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Citizenship by Investment: How Due Diligence Can Open Up the US Economy

December 21, 2011 at 10:17 am Editor Leave a comment

By David Riker
Managing Director, Kroll Risk and Compliance

In his new book, Borderless Economics, Robert Guest, the global business editor at The Economist makes the case that the single biggest threat to America’s status as an economic superpower is the growing backlash against immigration.

Citing the recent growth in scientific and innovative output from emerging markets such as China and India, Guest notes that in 1990, the “old” rich countries – North America, Europe and Japan – accounted for more than 95 percent of the world’s scientific research.  By 2007 that had fallen to 76 percent.  While the US is well-placed to capitalize on the growth in these and other emerging markets through cross-border investment and collaboration, immigration policy is getting in the way.  Guest notes:

Until recently, America’s technological prominence was based on a simple formula: The world’s best brains came to the United States…  Migrants make up about half of the workers in the United States with science or engineering qualifications, and accounted for two-thirds of the growth in that talent pool between 1995 and 2006. Half of the bosses of Silicon Valley start-ups in 2005 were migrants…

It’s an interesting observation with some real basis in fact.  Currently, foreign nationals in the US account for 70% of doctorates in electrical engineering and half the master’s degrees.  Alas many of them take that education back home with them.

It begs the question: is there a solution that meets the national security needs of the government while allowing foreign investment and foreign talent to prosper in the US?

In fact there is, but until recently it was too mired in bureaucracy to be truly effective.  In August of 2011, Secretary of Homeland Security Janet Napolitano and US Citizenship and Immigration Services (USCIS) Director Alejandro Mayorkas committed to making a change and announced a series of corrective actions to the EB-5 immigrant investor program, which is designed to give visas to prospective immigrants who plan to invest in new, job-creating commercial enterprises in the US.  The new enhancements to the program are meant to reduce inefficiencies in the old program through three key improvements:

• Accelerated and premium processing of “shovel-ready” cases

• Specialized intake teams to speed the visa application process

• Enhanced decision processes to facilitate interviews

These are all great steps to speeding a process that currently takes longer than it should due to a lack of resourcing and focus.  Investors are used to making investment decisions in weeks, and the six months and longer to that it traditionally took to clear the legal status of an investor’s source of funds was not practical.

But while the target goal of accelerated processing in two weeks is a good step, advancing EB-5 to the point where it truly lives up to its promise of job creation demands that more  be done.  There is still room to increase EB-5 application transparency, raise applicant confidence in the adjudication process and ultimately improve processing times while maintaining our county’s security.

Based on our experience in dealing with similar challenges in the commercial sector, we feel the key to improved operational efficiency in the EB-5 program is achieving uniformity of processes that are aided by technology.  For example, the process of accelerating processing for shovel-ready cases can be measurably improved with automated communication of status milestones as due diligence research uncovers potentially disconnected facts that may be related in non-intuitive ways. Likewise, specialized intake teams are another important investment for the program as they can improve efficiency by following a standardized approach to economic analysis and due diligence of a proposed investment prior to applicants filing petitions for visas related to the project.  Among the key measures we recommend as starting points to begin streamlining foreign investment while preserving national security are the following:

• Electronic Data Management: EB-5 applications are inherently data-heavy affairs; the only way to efficiently collect, track and adjudicate applications is through an electronic process flow that orchestrates the handling of sensitive data from initial input through review and storage in a consistent manner.

• Expert Due Diligence on Applicants’ Lawful Source of Funds: Research on the background profile, reputation, legal and regulatory history for all individuals (and their families) applying for citizenship under the program will ensure national security.

• Systematized Business Analysis: “Shovel Ready” is a subjective term at best.  In an efficient review process, each case would be evaluated against a standardized set of political, societal, economic and operational risks that could impact the proposed businesses’ financial and employment assumptions.

• Overseas Promotion: It does little good to have an investor citizenship program if foreign investors don’t know about it.  To date, countries such as the UK, New Zealand, Australia and Canada have a jump-start on promoting their own citizenship programs which are widely perceived to be less arduous than the US EB-5 program.

As many of the high-tech PhDs who are looking to invest in America can attest, the ability of highly choreographed technological processes to break down inefficiencies is virtually limitless.  Imagine what would be possible if that level of thinking were applied to the myriad of antiquated processes that are challenging opportunities for our country’s growth.

Entry filed under: Opinion. Tags: citizenship, compliance, david riker, eb5, FCPA, investment, overseas.