Insights from AAO Decisions (debt arrangements, currency swap, diverted capital, regional center activity, project progress)

So far in 2019, the Administrative Appeals Office has published 80 decisions on I-526 appeals and motions, and 16 decisions on I-924 appeals. As someone who prepares documents for USCIS review, I read the AAO decisions to keep up with current adjudication trends and unspoken policy. This post highlights a few EB-5 cases of particular interest.

Debt Arrangements

In MAY302019_01B7203 and MAY302019_02B7203, the AAO reopened previously dismissed appeals and approved the I-526 petitions based on the USCIS Policy Manual October 2018 correction regarding redemption agreements. I wonder if this offers hope for other I-526 that were denied in 2017 and 2018 due to suspected debt arrangements that USCIS has since clarified are acceptable.

Currency Swaps and SOF Investigations

A number of recent appeals focus on the recently-controversial issue of currency swaps. In a currency swap, the EB-5 investor sends local currency to the local account of an intermediary, and the intermediary then wires an equivalent amount in US dollars to the investor’s offshore account.  In late 2016/early 2017 USCIS started questioning this previously-accepted practice, and began requesting source-of-funds documenation for the intermediary (as discussed for example by Hermansky and Klasko). Lawyers questioned USCIS’s reasoning, and embattled cases are now reaching the AAO decision stage. JUL052019_01B7203 is particularly interesting, because AAO sustained the appeal. “Here, the Chief has not questioned the validity of the agreement with ___ nor identified discrepancies or irregularities in the record…. Without any identified negative considerations, we find the evidence in the record sufficient to establish, by a preponderance, that the funds transferred to ___ originated with ___’s lawful business activity, and relatedly, that the Petitioner had invested the minimum amount of required capital.” In the following cases, however, AAO agreed with USCIS that source and path of funds were not sufficiently documented in currency swap scenarios: OCT252019_01B7203, OCT172019_02B7203, OCT152019_01B7203, OCT112019_02B7203, OCT012019_02B7203, SEP192019_01B7203, AUG302019_02B7203. These cases were denied for lack of evidence that the intermediary was legally able to make the exchange, lack of evidence that the intermediary used lawful funds to make the exchange, and timing problems. Distaste over an arrangement “designed to circumvent local banking regulations” also appears to be a factor.

AUG302019_01B7203 is another rather interesting source of funds case, being a denial based on information that emerged when “In October 2017, USCIS officials conducted an overseas investigation during which they interviewed the Petitioner and others regarding the source of funds used in his investment.”

Recovering from Fraud

In the wake of SEC activity to weed bad actors out of EB-5, we’re left with the question of whether viable projects, innocent investors, and any good partners/successors of the bad actors can possibly recover and get back on track after a fraud incident.

OCT172019_01B7203 Matter of W-Z- tests the question of whether a petitioner can, after I-526 filing, make additional investment to replace diverted capital. The petitioner had invested $500,000 in the NCE, but $185,000 of that amount never made it to the project thanks to a rogue principal. With that principal out of the way, the petitioner offers to replace the diverted capital with another $185,000, so that the project has the full amount of investment and can proceed with job creation. But AAO says no, because “the foreign investor must show that his or her investment of at least $500,000, in its entirety, has been made available, without interruption, to the NCE for job creation.” The operative words in this statement are “without interruption.” AAO says that this statement rephrases this Matter of Izummi/policy requirement: “the full amount of funds made available to the businesses most closely responsible for creating the employment upon which the petition is based.”  But that doesn’t look like a simple restatement to me. Is “without interruption” really intrinsic to the Matter of Izummi analysis? The AAO indicates that for the petitioner’s additional $185,000 investment to qualify, he would have to establish that he had invested or was actively in the process of investing that additional amount before he filed I-526. “The replacement of EB-5 capital with other funds does not equate to a return of the original capital attributed to the investor, even if both originate from the same source. His intention to replace the diverted funds, thus, does not establish that $500,000 of his capital has been made available since 2015, without interruption, to the NCE for job creation purposes.” Does the EB-5 “at-risk” requirement actually justify this hard “without interruption” line?  The decision goes on to give additional reasons for denial, but speaks against supplementary investment as if it’s wrong in principle, regardless of other circumstances.

SEP252019_01K1610 Matter of V-A-O-C-A-C-D-R-C- tests the question of whether a regional center with the most reputable of operators (State of Vermont) can recover from the bad actions of previous partners. The state fought hard, on behalf of past investors and on-going projects, to keep designation at least long enough to complete current EB-5 projects and implement an orderly wind-down of operations. But AAO dismisses the appeal of Vermont Regional Center’s termination. Ironically, the determinative reason seems to be the state’s responsible intent to not sponsor any new EB-5 projects. The unspoken rule seems to be, new I-526 filings = promoting economic growth, while no new I-526 filings = no longer continuing to promote economic growth.

Regional Center Activity

USCIS claims that “When determining whether a regional center continues to promote economic growth, we consider the totality of the circumstances, weighing positive and negative factors to reach a conclusion.”

However, as pointed out in one of this year’s termination appeals, it appears that in fact “USCIS has, sua sponte, determined that the only acceptable evidence of promotion of economic growth is the filing of Form I-526 petitions by investors in projects affiliated with a regional center within three years of receiving its designation.” This is evident from my log regional center terminations, which shows that 103 regional centers have been terminated so far for not having had any I-526 filings during a period of time (the metric varies by decision – most often three years, sometimes two, four, or five years). The appeal MAR152019_01K1610 pointed out that “this temporal requirement does not appear in any statute, regulation, or USCIS policy guidance,” which makes it a bit unfair, and that “the statute and regulations related to termination of a regional center’s designation are impermissibly vague.” But the AAO spends no time on this procedural issue, merely saying that the Applicant didn’t make a constitutional point, and if he had, constitutional points are outside AAO jurisdiction.

Instead, the AAO decisions on termination appeals tend to follow this shape: (1) review the applicant’s evidence of activity in developing projects and promoting investment opportunities, and (2) conclude yes, that’s positive activity, but there haven’t been any recent I-526 filings for this regional center.  No investor petitions means no data on EB-5 investment resulting in increased export sales, improved regional productivity, job creation, increased domestic capital investment, or other positive indicia of promotion of economic growth. The regional center is not promoting economic growth in the only way we can measure – I-526 filings – and therefore must be terminated. It starts to feel petty and hyper technical. In AUG302019_01K1610, A-G-C-R-C got terminated (1) because the I-924A filing fee amount was written on the check as “three thousand three hundred thirty five,” not “three thousand thirty five” (and USCIS was not able to accept a check with the corrected lower amount because it post-dated the filing deadline), and (2) because no I-526 had yet been filed within 21 months of the regional center’s designation. A-G-R-C applied to be a regional center in 2014 and didn’t get approved until 2016. USCIS didn’t even give the RC as much time to secure investors as it gave itself to review the application.

Many of the termination appeals in 2019 include this language: “The evidence discussed above demonstrates the Applicant’s pursuit of new projects, an action which in and of itself serves as a positive factor in determining whether the regional center continues to promote economic growth. However, it does not show that these actions resulted in increased export sales, improved regional productivity, job creation, increased domestic capital investment, or other positive indicia of promotion of economic growth.” How to make such a showing remains a challenge for regional centers that are now preparing Form I-924A, and need more time to secure investment. If USCIS doesn’t manage more nuance, its blind three-year metric will end up eliminating all the regional centers that Congress actually wants in EB-5 – the ones in rural/distressed/low-profile areas that will inevitably have relatively low volumes and long lead times. (For additional discussion, see my 2018 post on Preparing to File I-924A.)

Project Delays

Many I-526 decisions in 2018 and 2019 are associated with just a couple regional center projects with many investors who each filed all possible appeals and motions. The Arizona international trading mall case and the cellulose-to-sugar conversion factory case have a simple moral: when a project does not move forward according to plan, instead suffering multi-year delays, it’s tough to demonstrate that the plan was/is reasonable.  AAO dismissed all the appeals, denied all the motions to reopen and reconsider, and went further to revoke I-526 approvals that had been made before  project delays became apparent. I feel sorry for the investors, and envious of the lawyers who earned fees from this blizzard of repetitive AAO activity. (I’m not including links to all the cases, but open a few entries at random in the 2018 or 2019 folders of I-526 decisions, and you’ll encounter them.)

Other decisions

Other decisions that may be of interest to people who follow these topics: JUN062019_02B7203 (bridge financing problem considering the length of the bridge), SEP232019_01K1610 (remands an Exemplar project denial based on USCIS’s unreasoned claims of unreasonableness), JUL222019_01K1610 (makes an issue about source of funds for a regional center applicant), MAR152019_01B7203 (discusses material change specifically as an issue of rectifying a deficiency in the original petition).