The basics: investment+job creation (draft policy memo comment)

Reading the new draft EB-5 policy memo Guidance on the Job Creation Requirement and Sustainment of the Investment for EB-5 Adjudication of Form I-526 and Form I-829, I see why USCIS delayed the release for a year. The memo has good and bad points in the details, but I’ll leave those for the experts and just point out the big issue: that the memo is fundamentally out of sync with the basic logic of the EB-5 program.

The foundation and organizing principle of the EB-5 program is the nexus between investment and job creation. A petitioner doesn’t get EB-5 benefits just by committing $1,000,000 or just by creating 10+ jobs. Rather, EB-5 eligibility arises at the intersection between investment and job creation – when capital is made available for and results in job creation. Eligibility requirements for investment and job creation are intimately intertwined in the EB-5 regulations and precedent decisions: a qualifying investment is one that’s linked to qualifying job creation, and vice versa.

Astonishingly, the new draft policy memo decouples investment and job creation, and treats them without coherence as separate eligibility grounds independently affected by visa retrogression.

The memo was written to address the retrogression situation: the fact that unavailability of visas effectively adds years to the theoretical 2.5-year window that’s between an investor’s I-526 and I-829 (and accordingly to the window between investment and investor exit). We want the memo to tell us how that expanded timeframe affects EB-5 eligibility requirements.

The draft memo’s answer is that USCIS will not require jobs resulting from the investment to still be in existence at I-829, provided that they were created and sustained for 2+ years, but that USCIS will require the investment to be still deployed at I-829, even if it was sustained for 2+ years and resulted in the qualifying job creation. If the original business plan was accomplished before investors reach I-829, the draft memo says, then the new commercial enterprise must re-deploy the capital in a new “at risk” activity throughout the petitioner’s permanent residence period. (Note that “at risk” in EB-5-world means actually invested and not just promised (per 8 CFR 204.6(j)(2)), made available for purposes of job creation (per Matter of Izummi) and associated with the actual undertaking of business activity (per Matter of Ho).)

The new draft memo doesn’t just mean that investors can’t be paid back personally before they reach I-829 (we expected that), but that an EB-5-funded loan can’t be repaid to the new commercial enterprise unless the NCE promptly turns around and makes a new loan to another project – even though the new loan would have no nexus with the qualifying job creation. The memo states that “to the extent that all or some portion of the new commercial enterprise’s claim against the job-creating entity is repaid to the new commercial enterprise during the sustainment period, the new commercial enterprise must continue to deploy such repaid capital in an ‘at risk’ activity for the remainder of the sustainment period” and “the capital will not be considered ‘at risk’ if it is merely being held in the new commercial enterprise’s bank account or an escrow account during the sustainment period.”

Project companies will not complain about this draft memo because a business generally wants to redeploy capital and not let it sit around, and even better when that redeployment has no job creation or other EB-5 eligibility strings attached plus the investor exit can be unspecified upfront and extended indefinitely. But I don’t like to see theoretical mishmash, and I also feel for investors. If this draft becomes policy, then EB-5 offerings will have to say here is the project you’re investing in, but be aware that your funds may be redeployed in an unspecified number of other future projects that you can’t review now because we don’t know now what they will be – we just know that your capital is required to stay in circulation even after this business plan is accomplished and after your job creation requirements have been met until your immigration paperwork finally grinds to its conclusion.