Five Things EB-5 Regional Centers Need to Know about Compliance Audits
On March 20, 2017, USCIS announced that it will begin EB-5 Regional Center compliance audits to collect case-specific data to verify information in Regional Center applications and annual certifications filed on Form I-924A, with the goal to enhance EB-5 Program integrity. The Immigrant Investor Program Office’s Compliance Unit will research information in government systems, review commercial and public records, verify information contained in investor applications, conduct site inspections, and interview Regional Center personnel as part of its compliance audit. This announcement was not unexpected, as the Immigrant Investor Program Office (“IPO”) has mentioned compliance measures regarding the EB-5 Program in the past. Here are 5 things EB-5 Regional Centers need to know about handling compliance audits:
- Create a Compliance Audit Action Plan. It is advisable to create and implement an action plan in the event of a compliance audit and ensure that all employees understand and strict adhere to that plan. There should be a designated primary individual who has the primary responsibility of answering the Compliance Unit’s questions and guiding them through the EB-5 Regional Center’s offices. It is recommended that there be a designated secondary individual to fulfill these duties in case the primary individual is out of the office.
- Proper Tracking of EB-5 Capital. It is absolutely critical that EB-5 Regional Centers have proper accounting systems and processes in place to track EB-5 investors’ investment capital from escrow (if applicable) to the new commercial enterprise (“NCE”) and then to the job creating entity (“JCE”). Additionally, EB-5 Regional Centers should review and update its operational plan on how it will conduct due diligence to ensure that only lawful sources of capital are associated with its EB-5 enterprises.
- Promotional Activities. EB-5 Regional Centers should maintain continuous and careful record keeping on its promotional efforts and activities. This includes keeping track of seminars and conferences attended domestically and abroad and confirming that all duties and warranties in agreements with registered broker-dealers or foreign migration agents are being followed and complied with.
- Interested-Party Transactions. EB-5 Regional Centers should have bona fide, fully-executed contracts with all interested parties, including, but not limited to, development agreements, EB-5 Regional Center management agreements, NCE sponsorship agreements, NCE management agreements, and legal services agreements. Additionally, all payments, fees, profits, surcharges, or other remittances transferred or due to interested parties should be consistent with the terms and conditions of those agreement and the Form I-924 and I-924As submitted to USCIS.
- NCE Management by EB-5 Investors. Applicable regulations require EB-5 investors to “be engaged in the management of the [NCE], either through the exercise of day-to-day managerial control or through policy formulation.” A large majority of NCEs are either limited partnerships or limited liability companies which provide EB-5 investors with certain rights under state law. If organizational documents require meetings for its limited partners or LLC members, EB-5 Regional Centers that also manage sponsored NCEs should conduct those meetings (or at least attempt to hold such meetings) and prepare minutes to track what was disclosed to EB-5 investors about the status of their NCE’s activities during those meetings.
Additionally, the Chief of the IPO announced during the most recent EB-5 stakeholder meeting that USCIS would be conducting around 250 site visits to NCEs and JCEs in 2017.
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