request for Evidence (RfE). This process is pennissible tmder both the statutes and the regulations. Moreover, the exemplar process is an intportant tool to ensure predictability and eiTiciem:y in the processing ol'investorpetitions under the regional center proje..:t. We therel'ore believe the OIG 's criticism of this established and well-designed process is Lmwarrant.ed. 7 ScctJOn 610 of th<' Dq:>.'lrtmonts of Commorco, Jtistlcc, and State, the JudJcJary, and Rotated Agcnc1os ,\ppropriatiollS Act, 1993, Pub. L :-Jo. 102-395, 106 Stat. 1828 (1992), as amended by section 116 of Pub. L. No. liJ5-ll D, Ill Stat 244•.1 (1 1i'!7); ""ction 402 of Pub L No lll(>-3%, 114 Stat. 1(>3 7 (2000), section llll37 of Ptrb L. 1\o. 107-273, 116 Slat. 1758 (20:)2); sect10n 4 of Pub. L. Nu 108-156, 117 Slat. 1944 (2003): and soclton 1 uf Puh. T.. \-o. I 12-176, 126 Stat l.l2.~ (2012). www.oig.dhs.gov 29 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security Oil!cia] Comments to the Drafi Report Recommendations on U.S. Cilizenship and Jmmzgralwn Services ' Employment-Based F1 Preference (EB-5) Regional Center Program- For Otlicial _fth Cse Only (OIG-12-166) Page 10 The OTG also concludes that USCTS's regulations and policies pertaining to the designation of Targeted Employment Areas (TEA) are tmclear. Specifically, the OIG appears to take issue with an adjudicator's ability to challenge the designated boundaries of a TEA. CSCrS believes the recent policy memorandum removes any ambiguity. As noted in the May 30, 2013 EB- 5 Policy l'vlemorandtun, "US CiS defers to stale detenninations ofthe appropriate boundaries of a geographic or political subdivision that constitutes the targeted employment area. However, tor all TEA designations, USCrS must still ensure compliance with the statutory requirement that the proposed area designated by the state in fact ha-; arr unemployment r-ate of at lea-;t 1 50 per·cent of the national average rate.·· This policy pronouncement adheres lo lhe legal framework !'or TF.:\ designation. R. lJSCJS Re~latiom and Policy We agree with the OrG's concern that users has historically applied laws and policies inconsistently in the ER-5 pr·ogram. This ha-; been arr ongoing source of criticism for the agency, and one lhat has been warranted. The program's eligibility ~riteria, involving complex issues or job creation proje<.:Lion, economic modeling, business plan evaluation, .~ensive infonnation to LSCIS on an annual basis through 1:omr 1-924.:\, updating the agency orr the status oftlreir investment projects and management or ownership changes, and pennitting LSClS to conduct heightened oversight and vetting of regional centers on a continuing basis. :\11 of these changes have contrihuted to enhanced consistency and integrity in \.ISCIS's administration of the program. J .astly, the dr-aft report implicitly criticizes CSCJS 's policy of defening to prior agency decisions involving the same investment project, but we believe the criticism is misplaced. A.n important . dement of consistency is that users must not up~nd settled and reasonable business expectations by issuing contradictory decisions relating to the same investment projects. It dis serves the public, Lmdem1ines progr:un integrity, am! is ftmdament.ally unfair for lJSClS to approve a project, have the developers and investors act in reliance on the approval, and tben subsequently reverse course by determining that the agency's initial approval was in error. To that end, CSCIS has long followed a policy that it will defer to its own prior det:isions unless there is evidence of fraud, material change in f:td.s, or legal deilt:iency in the prior decision. Some of the sharpest criticism cscrs has historically received from Congress and stakeholders relates to perceived failures to follow this deference policy, precisely because of the huge reliance U.S. project developers and investors justifiably place on CSCJS 's decisions. Where a prior approval wa.~ issued in ohjedive contravention of law, 1!SCIS will not accord deference to that approval (and indeed has rdi.Jsed to deter in such cases in recent years). But where an adjudicator simply would have decided a close case differently, it lmdermines the program's effectiveness, predictability, and consistency for the agency to abmptly rever-,.;e course. 8 C. Internal and External htfluence LSCIS agrees with the OIO's observation llrat EH-5 cases attract signil1cant interest from a range of stakeholders, including members of Congress, state and local otlicials, the busin~ss 'The draft report cites an ~pplicmion of USGS deference policy in tenm thflt we believe mixh~rncteri ze our processes Before 1ISCTS detennines that one of its prior decisions was incnrrect and that the agency should reverse a prior <1pprvval, a ''DdCri..:ncc Bmmr or o(Ticiab: indw..ling Cl:onomists, conv~;m::s to ri..:vicv..' the t:asc and m~ke R determinntlon a::. to tl1e ~P1.1Topriate way forwArd The Defere11Ce Ronrd process includes ~m op].')t.:1rhmity to discuss and clanfy Js""" m tho case w1th the appliCant. ln the case cited at page 13 of the dra!lrq:>ort, the Deference Board determined that the agency's initial decision was not in error and should not be disrurbed, notwithstanding the contnuyview of a USCJS adjudJC'lltor We believe the process worked m this case, and that the 010. S CTlli~ism lS liilWarmnlel\; mtkel~ we are concerned lhallhe draft report does not even acknowledge lhallhe ultimate decision in this cnse wHs mHde purnu~nr tn thi::. carefu1].1TV...:ess. users www.oig.dhs.gov 31 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security Oil!cia] Comments to the Drafi Report Recommendations on U.S. Cilizenship and Jmmzgralwn Services ' Employment-Based F1 Preference (EB-5) Regional Center Program- For Otlicial _fth Cse Only (OIG-12-166) Page 12 community, and the applicants themselves. On average, USCTS r·eceives hundreds (and in recent years thousands) ofED-5 case inquiries from members of Congress per year. As a threshold matter. \Ye note the draft report's finding that the case files "appeared to contain sufficient evidence to support the 11n~l adjudicalim1 decision'' in ea.ch oflhe cases that the OIU reviewed involving ell.'temal inquiries. cscrs 's core fimction is, in a manner consistent with ensuring national security, to approve cases that arc eligible, and to deny cases that arc not. \\' e decide ca.~es based mr the facts and the law and nothing else. CSCTS management officials have in many instances received case inquiries lr-om memhers of Congress or applicants and declined to take action because they assessed that the agency had reached the right result. In other instances. C SCIS officials have become more involved where they believe the agency had eTTed. That is as it should be. \V c agree \vith the draft report that it is important to have processes in place to manage external inquiries about EB-5 cases, to pcnnit appropriate responsiveness to those inquiries, and to avoid perceptions that anything other· than the facts and the law driv es agency decisimrs. ;\t the same time, we must be accountable and responsive to legitimate criticism. In the ED-5 program in particular, our agency has historically struggled with issuing timely decisions that arc consistent with the law given the enonnously complex economic and legal issues that these cases can raise. If our agency has decided a. case incorred.ly, in U1e EU-5 program or any other visa progrmn, we cannot allow that error to go uncorrected when it is brougl1t to our attention. Senior agency managers must be empowered to supervise and to correct course when they believe difficult issues are not heing handled coTTeclly in cases. Thal is the responsibility or the chain or cmnmand. We would welcome suggestions from the OIG for processes that Users could implement to accommodate all of these legitimate concems. \lie would particular-ly welcome suggestions from the 01(1 as to protocols it would recommend l(rr documenting the agency's response Lo Lhe thousands of inquiries received every year regarding EB-5 cases. It is important that the public, Congress. and USCIS staff all have confidence in the integrity of the EB-5 process and our adher·ence to the la\'li. \Ve ar·e committed to taking any steps that can help accomplish this. Conclusion and Recommendations We concur with three or the rour 010 recommendations, allhmtgh as noted a/rove we have refined some of the action items to comport with USCIS's authorities and structure. We respectfully request that the recommendations be amended to reflect these refinements: 1. users will update regulations to provide greater clarity regarding the requirements tor establishing eligibility under the program, in particular by more clearly delineating the evidentiary requirements applicable to stand-alone EB-5 petitions versus Regional Center-based applications and petitions. A revised rule will be drafted for interagency clearance within nine months of this report. www.oig.dhs.gov 32 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security Oil!cia] Comments to the Drafi Report Recommendations on U.S. Cilizenship and Jmmzgralwn Services ' Employment-Based F1 Preference (EB-5) Regional Center Program- For Otlicial _fth Cse Only (OIG-12-166) Page B 2. users will develop and implement an interagency collaboration plan outlinirrg liaison and collaboration roles and responsibilities among key federal partners, to include the Department of Commerce and the Securities and Exchange Commission. within six months of this rcpott. 3. USCIS's mandate is to adjudicate ED-5 cases according to the eligibility criteria, including the statutory job creation requirements. US CIS is not charged with conducting a broader assessment of the pmgram's impact. And while we agree that an assessment may he hend'i(;iaL we do not believe lJSCIS, a.~ the administering henel'its agen<:y, is best positioned to conduct that study. LSCIS therefore disagrees with the OlU's recommendation that such a study be undctiaken by US CIS. 4. \.ISCIS will establish within six months quality assuran<:e steps to promote program integrity and ensure regulatory compliance. We appreciate the OIG's review of the legacy F.R-5 progr·am and we cmrcur in the OIG's assessment that improvements to the legacy program will enhance CSCIS's ability to ensure the program is administered dlicicntly and consistently, with due focus on preventing fraud and threats to national security. Tite OIG's assessment echoes concems we developed independently ~md which spurred us t.o transfonn the wa.y the EU-5 program is administered. Some of those steps have come online over the past several years, but other critical and transformative changes have become a reality only in the months since the OIG finished its audit \York. \Vc th.:rcfore renew our invitation for the OIG to t:ondnct andit work on the rrew F.R-5 program oiTi<:e that we latm<:hed in May orthis year, lhe new EU-5 poli<:y memorandtml that we published in 'lhy of this year, and the many anti-fraud and nntional security mea~ures we have recently implemented. We and the public would benefit from the OIG's independent analysis of these measures, which ar·e not cuTTently reflected in the dmft r·eport. www.oig.dhs.gov 33 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � Appendix�C�� Major�Contributors�to�This�Report� Patrick O’Malley, Director Cheryl Jones, Audit Manager Keith Nackerud, Analyst-in-Charge Jeanette Hyatt, Auditor Rebecca Mogg, Program Analyst Audrey Van, Auditor Katrina Bynes, Auditor Marisa Coccaro, Program Analyst Kevin Dolloson, Communications Analyst Patricia Benson, Referencer www.oig.dhs.gov 34 OIG-14-19 OFFICE OF INSPECTOR GENERAL Department of Homeland Security � Appendix�D� Report�Distribution�� � Department�of�Homeland�Security���� Acting Secretary Deputy Secretary Chief of Staff � Deputy Chief of Staff General Counsel Executive Secretary Director, GAO/OIG Liaison Office Assistant Secretary for Office of Policy Assistant Secretary for Office of Public Affairs Assistant Secretary for Office of Legislative Affairs USCIS Audit Liaison Acting Chief Privacy Officer Office�of�Management�and�Budget��� Chief, Homeland Security Branch DHS OIG Budget Examiner Congress Congressional Oversight and Appropriations Committees, as appropriate www.oig.dhs.gov 35 OIG-14-19 ADDITIONAL INFORMATION AND COPIES To obtain additional copies of this document, please call us at (202) 254-4100, fax your request to (202) 254-4305, or e-mail your request to our Office of Inspector General (OIG) Office of Public Affairs at: DHS-OIG.OfficePublicAffairs@oig.dhs.gov. For additional information, visit our website at: www.oig.dhs.gov, or follow us on Twitter at: @dhsoig. OIG HOTLINE To expedite the reporting of alleged fraud, waste, abuse or mismanagement, or any other kinds of criminal or noncriminal misconduct relative to Department of Homeland Security (DHS) programs and operations, please visit our website at www.oig.dhs.gov and click on the red tab titled "Hotline" to report. You will be directed to complete and submit an automated DHS OIG Investigative Referral Submission Form. Submission through our website ensures that your complaint will be promptly received and reviewed by DHS OIG. Should you be unable to access our website, you may submit your complaint in writing to: Department of Homeland Security Office of Inspector General, Mail Stop 0305 Attention: Office of Investigations Hotline 245 Murray Drive, SW Washington, DC 20528-0305 You may also call 1(800) 323-8603 or fax the complaint directly to us at (202) 254-4297. 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