New GAO Report Shows that EB-5 Visa Fraud Is Less Than 1%

  Author: Michael B. Schoenfeld

The Government Accountability Office (GAO) has published a report on the EB-5 Immigrant Investor Program. This report analyzes the EB-5 program’s approach toward monitoring fraud and national security concerns.

While the GAO found room for improvement in the policies used to combat fraud and national security issues, its report also demonstrates that the volume of fraud in the EB-5 industry is quite low. Interestingly, the GAO found that, during the 2021 fiscal year, less than 1% of EB-5 applications were confirmed to be associated with fraud.

This analysis by an independent, non-partisan agency clearly shows that the accusations of “rampant fraud” launched against the EB-5 program are misleading. The vast majority of EB-5 applicants are not the victims of fraud, nor do they pose a national security risk.

We now provide an overview of the GAO’s findings. Then, we outline how the new EB-5 Reform and Integrity Act of 2022 (the RIA) is empowering USCIS to detect and prevent fraud in the EB-5 industry.

Summary of GAO Report: “Immigrant Investor Program: Opportunities Exist to Improve Fraud and National Security Risk Monitoring”

Background on Fraud and National Security Risk Monitoring by the EB-5 Program

The GAO report on fraud in the EB-5 program provides insight into the fluctuating trends of assistance requests, leads, and cases related to fraud from fiscal years 2016 through 2021.

The EB-5 program’s Fraud Detection and National Security Directorate (FDNS) has taken steps to collect data for identifying fraud and national security risks in the EB-5 program. Still, limitations in its tools for collecting such data make it difficult to obtain readily-available information for monitoring trends and identifying evolving fraud risks within the EB-5 program.

The primary system FDNS uses to record data on EB-5 program fraud and national security concerns is the Fraud Detection and National Security Directorate Data System (FDNS-DS). The FDNS-DS has a limited ability to collect information on unique fraud types and specific national security concerns.

GAO’s Fraud Risk Framework suggests that managers should collect and analyze data to monitor fraud trends in real time. Systematically collecting and tracking data on the types and characteristics of EB-5 fraud would provide FDNS with more readily-available information for monitoring and assessing risks. This data would also better position the EB-5 program to identify oversight deficiencies and respond to unique and evolving risks in the EB-5 program. For example, USCIS might choose to increase training as needed.

In addition to the limitations of FDNS-DS, FDNS faces challenges in monitoring and assessing fraud due to the absence of readily-available data on petition and application denials—including when fraud is an underlying factor.

FDNS officials said that they must rely on manual reviews of voluminous paper petition files to obtain this information, which is a time-consuming process. Collecting and analyzing data on petition and application denial reasons related to fraud or national security concerns would provide FDNS with valuable insights to monitor trends and address potential risks in the EB-5 program.

How Much Fraud Is There in the EB-5 Industry?

In the fiscal year 2021, the number of EB-5-related investigations created—including leads, cases, and national security concerns—made up less than 3% of pending petitions (I-526Es and I-829s).

Various factors contributed to the increase in leads, including additional adjudicator trainings, new checks for connections to high-risk countries or entities, and the inputting of a large backlog of fraud-related tips that had not previously been recorded in FDNS-DS.

USCIS data show that the number of EB-5 program requests for assistance, leads, and cases related to fraud fluctuated from fiscal years 2016 through 2021. In this period, national security concerns generally increased.

However, the number of confirmed EB-5 fraud and national security concern cases made up less than 1% of pending EB-5 petitions (I-526s and I-829s) in fiscal year 2021. This highlights that, while there have been fluctuations and increases in investigations, the overall confirmed cases of fraud and national security concerns remain low.

An increase in requests for assistance related to potential fraud in the EB-5 program between fiscal years 2016 and 2017 may have been a result of several factors, including changes in standard operating procedures, hiring more adjudicators, and mandated FDNS referral trainings.

However, requests for assistance decreased by 45% in fiscal year 2021 compared to fiscal year 2020. This may be due to factors such as the USCIS hiring freeze, the COVID-19 pandemic, and the lapse in the Regional Center Program.

Fraud cases from fiscal years 2016 through 2021 were most often associated with foreign nationals whose country of birth was China (at least 57%), followed by missing and unknown countries of birth (about 12%) and Vietnam (at least 10%). However, investors and their family members from China also make up the largest percent of petitioners (58%), and those from Vietnam make up the third largest percent of petitioners (6%).

From fiscal years 2016 through 2021, the State Department issued over 37,000 visas for EB-5 applicants and their family members. The State Department denied over 3,600 EB-5 visa applications. Only 76 EB-5 visa denials pertained directly to fraud or national security (about 2% of the 3,600 refused visa applications). The countries with the most denials were China, Iran, India, Vietnam, and South Korea.

GAO Recommendations to USCIS

To improve its ability to monitor and assess fraud and national security trends in the EB-5 program, USCIS could consider the following recommendations:

  • Enhance data collection efforts: USCIS should prioritize the development and deployment of the new case management system to replace FDNS-DS, ensuring that the new system incorporates fields for collecting information specific to the EB-5 program, including fraud and national security concerns. This will enable more efficient and comprehensive data collection and analysis of trends in the program.
  • Streamline access to denial reasons: USCIS should explore ways to streamline access to information on petition and application denial reasons, particularly those related to fraud or national security concerns. This could include digitizing paper files or implementing a system to automatically capture and store denial reasons for future analysis.
  • Conduct regular trend analyses: FDNS should conduct regular trend analyses using the collected data to monitor for emerging fraud and national security concerns within the EB-5 program. This will help USCIS identify potential areas of risk and focus its resources on addressing these concerns effectively.
  • Improve collaboration and information sharing: USCIS should continue to strengthen its collaboration with other government agencies, such as the State Department and the Department of Homeland Security, to share information and best practices related to fraud and national security concerns.

While USCIS can improve its ability to monitor and prevent fraud in the EB-5 program, its oversight capabilities were enhanced significantly by the RIA. Under the RIA, EB-5 investors enjoy greater transparency and are further protected against fraudulent projects or regional centers.

How the EB-5 Reform and Integrity Act of 2022 Protects EB-5 Investors from Fraud

Enhanced Oversight for Regional Centers and Migration Agents

USCIS-authorized EB-5 regional centers manage funds from multiple investors across various investment projects. The RIA now mandates stricter supervision of regional centers, reducing the likelihood of fraud, mismanagement, and non-compliance.

This legislation discourages EB-5 regional centers from misusing their affiliations and loan agreements. The RIA enforces accountability among regional centers by imposing heavy penalties for non-compliance, such as providing false information. These measures aim to safeguard regional center investors from losing their investment funds or becoming ineligible for Green Cards.

New Disclosure Requirements

Regional centers must now inform USCIS of any changes to their business structure or management team. They are also required to submit annual financial reports to USCIS and their investors, ensuring compliance with U.S. securities regulations governing EB-5 investments. This grants investors access to regular, detailed records of how their funds are used.

EB-5 commercial enterprises must now obtain third-party fund administrators or audited financial statements to verify their financial reports. This extra measure ensures that the investment capital is used for job creation. Reputable fund administrators are unlikely to accept suspicious, high-risk, or non-compliant projects.

In addition, material changes to an EB-5 project pose significant immigration risks for investors. Due to USCIS not providing a specific definition of material change, EB-5 investment projects should avoid unnecessary alterations to their business plans. The RIA now requires regional centers to notify USCIS of significant project changes and whether they have informed their investors. This added oversight encourages regional center management and EB-5 projects to follow their business plans.

The RIA also mandates that all promoters marketing an EB-5 project must register with USCIS. Even foreign migration agents must provide a record of fees paid by investors. Previously, foreign migration agents operating outside the United States were not accountable to USCIS, allowing for reduced transparency with investors.

Every EB-5 investment project sponsored by a regional center must now submit a Form I-956F “project request” to USCIS before investors can file Form I-526E, the initial petition for the EB-5 investment Green Card process. These requests include investment documents, marketing fees, and operating plans to demonstrate compliance with U.S. securities regulations. USCIS will use these project requests to monitor regional center activities more closely, detecting irregularities or non-compliance early on.

New Active Oversight Measures

To combat fraud and fund misappropriation, USCIS will conduct in-person site visits to regional center projects, ensuring reported business activities are taking place. Furthermore, USCIS will audit each EB-5 regional center at least once every five years.

USCIS will also perform comprehensive background checks on individuals involved in the EB-5 industry. Those with criminal convictions in the past 10 years or involvement in fraud cases with a liability exceeding $1 million are prohibited from participating in the regional center program.

Invest in the EB-5 Visa with Confidence

The GAO’s report demonstrates that the EB-5 Immigrant Investor Program has made significant progress in mitigating fraud and national security risks. With less than 1% of EB-5 applications confirmed to be associated with fraud in 2021, it is clear that the majority of EB-5 applicants are not victims of fraud. The EB-5 Reform and Integrity Act of 2022 has further bolstered the program’s ability to detect and prevent fraud by enhancing oversight, implementing new disclosure requirements, and introducing active oversight measures for regional centers and migration agents.

While there is still room for improvement in the policies used to combat fraud and address national security concerns, the EB-5 program has become safer than ever for investors seeking to immigrate to the United States. The GAO’s recommendations, coupled with the ongoing commitment of USCIS and other government agencies to refine and strengthen the EB-5 program, will continue to minimize the potential for fraud and protect the interests of EB-5 investors.