7/28 Meeting Notes (RC site visits & audits, I-829 interviews, redeployment), New AAO Decisions (RC geography, indebtedness)

July 28, 2016 2 Comments

7/28 Stakeholder Meeting

If you would like to review today’s USCIS EB-5 stakeholder engagement, best talk to someone who attended the meeting in person in Miami. I’ve uploaded my recording as usual, but much of it is barely audible. (Updates: USCIS emailed on 7/29 to apologize for the sound quality for phone participants, and published prepared remarks from Colucci and Mackenzie on 8/16 at the above link. Also, Cletus Weber has posted a summary more comprehensive than mine on the IIUSA blog.) Here are points of significance that I think I heard:

  • New Policy: IPO has a new Policy and Performance Division responsible for drafting policy. They’ve been working on revised EB-5 forms (i.e. revised Form I-526 currently out for comment) and on chapters on EB-5 for the in-progress USCIS Policy Manual. Eagerly-awaited policy on the requirement to sustain investment through the period of conditional residence (including the issues of redeployment and what happens to investors in case of regional center termination) will be part of these forthcoming policy manual chapters or amendments to the manual. USCIS will send this policy out in draft form for comment before finalizing it. We can expect to see the draft “in the near future” but “not tomorrow.” Until then, we can look back to the August 2015 draft memo to “see what we’re thinking,” but may also expect changes based on public feedback to that draft and IPO’s consultation with securities professionals.
  • New Regulations: No update on when exactly we may see new regulations published for comment.
  • Compliance: IPO Chief Colucci reports that his office is in contact with Immigration and Customs Enforcement (ICE) and the SEC at least weekly, and again encouraged the public to submit tips on any suspected EB-5-related malfeasance. Contact IPO through the website (https://www.uscis.gov/eb-5) or call the Fraud Detection and National Security (FDNS) team directly at (202) 357-9326.
  • Regional Center Site Visits and Audits: IPO provided this information:
    • Site visits will generally be at the job-creating enterprise site, unannounced, performed by local FDNS staff, and mostly observational (not necessarily interacting with people on site). Their purpose will be to assess whether what’s happening at the JCE site is consistent with what was proposed/represented to IPO.
    • Regional center audits will generally be at the regional center’s office, announced (by letter and by telephone call to the RC principal), involve interaction with management and staff, and may last a week or more. Their purpose is to assess RC compliance with applicable laws and regulations, and they will be conducted in accordance with generally accepted goverment audit standards.
  • I-829 Interviews: IPO is in a beta/testing phase with I-829 interviews, and developing a strategy for them in response to last year’s GAO report recommendations. Interviewees are currently selected at random. Interviews are conducted by video. It is understood that the petitioner may not have exhaustive info about the investment ready to hand, and petitioners will have opportunity to supplement the record in writing after the interview.
  • Processing: IPO has 25,000+ petitions pending. Premium processing continues unlikely as the Congressionally-mandated fee limit is low enough that nearly all EB-5 applicants could be expected to take advantage of PP, were it offered to them. Meanwhile, prospective investors are apparently starting to wonder whether even a lifetime is sufficient time to complete the EB-5 process. IPO addressed a number of questions on the topic of “what happens if the petitioner dies before I-829 is adjudicated” (short answer: case-by-case determination) and “can someone under 18 apply as the primary petitioner” (short answer: yes and no — not prohibited under the regs but IPO foresees practical issues such as capacity to enter into contracts that are binding on the petitioner).
  • Other items:
    • The Commerce Department study commissioned by IPO to assess the EB-5 program’s economic impact is “in the final stages of review” and will be released “in the next couple weeks.” The study covers FY2012-2013, so old news now, but its impact assessments are reportedly higher than estimates for the same period by industry groups (who had less data to work with).
    • Congress has approved funds for IPO to implement a new data system (hooray!) that will allow for better tracking.
    • I won’t bother repeating what Mr. Lyons said about feasibility studies (the obvious – IPO doesn’t require one by default, but may ask for one if the project’s feasibility isn’t established by other means) and pro forma financials (the obvious – that a business plan had better include them). I do appreciate clever Mr. Lawler’s insight into what would encourage Mr. Lyons to repeat himself so we all could hear.
    • Mr. Colucci emphasized that due diligence by regional centers is essential to the integrity of the EB-5 program, and that IPO is focused on regional center responsibility for monitoring and oversight of projects.
    • IPO is translating some EB-5 web content.

New I-924 AAO Decision: Geographic Area

Matter of R-T-E-R-C-, LLC (JUL152016_01K1610) addresses a grey area for regional center designation – how to justify a request for a certain geographic area. The statute and regs say that a regional center is to be designated for a “limited geographic area,” but naturally applicants want to claim the largest area possible. The common way to accomplish this goal, especially since the May 2013 policy memo, is to formulate a hypothetical project (often flag hotels, because they are easy to write up and pack a fairly wide economic impact) and then hypothetically locate that project at strategically chosen locations throughout the desired geography – strategically chosen so that the aggregate impact areas of each project essentially blanket the desired geography. USCIS has approved many RC applications and amendment requests that use this method, but apparently the amendment request in JUL152016_01K1610 came before a new adjudicator who didn’t feel right about designating a huge geographic area (all of Texas and part of New Mexico) just based on seven hypothetical projects. AAO agreed that “it is particularly challenging to define the geographical scope for a regional center that has only proposed hypothetical projects,”  but AAO was compelled by the applicant’s arguments that commuting patterns show that the hypothetical projects would, if real, affect 249 of Texas’ 254 counties, and that worker spending habits and supply chain would also contribute to state-wide impact. AAO also found that “while the Form 1-924 instructions require that the geographic area be contiguous, there is no requirement for an applicant to show contiguous – for example, county-by-county – economic growth throughout the requested geographical area.” The appeal was sustained.

New I-526 AAO Decisions: Source of Funds

The latest AAO decisions on I-526 appeals (JUL072016_01B7203, JUL072016_02B7203, JUL112016_01B7203) continue to press the point that indebtedness only counts as capital placed at risk if secured by the petitioner’s own assets. JUL072016_02B7203 finds that USCIS remarks on indebtedness at the 4/22/2015 stakeholder meeting are a correct reading of relevant statutory and regulatory requirements. JUL112016_01B7203 further argues that remarks at that meeting were not a new rule or new policy, instituted without due procedure, but were just clarifying existing requirements. JUL112016_01B7203 adds a reminder that capital is not at risk if the NCE is overcapitalized (doesn’t show a use for the full amount of investment) and fails to present sufficient evidence of the actual undertaking of business activity (just entering into a lease is insufficient).

Regional Center List Changes
Additions to the USCIS Regional Center List, 07/05/2016 to 07/27/2016.

  • 5 Starr Regional Center LLC [ID1504052589] (Oklahoma)
  • Advantage America Southern California Regional Center, LLC (California): www.aaeb5.com
  • AmerInvest Regional Center East, LLC (Connecticut, New York)
  • AmerInvest Regional Center West, LLC (California)
  • CV West Coast Regional Center, LLC (California)
  • Golden State Northern California Agriculture Development, LLC (California)
  • One World Development Fund, Inc. (Texas): www.oneworldrc.com

New Terminations:

  • US EB5 New York City Regional Center (Connecticut, New Jersey, New York, Pennsylvania) Terminated 7/13/2016
  • Harris Real Estate Fund LLC (former name U.S. Federal Investment Immigration Fund, LLC) (Arizona) Terminated 7/13/2016
  • California Regional Center, LLC (California) Terminated 7/12/2016
  • Harris Investment Immigration Fund, LLC (California) Terminated 7/13/2016

Filed under EB-5 Events, EB-5 Law & Policy, New RC, Updates from USCIS

RC designation: use it or lose it (AAO termination decisions)

July 13, 2016 22 Comments

What is an EB-5 regional center? What kind of tool is the regional center program meant to be? These questions do not have clear answers. We can see USCIS’s uncertainty in its continually changing template for regional center designation letters, with each iteration giving a slightly different statement of what’s being designated exactly and what responsibilities are inherent in designation. AAO challenged USCIS’s fuzzy standards for approving or denying regional center applications in the I-924 denial decision discussed in my previous post (Matter of A-C-R-C). And now the ambiguity around what defines a regional center in the first place is spilling into ambiguity about how a regional center lives or dies. USCIS has terminated 62 regional centers, mostly within the last year. Two centers that appealed their terminations give us insight into USCIS thinking about the nature of regional center designation (see the 2016 Termination appeals folder on the USCIS website).

I’ll focus on JUN202016_01K2610 Matter of A-L-V- LLC (presumably referring to American Life Ventures Everett, LLC, which was terminated in March 2015) because it’s such a clean case. USCIS and the AAO grant that A-L-V pursued multiple potential EB-5 projects over the years, filed I-924A on time every year, and was not involved in any kind of trouble, but nevertheless deserved termination based on failure to promote economic growth. A-L-V (which was designated in 2008) argued that potential projects had not been developed as actual projects due to and out respect for economic conditions, that the regulations do not expressly state that a regional center must be ready to sponsor a project within a particular timeframe and provide marketing related information, and furthermore that its efforts in actively and continuously pursuing EB-5 projects demonstrate that it is promoting economic growth. Neither USCIS nor AAO accepted these arguments. For them, the bottom line was that A-L-V had not raised EB-5 investment and was not actively engaged in soliciting investors (and thus that NCEs and JCEs has not been formed and EB-5 investment had not created jobs) for eight years. A-L-V was not given credit for prudence or high standards in taking time to choose viable and appropriate projects before pursuing EB-5 offerings.

The following paragraphs are copied in both the 2016 termination decisions, which makes me think that they reflect a formal statement from USCIS that deserves careful attention.

The regulation at 8 C.F.R. § 204.6(e) defines a regional center as “any economic unit, public or private, which is involved with the promotion of economic growth, including increased export sales, improved regional productivity, job creation, and increased domestic capital investment.” In order for the regional center to demonstrate such economic growth, it “must provide updated information to demonstrate the center is continuing to promote economic growth, improved regional productivity, job creation, or increased domestic capital investment in the approved geographic area … on an annual basis,” through the filing of its annual Form I-924A. USCIS Policy Memorandum PM-602-0083, supra, at 23; 8 C.F.R. § 204.6(m)(6). The phrase “continuing to promote economic growth” indicates that the regional center has previously promoted economic growth and is presently doing so. In determining whether the regional center has promoted economic growth and is continuing to do so, several factors should be collectively considered. These aspects include the amount of aggregate immigrant capital and aggregate direct and indirect job creation or preservation; the number of industries that have been the focus of immigrant investment capital investments; the total new commercial enterprises (NCEs) or job creating enterprises (JCEs); and the quantity of Forms 1-526, Immigrant Petition by Alien Entrepreneur, and Forms l-829, Petition by Entrepreneur to Remove Conditions, that have been filed reflecting capital investments sponsored by the Applicant.

The EB-5 Program provides for flexibility in the types and amounts of capital that can be invested, the types of commercial enterprises into which the capital can be invested, and how the resulting jobs can be created. This flexibility serves the promotion of investment and job creation and recognizes the dynamics of the business world in which the EB-5 Program exists. USCIS Policy Memorandum PM-602-0083, supra, at 27. Application of this flexibility will vary based on circumstances. For example, it is reasonable to provide greater flexibility to a regional center with a more recent USCIS designation whereas a regional center with a longer period of designation that has not shown any economic growth to the geographic area, may receive less flexibility. In addition; the regional center’s progress in developing actual projects should be taken into account, including the steps taken to identity and pursue developmental projects, how the projects have progressed in the pipeline, and the likelihood of those projects promoting economic growth in the immediate future. Moreover, USCIS may consider any reasonable, temporary delays, such as natural disasters or litigation, which may have prevented the regional center from promoting economic growth in a timely manner, and any alternative plans or actions taken as a result of unexpected delays. This flexibility, however, is not an open-ended allowance in which the regional center can indefinitely explore potential projects or remain stagnant on either a hypothetical or actual plan.

Let’s think about the answer to the question “What is an EB-5 regional center?” that’s implied in the A-L-V termination and this statement. The answer I’m getting is: “A regional center is an entity engaged in raising EB-5 capital and developing EB-5 projects.” This definition appears to protect regional centers with an active EB-5 offering, and also regional centers that are not shy about promoting EB-5 to investors despite not yet having a viable project. This definition threatens entities who applied for regional center designation in order to have EB-5 available as one tool in the toolkit, while also using other economic development and financing tools. Indeed two of the most recent regional center terminations were of economic development agencies that appear to be reputable and active in promoting economic growth generally. But I guess they did not sponsor an EB-5 project within the timeframe that USCIS considered necessary to maintain regional center designation. This aggressive “use it or lose it” stance is counterproductive. Why wouldn’t we want public agencies and other virtuous parties to be able to treat regional center EB-5 as one of several economic development and financing tools – something to have on hand and ready to use if and when the need arises, although EB-5 is only the right tool in select cases, and would be used only occasionally? It’s not as if the designation taken away from Little City Economic Development Corporation opens a new place for someone else – so why revoke it?  I guess that USCIS is panicking because ill-defined designation standards have produced a roster of 800+ regional centers of wildly varying character and motivation, and now it’s faced with the challenge of culling the crowd.  Culling may be necessary, but something’s not right when public agencies and active but over-prudent RCs are among the first victims. (For more discussion, see the comments.)

UPDATE: I recommend Joseph Whalen’s Position Paper Presented to IPO on RC Termination.

Filed under EB-5 Law & Policy, Updates from USCIS

New Regs, TEAs, RC Audits, RC Designation AAO, RC List Changes

July 7, 2016 1 Comment

New EB-5 Regulations Update
In testifying before the June 30, 2016 Senate Judiciary Committee hearing on oversight of Homeland Security Operations, DHS Secretary Jeh Johnson briefly commented on forthcoming EB-5 regulations. To quote from the exchange at about hour 2:25 of the hearing (video linked above):

Senator Grassley to Secretary Johnson: You and I have had a few discussions about the EB-5 program and I thank you. At least two occasions we’ve had long discussions about that, so thank you. I know you share my concerns about the program. I appreciate the fact that you are working to issue regulations that mirror reforms that Chairman Goodlatte, Senator Leahy, Congressman Conyers, and I have been pushing. Will the regulations you planned roll out soon, and finally do away with gerrymandering to prevent regional centers from using an unlimited number of census tracts to build in affluent areas even though they are not high unemployment areas as the law envisions?

Secretary Johnson: Limiting gerrymandering was one of the changes that we are developing, consistent with your recommendations, sir. And as I think we discussed the other day, we intend to put these changes out for notice and comment, I think in November – as soon as November. That is on the list, yes sir.

That “I think” and “as soon as” don’t sound very confident, but it’s nice to see a possible date mentioned.

01/11/2017 Update: USCIS published an Advance Notice of Proposed Rulemaking  “EB-5 Immigrant Investor Regional Center Program” (Docket No. USCIS-2016-0008)  and Notice of Proposed Rule-making EB-5 Investor Program Modernization (DHS Docket No. USCIS 2016-0006).

Targeted Employment Area Debate
Speaking of targeted employment areas, the debate on this issue has taken an intriguing turn. EB-5 industry groups have thought of a way to make concessions while removing the sting from concessions, and have proposed accepting more limiting TEA definitions while at the same time closing the difference between TEA and non-TEA investment amounts. Here’s how the logic looks:

  • TEA definition restrictive to needy areas + substantial monetary incentive to invest in a TEA = substantial incentive to invest in needy areas (This is the theory behind the TEA concept)
  • Loose TEA definition that can encompass prosperous areas + substantial monetary incentive to invest in a TEA = little incentive to invest in needy areas, and an extra incentive for investment in prosperous areas (This is how Senator Grassley and other critics perceive current practice)
  • TEA definition restrictive to needy areas + minor monetary incentive to invest in a TEA = minor incentive to invest in needy areas, and little competition to the natural advantages of prosperous areas (This is the compromise being proposed by industry groups – conceding on TEA definitions while effectively protecting the status quo by changing the monetary incentive variable.)

I’ll be interested to see whether any TEA critics take the industry’s proposed compromise seriously. Can we count on Senator Grassley to be so focused on gerrymandering that he’ll be satisfied with concessions on that point and overlook the other part of the TEA incentive equation? Will he be impressed by IIUSA’s map of sites that would be privileged under its virtuously restrictive proposed TEA parameters, and not consider that definitions are irrelevant if investment levels erode the advantage of being a TEA? (IIUSA leadership suggests $700,000 for non TEAs $600,000 for TEAs which would narrow the gap to insignificance and also – accounting for inflation — make both TEA and non-TEA investments cheaper than they were in 1990, when the $1,000,000/$500,000 thresholds were set.) If there has to be change at all, the industry proposal is the kind of change that successful regional centers and EB-5 investors would naturally like to see.

Regional Center Audits
Joseph Whalen has pointed out a job posting on USAJobs.gov that provides insight into what USCIS plans for its regional center auditors to do. IPO is looking to hire people with accounting, business, and legal background and experience to “conduct audits of regional centers and associated entities; provide written reports to support an agency action/adjudication; and utilize audit findings to conduct statistical analysis to develop risk mitigation strategies.” The listed duties focus on financial auditing and analysis of financial documentation.

Regional Center AAO Decision
I’m late in commenting on this year’s first AAO decision on an I-924 application (APR282016_01K1610 Matter of A-C-R-C-, LLC), but the case is worth reviewing for people interested in regional center application content requirements. The case discusses a regional center application based on actual and hypothetical projects, and addresses several points of ambiguity: (1) How much evidence is needed to qualify an actual project in a regional center application? (2) If an actual project plan has deficiencies, can it be modified to cure the deficiencies or removed from the application without triggering a material change problem? (3) If a hypothetical plan has deficiencies, can it still form a basis for approving a regional center application? In denying the application, USCIS apparently gave or implied the following answers (1) a lot (including evidence such as feasibility study, market study, and research citations); (2) no; (3) yes. In reviewing the appeal, the AAO sends the case back to USCIS to further explain or revisit its determinations.

I’m particularly interested in the hypothetical plan issue. In Matter of A-C-R-C-, LLC, USCIS identified a few deficiencies in the hypothetical business plan and economic analysis (specifically in the data cited and in the estimated timeline), but then sidelines these deficiencies as irrelevant, since the hypothetical projects would not be receiving deference anyway. But can the quality of hypothetical analysis be disregarded, if a regional center can be designated based on hypothetical projects? (In 2014, 65% of initial I-924 approvals were based on hypothetical projects only, and I expect to find the 2015/2016 average even higher.) I hope that USCIS rethinks this issue in forthcoming policy/regulations, because the EB-5 community does not benefit from a flood of new regional centers that were not necessarily required to present reasonable and credible proposals for how they might deploy EB-5 investment. We don’t want the bad old days of requiring all I-924 projects to be so-called shovel-ready (that’s not realistic considering year+ processing times, and not in line with the base requirement for regional center applications to present “a general proposal, for the promotion of economic growth”). But even projects in the hypothetical planning stage can and should be held to standards of credibility and reasonableness, and have a bar higher than that set in the May 2013 EB-5 Policy Memo (which defined “hypothetical” simply as “a project proposal that is not supported by a Matter of Ho compliant business plan.”). I think of Pacific Proton Therapy Regional Center, which was initially designated in 2012 based on a hypothetical plan. Four years later the SEC is bringing charges, having discovered that the principals raised and spent quite a bit of money while their project never did become any more than hypothetical. Perhaps USCIS should have pressed for more evidence upfront that the applicants really had the connections and resources and a viable game plan to make their ambitious project possible to realize.

For those who like to see processing time case studies, here is the history for Matter of A-C-R-C-, LLC: Form I-924 filed in July 2013, USCIS issues RFE in July 2014, applicant responds to RFE in October 2014, USCIS issues notice of intent to deny in April 2015, applicant responds to NOID in May 2015, USCIS denies application in August 2015, AAO remands application to USCIS in April 2016.

RC List Changes
Additions to the USCIS Regional Center List, 06/10/2016 to 07/05/2016.

  • American Lending Center Colorado Regional Center, LLC (Colorado): usa-rc.com
  • American Lending Center Virginia Regional Center, LLC (District of Columbia, Virginia): usa-rc.com
  • Benefield California Regional Center, LLC (California)
  • George Washington Immigration Group, LLC (Connecticut, New Jersey, New York)
  • HS Regional Center, LLC (California)
  • Huana Group (U.S.), Inc. (California)
  • New Genesis Gulf South Regional Center, LLC (Louisiana, Mississippi)
  • SAA Cedisus EB-5 Projects – SW Indiana Regional Center, LLC (Indiana): saacedisus.com
  • San Diego EB-5 Regional Center (California): sdeb5.com
  • Texas Capital Advisors Regional Center (“TCARC”) (Texas)
  • TriHaven Investment Group Southern California (California)
  • Western Energy Regional Center (Oklahoma): wercregionalcenter.com

Terminations:

  • Washington Development Regional Center (Washington) Terminated 6/17/2016
  • American Gateway Investments, LLC (New Jersey) Terminated 6/7/2016
  • The Lawrence Economic Development Corporation Terminated 6/6/2016(Ohio)

Filed under EB-5 Law & Policy, New RC, Updates from USCIS