S.D. Keeps Troubled Immigrant Investor Program

South Dakota can continue operating its immigrant investor program despite a past order from the federal government to shut it down due to ongoing corruption.

The Employment-Based Fifth Preference Immigrant Investor Program, known as EB-5, is a federal program that makes it easier for immigrants to earn lawful residency when they invest $500,000 or more in local businesses. South Dakota’s program first came under scrutiny in 2013 for mismanagement of investment funds. Among other appropriation and record-keeping irregularities at the South Dakota Regional Center (SDRC) – the private entity that managed the program – loan manager Richard Benda allegedly converted $550,000 in investment funds for his own use. He committed suicide before he could be formally charged.

After that, the state terminated its contract with the SDRC, and the Governor’s Office of Economic Development took over the program. But a federal investigation determined in Sept. 2015 that the state hadn’t sufficiently cleaned up its act and ordered that the program be shut down.

Last week, the Administrative Appeals Office for U.S. Citizenship and Immigration Services (USCIS) found that the complete shuttering of the program may not have been justified.

In a decision dated Mar. 15 and released to the state this week, Chief Ron Rosenberg of the AAO found that despite EB-5’s troubled history in South Dakota, “there is also clear evidence of the Applicant’s substantial economic activities,” which included more than 1,000 foreign investments in 32 companies that led to the creation of approximately 5,000 full-time jobs in the state.

In the past, the federal government has shut down immigrant investor programs due to inactivity or failure to promote economic growth, according to Rosenberg’s nine-page order. But the issues facing South Dakota’s termination were different – namely, a lack of government oversight of the program that led to a misappropriation of investment funds. While it is within the federal government’s rights to shut down any EB-5 program that is not run lawfully, the state’s decision to wrest control away from the SDRC may have been enough to set the program on a path to correction, the AAO reasoned.

“The Applicant has taken several steps to mitigate improper activity that took place under SDRC, Inc.’s administration,” Rosenberg wrote. “Its contract with the company was terminated relatively shortly after the new South Dakota gubernatorial administration took office (and presumably became aware of the issues with the regional center).  The Applicant has been actively trying to secure documents from SDRC, Inc. that it says it needs for compliance with the regulatory reporting requirements.  It has created a framework for its monitoring and due diligence going forward.”

Last week, Governor Dennis Daugaard’s office announced that it had resolved two state lawsuits against the SDRC, recovering $1.5 million to help it cover losses incurred by the program’s mismanagement.

However, Rosenberg does not let the state off the hook for its role in the program’s woes. “The Applicant cannot immunize or absolve itself of responsibility for its management company’s wrongdoing simply by the fact that it contracted out its operations to that company,” he wrote.

Still, the order states that the USCIS did not properly weigh both the positive and negative factors surrounding South Dakota’s immigrant investor program before it made the decision to terminate it.

The appeal decision is not the final word on the subject. Instead, Rosenberg remanded the case to the USCIS to fully weigh the positive outcomes of the state’s EB-5 program as well as its shortcomings.

The governor’s office did not respond to a Wednesday morning email requesting comment.

https://www.courthousenews.com/s-d-keeps-troubled-immigrant-investor-program/

Mentions

• South Dakota Regional Center Inc.
• U.S. Citizenship and Immigration Services

States

• South Dakota