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

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)