I-924 exemplar appeal sustained (reserves, material change)

I read and log all Administrative Appeals Office decisions on EB-5 appeals, in an effort to keep up with EB-5 adjudication trends and be more than just another business plan writer with an English major and MBA. The AAO decisions illuminate and very occasionally question current thinking at USCIS about how to interpret and apply EB-5 requirements in practice.

AUG152018_01K1610 (Matter of A-C-R-C-) is a sustained appeal that challenges USCIS interpretation of the EB-5 at-risk requirement and material change policy. The appeal concerns an I-924 application to request approval of a proposed project as an exemplar.  The applicant filed the I-924 in 2015. When USCIS got around to adjudicating the application two years later, an adjudicator googled local media reports about the project, discovered changes (unsurprisingly) from the original plan, and sent the applicant a Notice of Intent to Deny. The applicant responded to the NOID by explaining the changes and submitting revised and amended documents. USCIS still denied the application for two reasons:

• changes to the business plan and associated organizational and transactional documents represented impermissible material changes
• the existence of a working capital reserve and interest reserve in the budget for the job-creating enterprise meant that the full amount of EB-5 investment capital was not available for job creation purposes, and therefore not at risk, and not reasonable as part of inputs to the economic model

AAO found fault with the USCIS analysis.

• USCIS cited Matter of lzummi ‘s finding that “A petitioner may not make material changes to his petition in an effort to make his deficient petition conform to the Service requirements.” AAO found that Izummi is not apposite because the case in this appeal involved changes made in response to business reality, before USCIS even sent the NOID, and thus obviously not just in attempt to remedy a deficient petition. The changes in this case were significant but not material. (This is good news if it means AAO is tending toward the reasonably limited definition of material change suggested by Ron Klasko: “a change that makes an approvable project un-approvable, or makes an un-approvable project approvable.” This in contrast to the apparent general inclination by USCIS to treat any significant new set of facts as a material change.) At least in this case, AAO agreed with the applicant’s contention that its changes were not material because “while the location, the Borrower, and the JCE differ from the initial filing, these changes are permissible because the ____ hospital project is substantively similar to the management structure, construction and development entities, and economic analysis in the original 2015 business plan’s proposed project in _____,  and moreover, these changes were not an attempt to remedy a deficient petition.” (But this is a non-precedent decision, and thus sets no precedent for how USCIS or AAO will treat other cases.)
• AAO points out that standards for an I-924 application with exemplar I-526 are not the same as those that apply to an investor I-526 petition. The USCIS Policy Manual, referencing Matter of Katigbak, says that an application cannot be approved with a different set of facts than those presented in the original filing. But this applies to visa petition proceedings, not applications filed by regional centers. The relevant Policy Manual guidance for regional center amendment applications and the Form 1-924 instructions recognize the evolving business realities that are reflected in regional center amendments, and require an amendment submission only for specific, limited changes. Furthermore, the fact that a change could be material for investor petitions already pending for the same project does not have implications for the exemplar I-526. The Form I-924 eligibility requirements are independent of future eligibility determinations for associated investor petitions.
• USCIS saw a working capital reserve and an interest reserve in the budget for the job-creating enterprise, and determined that the Applicant had not established that the full amount of investor funds would be placed at risk for the purpose of job creation because a portion of the EB-5 capital could be placed in these reserve funds. USCIS cited Matter of lzummi’s findings that “Reserve funds that are not made available for purposes of job creation cannot be considered capital placed at risk for the purpose of generating a return on the capital being placed at risk” and “the full requisite amount of capital must be made available to the business(es) most closely responsible for creating the employment on which the petition is based.” AAO found that USCIS incorrectly interpreted Izummi and misapplied its findings. In Izummi, reserve funds were at the NCE level and created to satisfy the NCE’s potential future obligations and to return a portion of EB-5 capital. In the instant case, the reserve fund was owned by the JCE and for use by the job-creating project, not to facilitate any capital repayment to investors. “The record shows the JCE anticipates using these funds for its operations by the second year, and accordingly, has demonstrated that the full amount of the EB-5 capital would be made available for job creation purposes.” In Izummi, the requirement about capital available for job creation addressed a problem that EB-5 funds were being siphoned off by the NCE and subsidiaries even before reaching the job-creating entity. In the instant case, reserves were at the JCE level, and all EB-5 funds reached the JCE.  Furthermore, Izummi placed no limitations on how the entity most closely responsible for job creation used the funds. USCIS has historically agreed (in an engagement cited by AAO, and also in the Policy Manual 6(G)2(D))) that a JCE can use a portion of EB-5 funds for uses such as land purchase that aren’t in themselves job-creating activities. AAO concluded that “Thus, in the instant case, JCE’s use of EB-5 capital on business activities supported by the credible business plan, even where a portion of those expenditures do not directly result in job creation, does not violate Izummi.”
• The USCIS denial contended, without explanation, that the record lacks sufficient verifiable details to support the job creation inputs. AAO reviewed the record and found a supporting letter from a major international construction company and a detailed feasibility study. AAO considered this significant documentation supporting the construction costs and operational revenues used as inputs into the RIMS II model. Therefore, “the Applicant has demonstrated that the revised business plan and economic analysis use acceptable inputs to support its job creation estimates.”