On Mar 21 2017 by Daniel B. Lundy

After Many Months of Anticipation, USCIS Announces EB-5 Regional Center Compliance Audits

USCIS had been discussing plans for EB-5 Regional Center Compliance Audits for a year or more, but officially announced the beginning of the EB-5 Regional Center Compliance Audit program, yesterday, March 20, 2017. According to the USCIS website, EB-5 Regional Center Compliance Audits will be used to enhance the integrity of the EB-5 Program, ensure a regional center’s compliance with the laws, and ensure that a regional center continues to meet the goals of the EB-5 program, which are promoting economic development and job creation.

The commencement of the EB-5 Regional Center Compliance Audit program marks a shift in USCIS oversight and enforcement in the EB-5 arena, and will have long ranging effects on how participants in the program operate. The EB-5 Regional Center Compliance Audit Teams will review applications, certifications and records; review public records and information on a regional center; verify information contained in applications, investor petitions, and annual certifications and the associated supporting documents; conduct site inspections; and interview personnel to confirm the accuracy of the submitted information. 

While not contained on the website or email notice released yesterday, USCIS has previously stated that the EB-5 Regional Center Compliance Audits will be preceded by a notice of audit and a request for production of certain records. USCIS has said that it expects the audits to take about a week, during which time the EB-5 Regional Center Compliance Audit Team will be present at the regional center’s office. The data collected will relate to the regional center itself, as well as any new commercial enterprises hosted by the regional center, and their affiliated job creating entities. We expect the scope of the audits to be relatively broad, and focus primarily on the use of investor funds and the details of the underlying EB-5 projects. Importantly, we expect that the audit will focus almost as much on the regional center’s procedures and protocols for verifying these details as it will focus on the details themselves. We believe that insufficient protocols may be grounds for an unfavorable audit result, but, as discussed further below, USCIS has not provided guidance yet.

The USCIS website explains that after an EB-5 Regional Center Compliance Audit, there will be an official Audit Report, which will be used to assess the regional center’s compliance with the laws and whether it continues to meet the goals of the EB-5 Program. If there are indications of fraud, USCIS will determine whether further investigation, presumably in conjunction with the SEC or Department of Justice, is warranted. Participation in EB-5 Regional Center Compliance Audits is characterized as “voluntary,” according to the website.

Those of us on the Klasko Compliance team have been advocating for enhanced regional center compliance for several years now, and we view this as a perhaps long overdue step in ensuring the safety and predictability of the EB-5 program for all involved. There have been too many bad actors, and too many instances of fraud and abuse of the program, and we welcome any reasonable steps to rid the program of such abuses. However, we are deeply concerned that USCIS has published no standards or protocols for the conduct of EB-5 Regional Center Compliance Audits. To complicate matters further, the EB-5 regulations, and the EB-5 Policy Manual, are not very detailed as to what is expected of a regional center. We are afraid that some regional centers will learn the standards USCIS is applying only by going through an extensive audit and then facing a Notice of Intent to Terminate. As an agency, USCIS has a long history of regulating through RFE rather than through notice and comment or by publishing clear policy guidance, and we are quite concerned that the EB-5 Regional Center Compliance Audit program might follow this trend.

At Klasko Compliance, we have developed a compliance system for our clients which enables our clients to ensure they are consistently and adequately documenting their compliance with the rules. Specifically, we have designed our system to help clients maintain documentation of the flow of investor funds, project expenditures, and job creation, as well as the investors’ immigration processes. We believe that having systems in place to track data, collect and maintain documents, and verify the accuracy of records will go a long way toward being prepared for an EB-5 Regional Center Compliance Audit.

After many years, compliance is coming to EB-5. Are you ready? We are.