EB-5 transitions and DC move
May 9, 2013 14 Comments
Thanks to H. Ronald Klasko for his post yesterday on EB-5: What to Expect in the Coming Months. I’m particularly interested in these paragraphs, which provide an update on the EB-5 program office move (based on information from Rob Silvers at the AILA EB-5 conference in Miami on May 2):
Things are clearly changing, hopefully for the better. The transition of EB-5 adjudications from California to Washington is in progress. The new facility housing the EB-5 unit in Washington is open. Adjudicators of I-924s and EB-5 projects will be handled not by traditional CIS adjudicators but rather by newly hired economists. Some of the economists have already been hired, and some are being actively recruited. The DC unit, staffed by GS15 economists (very high level government employees) will first handle I-924s, then I 526s and then I-829s. For some period of time, the DC unit and the California Service Center EB-5 adjudicators will work concurrently. Eventually, the California Service Center will be phased out, and all of the applications will be handled by the EB-5 unit in Washington. This unit will be headed by Dan Renaud, Acting EB-5 Program Chief, and Robert Cox, the Acting EB-5 Deputy Chief.
The new EB-5 office in Washington will be staffed solely or mostly by new hires. The good news is that adjudications in the new office will be handled by economists rather than USCIS adjudicators and generally higher level economists than those previously hired into the EB-5 program. The bad news is that these new hires will be new to the EB-5 program, will have to be trained and likely will take some time to be completely up to speed. In my experience, new hires tend to be slower in making decisions and often wary to issue approvals until they are secure in their positions. Hopefully, this either will not occur or will be a short transition period. Also, new economists may have new positions on economic methodologies, which could be good or bad news.
For further detail on the new Washington DC office and other clarifications and updates provided by Ron Silvers at the AILA meeting, see the remainder of Ron Klasko’s update. See also the meeting report by Jennifer Hermansky on the EB-5 Insights blog.
I hesitate to comment on the EB-5 aspects included in the Senate’s comprehensive immigration reform bill (S. 744) currently under discussion, but encourage those of you with lobbying interests and suggestions for change to get involved. IIUSA posts regular updates. Senator Leahy this week proposed an amendment to the bill that would involve major changes for EB-5 — many aimed at fraud prevention. I have heard privately a number of astute suggestions for program improvements, and plan to feature them here for discussion.
EB-5 Updates 
USCIS is unwittingly moving towards killing the EB-5 Program with economists. Tenant occupancy, NAICs codes, etc. are all the issues brought by economists who don’t know the EB-5 realities.
We’ll see. I think that the NAICS code focus and tenant occupancy questions do involve valid issues and a laudable attempt to bring order and definition to the program. I’m just frustrated by haphazard and and non-transparent way that these issues have been addressed of late, and hope that the reorganization will result in better processes.
EB-5 realities? EB-5 realities can be found in the reg’s, plain and simple. Unfortunately, and I’ve mentioned this before on this blog, many of the early adjudicators (“Big” Joe Whalen, etc.) had a rudimentary understanding of the EB-5 reg’s. As a result, many business folk were able to get away with shady practices (like gerrymandering high unemployment areas[with the assistance of lackadaisical state/local government officials] and taking credit for jobs created by tenants) for quite some time.
Now USCIS is stuck trying to dig itself out of a massive hole because of the lack of forethought put forward at the outset. Add that to all the whiners out there crying that, “We’ve been doing this so long, it’s now unfair to stop us.” and we are in a genuine quagmire. When I say “we”, I mean the projects located in largely rural areas that can offer some genuine assistance to the community, not the projects put forward by the myriad of already wealthy developers who wish to build yet another strip mall with EB-5 investor funds.
I’ve had the opportunity to speak with and listen to many EB-5 experts. The only bit of noteworthy information I’ve ever gathered is that not one of them had actually read the EB-5 reg’s nor put any thought into the true intent of the EB-5 Program.
Stop thinking about how you are going to personally profit from the EB-5 Program and start thinking about the communities it originally intended to assist.
You make strong statements, and I’d like to know more about the detail and thinking behind them. Do you argue that Congress originally intended EB-5 to primarily assist rural communities? Can you give examples of EB-5 investment types that you consider worthy? Would you identify the specific regulations that you notice being disregarded? Do you think that it’s not appropriate for EB-5 to align with the profit motive of business people? Just curious…
EB-5 statutes and regs are written very liberally, so USCIS has lots of room for interpretation, but their interpretations are often at odds with the business realities. Case in point: NAICs codes were never required for RC designations under the EB-5 statutes and regs. Also, you cannot have EB-5 investments without providing incentives to both the RC operators and developers. Your focus on the “rural areas” seem misplaced, as that was not the sole purpose. If you go purely by EB-5 statutes and regs, many of restrictions imposed by USCIS, such as “material change” are ultra vires, you know that, don’t you?
You’re funny. However, I do appreciate you helping me make my point.
Intent to assist rural communities?
“TARGETED EMPLOYMENT AREA means an area which, at the time of investment, IS A RURAL AREA or an area which has experienced unemployment of at least 150 percent of the national average rate (emphasis added).” – 8 CFR § 204.6(e).
As to what has been disregarded? Well, I will repeat that the way people have gerrymandered high unemployment areas is an abomination. Further, we all know that many Regional Center’s were using redemption agreements to lure in investors for quite some time. This practice is explicitly prohibited here:
“Evidence of monies transferred or committed to be transferred to the new commercial enterprise in exchange for shares of stock (voting or nonvoting, common or preferred).Such
stock MAY NOT INCLUDE TERMS requiring the new commercial enterprise to redeem
it at the holder’s request.” – 8 CFR § 204.6(j)(2)(iv).
Further, the prohibition of redemption agreements was emphasized in ‘In re: Izummi’ (not reg’s, but a seminal case in the area) in both point #6:
“An alien may not enter into a redemption agreement with the new commercial enterprise
at any time prior to completing all of his cash payments under a promissory note. In no event
may the alien enter into a redemption agreement prior to the end of the two-year period of
conditional residence.”
and point #7:
“A redemption agreement between an alien investor and the new commercial enterprise
constitutes a debt arrangement and is prohibited under 8 C.F.R. § 204.6(e).”
I could go on about how guaranteed returns are prohibited too (How long did this practice go on before USCIS clamped down?), but my hope is that you and others read the reg’s and the leading cases and find the answers yourselves.
Lastly, no, I do not think it appropriate for EB-5 to align with the profit motive of business people. I do believe, however, that if businesses can make a profit while aligning with the true intention of the EB-5 Program, then that is acceptable. And, how could anything but the creation of jobs in areas most desperate for relief in this ongoing economic downturn not be THE primary intent of this program?
Just wait, the Regional Center Pilot Program will come to end, sooner rather than later. When unemployment isn’t a major concern of the media and the program’s continued existence comes up for a vote in Congress, it will be allowed to quietly fade away (the $1million dollar program will stay). Let’s hope those snake oil salespersons who are fully vested in making money via this program have other talents.
Rural Area does not necessarily mean High Unemployment Area. If Congress wants to, they should limit EB-5 investments to only “Rural Areas”, but your statement that bringing EB-5 investments to only Rural Areas is not correct. Your point about redemption, no one disputes, and almost all projects comply because USCIS is vigilant on this point. Businesses try to make money while complying with the law; their goal is not to comply with the law and then somehow end up making money. The real problem here is that USCIS has not made their policies clear, and they take too long for their adjudications.
Also, as long as Census Bureau classifies census tracts as geographical subareas, “gerrymandering” in itself is not prohibited. Congress can easily change by saying census tracts should not be considered geographical subareas. USCIS cannot change this because they would be in fact violating EB-5 law.
Your response is nonsensical. Where is it stated in my writing that a rural area = a high unemployment area? It does not. Pepperdine Law? Really? How about reading the reg and determining that the intent was to offer assistance to BOTH rural areas AND areas of high unemployment? Therefore, I am not incorrect in stating the intent was to assist rural areas.
If a business can’t make money other than by bastardizing a regulation (not a law), then maybe their time is best spent elsewhere.
Next time you spout out your initial reaction to what you read, you might want to think through your response (and reread what you read).
Your response is nonsensical because you are trying to make the true intent of the EB-5 Program to serve the Rural Area. Read what you wrote . If you stated that it was to serve both Rural Area and HUA, then there would be no argument. But that’s not what you wrote.
Actually, the EB-5 Regional Center is not to serve the Rural Area, HUA or any specific area. It’s to take into account indirect and induced job effects. TEA designation purpose is to attract EB-5 investment to either RA or HUA.
You obviously have no understanding of how business people work or what the EB-5 statutes say. You tell me where in the EB-5 statutes or regs say census tracts combination or tenant jobs are prohibited, and then we will talk about the law. You are imposing your interpretation of “true intent” on what the EB-5 statutes and regs actually say.
Billy Budd, I dare you to show me where in the EB-5 statutes and regs they prohibit a combination of census tracts and tenant jobs from being counted? Until you can show that to me in the EB-5 statutes and regs, your point is weak. Again, you will find that the EB-5 statutes and regs are written very liberally, and that you are imposing your own interpretation of “true intent” of the EB-5 Program. The true intent of the EB-5 Program is to help create jobs in every part of the United States by attracting foreign capital from relatively wealthy foreign individuals, and the purpose of the RC Program is to make it easier to meet the job creation requirement by adding indirect and induced jobs effects into the equation. There are many rural area based RC Program which have attracted EB-5 money to rural areas, such as Alabama, Vermont, South Dakota, etc. So, you want 100% of all EB-5 moneys to go into rural areas? If that’s what you want, there is a simple solution: Just say there needs to be a lot lower number of job creation for rural area based EB-5 projects. That will do the trick. But unless Congress changes the law, USCIS cannot do anything about it.
It’s great to have engaged people contributing comments, but how about less heat and more light, recalling that others are listening in and would like to learn from your insights. I wonder about your opinions specifically about the Regional Center track of EB-5, what Congress intended by introducing the concepts of “regional centers” and “indirect job creation” (http://www.uscis.gov/ilink/docView/PUBLAW/HTML/PUBLAW/0-0-0-7490.html), and what problems may have arisen as USCIS and the community have tried to realize those concepts. The RC program may effectively privilege urban investments because — practically — there’s more regional impact for the buck in an urban area. If you put a large new manufacturer in a rural area, it’s probable that most supplies will need to be purchased outside the region, a fair amount of employee spending will happen outside the region, and employee recruiting may even occur outside the region. If that manufacturer is in an urban area, it may practically have a more concentrated local impact. I don’t mention this to decry investment in rural areas, which is certainly encouraged by the TEA requirements, but observing what may a bias implicit in the economic development concepts behind the RC program. Speaking of “indirect job creation,” I do think there needs to be debate about that concept, which has come under fire since the 1990s. For example, see this NYT article: http://www.nytimes.com/2012/03/05/technology/apple-study-on-job-creation-spurs-an-economic-debate.html?_r=0
As you know, Billy Budd is the one who first brought “heat” to the discussion and has made some outlandish statements saying EB-5 experts have not read EB-5 statutes and regs, in addition to making unnecessarily remarks on a person named Joe Whalen who I don’t know personally although I have heard of him. So I am really curious where in the EB-5 statutes and regs he finds specific prohibitions against combining census tracts and counting tenant jobs.