RCBJ Retrospective: EB-5 Regional Center an Indispensable Economic Development Tool in the 21st Century
by Peter D. Joseph, IIUSA Executive Director
Reform, Reauthorization and enhancement of the EB-5 Regional Center Program (the “Program”) is essential to the U.S. economy in 2016 and beyond. From 2005-2015, over $15 billion of foreign direct investment (“FDI”) flowed into the United States from across the world. In that time, and especially in the years that followed the Great Recession, the Program became a potent economic development tool for diverse communities and industries across the country. Over $14 billion of the $15+ billion (or 93%) in EB-5 capital was invested in the U.S. in the years after the global recession that followed the financial crisis of 2008.
Today, the EB-5 Regional Center industry needs to lead the cross-sector stakeholder community in educating the government, media, and public about the important work going on across the country thanks to the Program – creating vital American jobs at no cost to the taxpayer. With a September 30 expiration for the Program fast approaching, presidential and congressional election campaigns dominating the headlines, and the many considerations related to reauthorization and reform of the Program, it can be difficult to cut through the noise to navigate the now so we can envision and pursue a future of growth and opportunity for the industry.
At Invest In the USA (IIUSA), the national non-profit EB-5 trade association where I have had the privilege of serving as Executive Director for over six years, I have seen first-hand the challenging (yet rewarding) work industry stakeholders like you do to succeed in using the opportunities that come with globalization to address economic issues in your communities. It is thanks to our shared success in building this multi-billion dollar EB-5 capital market that Regional Centers have an integral role in the U.S. economy for the long-term. We must remain vigilant and diligent in our advocacy, education, and self-regulatory efforts as detailed below so EB-5 Regional Centers are able to continue and expand their growing contribution to the United States.
$18+ Billion Reasons EB-5 Must Continue
As the EB-5 Regional Center industry contemplates and debates reform measures to include in legislation to reauthorize the Program, it is important we take time to understand the real world consequences of potential outcomes in the reauthorization effort. Some key legislators have publicly stated that the Program would need significant and substantive reform included in this year’s reauthorization package or the Program should be allowed to expire or lapse. The industry knows that any outcome that results in program lapse or expiration would be a disaster for the United States economy with lingering damage that could not be undone. Why should Congress and the American public be concerned about an outcome where the Program was allowed to lapse, even a small one?
For starters, a lapse in the EB-5 Program would mean that over $16 billion in FDI (12% of the U.S.’s total inbound FDI flows in a given year) would be thrown into chaos – along with the tens of billions of other project financing that is leveraged and reliant on the EB-5 capital in a project’s finance structure. Investors that have already had their eligibility for EB-5 petition (“I-526”) approved by U.S. Citizenship & Immigration Services (“USCIS”) but have no visa yet, and investors with pending I-526 petitions would – based on guidance provided by the federal government –no longer have statutory basis for adjudication under the rules that governed the Program at the time of filing. With no Program, investors have no grounds for I-829 adjudication and are left hanging in the balance. They undoubtedly would file lawsuits. This is essentially placing a “closed for business” sign on the door to America, deterring future foreign direct investment.
As funding for effected projects is halted and investor petitions are suspended in bureaucratic purgatory and incapable of escaping to be infused into the economy, the U.S. would watch litigation destroy the potential for this EB-5 capital to support hundreds of thousands of American jobs across the country. Furthermore, over 30,000 families that were willing to risk the personal wealth and immigration status for themselves and their family for the American Dream would be left disappointed, confused and betrayed. Congress needs to hear from the industry about the reality of the choices it has before it to ensure it understands expiration is not a viable option. The outcome that enjoys strong support from stakeholders across all sectors is quite simple: reauthorization and workable reforms that enhance program integrity and expand economic opportunity/benefits.
With so much at state, the industry must lead the way in achieving this principled outcome.
EB-5 Industry Self-Regulatory & Federal Agency Actions Lead Way in Improving Program Integrity
Congress has prioritized program integrity, as we have seen in various bipartisan bills over the past year, including S. 1501 and S. 2414. Some of these measures include background checks for Regional Center owners, banning participation in the Program for anyone who committed certain crimes including drug trafficking and terrorism, and forbidding foreign ownership of a Regional Center. These measures go to address concerns of fraud that EB-5 could somehow be a vehicle for criminals to legally enter the United States. Overwhelmingly, IIUSA and the industry generally support improved integrity measures to ensure a productive and honest industry that weed out the fraudsters, cheats and criminals while allowing the rest of the industry to contribute to the American economy through job creation and economic development.
The Department of Homeland Security (DHS) has EB-5 on the White House’s “unified regulatory agenda” to update the Program’s regulations for the first time since the early 1990s. This regulatory overhaul will proceed at a slow pace before being finalized and implemented and will occur as USCIS also implements administrative enhancements to its law enforcement capabilities. For example, after successfully embedding inter-agency partners it is adjudications process at the Investor Program Office, USCIS now has almost 200 employees working on EB-5 that include entire departments on stakeholder compliance, policy and strategy, and public engagement. No matter what reforms are included by Congress, USCIS is clearly taking steps to do everything in its power to bring EB-5 policy up to date with 21st century policy standards in fraud deterrence, national security, and movement of capital internationally.
In the last few years, IIUSA has worked tirelessly to develop meaningful self-regulatory processes that hold its members and the industry to the highest of standards of ethical business practices. Additionally, IIUSA has a long history of supporting reforms that would improve program integrity – whether proposed via action by the legislative or executive branches. Several pieces of legislation have been introduced in Congress on EB-5 and are actively being considered in the process towards a single piece of broadly supported reauthorization and reform policy that results from constructive engagement and compromise.
Since 2014, IIUSA’s membership has approved five new or updated best practices documents that strive to hold its members and the industry to the highest standards possible. Included in these best practices is the Code of Ethics and Standards for Professional Conduct, which was approved, hand-in-hand with an enforcement procedures process. In a effort to promote self-regulation of the industry as well as encourage people and organizations (IIUSA members or not), the enforcement procedures include a vehicle to file complaints against bad actors and a detailed process for how these complaints are handled internally.
IIUSA also has recommended best practices for Regional Centers, anti-money laundering/know your customer, engaging with sales intermediaries, and compliance with securities laws. These combined with the Code of Ethics – and enforcement thereof via complaint process – set a high bar from which the industry is expected to operate. Lastly, IIUSA uses it various education offerings (publications, conferences, and much more) to keep the industry informed of essential intelligence on compliance, market dynamics, and ever-evolving best practices. Long story short, EB-5 is not a spectator sport.
Putting Existing Policy Pieces Together to “Mend It, Not End it”
The pieces of the puzzle are already on the table and many of them are already in their place for EB-5 reauthorization and reform. As many supporters in the Senate stated in a hearing on EB-5 earlier this year, Congress must “mend it, not end it.” Here you read some of the implications for even a short lapse in program authorization, knocking billions of dollars out of the U.S. economy when it cannot afford such a shock and launching a litigation frenzy where everyone loses. With less than four months until the reauthorization deadline, the thought or idea of a lapse should not even be a consideration for Congress. But the onus is on the industry to achieve consensus and increase our collective voice for the Program in the coming months to spur Congress to reform and reauthorize this vital part of the post-recession economy in the U.S.
Years of success, advocacy, experience and relationship building have led us to this moment. The EB-5 industry and Congress are in an optimal place to negotiate durable reform that results in a stronger, more efficient Program. And, the message for all of us to carry is simple: the EB-5 Regional Center must be reauthorized without a lapse, or countless communities, Regional Centers, and investors will face desperate times and years of protracted, expensive court proceedings.
IIUSA looks forward to working with you!