Recent news that the Pennsylvania Turnpike Commission is looking to raise $200 million through a U.S. immigration program that gives foreign investors green cards for their investments has some questioning whether the deal gives immigrants easy access to permanent residency.

But immigration lawyers who work on these complex deals say it’s just the opposite, with the foreign investors taking the bulk of the risk and the real room for malfeasance found in the U.S. regional centers that serve as the middle man between foreign investors and U.S.-based entities looking for financing.

As EB-5 visas granted under the 21-year-old Immigrant Investor Program soar in popularity, they have not only garnered the attention of entities seeking cheaper methods of raising cash, but have also received a closer eye from regulators at the Securities and Exchange Commission, U.S. departments of Treasury and Homeland Security and the U.S. Citizenship and Immigration Services.

While closer scrutiny is being paid to these investments, immigration lawyers say it’s a win-win situation for all parties involved and typically done on the up-and-up.

"This is not a ‘buy a green card’ thing," said Jonathan Grode, practice director of Canadian-based Green and Spiegel’s U.S. subsidiary in Philadelphia. Grode also teaches business immigration law at Temple University’s Beasley School of Law.

Under the Immigrant Investor Program established in 1992, EB-5 regional centers can be approved to operate as a pseudo-lender and administrator of projects that promote economic growth and job creation in a certain region. These centers have to create business plans geared toward supporting projects in a certain industry and must be approved by the USCIS and undergo annual assessments for continued approval.

Private, and increasingly governmental entities, can create a business plan with the regional center to finance a certain project. The regional center can then market for foreign investors to invest in the project. The investment is typically $1 million per investor, or $500,000 if the investment is for a project in an underdeveloped area. The investor’s money is placed in an escrow account while awaiting USCIS approval for the investor to enter the country on a temporary two-year green card after background checks are done on the investor and source of the funding. Once approved, the money can be released to the regional center for loan to the third party.

In two years, the project must have created and sustained at least 10 jobs. If not, the investor could be out both his investment, which is done completely as an at-risk investment, and his green card. If the jobs are there, the investor gets a permanent visa.

Grode said this isn’t circumventing the normal process for foreigners to acquire green cards. In theory, Grode said, it’s a "spectacular" program because businesses and governmental agencies get money at subprime rates, regional centers make administrative and other fees, jobs are created in the United States and foreign nationals get residency.

"It’s a nice quid pro quo that the government is very fond of," Grode said.

Though the law is technically temporary, Grode said there has been a push to make it permanent in any immigration reform that is passed.

"The rub is that not all regional centers operate with the best of intentions," Grode noted. "There’s hundreds of these things that have popped up. It’s sort of the Wild West of immigration law."

Grode said immigration law is not thought to be very lucrative, but this program theoretically gives the ability for a regional center to create a bank with little oversight or regulation. He said foreign nationals have to know which centers are good and which are not.

Grode said he is happy to see that the Turnpike Commission is getting involved, because a government-backed project always carries more weight with investors.

While the USCIS has oversight of a project for several years and continued oversight of the economic development success of regional centers, there has not been much oversight of the financial components until more recently.

In February, the SEC charged an individual and two companies in Chicago for defrauding foreign investors through the defendants’ regional centers by telling the investors they were part of a unique building project that, as it turned out, didn’t have the proper permitting. In April, the USCIS and the SEC held a joint conference call to discuss what aspects of federal securities laws are implicated by the EB-5 program.

Min Suh, an immigration lawyer with Ogletree, Deakins, Nash, Smoak & Stewart in Philadelphia, said the interest in regional centers is shown in the numbers. Three or four years ago there were about 50, and now there are well over 200 across the country. Pennsylvania is home to some of the most active and well-known regional centers, such as the Philadelphia Industrial Development Corp. Regional Center, which is operated in conjunction with CanAm Enterprises, attorneys have said.

According to statistics from the USCIS on data available through fiscal year 2012, there were 11 regional centers in 2007 and 211 in 2012. H. Ronald Klasko, whose immigration firm Klasko, Rulon, Stock & Seltzer has handled some of the biggest EB-5 projects in the country, said the start of 2013 brought the biggest surge in new centers after 2012 saw a slowdown in government approval. He said there were upward of 50 new centers approved so far this year.

According to the USCIS statistics, there were 332 investor applications filed in 2005 with 179, or 53 percent, approved. In 2012, there were 6,041 investor applications with 3,677, or 79 percent, approved. Grode said there is still more demand for green cards than there are projects.

There is one center in the United States that processes the EB-5 applications for both regional centers and investors. Suh said they are usually the better immigration officers who are a bit more sophisticated. But the USCIS is gearing up to make these reviews more comprehensive. Rather than a single immigration officer reviewing an application, the office is looking to a group review that would include economists, business people and someone with an SEC or securities background.

Klasko said these are the most complicated transactions he has ever worked on. He said he typically works with economists, securities lawyers, business attorneys and banks when putting together business plans for regional centers or loan agreements between the regional center and borrower.

"The SEC is still in the process of figuring its policies out on this," Klasko said.

Prior to the SEC’s involvement in the Chicago case, the commission really wasn’t heard from in the EB-5 space, he said. But for Klasko, the Chicago case is proof that the system works and fraudulent activity isn’t tolerated.

Klasko said it’s the job of business professionals, securities lawyers and to some extent immigration attorneys to ensure they aren’t involved in a fraudulent transaction.

Grode said there is a shift afoot in the regulatory climate surrounding the EB-5 program.

Aside from any concern over fraud, which on the whole the attorneys downplayed, there are also time constraints involved with EB-5 investments.

According to reports in The Philadelphia Inquirer, the Pennsylvania Turnpike Commission isn’t going to an existing regional center such as the PIDC, but will rather utilize one that is now forming and hoping to get USCIS approval as a regional center — the Delaware Valley Regional Center. And according to the Inquirer‘s report, because the commission is not a newly formed, for-profit enterprise as required by the EB-5 program, the DVRC has created the limited partnership DVRC Pennsylvania Turnpike L.P. The commission signed a $200 million loan agreement with the limited partnership, according to the report.

Klasko said there are certainly advantages to utilizing a regional center that is tied to your organization, giving the borrower more control. But he said there are significant disadvantages to using a new regional center as opposed to a known entity — mainly timing. It could take a year from the time the regional center files for approval with the USCIS until it is approved. Only then can it start marketing for investors who each individually have to be approved. The approval process for the individual investors can take several months as well, Klasko said.

Under the best-case scenario, money will become available to the borrower within a year-and-a-half of starting the process. Klasko said borrowers have to be sure they can wait that long or that they can get bridge financing in the interim.

Turnpike Commission spokesman Carl DeFebo said the commission is not involved in the creation of the regional center or the LLC. He said the DVRC was already in the works when the commission first got in touch with the entity.

DeFebo said the commission was able to use this regional center because the commission doesn’t need the financing right away. He said the commission typically works on long-term projects that require long-term financing and the DVRC was willing to enter a loan agreement that extended beyond the typical five-year agreements seen in EB-5 deals.

DeFebo said the commission views this as a pilot project to test whether EB-5 projects are a good source of funding. He said the commission could save about $35 million financing the project this way when compared to the cost of traditional bond financing.

Gina Passarella can be contacted at 215-557-2494 or at gpassarella@alm.com. Follow her on Twitter @GPassarellaTLI.