RC Terminations, investor litigation victory, China trends, agent ethics, RC list changes

Regional Center Termination Reasons

USCIS has terminated 109 regional centers over the past decade, and 23 regional centers in May 2017 alone. This month USCIS also initiated a page for Regional Center Termination Notices, with most notices up to November 2016 posted so far. The page explains that “USCIS will remain consistent and committed to transparency in the EB-5 program by proactively publishing Regional Center termination notices as they become available. This is an important step in assisting investors, the EB-5 industry, and the public to understand the reasons why a regional center has been terminated and what types of regional center activities may trigger the end of a regional center’s designation.”

I’ve started a Termination Log spreadsheet (also linked to my RC List page for ongoing reference) to correlate USCIS’s terminations list with its notices list, and facilitate analysis. Pivot table analysis of this log provides a quick overview of termination reasons (from the 69 termination notices posted so far) and timing.

In fact the termination notices are not very informative (most reference Notices of Intent to Terminate, which are not attached, for specific reasons), but we can generally learn that about 77% of RC terminations from 2008 through November 2016 occurred for one of two reasons: failure to file an I-924A annual report, or the fact that the I-924A report reflected inactivity (i.e. no investor petitions in three or more years). Just 12% (notices for eight regional centers) referenced problematic behavior by the regional center as a basis for termination. Other reasons include the regional center’s voluntary request to withdraw from the program. One letter dated July 13, 2016 explains “USCIS notes counsel’s request to withdraw from the program. The mechanism to end a regional center’s designation, whether initiated by the regional center or USCIS, is termination of the designation.” (This particular letter could’ve raised on-going FBI investigation as a termination issue, but that’s another story.) The Final Fee Rule published 10/24/2016 confirms that a regional center may elect to withdraw from the program, but does not offer an exit more dignified than termination. “A regional center may elect to withdraw from the program and request a termination of the regional center designation. The regional center must notify USCIS of such election in the form of a letter or as otherwise requested by USCIS. USCIS will notify the regional center of its decision regarding the withdrawal request in writing.This is a pity, as the terminated regional center list looks like a walk of shame, and I think voluntarily withdrawal should be treated differently from termination initiated by USCIS.

Legal Win for EB-5 Investors

Investors who think they’ve fallen victim to errors by USCIS will be interested in this long but ultimately successful battle by a group of EB-5 investors.

  • 2013: Twelve EB-5 investors file I-526 petitions based on investment in a regional center hospital project that sought to qualify as a troubled business
  • 2013-2015: USCIS denies the I-526 petitions, and then denies Motions to Reopen filed by the petitioners. The petitioners appeal the denials to the Administrative Appeals Office.
  • March to May 2016: AAO posts decisions dismissing appeal of I-526 denials (for example, MAR252016_02B7203)
  • April 2016: Four petitioners file civil action against USCIS in district court: Wei Gan v. USCIS
  • May 2017: USCIS and the plaintiffs resolve the case
  • May 2017: AAO posts decisions sustaining appeal of the previously-denied I-526s (For example, MAY182017_01B7203. Other May 18 2017 decisions sustain appeals for other investors in the same project)

Trends, Pitfalls, and Ethics in Working with Overseas Agents

China Market Demand Trends
Ronald Fieldstone reflects on a recent China trip in his post EB-5 Marketplace Measurement – China and Beyond (May 25, 2017). We’re reminded of the extent to which demand shapes supply in EB-5 investment.

Agent Marketing Claims
The Kushner Companies EB-5 roadshow in China continues to reverberate, with Senator Grassley mining it for yet another press release, this one calling for investigation of the Chinese agent involved, and its sales claims. (Grassley Seeks Investigation of Companies’ Promises of Green Cards 5/25/2017.) The regional center has protested to journalists that the senator’s allegations are baseless in this case, but all regional centers can take the reminder to double-check what their agents overseas are saying and posting online. Also keep in mind IIUSA’s best practices for engaging with sales intermediaries.

Ethics for US Lawyers Retained by Migration Agents
Lawyers who deal with overseas agents in EB-5 may be interested in a March 2017 Ethics Opinion by the New York State Bar Association. The opinion discusses conditions under which a lawyer may enter into an arrangement whereby a nonlawyer “foreign migration agent” hires the lawyer on behalf of the client and assists the lawyer in communicating with the client. Cyrus Mehta explores the matter further in his post EB-5 Green Card, Ethics and Trump (May 22, 2017).

DHS Director and EB-5

Lee Francis Cissna, President Trump’s nominee for Director of USCIS, committed to finalizing EB-5 reforms in his Senate Judiciary Committee hearing last week. In other words, new EB-5 regulations are still on the table. Mr. Cissna spent much of the past two years working for Senator Grassley on immigration issues, and reportedly wrote dozens of the letters sent under the senator’s name to Homeland Security officials. This does not bode well for his attitude to immigration generally or EB-5, though he made a nice statement at the hearing.

Regional Center List Changes

Additions to the USCIS Regional Center List, 05/08/2017 to 05/30/2017

  • Atlantic Casino & Entertainment Group Regional Center (Delaware, Maryland, New Jersey, Pennsylvania)
  • New York Immigration Regional Center (Connecticut, New Jersey, New York, Pennsylvania): www.goeb5nyc.com/
  • American Family Regional Center (Washington)

New Terminations

  • Dallas Regional Center (Texas) Terminated 5/22/2017
  • East Plumas County Regional Center, LLC (California) Terminated 5/22/2017
  • Immigration Funds LLC (former name United States Investors Regional Center) (Maine, Massachusetts, New Hampshire) Terminated 5/22/2017
  • Ohio Regional Center, LLC (Ohio) Terminated 5/21/2017
  • EB5 Express Regional Center (California) Terminated 5/18/2017
  • Arkansas Regional Economic Development Center, LLC (Arkansas, Oklahoma) Terminated 5/16/2017
  • Art District Los Angeles Regional Center, LLC (California) Terminated 5/16/2017 (this RC was removed from the terminated list and added back to the approved list on 6/19/2017)
  • The Z Global Corporation Regional Center (California) Terminated 5/16/2017
  • Mariana Stones Corporation Ltd. (Guam) Terminated 5/15/2017
  • NatureAll Co., Inc. EB-5 Regional Center Terminated 5/15/2017 (New Jersey)
  • USA Regional Center, LLC (California) Terminated 5/15/2017
  • Eight Islands Regional Center, LLC (Hawaii) Terminated 5/3/2017
  • Diamond City Montana EB-5 Regional Center, LLC (Montana) Terminated 5/10/2017
  • New York Pioneer Regional Center (New York) Terminated 5/3/2017
  • Optima Arizona Regional Center, LLC (Arizona) Terminated 5/3/2017
  • Puget Sound RC, LLC (Washington) Terminated 5/3/2017

EB-5 Primer

The media is still full of EB-5 stories, but many reports struggle to explain EB-5. Are we selling citizenship? Is this a cash-for-visas program? Why would a luxury project by celebrity New York developers get to benefit from immigrant investment?

Strictly speaking, EB-5 is not a visa-for-cash program but a visa-for-employment program. The “EB” in EB-5 stands for Employment Based. While some countries do sell citizenship, Congress took care to set up the US program differently. An EB-5 investor can get conditional permanent residence for making a qualifying investment that will result in creation of at least 10 jobs, and may eventually get a permanent green card if the investor sustains the investment and can go on to demonstrate that jobs were in fact created. Cash alone does not win EB-5 status.

Another distinctive feature of the US investor visa program is that it involves private sector investment, not government-sponsored or government-controlled investment opportunities. The prospective immigrant is free to choose to invest in anything from an Iowa farm to a New Jersey skyscraper, and may apply for a visa if job creation and other requirements can be met. Senator Grassley would like the EB-5 investor to chose the Iowa farm, and the investor might prefer it as well if the government bore the risk and responsibility for the choice and replaced market forces in underwriting the investment’s success. The government makes no such offer, however, and the investor is left to decide which private investment opportunity is most suitable. The government influences application of immigrant investor capital in two ways: by defining requirements for EB-5 eligibility, and by offering incentives. An eligible EB-5 investment must be at-risk investment of a certain amount in a for-profit enterprise that creates a certain number and kind of jobs, among other requirements, and the “Targeted Employment Area” incentive with reduced investment was designed to reward investment in high-unemployment and rural areas.

Some observers are concerned that the TEA incentive hasn’t functioned as intended, and that EB-5 investor capital is benefiting the wrong places and the wrong people. Others worry that the investment and job creation requirements need to be more robust to realize Congressional intent. EB-5 reform legislation targets these issues, as do proposed regulations from DHS. And to quote a White House spokesman, the administration “is evaluating wholesale reform of the EB-5 program to ensure that the program is used as intended and that investment is being spread to all areas of the country.”

For additional reading, see my post with comparison of investor immigration programs worldwide based on a Migration Policy Institute report, and my summary of TEA incentive proposals in proposed regulations and legislation (now significantly revised and expanded, and I welcome additional corrections).

EB-5 in the news (Kushner Cos in China, SEC in Idaho, visa dates, Ombudsman, RC terminations)

Now that we’ve celebrated the good news of regional center program extension to September 30, 2017, here’s some concerning news to keep in focus as well.

  • The regional center program was barely extended – just another few months added. The program desperately needs stability – preferably the stability of a permanent program, and at least the stability we used to have of three-to-five year extensions. These tiny months-long jumps reflect deferred decision-making, not necessarily votes in the program’s favor. We need Congress to take positive action on EB-5 — something it hasn’t done since 2012.
  • Big-city mega-projects are a minority of EB-5 offerings but claim a large number EB-5 investors, and their prominence in the news is not helpful when Congress and the public need to see how EB-5 is also working to help undercapitalized areas. This weekend, media from the Washington Post, the Wall Street Journal, the New York Times, and The Guardian to NPR and Vox.com are reporting hot stories from journalists who persevered in observing an EB-5 roadshow being put on in China by the Kushner Companies. It hardly matters if the backers are completely innocent of influence peddling – indeed, they ought be innocent, because everyone is likely to just assume and act on the assumption that they’re guilty, regardless of what they do or say. Prospective investors are likely to assume without being told that the Kushner EB-5 project promoters can leverage access to power at the highest level, making the offering very attractive, and EB-5 critics will be just as eager to jump to the same conclusion, making the offering very dangerous politically. Senator Grassley, Senator Leahy, and Senator Feinstein at least are going to have a field day. (Updates: Feinstein and Leahy have a letter out to the White House Counsel, Grassley has written a letter to John Kelly, Leahy, Conyers, and Lofgren have written a letter to the Kushner Companies, and the White House has started issuing statements.) Some of my relatives even called me today, questioning my involvement in EB-5 after reading the news. I’m proud of my personal experience with many small businesses that launched thanks to EB-5 investment, with investors who sacrificed to invest and have persevered on a difficult and lengthy path to US residence, and with entrepreneurs who’ve brought so much more to the US than their money. Such stories rarely make the news, however. In reviewing statistics on EB-5 filings for the Notice of Proposed Rulemaking, DHS indicated that regional center projects in FY2013-2015 included 15 investors on average, while non-regional center investments had two investors on average (NPRM footnote 58). That’s just an average, but reflects the EB-5 world I have known best. But mega-projects, though few in number, are increasingly making a big splash in a small pond. The Kushner project reportedly seeks to raise $150M from 300 investors, which means it could claim nearly 10% of available EB-5 visas for a year assuming an average of three visas per investor. The 27 mega-projects summarized by NYU researchers in a March 2016 article would use up over three years of EB-5 visa numbers by themselves, if fully funded. New York City Regional Center recently announced its 1000th I-829 approval, with permanent residence for over 2,750 individuals and conditional permanent residence for an additional 5,200 investors and family members  – nearly 8,000 visas facilitated by a single regional center. This big-fish phenomenon is something to grapple with as we contemplate the future of the EB-5 program.
  • Investors understandably gravitate to major-league capitalists when the SEC keeps showing up amateur capitalists. The SEC has announced another EB-5 case, this one involving Serofim Muroff, associated entities through which he allegedly misappropriated funds, and an administrative assistant/bookkeeper charged with facilitating the misappropriation. Here is a link to the SEC press release and complaint.  The woes of Idaho State Regional Center are not new (various lawsuits have been ongoing), but this SEC case looks distinctive to me in the way it applies securities laws to the EB-5 context, and I look forward to expert analysis.  The handful of EB-5 cases brought so far by the SEC have common themes that should be targeted by industry best practices and integrity measures in new EB-5 legislation.
  • The news from Charlie Oppenheim during the IIUSA EB-5 Washington, D.C. Conference was predictably sobering. Mr. Oppenheim anticipates that the cutoff date for China-born investors will have advanced only to June or July 2014 by the end of this fiscal year, and to September or October 2014 by the end of next fiscal year. Considering the I-526 filing surges that have happened since 2014, this trend  is not going to get prettier, absent legislation to change visa numbers. Mr. Oppenheim also noted that Vietnam could trigger the per-country limit and become subject to a cutoff date in 2019 or 2020. The small-pond phenomenon (only about 10,000 visas available annually for investors plus family members, and 7% per-country limit when the cap is reached) is another important issue for Congress to address as it contemplates the future of the EB-5 program.
  • President Trump, who has yet to exhibit any warm fuzzies to EB-5, despite what the Washington Post may suspect, has appointed a new CIS Ombudsman known for being anti-immigration generally and anti-EB-5 in particular.  My only question is whether Julie Kirchner’s probable bad intentions are any more likely to be effective than good intentions expressed by previous Ombudsman.
  • Meanwhile, USCIS continues to approve new regional centers while terminating others for failure to promote economic growth.

Regional Center List Changes
Additions to the USCIS Regional Center List, 04/17/2017 to 05/08/2017.

  • First American Redevelopment Regional Center (California)

New Terminations:

  • North American Center for Foreign Investments, LLC (California) Terminated May 1, 2017
  • Westgate Orlando Regional Center, LLC (Florida) Terminated May 1, 2017
  • New York Green Hotel Regional Center LLC (Connecticut, New Jersey, New York) Terminated May 1, 2017
  • DRC Capital Partners, LLC (Arizona) Terminated May 1, 2017
  • E&W Lake Tahoe Regional Center LLC (California) Terminated May 1, 2017
  • ACIC Management, Inc. Regional Center (Washington) Terminated May 1, 2017
  • PetroSam, LLC (Texas) Terminated May 1, 2017
  • Alaska Gold & Mining Regional Center, LLC (Alaska) Terminated April 21, 2017 Liberty West Regional Center (Arizona, California) Terminated April 19, 2017

Preventing fraud in EB-5 (CIIF investigation)

In his testimony before the House Judiciary Committee in February 2016, Investor Program Office Chief Nicholas Colucci discussed how much USCIS has done to improve its administration of the EB-5 program, with particular focus on adding resources to prevent the kind of fraud and abuse that can come with investment and immigration.

Over the past few years, USCIS has taken a number of steps to improve the administration of the EB-5 program. In 2013, USCIS realigned the EB-5 program into the Immigrant Investor Program Office, and relocated it from USCIS’ California Service Center, which adjudicates various immigration benefits, to Washington, D.C., with a Chief dedicated exclusively to EB-5 adjudications. As the United States Government Accountability Office (GAO) noted in its August 2015 report to Congressional requesters on the EB-5 program, this move was part of a restructuring to help USCIS better detect fraud. USCIS also created a Fraud Detection and National Security EB-5 Division (FDNS EB-5) and embedded its personnel within IPO to work alongside adjudications officers. Additionally, a dedicated team of attorneys from the USCIS Office of Chief Counsel advise on program-related legal matters. In staffing the IPO, USCIS has, and continues to invest in the specialties needed to manage the complex EB-5 caseload by hiring staff with expertise in economics, law, business, finance, securities and banking to review cases and to enhance consistency, timeliness, and integrity within the program….
USCIS has taken its responsibility to administer the EB-5 program very earnestly, through its specialized staffing devoted solely to this program and its extensive efforts to regulate the quickly growing regional center program. However, no agency can do this alone. The EB-5 program necessitates collaboration with several other agencies, and the establishment of IPO in Washington, D.C. allows USCIS to work closely with partners such as the U.S. Securities and Exchange Commission (SEC), with whom IPO shares a robust collaborative relationship. USCIS also works closely with its sister agency, U.S. Immigration and Customs Enforcement (ICE), as well as with the Federal Bureau of Investigation (FBI) and the U.S. Department of State, in support of our oversight of the EB-5 program.

Improvements have covered staffing, inter-agency collaborations, and improved processes for important functions such as vetting lawful source of investor funds (as further explained in follow-up testimony — see especially Question 15 in response to Senator Grassley and Question 5 in response to Dianne Feinstein.)

This week’s breaking news story Feds raid San Gabriel, Arcadia locations over visa-fraud scheme involving criminals on China’s most-wanted list reminds us why those improvements were so important. The case, as described in an Application for Search Warrant filed by an FBI investigator, indicates that USCIS approved I-526 petitions from 2009 to 2012 that (if FBI evidence is correct) should never have been approved — including cases that involved people who did not invest their own funds, people who were promptly refunded their investments, and three individuals listed on China’s most wanted list for financial crimes. The good news is that the net since 2013 seems to be holding. The warrant does not indicate that any investors named in the investigation have been able to to get permanent green cards (though several have had I-829 petitions on file since 2012, possibly pending this FBI investigation which seems to have started in 2013), and the post-2013 I-526 petitions discussed in the warrant are likewise pending. The investigation stands as evidence that people may try to get away with fraud and abuse — but not that they get away with it. Investors who may have been complicit have not successfully completed the immigration process, and the regional center principals have had the FBI at their heels (sometimes literally: “at approximately 11:13 a.m., observed TAT exit SUBJECT PREMISES #2’s front door and walk across the street, after which he talked to a gardener, and then returned and entered SP#2. At 11:45 a.m. observed TAT exit SP#2 and go to the mailbox in front of the residence and retrieve mail. At 12:13 p.m. observed TAT walking from SP#2 carrying a black-colored briefcase-sized soft bag in his hands. TAT then walked across the street.”) and are now facing formal fraud investigation. Dozens of good faith investors in CIIF offerings and anyone with CIIF who’s innocent of fraud are unfortunate collateral damage, and I wish for their sake that the FBI had worked more quickly. (Update: Some investors have filed suit in civil court to try to get their money back, and Federal Prosecutors have filed civil complaints seeking asset forfeiture.)

Washington updates, RC termination appeal, SEC (WA), Petition processing

Washington Updates

The comment period for proposed EB-5 regulations closes on April 11, and the regional center program’s current authorization expires on April 28. Either of those immanent deadlines could be associated with significant EB-5 program changes, but I’m not hearing any confident predictions for what will happen exactly. Last week Senators Grassley and Leahy wrote a letter reacting against news that a couple lobbyists for large real estate developers may have recently agreed to “secret backroom deals to thwart reforms.” The senators promised to oppose any such deal, which would presumably protect investment amounts and TEA definitions from significant change, but have yet to  reintroduce substantial EB-5 reform legislation of their own.  And Congress has so much to do in the next month that one wonders whether our representatives can even agree on a plan to fund the government beyond April 28, much less figure out EB-5 changes. For other commentary on state of play in Washington, see for example posts from IIUSA and Wolfsdorf Law. (This is probably too unserious to even mention, but Representative Steve King of “other people’s babies” fame has introduced another bill, H.R.1502, proposing to repeal the EB-5 program entirely. I don’t see this particular bill going anywhere, not least because terrorist threats may be the one problem EB-5 does not have.)

Appealing Regional Center Termination

Matter of S-D-R-C-, ID# 13768 (AAO Mar. 15, 2017) considers the question of whether or how USCIS would be justified in terminating South Dakota International Business Institute  — a regional center that on the one hand has had many successful projects and contributed significantly to economic growth over the years, and on the other hand was – for a number of years, though not currently – in the hands of management charged with various improper activities. The AAO concludes, after interesting discussion deserving industry attention and response: “Evidence of a regional center’s improper or unlawful activities is relevant to the question of whether that center is continuing to promote economic growth, but derogatory evidence must be weighed against countervailing equities on a case-by-case basis. This case contains evidence of the diversion of funds away from job-creating activities, as well as evidence of substantial economic activity that created thousands of jobs. USCIS must consider all relevant factors in determining whether the Applicant’s regional center designation should be terminated or maintained.” AAO withdrew USCIS’s termination decision and remands the matter for further proceedings.

Challenging Capricious Decision-making

Mr. Whalen also posted a decision on the Quartzburg Gold case that I discussed last summer. The court denies part of the plaintiffs’ motion, but grants the plaintiffs’ charge that USCIS was arbitrary and capricious in its decision-making. “First, the reasoning underlying USCIS’s denial of an initial set of Plaintiffs’ petitions was arbitrary and capricious and counter to the evidence before USCIS. Second, USCIS’s decision to treat the petitions of certain Plaintiffs differently than others, despite the fact that all of the Plaintiffs presented effectively equivalent petitions, without providing any explanation for doing so, was also arbitrary and capricious.”

Litigation

The SEC has announced fraud charges against Washington-based businessman Andy Shin Fong Chen and his company Aero Space Port International Group, Inc. The complaint has the usual allegations regarding misappropriation of EB-5 investor funds, and is distinctive in targeting just one of the regional center’s several offerings. The RC response argues that the EB-5 investments are not securities (SEC begs to differ), and points out that the investors involved still support the project and its management (unsurprisingly, considering that they have I-526 petitions pending). I haven’t had time to fill out details in my log of SEC EB-5 cases, but hope someone else will publish an exercise like this to highlight common themes.  In an article published today in The Hill, Catherine DeBono Holmes discusses reforms that could help reduce or eliminate the factors that keep repeating in the scattered cases of alleged fraud in EB-5.

I-526 Petition Processing

The EB-5 Insights blog reports that that IPO seems to be implementing an undeclared policy of holding I-526 petitions in abeyance when an Exemplar I-924 Petition associated with the same new commercial enterprise has been filed. For reference, here is my running log of communications from USCIS regarding EB-5 petition processing practices and times. My EB-5 discussion forum is still open for investors to discuss their experience and progress of the cases they are tracking.

Washington updates

The article Will EB-5 Survive? (February 23, 2017) in National Real Estate Investor reviews the current status of EB-5 politics.

[See also my more recent post on the 3/8 House Judiciary Committee hearing.]

Washington updates

2/6/2017 UPDATE: The news in this post is now all outdated.
–Original Post–
This week Washington has been busy making good on campaign promises and also throwing babies out with the bathwater. Of most significance for EB-5, the President has frozen federal hiring (halting USCIS plans to deal with petition backlogs and improve processing by bringing on more staff) and created two hurdles for new regulations (a regulatory freeze and a make-one-delete two requirement), deferring hopes and fears for the long-awaited modernization of EB-5 regulations. A horrifying new order suddenly suspends whole countries of people from US visas and even entry based on nationality. Senator Dianne Feinstein decided the time was right put her long-running opposition to EB-5 in the form of a bill (S.232) that proposes eliminating EB-5 entirely, both direct investment and the regional center program. I’ll write more about this bill if anything comes of it, but I expect that that the significant legislation will be a forth-coming update to the Goodlatte EB-5 reform bill (last released 12/2/2016). I am going forward with my work as usual under the assumption that reason will prevail eventually and that immigrant investment and the country generally are not, after all, doomed.  But if anyone would like to offer me a chance to move from the immigration business to the walls-and-bunkers business, I’m listening.

Regulations freeze, SEC action (San Francisco), RC List Changes

Progress of Proposed Regulations
As EB-5 stakeholders process proposed new EB-5 regulations, they are thinking (1) how can I dissuade USCIS from the changes that would be most harmful for me personally; (2) how can I take best advantage of this golden opportunity to explain to USCIS how EB-5 works in the real world; and (3) how early could the proposed regulations become final, effective regulations? We know at least that regulations can’t proceed to the next step until after the public comment period closes on April 11, 2017, and now the new administration has put another hurdle in the road.

President Trump’s first Presidential Memorandum is addressed to the Heads of Executive Departments and Agencies with the subject Regulatory Freeze Pending Review (January 20, 2017). It does not put a moratorium on new federal regulations, but does require that any new or pending regulations be presented for review and approval of a Trump-appointed agency head before proceeding any further. This means that proposed new EB-5 regulations will need to go before General John Kelley, the newly-confirmed Secretary of Homeland Security. Would General Kelley allow new EB-5 regulations to move forward? The tireless Senator Grassley met with General Kelley on January 13, and reported that “In addition, we talked about new proposed regulations published by the Department today that would go a long way to restoring the EB-5 immigrant visa program to the way Congress intended it to be used: to help bring much-needed jobs and capital to rural and economically distressed areas. I [Grassley] expressed my strong desire that these rules be kept in place and allowed to go forward to ensure that this program fulfills its original intent.” I don’t know what input General Kelley may get from other directions, or whether the flood of lobbying dollars out of New York will have an impact. IIUSA indicates that its official comment submission to DHS will seek to demonstrate the negative effects that proposed changes would have on the industry.

New SEC Action
People drafting new EB-5 regulations and legislation are motivated, in part, to implement reforms that can help preempt the kind of situations that end in SEC action. When cases appear, we have a post-mortem opportunity to consider: what went wrong here, and how might problems have been prevented or at least detected earlier? Last week the SEC published a complaint against San Francisco Regional Center, Thomas Henderson, and related parties. This case has the usual allegations (commingling, misuse, and misappropriation of funds), but offers a relatively challenging “what-if” analysis. The regional center’s website and offering documents (as quoted in the suit) appear to make all the right representations about account transparency; it just happens that the RC apparently didn’t follow through on these representations, and a third-party co-owner with apparently every right and motivation to monitor proper use of funds had to resort to a lawsuit to claim his right to oversight and eventually apply the breaks. Retrospective armchair due diligence isn’t as easy for this case as for some others. I wonder – what different policy or different industry practices could have contributed to improved policing in this situation?

Regional Center List Changes
Additions to the USCIS Regional Center List, 11/29/2016 to 12/06/2016.

  • Advantage America Seattle Regional Center (Washington): www.aaeb5.com
  • CP Northern Regional Center (Michigan, Wisconsin)
  • California Agricultural Greenhouse Regional Center, LLC (California)
  • California Bond Finance Regional Center, LLC (California)
  • Greystone EB5 Northeast RC, LLC (Connecticut, Delaware, District of Columbia, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia): www.greystoneeb5.com
  • QueensFort Capital Texas Regional Center, LLC (Texas): queensforteb5.com
  • Texas Crown Regional Center, LLC (Texas)

Renamed:

  • Civitas Pacific Northwest Regional Center, LLC (former name Civitas Northwest Regional Center) (Oregon, Washington)

New terminations:

  • American Development and Investment Regional Center (California) Terminated 1/5/2017
  • Bay Area Regional Center LLC (California) Terminated 12/22/2016
  • Path America Sonoco, LLC (Washington) Terminated 11/23/2016

Recap of Major Winter Developments (policy, regulations, legislation, statistics, fees, Commerce study, new AAO, SEC actions, litigation)

The past few months have been packed with important EB-5 news, and it’s hard to keep up with all that’s happening.  As a reminder, here is a summary list of the major developments to keep in focus. (The first five I’ve discussed in previous posts; the last five I haven’t had time to write about yet.)

  1. New Policy: Effective November 30, 2016, USCIS replaced all existing EB-5 policy with a new Policy Manual: USCIS Policy Manual, 6 USCIS-PM G (November 30, 2016). This major event puts the whole program on a new footing (though 6 USCIS-PM G is essentially similar to the policy it replaced, with a few adjustments, additions, omissions, and clarifications as I started to discuss here).
  2. Proposed New Regulations: As I announced this week, USCIS has published notices of proposed EB-5 rule-making in the Federal Register.  Advance Notice #0008 invites stakeholders to give input on possible changes to regional center designations and terminations and the I-924 and project approval process. Notice #0006 gives proposed new rules covering priority dates, investment amounts, and TEA designation, among other things. If the new rules are finalized as proposed, the EB-5 minimum investment amount will increase to $1.8 million (or $1.35 million within a TEA) as calculated from inflation, fewer projects will qualify for TEA status, investors with approved I-526 will have the option to invest in a different project without losing their original priority date, and regional centers may need to get project approval before offering investments. We can expect action toward finalizing regulations at some point after the public comment period closes on April 11, 2017 – maybe shortly or maybe long after, if the comments inspire redrafting and/or if the new administration chooses not to greenlight the regulations.
  3. Proposed New Legislation: Congress was (reportedly) actively working on EB-5 reform legislation before the continuing resolution that passed on December 10 provided the regional center program with a clean extension through April 28, 2017. We have a staff draft of an EB-5 bill dated December 2, 2016, and understand that staffers and lobbyists are still working with this document behind the scenes. If the staff draft were passed as-is, the EB-5 minimum investment amount would decrease to $700,000 (or $650,000 for a TEA investment), with incremental increases up to $1M/$800K, additional TEA categories and incentives (including rolling visa set-asides) would be introduced, and regional centers would  be given hefty new annual fees ($10,000 or $20,000) and relatively gentle new fund administration and reporting requirements. (My bill comparison chart gives a link to the bill text and summarizes the provisions.) We may see action toward passing reform legislation in the coming months before the next regional center sunset date on April 28 – or may not, with so many other matters demanding attention during Trump’s first 100 days in office, and the anti-change lobby.
  4. New Data and Statistics: We got updated numbers from USCIS and the Department of State on EB-5 petition and visa processing and backlogs as of the end of 2016. The numbers show a queue of current and prospective visa applicants about 75,000 people long, which implies an 8-year visa wait for new China-born investors. And unless USCIS improves processing volumes, it will take 2+ years just to process the currently-pending I-526 petitions and 3+ years to just process the currently-pending I-829 petitions. Proposed EB-5 reform legislation and regulations both plan to improve processing times/volumes, but do not offer to increase available visa numbers.
  5. Fee Increases: EB-5 petitions and applications have higher filing fees since December 23, 2016. The new I-924 fee (dramatically increased to $17,785) is likely to curb the burgeoning number of regional centers (perhaps especially new applications from serial operators, which have accounted for an increasing percentage of new RCs) and discourage voluntary filing of amendments.
  6. Department of Commerce EB-5 Impact Analysis: We finally have the long-promised Department of Commerce study commissioned by USCIS: Estimating the Investment and Job Creation Impact of the EB-5 Program (January 2017). The product is a slender report and based on old data from 2012-2013, so the numerical conclusions are of limited interest at this point, but the analysis is still significant and could have political impact. I can see EB-5-critic Senator Grassley seizing on this report and the barriers to good analysis that the authors describe. EB-5 economists should review the formerly common EIR problems identified on p. 9, and ensure that they’re not still repeating them.
  7. New AAO Decisions: In November and December, USCIS published 27 new decisions on I-526 cases and one new decision on a regional center termination appeal.  The termination decision (NOV022016_01K2610) and 15 nearly-identical I-526 decisions (for example DEC142016_07B7203) are related to Path America KingCo, LLC, which lost designation after an SEC action mainly targeting its principal. The regional center appealed its termination based on pursuing active, viable projects under reputable new management. Investors appealed with the argument that their petition denials were premature, coming while the regional center appeal and the SEC case were still unresolved. AAO found that the investor appeals were hopeless due to the issue of material change, and that the regional center appeal was not sufficiently compelling. (But the RC decision interestingly grants the possibility that mitigating, corrective, and restorative actions could potentially compensate for past problems with the regional center or related entities.) Among decisions not related to Path America, I hope to write more about three decisions with good discussion of material change issues (NOV012016_02B7203, NOV072016_01B7203, NOV292016_02B7203) and two that address the level of business activity necessary before filing I-526 (NOV092016_01B7203, NOV292016_01B7203). I’ll particularly highlight NOV292016_01B7203, which explicitly states what I’ve always said – that an investor must not file a TEA-based I-526 before securing a location for the business.
  8. New SEC Actions: On December 27, 2016, the SEC published a complaint brought against California-based attorney Emilio Francisco and associated companies who are charged with diverting and stealing EB-5 investor funds. On December 28, 2016, the SEC announced settlement on a case against AJN Investments LLC/Jason Adam Ogden, who was charged with diverting EB-5 investor funds and wrongly making midstream business model changes.  I’m interested to note that these SEC complaints do not implicate or even identify the regional centers that sponsored the EB-5 investments involved. The SEC holds the project companies and principals exclusively responsible for problems in the offerings, projects, and use of funds. I wonder whether USCIS will pursue the regional center sponsors, holding them responsible for oversight, or whether it will follow the SEC’s lead in considering the sponsors out of the picture. It appears that the regional centers in these cases did not control any NCE bank accounts and were not involved in offering documents or investor promotion. In other news, the SEC has just settled with Path America (a case that did implicate the regional center).
  9. Other litigation: On November 14, 2016, a long list of EB-5 investor plaintiffs brought a civil suit against a long list of defendants associated with the Palm House Hotel EB-5 project. The suit enumerates the lies that the investors believe they were told, calls out every party and service provider allegedly involved in making false representations, and traces alleged misuse of investor funds. The case appears complicated and ambiguous (not the kind of low-hanging fruit that the SEC seems to favor) but full of drama and makes for gripping reading. Another case that’s older now (filed August 2016), but also a colorful Florida story: USA v. Karamchand Doobay, who was charged with perpetrating fraud through his regional center and projects. I’m sure the investors in these cases would unite in one message for the future: do not neglect due diligence before investing! And the defendants would likely encourage care in partnerships and representations.
  10. Good news: Meanwhile, just to keep  perspective, 99% of the 865 regional centers are apparently doing well and good, or avoiding lawsuits and bad press at any rate. At least $10.4 billion dollars of EB-5 investment entered the U.S. economy in 2016, judging by the number of I-526 petitions filed during the year. I was privileged to write business plans last year for 32 new EB-5 deals that look promising for both local communities and foreign investors, and I continue to be encouraged by what I see on the ground on the bright side of EB-5.

(Also note, adding to the festival of updates and feedback opportunities, an in-person EB-5 stakeholder meeting just announced for March 3 in DC.)

RC Sanctioned $1M for Agent Payments

Last December, the Securities and Exchange Commission made examples of several parties (mostly immigration lawyers) found to have violated Section 15(a)(1) of the Exchange Act by acting as unregistered broker-dealers: helping to effect securities purchases in an EB-5 Regional Center, and receiving a commission for each investment they facilitated. Each respondent was ordered to disgorge the fees and interest plus pay a $25,000 fine. (If you’d like to be reminded of the circumstances, you can read the Cease and Desist orders for Bernstein, Wang, Manesh, Khorrami, Kaye, Bander, and Azarmehr). These actions reiterate the message that it’s wrong to act as an unregistered broker dealer. It’s equally impermissible to to pay an unregistered broker-dealer, and the SEC has picked a high-profile target to drive this point home: American Life, which must now pay a civil penalty of one million dollars for transaction-based compensation paid to certain EB-5 agents from 2011 to 2014. American Life has brought in more EB-5 investment and completed more good EB-5 projects than almost any other regional center in history, but the SEC found that it also wrongly “paid or caused to be paid transaction-based compensation to certain domestic EB-5 agents in connection with EB-5 securities, which caused those EB-5 agents’ violations of Section 15(a)(1) of the Exchange Act.” Pay attention, Regional Centers, to this warning shot! To avoid million dollar penalties of your own, be extremely careful about who acts as a finder for your investors, and how. If an immigration lawyer offers to help introduce investors, and expects be compensated accordingly, just say no! You may want to review IIUSA’s Best Practices for Engaging With Intermediaries.

4/13 Senate Hearing Notes, RC Research, SEC Case (VT), RC List Changes

Senate TEA Hearing
You can now review video of the 4/13 hearing on EB-5 targeted employment areas on the Senate Judiciary Committee website (be patient, the video does start eventually), or download my audio recording. My main take-away from the hearing is that Senate leaders are on a long-term path to EB-5 reform and Regional Center reauthorization. They discussed very substantive potential changes in a very preliminary manner and sounded no-where near ready to sit down and agree on legislation. This is worrisome, considering that only a handful of Congress workdays remain before the 9/30/2016 Regional Center sunset date (what with conventions and vacation and holidays) – hardly enough time to hammer out the issues and questions that this hearing raised as important. The TEA issue is a thorny one because it comes down to a question of what kind of projects Congress wants to see incentivized, and our representatives don’t agree about that, much less on the question of what type and method of incentive would effectively focus on such projects.

EB-5 Project Research
Listening to Gary Friedland testify at the Senate Hearing reminded me that I’ve been remiss in reporting on the latest EB-5 research that Mr. Friedland and Professor Calderon have posted at the NYU Center for Real Estate Finance Research. Their paper EB-5 Mezzanine Financing: A Real World Example (3/23/2016) presents and analyzes an actual term sheet for a large EB-5 regional center deal, and will be very interesting for people seeking examples of EB-5 documents and deal terms. EB-5 Capital Project Database: Revisited and Expanded (3/29/16) follows up on last year’s paper A Roadmap to the Use of EB-5 Capital: An Alternative Financing Tool for Commercial Real Estate Projects (5/24/2015) by adding details of 27 additional EB-5 projects. The number 27 is small – representing a minority of EB-5 projects – and yet these few projects alone involve over $5.6 billion in EB-5 capital, which means over 11,000 EB-5 investors and almost three years of the total EB-5 visas available. I have to hope that Senators and journalists don’t examine the NYU database, because these few projects claiming so many dollars and visas could provide ammunition for criticism that EB-5 TEA investments have become a subsidy for luxury developments in tier one cities, a benefit for mega-developers and Chinese developers, an opportunity to replace existing financing rather than a source of needed capital, and a minor contribution to job creation. As a business plan writer I work with EB-5 projects that could be attractive poster children for the regional center program, but such modest projects usually don’t make the research papers or the news and their fate may depend on how the big players are seen to use EB-5.

New SEC Case (VT)
Also in the category of the last thing we need when facing a fight for Regional Center reauthorization: a venerable figure in the RC program is now subject of fraud charges and an asset freeze. According to today’s press release: SEC Case Freezes Assets of Ski Resort Steeped in Fraudulent EB-5 Offerings. The State of Vermont has filed a concurrent suit. The SEC Complaint does not name Vermont Regional Center, but it does call out Ariel Quiros, William Stenger, and a whole list of Jay Peak companies. I read the SEC complaint ready to make allowances, since I know that in real life it’s extremely difficult to produce documents that are completely free from omissions and misleading statements or that perfectly anticipate what subsequently happens, and I think one should be very hesitant to cry fraud. Sadly the SEC complaint leaves little room for charitable interpretation, and this situation looks like a mess likely to pass beyond Jay Peak and their investors to leaders who have been regional center program champions. Senator Leahy concluded his comments on the enforcement action by saying: “Given the significant problems plaguing this program, I will continue to push for meaningful reform. Without reform, I believe the time has come for the program to end.” Hurry up, reformers!

Additions to the USCIS Regional Center List, 04/05/2016 to 04/13/2016

  • America FX Regional Center, LLC (California)
  • EB5 International II, LLC (California)
  • Hawaiian Ohana Regional Center (Hawaii)
  • Luichi, Inc. (Nevada)
  • Manhattan Metropolitan Regional Center (Connecticut, New Jersey, New York)
  • Watercrest Florida Regional Center, LLC (Florida)

Removed from the list

  • Deictic Investment Group LLC (California)

Legislative Update, Due Diligence, New I-485, New RCs

Legislative Update
We are now less than a month from December 12, when the Regional Center program will sunset if it doesn’t get another reauthorization. It’s possible that the program could get temporarily extended as part of the appropriations bill that also needs to get passed by December 11 (which would mean extension with no change through 9/30/2016), or there might be stand-alone legislation with some significant changes and reform as well as reauthorization, or our representatives might let the program lapse for a while because they haven’t worked out appropriate legislation in time but don’t want to see simple extension. Grassley, Corker, and Johnson sent a letter on 11/6 to Senate leadership saying that they oppose a straight reauthorization of the EB-5 Regional Center program in the anticipated appropriations bill that will cover fiscal year 2016, and advocate instead to continue the program together with measures to increase accountability and better guard against fraud and abuse. We wish they would hustle to formulate such measures. Grassley and Leahy have been quietly circulating a revised draft of S. 1501 (IIUSA has a copy, as do select real estate industry executives according to the Wall Street Journal Washington Wire blog). I’ve read the draft but decided not to comment here until it gets officially proposed. The new draft is significantly clarified and toned down from the original bill, though still a game-changer. But will passable legislation be proposed in time to make any difference? If only Washington worked more efficiently!

Due Diligence
I appreciated the article “EB-5 Due Diligence Matters” (November 3, 2015) by Douglas Hauer, John Nucci, and Peter Saparoff of Mintz Levin. The authors discuss the legal requirements for due diligence investigations and give practice pointers.

Form I-485 Update
USCIS has published new editions of the Form I-485, Application to Register Permanent Residence or Adjust Status and Supplements

New Regional Centers
Additions to the USCIS Regional Center List, 11/02/2015 to 11/12/2015

  • EB5 Capital Oregon Regional Center (Oregon, Washington): www.eb5capital.com
  • Empire Regional Center, LLC (New Jersey, New York)
  • Great Southern Regional Center (Georgia, South Carolina)
  • North Valley Regional Center (California)
  • Proficiency Regional Center LLC (California)

Congress passes RC extension to 12/11/2015

Today Congress passed a short-term spending bill that keeps the government running through December 11, 2015, and, among other incidentals, the EB-5 Regional Center program running without changes for the same period. The President is expected to sign later tonight, so I trust that this post is not premature. IIUSA has already made a statement.

So what’s likely to happen between now and December 11, the deferred sunset date for the Regional Center program? Not counting today, the Regional Center program has been reauthorized six times since 1992 (in 1997, 2000, 2002, 2003, 2009, 2012), and almost every time the authorization happened the way it did today, as part of the appropriations process. 2012 was the only time the Regional Center program has had stand-alone legislation instead of being packaged with a spending bill. (The 2012 legislation passed unanimously in the Senate and by a vote of 412-3 in the House, and made a few tweaks to the Regional Center statute and no changes to direct EB-5.) But lobbyists who spoke in IIUSA’s legislative update webinar last Friday opined that we shouldn’t expect another simple extension of the Regional Center program from December 11; we should anticipate legislation with substantive changes. Reportedly a collection of Congressional representatives interested in EB-5 have actually gotten together and formed a working group that has been meeting to discuss the Regional Center program and hammer out legislation fit to garner the bipartisan, bicameral, and urban-rural support that it will need to pass. The group is expected to go public with a work product soon, now that the short-term extension is in place. The lobbyists mentioned that the two most contentious issues for this group are the Targeted Employment Area definition and effective dates. I suppose that these are sticking points because both issues will create new “haves” and “have nots,” and interested parties each hope to be on the side of the “haves” when it comes to enjoying the TEA incentive and taking advantage of grandfathering if any. The lobbyists didn’t mention argument over new integrity measures or an increase to the minimum EB-5 investment amount; I take it those are givens. I don’t hear any serious rumors that the EB-5 Regional Center program will be dropped — $14.38 billion in foreign direct investment is a pretty big golden egg, and that’s what EB-5 has brought in since the beginning, according to IIUSA numbers, with $1.4 billion in the last quarter alone – but I also don’t hear anyone optimistic that the next three months will be easy. Congress reportedly still has a low appetite for immigration issues since the Executive Actions on immigration, and it has so much to fight about between now and December besides EB-5. (See also Ron Klasko’s 10/6 blog on this topic.)

White House Report, SEC Oil&Gas, I-829

EB-5 Program Changes To Be Initiated by USCIS and DOS
The White House released a report Modernizing & Streamlining our Legal Immigration System for the 21st Century (July 2015) that summarizes recommendations from various agencies for how to streamline and modernize the immigration system, as directed in the President’s executive actions of November 2014. “The recommendations in this report reflect actions that agencies will take to modernize our system for efficiency and applicant accessibility, streamline legal immigration avenues, and strengthen our humanitarian system.” The lack of buzz around this report makes me think that the public doesn’t expect the recommendations to turn into action any time soon, but nevertheless keep in mind two recommendations that reflect commitments by USCIS and the Department of State to make changes that affect the EB-5 program:

Recommendation 1: Update standards for the EB-5 Program. By enhancing program integrity and updating eligibility requirements, this program can better serve our nation. DHS intends to pursue rulemaking to achieve those goals, including by requiring conflict-of-interest disclosures by Regional Center principals, enhancing background checks and public disclosure requirements, and increasing the minimum qualifying level of investment. DHS will also take steps to improve the adjudication and approval of Regional Center applications.
Recommendation 2: Clarify options for potential EB-5 investors to obtain visitor visas. State will amend its guidance in the Foreign Affairs Manual to clarify that potential EB-5 investors can obtain visitor visas to examine or monitor potential qualifying investments if they otherwise qualify for the visitor visa.

SEC Charges Oil Company and CEO
SEC Charges Oil Company and CEO in Scheme Targeting Chinese-Americans and EB-5 Investors, reads the SEC’s press release. The SEC charged a Bay Area oil and gas company and its CEO with running a $68 million Ponzi-like scheme and affinity fraud that targeted the Chinese-American community in California and investors in Asia, including some solicited as part of the EB-5 Program. The scheme was conducted primarily outside the EB-5 program (EB-5 investor funds accounted for a just $8 million of the $68 million involved), and it’s hardly surprising when a new company promising 20-30% returns for oil and gas exploration gets charged with fraud, but the case is still interesting from an EB-5 perspective because it involves technical selling and registration issues. Seyfarth Shaw LLP has a good article on this topic: SEC charges EB-5 fund operators and finders. As the article points out: “The SEC’s actions against various participants in EB-5 transactions make it clear that, whether or not an offering involves alleged fraud, offerors of EB-5 project securities and other persons participating in the promotion of such projects must be careful to comply with all aspects of the applicable securities laws, including either registering or securing exemptions for the offering of the securities and complying with the broker-dealer and investment adviser rules.”

New Form I-829
People preparing to file the Form I-829 should keep in mind that USCIS has posted a new version with significant updates that particularly affect Regional Center investors. An EB-5 Insights blog post summarizes the changes.

TEAs and Multipliers
The July 2015 Regional Center Business Journal includes some very good articles. I particularly appreciated two articles discussing the logic of TEAs and Scott Barnhart’s aptly titled article “Economic Multipliers in the EB-5 Arena: Voodoo Economics or Sound Economic Practice?”

I-526 Backlog
The CIS Ombudsman’s 2015 Annual Report to Congress, has a section on the EB-5 program, including this sobering chart.
I526volume

SEC Ireeco, State Dept, Economists, New & Removed RCs

I have a sleeve full of urgent articles on the nature of the Regional Center program, inspired by legislation debates, and also a desk full of yet more urgent business plans for clients worried about the legislation debates and eager to get their deals filed. So this blog is getting neglected, but here are a few updates.

SEC Action
The SEC has announced charges against a firm for acting as an unregistered broker for EB-5 investors. See the SEC’s press release SEC Charges Unregistered Brokers in EB-5 Immigrant Investor Program. Michael Homeier emailed some helpful commentary on this case and Cathy Holmes has written a helpful article. This kind of action is not a surprise. The rules are clear and the SEC has repeatedly stated that it has its eye out for unlicensed persons receiving placement fees for introducing investors to investment offerors. EB-5 is a good place to hunt for this kind of offender, since the field includes many players who know more about immigration than about investment and are thus vulnerable to tripping up on securities issues. This case does not involve fraud, just failure to register, but the consequences are still serious and a good wake-up call for everyone. Ignorance of the law is no excuse! Talk to your counsel and make sure that nothing you’re doing could put you afoul of registration requirements. And recall that paying an improper fee can be just as wrong as receiving it. People who allege that EB-5 is a free-for-all should also take note of this SEC announcement, which reflects the fact that EB-5 investments are indeed regulated just like any other security.

State Department Update
The cut-off date for mainland China-born EB-5 visa applicants moved from May 1, 2013 to September 1, 2013, as of the July Visa Bulletin. This is good news, and means more Chinese investors who’ve passed I-526 can get in the queue to receive visas.

USCIS Updates
USCIS has posted notes from the June 4 stakeholder engagement with economists. The most recent update to IPO processing times (posted July 15) shows a fractional dip in I-526 times (to 13.4 months) and slight increase to I-829 and I-924 times (to 13.1 and 12.2 months respectively). USCIS has officially suspended its Electronic Immigration System (ELIS) for Form I-526, and the Regional Center Document Library is now inactive — not a surprise, considering feedback from the people who struggled to use these tools. Also note that there’s a new and significantly expanded edition of the Form I-829 (dated 5/7/2015).

New and Removed RCs
Additions to the USCIS Regional Center List, 6/08/2015 to 6/23/2015

Additions to the USCIS Terminated Regional Center List 5/7/2015 to 6/9/2015

  • SZNW (California)
  • EB-5, MRC LLC (Michigan)

Suggested RC program changes (Jeh Johnson letter)

The EB-5 Regional Center program needs another reauthorization from Congress before September 30, 2015, and debate is heating up as to what program changes may be packaged with the reauthorization. The last couple program extensions included only minor tweaks (and were for a shorter period than hoped), but some significant changes are likely this time around. An important document in the debate is a April 27, 2015 letter from Secretary of Homeland Security Jeh Charles Johnson to Senator Grassley and Senator Leahy (click the link to read the letter). Here’s my summary of (and parenthetical comments on) Secretary Johnson’s proposals:

  • That Congress define additional bases for terminating regional centers and denying applications and petitions, with a particular focus on fraud risk and national security concerns. (This doesn’t look like a big change from current practice, as USCIS has already fit a wide variety of reasons for Regional Center termination under the official justification of “no longer promoting economic growth,” and petitions can already be denied and revoked for fraud and misrepresentation. And one hopes that broader authorization wouldn’t turn into excuse for decisions based on mere suspicion or without notification or due process.)
  • That Congress provide USCIS with the options of fining or temporarily suspending a regional center, in addition to the option of terminating it.
  • That Congress authorize USCIS to require that all regional center principals be U.S. citizens or lawful permanent residents. (This would be an important change from current practice.)
  • That Congress authorize USCIS to prohibit participation in regional centers and commercial enterprises by people with certain criminal and civil violations.
  • That Congress authorize USCIS to request reporting on and certification of regional center compliance with securities laws. (It’s not clear what exactly this would involve, and to what extent such a requirement would put a regional center in the position of having to certify compliance for activities by sellers or loan recipients that it doesn’t control.)
  • That USCIS be authorized to require and publish regional center annual reports that would include project progress reports, description of fund usage, and accounting of job creation. (It’s not clear how this would differ exactly from the current I-924A. With USCIS having omitted for years to follow up on promises to publish I-924A data, and hardly releasing any documents except as forced by FOIA, I’m skeptical of the promise/threat to publish.)
  • That USCIS be authorized to charge regional centers $20,000 per year to fund an “EB-5 Integrity Fund” that would underwrite audits and site visits.
  • That Congress refine the TEA definitions to limit them to a specified number of continuous census tracts and to include closed military bases by default. (Kudos, CMB lobbyists!)
  • That Congress increase the EB-5 investment amount for both TEA and non-TEA investments, and to link the investment amount to an inflation index from now on. (Mr. Johnson does not suggest an amount for the increase, but states that USCIS is separately writing an increased minimum investment into revised regulations.)
  • That Congress authorize USCIS to require regional centers to file business plans and offering documents in advance of individual investor filings. (Apparently, a sort of “dummy-I-526” process, which we’d like if processing times weren’t so long. Mr. Johnson also notes that this requirement is already being incorporated in regulations under revision.)
  • In the letter, Mr. Johnson also notes that he has approved a new protocol specifically defining and limiting how members of the public and Congress may communicate with USCIS, and limiting senior leadership intervention in case adjudications.

Secretary Johnson is not the only one who can write to senators and advocate for changes. Consider getting on board with advocacy efforts and contacting your Congressional representatives to express your views about Regional Center program reauthorization. IIUSA has drafted a letter with helpful comments on suggestions in the Johnson letter.

New & Removed RCs, Processing Times, Websites, Multifamily, NYT, Best Practices

New & Removed Regional Centers
Additions to the USCIS Regional Center List, 4/28/2015 to 5/11/2015

  • Golden State Economic Development Fund, LLC (California)
  • Encore Midwest Regional Center, LLC (Illinois and Missouri): encoreeb5.com
  • White Lotus Group Regional Center (Iowa and Nebraska)
  • Liberty Minnesota Regional Center (Minnesota and Wisconsin): libertyregionalcenters.com
  • American Regional Center Opportunity Fund, LLC (New Jersey, New York, and Pennsylvania)
  • Vistar’s EB-5 Business Alliance of Texas LLC (Texas)

Additions to the USCIS Terminated Regional Center List 4/22/2015 to 5/7/2015

  • LaSalle County Business Development Center (LCBDC) (Illinois)
  • US HITEC Regional Center (Illinois)
  • Tennessee Regional Center, LLC (Tennessee)

Other Items of Note

OIG and the Mayorkas legacy

After listening to an EB-5 stakeholder “Conversation with Director Mayorkas” teleconference on December 3, 2012, and hearing what seemed like just more idealistic talk about building greater expertise and professionalism and transparency into the EB-5 program, I wrote a depressed post titled “Promises for the future, not today.” I ended up deleting that post a couple months later when, to my surprise, Director Mayorkas’ Quixotic promises started coming true. He was a driving force behind hiring higher-grade subject matter experts onto the USCIS EB-5 adjudication team to improve the quality of adjudications; getting the EB-5 program office moved out of California to Washington D.C, where it gained more resources and more opportunity for oversight and collaboration with partners such as the SEC and FBI; hosting regular public stakeholder meetings to improve communication and transparency; and getting out a years-overdue EB-5 policy memo that helped make adjudication policies more standardized and transparent. Objectively, these moves were good for the integrity and health of the EB-5 program, though there were side effects. Presumably quite a few California adjudicators lost their jobs, and those who stayed with the program were reorganized and got more oversight and had to work harder (just as we who prepare paperwork had to step it up based on the rising review standards). I’m sorry but not surprised that Mr. Mayorkas has ended up with a nice big target on his back, especially since his next move after shaking up the EB-5 division and trying to whip it back into shape has involved helping President Obama with the Executive Actions on immigration. If you’d like to witness people aiming at that target, you can read the March 24, 2015 edition of the Office of Inspector General’s investigation into USCIS employee complaints. Have your gas mask ready to deal with the politics. Or if you just want the summary of the media’s take on this report: Mr. Mayorkas is a bad man who intervened in the decision-making of unimpeachable career civil servants out of favoritism for evil Democrats. My take is that a few disgruntled employee complaints about ambiguous cases cannot obscure how much Mr. Mayorkas improved the quality and predictability of EB-5 adjudications during his tenure by hiring business experts and economists and attorneys, getting more resources committed to EB-5, and pushing for published policy guidance. I personally blame his standards and staffing decisions for the fact that my business plans are about ten pages longer than they were pre-Mayorkas era and festooned with footnote citations to verifiable market and industry research. I also witness and appreciate the improved professionalism that he encouraged in preparation and review of EB-5 cases.
Update: See the comments for additional commentary and links to informed articles related to the OIG report.

Immigrant investor program comparison

To understand what the EB-5 program is and is not, it’s helpful to look at EB-5 in context of other immigrant investor programs. Last year the Migration Policy Institute published a very nice report that does just that: Selling Visas and Citizenship: Policy Questions from the Global Boom in Investor Immigration (October 2014). The report divides immigrant investor programs into two main categories and five types, as summarized (by me) in the following table.
comptable
Note that EB-5 falls within the category of private-sector business investment, and does not involve an investor-government transaction. You can give the Malta government cash in exchange for citizenship (program type #5); you can’t give the U.S. government cash for citizenship. Australia offers the option of a government investment product (government bonds) to buy in exchange for a visa (program type #3); the U.S. government does not offer EB-5 investments, leaving that to the private sector. Spain will grant a temporary visa if you purchase property (program type #2); the U.S. will not grant an EB-5 visa simply for asset acquisition. Agents trying to sell EB-5 have muddied the waters here, because potential immigrant investors like security and simplicity, and it’s not easy to sell private sector investment. Investing in a private business requires sophistication and involves risk, but that’s not such a comfortable story. So some agents try to imply that the U.S. government sponsors/underwrites EB-5 investments, and some try to peddle “secure investments” that are really only non-qualifying asset acquisitions. Do not listen to such stories. The fact is that the EB-5 and Regional Center programs fundamentally involve at-risk investment in job-creating business. You cannot buy a green card, the U.S. government does not offer or sponsor your investment (neither Regional Center approval nor project “pre-approval” constitute endorsement or underwriting by the government), and you can’t gain permanent residence simply by expending a certain amount of money. You can immigrate to the U.S. by making a qualifying investment that is spent to develop a new commercial enterprise that creates jobs. Or you can decide that the U.S. is too much trouble and go to St. Kitts & Nevis to buy citizenship.

A business investment-type program has advantages and disadvantages for governments. On the positive side (so far as domestic politics are concerned), the program can’t be criticized for simply selling green cards, and it may create jobs and spur economic growth. On the negative side, the government has a tough task in ensuring program integrity and maximizing economic impact when it doesn’t control the investment transaction. If you’re interested in this topic, I recommend reading the entire Migration Policy Institute report, which reflects thoughtfully on policy implications for each type of immigrant investor program.

ABC News stories, New RCs, IIUSA Conference

ABC on EB-5 Investors
This has been a week of journalistic exposés of how unsavory high-net-worth people can be. The New York Times has published a series of articles unveiling shady characters who’ve been buying up prime New York real estate, the Guardian has a multi-part series on how HSBC’s Swiss private bank has facilitated financial malefactors, and ABC news has released a bunch of screamer articles and videos on EB-5 investors that ask the question “are suspected criminals, spies, terrorists buying their way into the US?”
There are a few lessons for businesspeople offering EB-5 investments. First, do be serious about vetting your investors, assuming you don’t want to end up some day with unsavory connections and cameras chasing you down a hallway. USCIS, the State Department, OFAC and their partners are much more serious and meticulous about vetting EB-5 petitioners than the ABC reports imply, but still you can’t be too careful with your own screening.
As you read the ABC stories yourself and field reactions from others, here are some points to keep in mind:

  • ABC’s key sources appear to be Senator Charles Grassley and a few disgruntled USCIS employee insiders who felt they were rushed and micromanaged;
  • Senator Grassley’s stand on immigration is to increase border security, beef up interior enforcement, oppose amnesty, scrutinize DHS, and find program abuse;
  • Each EB-5 investor’s petition currently takes an average 13.8 months to get reviewed by USCIS, which is not exactly a rush job; both the petition process and subsequent visa process involve stringent review and requirements;
  • In fact you can’t buy a green card in the US, not for $500,000 or for any other amount; some countries do have visa-for-sale programs but the US does not; the EB-5 program grants a visa in exchange for investor-funded business development resulting in job creation, not for money (to put the EB-5 program in context, see this Migration Policy Institute report on investor visa programs around the world);
  • The fact that an investigation exists is a cause for concern, but not sufficient basis for assuming that the investigation will close with a guilty verdict;
  • There are terrorists and spies and cheats in the world, but people are not terrorists because they’re Iranian and are not spies and cheats because they’re Chinese, despite ABC’s implications.

FYI: EB5info has posted a copy of the memo referenced in the story, and IIUSA and Klasko Law have issued reaction statements.

IIUSA Conference Registration
A reminder that this is the last week for early bird registration for IIUSA’s 8th Annual EB-5 Regional Economic Development Advocacy Conference on April 12-14 in Washington D.C. We’ll have a lot to advocate about this year.

New Regional Centers
Additions to the USCIS Regional Center List, 12/31/2014 to 2/3/2015

  • Dine’ Bi Keyah Regional Center, LLC (Arizona and New Mexico)
  • American Liberty Alliance (California)
  • Zhonghong Regional Center LLC (California)
  • Live in America – Colorado Regional Center LLC (Colorado): www.liveinamerica.us
  • EB5 Capital – New York Regional Center (Connecticut, New York, New Jersey, and Pennsylvania): www.eb5capital.com
  • Birch Miami Dade Regional Center (Florida): www.birchcapital.com
  • Mariana Stones Corporation Ltd. (Guam)
  • Live in America – Indiana, Michigan, Ohio Regional Center (Indiana, Michigan, and Ohio): www.liveinamerica.us
  • Live in America – South Regional Center LLC (Kentucky and Tennessee): www.liveinamerica.us
  • Diamond City Montana EB-5 Regional Center, LLC (Montana)
  • Lubert-Adler Northeast Regional Center, LLC (New Jersey and New York): lubertadler.com
  • Queens Fort New York Regional Center, LLC (New Jersey, New York, and Pennsylvania): queensforteb5.com
  • West Penn Regional Center (Pennsylvania)