An immigration program designed to stimulate foreign investment in U.S. businesses is under regulatory scrutiny. The EB-5 program, so named for the employment-based fifth-preference visa it provides, gives foreign investors resident status in the United States if they invest at least $500,000 in a business that creates or preserves at least 10 jobs.
The program was created in 1990 and is administered by U.S. Citizenship and Immigration Services. A later program created regional centers where foreign investors can invest the minimum $500,000 in creating a new commercial enterprise that employs at least 10 full-time workers. Investments in other areas require a minimum investment of $1 million to qualify for the visa.
There are 796 regional centers as of February, according to Nicholas Colucci, chief of the Immigrant Investor Program Office for USCIS, up from just 11 in 2007. As of March 30, 43 regional centers in 21 states have been terminated.
Colucci said in written testimony that since October 2012, $8.7 billion has been invested in the U.S. economy through the EB-5 program, with an estimated 35,140 jobs. Colucci noted these are rough estimates; USCIS has partnered with the Commerce Department to conduct a valuation study on the program's performance, the results of which are expected in the second quarter of fiscal 2016.
Investments in these EB-5 regional centers are considered securities as defined by the Securities Act of 1933. In order for advisors to receive compensation for helping EB-5 applicants, they must be registered with a broker-dealer, and the investments must be made in accordance with Financial Industry Regulatory Authority regulations.
Both FINRA and the Securities and Exchange Commission have said the EB-5 program is an area of focus this year.
Advisors who work with foreign investors on EB-5 visas need to have a "fairly strong background" on private placements and how to identify accredited investors, according to Kurt Nuñez, a compliance consultant at Core Compliance & Legal Services.
He acknowledged that some advisors run into trouble handling their anti-money laundering and client identification responsibilities, "because of course the EB-5 applicants will be from foreign countries," but other than that "from an investment point of view, it's not particularly esoteric."
FINRA noted in its 2016 exam priorities letter that it is considering EB-5 investments as one of its areas of focus regarding the suitability, disclosure and due diligence of private placements. The SEC's Office of Compliance Inspections and Examinations will also focus on private placements, including the EB-5 program, to evaluate whether legal requirements are being met.
EB-5 applicants start by working with an immigration attorney, Nuñez said, who helps the applicant file an I-526 petition with USCIS for the visa. USCIS screens the investor, including background checks and the source of his or her funds, and approves or denies the application.
That's where the broker comes in. Once an application is approved, the visa holder has to place the investment, either in an approved regional center or elsewhere with the higher $1 million minimum.
