RIA impact on pre-RIA Regional Centers and investors (comment)

The following is the comment related to Regional Center Operations that I submitted to USCIS in advance of the EB-5 engagement on March 20, 2023. (The comment deadline is 4 ET today.) I approached the question theoretically, and would love to hear more input from regional centers and investors who are personally affected. How can we best navigate the threat of termination and the burden of how to operate and maintain investor eligibility since passage of the EB-5 Reform and Integrity Act? (Note that the table below only reflects my interpretation/suggestion to USCIS. I do not know what policy USCIS will create or how USCIS will interpret and apply RIA.)

From: Suzanne Lazicki <suzanne@lucidtext.com>
Sent: February 10, 2023 8:44 AM
To: ‘public.engagement@uscis.dhs.gov’
Subject: Question: EB-5 Engagement March 20, 2023

Regional Center Operations: We will discuss issues related to regional center operations, in particular those who wish to withdraw from the program and terminate their status and those who do not wish to solicit investments for new projects under the RIA.

Comment

Regional centers that do not wish to solicit investments for new projects under RIA may and should still wish to retain their designation, for the sake of protecting their pre-RIA investors. Not that RCs have much practically to do for in-process past investors; the issue is that INA 203(b)(5)(M) now defines devastating investor consequences from regional center sponsor termination. (M) stipulates that I-526 petitions will be denied and even conditional permanent residence status terminated upon regional center termination. The escape route offered in (M) is only theoretical, since USCIS permission is no guarantee that a good faith investor or NCE can – in fact – have an option to associate with another regional center. Such an option depends on real-world factors outside the investor’s or USCIS’s control, including the existence of another regional center willing to take the burden under livable terms, a willingness by the terminated entity to transfer sustained investment to the sponsorship of a new RC, and documents that practically allow for such a switch. Investors originally sponsored by bad actor regional centers may be thankful for a prospect – however slim – to change sponsors upon USCIS termination. But the risky, uncertain prospect is hardly solace or protection for investors who already have a good sponsor responsibly managing their investment.

If USCIS starts to terminate regional centers for no fault except declining to raise new funds under RIA, the result will be loss of eligibility among EB-5 investors due to RIA – an outcome that RIA sought to avoid in principle with Section 108 Protection from Expired Legislation. 

Regional centers wishing to retain designation for the sake of shepherding pre-RIA investment and projects, not for the purpose of soliciting new investment, could reasonably be held to RIA requirements that apply to shepherding investment, and not held to RIA requirements specific to soliciting investment.

Practically, this means that shepherd regional centers should continue to report on their management of EB-5 investment and be subject to penalties for reasons related to fund management, but should not have to file I-956 and I-956F, or to complete the portions of I-956G that are indexed to I-956 and I-956F and to requirements specific to capital raising activities.

The following table considers which requirements created by RIA are specific to raising and deploying EB-5 investment, and thus naturally not applicable to RCs/NCEs that raised and deployed EB-5 funds prior to RIA and will not continue such activity after RIA.

Table 1. Applicability of RIA requirements to Regional Centers not sponsoring new investors or projects under RIA

Section of INA 203(b)(5)	Comment on how this requirement should apply to regional centers not sponsoring new investors or projects under RIA
(E)(iii) Establishment of a Regional Center, regional center proposal	Not applicable. As clarified by the Settlement Agreement in the Behring litigation, the requirement to apply for regional center designation with I-956 is specifically “for the purposes of sponsoring new projects and new investors under the Integrity Act.”
(E)(iii) Record Keeping and Audits	Apparently applicable to regional centers with an on-going status as sponsor of investor petitions. As a practical matter, when auditing records on an on-going basis, regional centers should be held to record requirements that existed at the time when their annual reports were filed, and that apply to the petitions they sponsor (with adjudication standards largely following the law at the time of filing).
(F)(i-iii) Business plans for regional center investment	Not applicable. Form I-956F is only required for NCEs soliciting investors under RIA.
(F)(iv) Site Visits	Apparently applicable to all NCEs and JCEs still in the job-creating stage.
(F)(v) Parameters for Capital Redeployment	Apparently applicable on an on-going basis to EB-5 investor funds that must be maintained at risk.
(G) Regional Center Annual Statements	An on-going reporting requirement would naturally apply to every regional center with EB-5 funds under on-going management. However, the specific content of the annual report is specific to the basis of regional center designation.  INA 203(b)(5)(G) lists out annual report content that is specifically for “Each regional center designated under subparagraph (E)” – with no mention of regional centersdesignated under Section 610 of the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1993. The content list for regional centers “designated under subparagraph (E)” naturally echoes the new Form I-956 and I-956F (which regional centers not seeking designation or new projects under RIA are not required to file), and covers content specific to RCs soliciting and deploying new investment. While INA 203(b)(5)(G) is silent on annual reporting for regional centers retaining designation under 610(b) and  not amending designation to sponsor new projects or investors under the Integrity Act, USCIS might reasonably request such RCs to continue to file I-924, which was designed based on 610(b) (or to create a version of I-956G that omits the content only applicable to regional centers who have filed I-956 and I-956F, and to soliciting funds under RIA).
(H) Bona Fides of Persons Involved	Not applicable, since RCs not soliciting investment after RIA are not procuring any funding under the program as described by RIA. The statute specifically defines “persons involved” as “in a position of substantive authority to make operational or managerial decisions over pooling, securitization, investment, release, acceptance, or control or use of any funding that was procured under the program described in subparagraph (E).”  Funding procured prior to RIA was not proposed under subparagraph (E), but under the program described in Section 610 of the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1993. (And as a practical matter, regional centers cannot retroactively change the persons who were involved in pooling investment that was pooled prior to RIA.)
(I) Compliance with securities laws	Not applicable, since RCs not soliciting investment are not engaged in offers, purchases, or sales of securities, or in providing investment advice – the activities subject to securities law compliance. There is obviously no on-going need to certify compliance for activities in which an RC does not engage.
(J) EB-5 Integrity Fund	Not applicable, since this section calls for a fee to be collected from “each regional center designated under subparagraph (E).” It does not reference regional centers designated in Section 610 of the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1993.  As noted above and with reference to the Behring Settlement Agreement, a previously-approved regional center is only required to amend its designation under subparagraph (E)  “for the purposes of sponsoring new projects and new investors under the Integrity Act.”
(K) Direct and Third Party Promoters	Not applicable to RCs with no open offerings to be promoted to alien investors.
(N) Threats to the national interest	Apparently applicable to all designated RCs, with no reference to whether it was designated under subparagraph (E) or Section 610 of the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1993.
(O) Fraud, misrepresentation	Apparently applicable to all designated RCs, with no reference to whether it was designated under subparagraph (E) or Section 610 of the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1993.
(Q) Fund Administration	Not applicable to regional centers that already deposited and deployed investor funds to capital investment projects prior to RIA, and are not raising any new funds to be deposited or deployed.