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.