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.
EB-5 Updates 
I think most folks know how I see the role of the Regional Center but if not, see this item I posted in early Feb. 2011 @ http://www.slideshare.net/BigJoe5/proper-consideration-of-form-i-924 and this item from August 2012: http://www.slideshare.net/BigJoe5/further-discussion-of-regional-center-designation-as-licensure and this one from July 2012; http://www.slideshare.net/BigJoe5/role-of-the-regional-center-in-eb5
Thanks! You are the odd man who has worked to clarify definitions and requirements, and I look forward to your forthcoming article on the language in these recent terminations.
How did ya’ know? Have you been reading my mind again?
Joe your insight is helpful and Suzanne your writing is so clear. One terminated RC is from 2008 and the other is from 2009. The critical question is how much time does an RC have to get a project up and running? It’s unlikely we going to get a bright line answer but we do need more guidance as it can take years to get some projects up and running.
Bernie,
I think that if an Applicant does not have anything in-the-works or clearly in the short term foreseeable future, then an application for RC designation is premature. So, if a “No Deference RC” based solely on hypotheticals stagnates for several years then, they have to bear the burden of their mistake of prematurely filing.
Designation alone does allow the RC to solicit EB-5 funds and this can be a weakness in the system that can be misused for fraudulent purposes. I think that good track records for honesty will buy time for newer RCs sponsored by known entities such as American Life but “unknowns” would be re-examined sooner.
I agree with both of you that time is a key issue. But Joe, must RC designation essentially mean “right and responsibility to be sponsoring an RC project” (naturally implying time pressure) or could it mean “right to have RC EB-5 available as a tool, and be prepared to use it well when/if opportunity arises” (without an implicit ASAP requirement)? I’m thinking about the economic development agency example particularly, since that kind of entity could benefit from and potentially make good use of the program as a tool, but likely couldn’t guarantee a stream of projects seeking sponsorship or a partner project out of the gate. (Since it’s already too late to file I-924 when one has opportunities in the short term. Few proposals have the shelf life to be both in-the-works before the application starts and still around to be actually developed by the time the application is approved.) I dissuade cities and public agencies that call me from considering the RC program because I’ve gathered it is defined/designed to work for project developers and not as a development tool for people like them, but does it have to be that way?
Suzanne,
In my opinionated opinion, the RC Applicant needs to “do something ” with the RC Designation in short order, at least once, soon after receiving designation.
Therefore, until the RC Applicant is in a realistic position to sponsor a project within a reasonable time, they should not clog the adjudication machine.
AFTER actually doing something with the Designation, they would be worthy of longer stretches of minimal activity.
If you could draw a bright line, what would it be? “Subscribe a minimum of X investors within Y years of designation” or something like that? There are a lot of RCs out there currently “doing something” in the sense that A-L-V was doing something.
Unfortunately, and you likely know my what my answer will be; “It’s just not that simple.”
There can be no “bright line”.
The decision to grant, deny, or terminate “Formal” RC Designation is subjective and relativistic, but must meet the “reasonable person” standard for acceptance.
Credibility is very fact-specific and based on the evidence presented. Loss of RC Designation due to what amounts to a “vote of no confidence” or “loss of credibility” must meet that same standard.
I decided to terminate a Regional Center when I first started working in EB-5 at USCIS-HQ because there had been nothing except “endless evaluation of a project” for 12 years.
In the end, the RC Principal was allowed to “withdraw” from the program instead of being formally terminated.
I look forward to hearing how Matter of A-L-V stands up to your reasonable person standard 🙂 I still think that regional centers (and even more, potential applicants) need more clarity on the responsibilities inherent in regional center designation. Not necessarily on how the decision process works, but what the requirements even are. The paragraphs I quote above are the clearest statement I’ve ever seen on the “promotion of economic growth” requirement, and even that’s just hidden away in non-precedent decisions. And if USCIS is operating on an unwritten guideline to start threatening RC designation after two or three I-924As with no investors, for example, people with long-lead-time projects would like to know that in advance.
There you go–reading my mind again. I’ve been working on a piece since I stumbled across the latest terminations. Be patient.
You have to have a long lead time project now. The time is takes for the USCIS to get it together and approve/deny applications has forced that on us. Also, all of this is only speculation, all of us operate on our best guess as to how the USCIS will actually adjudicate issues. As an owner of multiple, funded RCs, my best guess is as good as any attorney out there who’s best guess is as good as Suzanne’s who’s best guess is as good as Joe’s who’s best guess is as good as the USCIS adjudicator on any given day. It’s an incredibly skewed system. Example…one Adjudicator said Michigan and Wisconsin are contiguous…another said no. It needs serious reform.
After reading the AAO decision on ALV is a good one. I would dare say that the vast majority of construction based projects would fall in this category. They don’t create permanent jobs. They don’t have a continuing revenue stream that keeps jobs going. It’s a farce that the USCIS continues to allow these projects in when real businesses with real job creation are suffering. Mine are going well, but I see others struggle so much against the tide.
I understand your point about permanency, though in fact developers are real businesses and jobs filled by construction workers are real jobs. Also AAO didn’t terminate ALV for doing real estate projects, but for not doing them.
That’s because they’re not valid job creation methods. I don’t care what type of facility, you’re building, it doesn’t take 2 years to build anything anymore. Example, a hotel. If that hotel isn’t up in 12-14 months, it’s going to lose money. I’ve done the numbers…I’ve built big projects outside of EB5. They’re misrepresenting and getting away with their actual job creation, especially since T/O isn’t allowed.
I’m getting nervous about all of this misinformation appearing on my pure blog 🙂 When I write a business plan for a project claiming 2+ year construction timeline I look up actual schedules for recently-completed projects of similar size in the local area (media reports and Wikipedia entries for buildings may have this info, or I go for planning department info on permit and CO dates if necessary). I go through this tedious process because USCIS will issue an RFE if a 2+ year schedule is just claimed, not supported as reasonable. And if you go through this same process, you can assemble your own list of facilities that have taken 2+ years to build, even in the 21st century. Of course some players will try to cheat, but it’s not everyone and it’s not that easy.
The purpose of EB-5 is to create jobs and stimulate the economy. If the RC is not spearheading projects that are creating jobs and contributing to the economy, then it is not meeting the requirement of promoting economic growth. Those RCs should be terminated. USCIS should be terminating a lot more.
How much “dead weight” can USCIS effectively oversee? If we have 850 Approved Regional Centers but only 50 to 100 that are Active with alien investors and with projects that have “broken ground”, how much leeway are the Inactive RCs supposed to get? How much dead weight is too much? A glut of Inactive RCs eat up IPO and FDNS resources which increases processing times, increases fees and other costs, and increases opportunity for fraud. Again, how much dead weight can this Program absorb safely?
These are good questions. I think that we have so many RCs because of extremely long USCIS processing times that encourage/force people to file applications speculatively in advance, just in case (because once one has an active partner or actual project it’s often too late to seek designation). But if all the speculative and presently inactive RCs are indeed eating up IPO resources, then this puts more pressure on processing times and exacerbates that problem that helped create the problem to begin with. Sigh….
In adding to whatever cutting may be necessary, IPO should establish a dignified path to voluntary exit for RCs who realize that they’re not going to be using EB-5 any time soon, but don’t want the indignity of being terminated. Even better if such RCs could get on some list that would let them reestablish their active designation in the future, if needed, with a process less cumbersome, timeconsuming, and expensive than the initial designation process.
I have seen over a dozen RC termination letters this year, and they seem to give about 3 years of no activity (i.e., no I-526 filings) before they issue a Notice of Intent to Terminate. I think (but do not know for sure as have not seen any USCIS responses), they would listen to evidence showing activity and imminent investment/job creation (i.e, the project documents are done, property purchased, agreements signed, permits obtained, marketing materials done, and about to start soliciting investors).
I agree it is another self-inflicted USCIS problem: long processing times lead to people wanting an RC “just in case” (because getting approved will take too long for current projects), then USCIS terminates them when they don’t use it. Kinda like an Exemplar needing a “shovel-ready” project that can nonetheless withstand 18-24+ months waiting around for USCIS approval…
Thank you for sharing your experience!
If it is “shovel-ready” then that is one of those projects that could proceed through the use of bridge financing which is “to be replaced with” EB-5 funds. However, it must be a truly “EB-5 suitable” venture. This is where expertise from “EB-5 Service Providers” will pay-off in the end.
Proceeding on a false premise that a project is suitable, coupled with unjustified expectations of EB-5 funding, is as bad as dragging a suitability study on for so long that a project falls apart. It can be like walking a tightrope over Niagara Falls. One misstep could merely mean you wobble a bit, while the next could be fatal. I’ll get off my soapbox now.