The City of Miami Regional Center held a regular presentation on “The Present and Future of the EB-5 Regional Center Program.” The uniqueness of the program involved the presentation of certain public/private partnership transactions being considered which were quite unique and exciting. These projects included the following:

  1. Miami Marine Stadium. This is an old, cherished relic of the City located on Key Biscayne that is in the process of being renovated and that will potentially utilize EB-5 capital up to $40 million.
  2. VA Facilities Near VA Hospital. A VA affiliate is in the process of undertaking a VA Village that is to provide for housing and other benefits to veterans. That is being highly supported by all government agencies and is likewise seeking EB-5 capital to fund the development of the project.
  3. The 10-Mile Underline Project. Miami has a Metrorail system that travels down U.S. 1, and like other cities, it is exploring the utilization of the land which has 100-feet width to develop various opportunities in the 10-mile stretch in a primary section of Miami-Dade County. This project potentially could involve capital expenditures in excess of $100 million and again, EB-5 capital is being considered in connection with this project.

The City of Miami Regional Center will be sponsoring these projects and the Mayor and two commissioners spoke about the City of Miami and its current situation.

The guest speakers discussed various matters that were of interest.

  1. Reid Thomas of NES Financial Services discussed the various best practices concerning the escrowing, distribution and monetization of EB-5 funds in order to ensure integrity that is consistent with current USCIS policy and will be eventually contained in the new integrity bill.
  2. Mark Virkstis of Greenberg Traurig spoke about pending legislation and his take on the current status of legislation. Obviously, the Program has had significant negative publicity and the current legislation position will probably result in a continuing resolution that will defer the sunsetting of the Program to December 9, 2016, at which time Congress may attempt to negotiate a compromise bill, although it would seem that to accomplish same by that date would be unlikely. Mark discussed in detail the various political issues involving both integrity measures and the immigration issues. It was noted that the Grassley Leahy Bill will still be the main template for reform and there will be strong negotiations addressing the following:
    1. The grandfathering of 526 petitions filed before the effective date of any new legislation.
    2. Census track utilization to determine TEA classification and whether more than one census track can be counted.
    3. Set asides for special situations involving rural and urban matters (up to 4,000 visas a year) and well as manufacturing and infrastructure projects. This would only leave 6,000 visas for other projects that would further backlog retrogression in China.
    4. Increasing the visa count to cut back to regression backlog. 3.
  3. I presented on SEC investigations and the necessity of much stricter loan administration standards.

With respect to SEC matters, it was noted that the SEC has pronounced that EB-5 is a priority for the year 2016 and that the SEC will be undertaking spot audits and investigations of regional centers and projects. Furthermore, the SEC reacts to information provided and complaints raised and are taking a much more active role in connection therewith. They have even conducted random inquiries with regional centers and are doing spot unannounced inspections as well. Furthermore, the SEC has taken a far more active position in trying to prevent fraud, escrow violations and broker-dealer violations and is still consistently bringing actions against parties to avoid the payment of unlawful commissions for transaction-based compensation to unlicensed broker-dealers in connection with their referring of investors to a project.

I noted that Director Colucci in his July 28, 2016 stakeholder announcement at the Miami Stakeholders Conference stated as follows:

This seems like a clear departure from prior policy in that there is a formal statement that regional centers are being held responsible for the integrity of the EB-5 projects, including both financial and immigration matters. This is a heightened responsibility that will eventually be contained in the new integrity measures being undertaken by Congress but USCIS’s has in fact dictated that their position is similar to the proposed legislation.

I discussed in great detail the necessity of having independence in the loan administration and/or fund distribution process to ensure that money is properly applied both from a financial and immigration standpoint. The program’s integrity is based upon making sure that funding by investors is monitored in the same manner as a bank loan would be monitored to ensure proper treatment and credibility of the program.

The next speaker, Helio Carrasquillo, discussed EB-5 and tax credits and the benefit of EB-5 projects using tax credit benefits to add to the capital stack.

The next speaker, Edward Brashera, spoke of the pending legislation and the integrity measures that are proposed to be adopted, many of which have already been commented on by the EB-5 securities roundtable as specific securities law issues.

In connection with the overall theme of the regional center program and the regulation thereto, it is noteworthy that the Government Accountability Office (GAO) issued a report on September 13th that dealt with “progress made to detect and prevent fraud, but additional actions could further agency efforts.”

The report indicated that the agency needs to do additional risk assessments to mitigate against any potential fraud in the program. Recommendations were made in connection thereto, which included the following:

  1. More procedures in verifying that funds invested were lawfully obtained from investors. Linked to this blog is a chart [see page 8 – Figure 1 of GAO report] developed by GAO which, in a very detailed fashion, explains the entire EB-5 funding process, together with the procedures necessary for governmental approvals.
  2. The GAO report discusses the fraud risk framework and identifies leaving practices for agencies to manage fraud risks, a copy of which list is partially included.
  3. Site visit pilot. According to the agency’s statements, the concern is that the goal is to have random site visits that will improve the assessment of fraud and the risk related thereto, since the unannounced random investigations will provide some degree of comfort, and also have a chilling effect on those parties trying to undertake fraudulent projects, given the fact that there will be a screening process in place.
  4. Additional information from the immigrant investor and regional center program participants is being sought. Updated forms will be issued and will be in process for fiscal year 2017. These forms will apparently capture additional information about petitioners and applicants that could be used to be identify fraud.

As noted, the immigration program is garnering significant attention from both a congressional and agency standpoint.