3/8 House EB-5 Hearing (TEA & Investment Amounts)

Today’s House Judiciary Committee hearing on The Department of Homeland Security’s Proposed Regulations Reforming the Investor Visa Program focused on changes to the EB-5 investment amount and TEA incentive proposed by USCIS in its Notice of Proposed Rule-making EB-5 Investor Program Modernization (DHS Docket No. USCIS 2016-0006).

The hearing opened with statements from the Congressmen responsible for two of last year’s reform bills – Senators Grassley and Leahy, and Representatives Goodlatte and Conyers. All four expressed support for USCIS’s proposed EB-5 regulations, though Leahy and Conyers also argued that there’s no substitute for a legislative solution. Leahy said that he and Grassley will soon reintroduce their reform legislation (an interesting development); Goodlatte and Conyers did not say anything about sponsoring legislation. All four made almost the same points as in last year’s House and Senate hearings, but sounded a darker note this year – turning “mend it or end it” from a question into a threat. Representatives Sensenbrenner and Lofgren followed with relatively positive statements, listing EB-5 successes and contributions, but both agreed on the need for modernization (higher investment amounts) and reform (TEA adjustments). The Committee then heard testimony from and questioned a panel including the GAO (recapping its Sept. 2016 study on TEA use in EB-5), regional center operators (ably represented by Angelique Brunner and Sam Walls III), an organization that specializes in property revitalization and blight prevention, and an anti-immigration activist. Oddly, USCIS was not represented. (Speaking of which, Colucci’s reponses for the record from last year’s Senate hearing are worth reviewing.)

I don’t have time report on all the details (you can watch the video and read the testimony), but conclude with a few general impressions. Not one of the Representatives who spoke opined that EB-5 is just fine the way it is – all expressed at least one concern, and sounded ready to support mending (if not ending) the RC program.Likewise, no one on the Committee side advocated for canceling the proposed Obama-era regulations – the only question was whether Congress should take back the policy-making ball and act first.  I heard little sympathy for the industry position that USCIS’s proposed investment amounts are too high and its proposed TEA incentive too restrictive. (Lofgren (D-CA) and Nadler (D-NY) spoke out for qualifications considering the urban context and investor demand, Goodlatte noted that he’d been willing to accept less drastic proposals, and Brunner advocated for market-based alternatives.) Goodlatte and Lofgren both raised the specter of retroactivity, which they didn’t call “changing the rules of the game midstream and thus derailing thousands of good-faith investors and projects and job creation” but rather “implementing reform now, instead of postponing it 7-8 years until the backlog is through the system (while not blaming ourselves for the legislative lollygagging that spurred the surges/backlogs)” Even David North was taken aback by the suggestion that Congress could impose a retroactive new investment amount, but apparently Mr. Goodlatte still hasn’t been shown how disastrous and counterproductive such a move would be.  What are you doing, industry advocates, besides earning a bad reputation for obstruction?  This hearing also suggested that Congress isn’t being informed about direct EB-5, and hasn’t considered the impact of investment amount, TEA, and job allocation changes outside the regional center context. Generally, I came away from the hearing with a sense that the House Judiciary Committee agrees about the need for some EB-5 program changes, recognizes program benefits but is more angry than before about flaws, and has progressed little since last year toward refining or agreeing about specific proposals for change.  (However a lobbyist speaking to The Real Deal pointed out that the hearing was not well attended by Judiciary Committee members, so the views expressed may not be representative.) There’s reportedly EB-5 reform legislation cooking behind the scenes, but we didn’t get any preview at this hearing, and the clock to the next regional center program sunset date on April 28 is ticking loudly.

S.232 Update, SEC & Attorneys, RC list changes

S.232 Update
Senator Feinstein and Senator Grassley have finally published text for and issued a joint press release on the long-shot S.232 – A bill to terminate the EB-5 Visa Program. The statement from Senator Grassley clarifies what this piece of legislation is really about: “For years, I’ve worked with bipartisan colleagues in good faith to reform it. Unfortunately, despite its many flaws, EB-5 proponents are apparently content with the status quo, and that’s unacceptable. I was hoping that it would not come to this point, but absent serious efforts to bring about reforms, we need to take the necessary steps to wind down the program and completely mitigate fraud, abuse and threats to our security.” S.232 expresses frustration at the progress of EB-5 legislation and makes a hardball negotiating statement: “if you don’t respond to my concerns, here’s what could happen.” The proposal to eliminate EB-5 entirely must be too drastic to gain much support or pass into law, but we should still take the frustration seriously. I can understand why EB-5 industry advocates in Washington DC would settle on a “protect the status quo” platform, that being the path of least resistance to industry consensus, but we cannot afford a reputation for being unserious about reform. We should address each of the concerns that Feinstein and Grassley raise in their press release. We can clarify points that are factually wrong (EB-5 is not green card sale and does not avoid waiting lines, as Feinstein assumes), respond constructively to valid concerns (for example support effective protections in response to past instances of fraud, address questions raised by GAO and Commerce studies on job counts), and have the leadership to offer some considered concessions on the fundamentally divisive issues (such how the targeted employment area incentive should be used, what investment amounts should be). We must not leave oxygen for S.232, or give it excuse to become anything more than a negotiating threat.

SEC Issues for Attorneys
IIUSA has reposted 10 Observations from Reviewing Evidence in an SEC Civil Enforcement Action, an article with good advice for attorneys based on the author’s review of documentary evidence in a civil enforcement action brought by the SEC against an attorney for taking commissions as an unregistered broker-dealer.

RC List Changes
Additions to the USCIS Regional Center List, 12/06/2016 to 02/04/2017

  • Health and Welfare EB-5 Regional Center, LLC (New Jersey, Pennsylvania)

Additions to the list of Terminated Regional Centers:

  • Medical Investment in Texas Regional Center (Texas) Terminated 1/23/2017
  • Pacific Proton Therapy Regional Center, LLC (California) Terminated 1/26/2017

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

Proposed New EB-5 Regs (priority dates, investment amounts, TEAs)

On January 13, the Federal Register is publishing a Notice of Proposed Rule-making titled EB-5 Investor Program Modernization (DHS Docket No. USCIS 2016-0006). The notice proposes and explains the rationale behind new EB-5 regulations on priority dates, investment amounts, and targeted employment areas, among other changes. The Notice gives a comment period ending on April 11, 2017, and the regulation amendments could go live at any time after that point – though I assume not very soon thereafter, since the notice solicits and will presumably receive extensive public comment, may require another draft before the final, and will need to be greenlighted by the new administration.

Summary of Proposed Regulation Amendments in DHS Docket No. USCIS-2016-0006

  1. Priority Dates: Allow an EB-5 petitioner to use the priority date of an approved EB-5 petition for any subsequently-filed petition. (In other words, an investor with an approved I-526 in one project could choose to file a new I-526 in a different project while keeping the original priority date. This would benefit investors whose project or regional center has trouble after petition approval, but before the investor receives a visa number. The regulations do not restrict investor reasons for choosing to file a new petition.)
  2. Investment Amounts: Increase the standard minimum investment amount to account for inflation, reduce the differential between standard and TEA investment amounts, and implement automatic increases every five years based on inflation (rounded to the nearest 100,000).  Based on CPI increases since investment amounts were set in 1990, this means that the standard minimum investment would become $1,800,000 in 2017. The TEA amount, set at 75% of the standard, would be $1,350,000 in 2017. The investor would be required to contribute the minimum investment amount that is designated at the time the petition is filed.
  3. Targeted Employment Areas: Eliminate state designation of TEAs, and have DHS determine TEA qualification by applying its own uniform standards to evidence presented by investors and regional centers. For high-unemployment TEAs, DHS would only designate an MSA, county, city, or project tracts. (A project tract TEA is the census tract where the project is located, or a group comprising any or all census tracts that touch the tract where the project is located — but not a group including any indirectly connected census tracts). The regulations do not specify which unemployment data DHS would use or accept.
  4. Other technical changes: define a process by which derivatives may file Form I-829 if not included on the principal’s position; provide greater flexibility in selecting the I-829 interview location; remove the requirement that investors report to a district office in order to receive a permanent resident card; miscellaneous other changes (including clarifying that an investor can be sufficiently engaged in an NCE merely by virtue of being an equity holder, without requiring a management or other active role).

The notice goes into extensive detail about USCIS’s thinking and research behind the proposed changes (which is interesting in itself, even apart from context), and invites stakeholders to respond with equally substantial data and analysis. I look forward to IIUSA or others stepping up to help organize a serious stakeholder response. We need to do better than hundreds of individual stakeholders mailing to basically just say “this would hurt” and “we don’t like change.” (Update: IIUSA is inviting feedback from members; deadline January 31, 2017)

The regulators at USCIS and legislators in Congress share similar goals — to modernize the EB-5 program and change certain aspects of the program in need of reform — but so far the draft legislation and proposed regulations suggest quite different changes. I wonder whether Congressional staffers will be influenced by these Notices of Proposed Rule-Making as they continue to refine legislation. I note that the draft regulations frequently reference Congressional intent as expressed around 1990, but not current discussions in Congress. (As a reminder, here are the investment amount and TEA changes proposed in the most recent draft EB-5 bill I’ve seen.)

EB-5 Regs (Regional Centers), I-924 Process and 2015 Stats, Processing Times

Status of Amended Regulations

USCIS has published an Advance Notice of Proposed Rulemaking (ANPRM) in the Federal Register. This notice “EB-5 Immigrant Investor Regional Center Program” (Docket No. USCIS-2016-0008) does not unveil any revised regulations, but instead generously solicits stakeholder input to help formulate new rules for regional center designation, the exemplar filing process, continued RC participation, and RC termination. (Docket #0008 references a separate notice “EB-5 Immigrant Investor Program Modernization” Docket No. USCIS-2016-0006 that may cover the other EB-5 topics that we expected to see addressed. 1/12 UPDATE: here is Docket No. USCIS-2016-0006, which proposes new regulations for EB-5 investment amount increases, TEA requirements, priority dates, and other EB-5 matters.)

The bad news about notice #0008 is that it suggests USCIS is in a preliminary stage of thinking about new regional center designation rules, hasn’t actually drafted any regulations on this topic, and doesn’t expect to start for at least another 90 days. (Though hustle might be useless anyway, if Trump makes good on his election commitment to issue a temporary moratorium on most new regulations.) The good news is that notice #0008 demonstrates genuine concern to understand and work with regional center reality, presents thoughtful analysis of the issues, and poses excellent questions. Answers prepared for USCIS in response to the ANPRM should be organized and shared with Congressional staffers as well, since draft EB-5 reform legislation covers the same issues that USCIS aims to resolve, and would benefit from the same input.

I-924 Approval Data

I try to improve the accuracy of my Regional Center List by requesting regional center designation letters from USCIS through the FOIA process. So far I have logged all initial designations and amendments through 2015. I’m sharing summaries of data points gleaned from the most recent letters in my collection (2015 approvals) to help shed light on processing issues.  As we prepare to respond to the ANPRM, let’s think about what’s wrong with the following pictures, and how to improve the situation.

Processing Times

Speaking of processing times, here is an email that I should have shared last week.

From: U.S. Citizenship and Immigration Services [mailto:uscis@public.govdelivery.com]
Sent: Thursday, January 05, 2017 11:32 AM
Subject: USCIS Now Uses Specific Dates to Show Case Processing Times

Dear Stakeholder,

Starting on Jan. 4, 2017, we will post processing times using a specific date format rather than weeks or months. This is the first step in providing processing times that are timelier and easier to understand.

We post case processing times on our website as a guide for when to inquire (service request) about a pending case. For the last several years, we have posted case processing times using two different formats:

  • For cases that were within our production goals, we listed processing times in weeks or months.
  • For cases that were outside of our production goals, we listed processing times with a specific date.

Always refer to your I-797C, Notice of Action, and look for “receipt date” to determine when we accepted your case. If the receipt date on the USCIS Processing Times web page is after the date we have listed on your notice, you should expect to hear from us within 30 days. If after those 30 days, you have not heard from us, you may make an inquiry on your case.

We recommend using our e-request tool for all case inquiries. In addition, we have many other services and tools at my.uscis.gov

If you move, remember to update your address for each pending case and receipt number at uscis.gov/addresschange.

Kind Regards,
USCIS Public Engagement Division

Note that this change is cosmetic: processing “as of month” and “as of date” are the same information, just in a different form. But the change is helpful to clarify that the report does not give average processing times, but rather a metric for judging when it’s okay to inquire about case status. FYI here is my spreadsheet of historical IPO processing times with columns translating month to date and vice versa. (But whether considering month or date, keep in mind individual deviations as illustrated above in my scatter plot charts of actual I-924 processing in 2015.)

Proposed EB5 investment and TEA changes

The Regional Center program sunset date has been pushed back to April 28, 2017 by Public Law 114-254, but don’t count on the EB-5 status quo remaining unchanged through April. As I reported before, EB-5 filing fees are increasing from next week, there’s a new EB-5 Policy Manual, and Congress and USCIS might be about to unveil major EB-5 rule changes. USCIS signaled intention to post proposed new EB-5 regulations in the coming month, which could (at record speed) mean a final rule as early as March 2017. Congress reportedly came close to finalizing new EB-5 legislation behind the scenes last month and reportedly plans to introduce a new bill shortly. (USCIS has a history of dragging regulation revisions out over months or years or even decades, and Congress has a packed schedule for Trump’s first 100 days without mentioning EB-5. But still, there’s at least a chance of immanent EB-5 action.)

New regulations from USCIS promise to increase the minimum EB-5 investment amount, revise Targeted Employment Area requirements, clarify regional center designation requirements, and consider priority dates. We’ll have to wait for the proposed rule to learn more detail. (UPDATE: here is the detail.) New legislation promises to address those same issues while also adding new rules  for job creation, project pre-approval, investor source of funds, investor vetting and protections, fund administration, and many aspects of regional center operations.  My Bill Comparison Chart summarizes features from various iterations of proposed EB-5 legislation. I just added a column for a new “staff draft” bill dated 12/2/2016 that has been making unofficial rounds. This draft is a version of the H.R. 5992 released earlier this summer, with revisions that show the influence of good sense (clearer presentation, no more deadly retroactive effective dates, fewer practically impossible tasks for USCIS and regional centers) as well as good lobbying by large regional centers (lower fees and better incentives for the major players). This staff draft legislation is unofficial (I received the same document separately from three sources, but without much context, and it’s just a redline with many passages marked for further negotiation), but I’m analyzing it because I hear that a bill based on this document may be  introduced early next year.

To begin, I’ve outlined proposals in the recent staff draft legislation that would change the EB-5 minimum investment amounts and targeted employment area criteria. (Click on the link to access the document, which has tidy summary tables and some analysis of implications.) Future posts will address other big proposed changes that I consider particularly significant for my clients: proposed new rules for job creation, amendments, fund administration, ownership/management, and regional center operations. (I’ll also link to useful articles from others. For example Bernard Wolfsdorf’s informative webinar “EB-5: 12/23/16 Fee Increase & Preparing for 2017” discusses the staff draft legislation and other developments.)  We don’t know whether the proposals in the draft legislation will become reality, but it’s important to know what’s being discussed in Washington. Discussions in Congress may or may not affect the changes that USCIS proposes through regulation. Regulation rule changes from USCIS will be more limited than what Congress can enact, and might be more restrictive. (I hear that USCIS has been working closely with the hardliner Senator Grassley, which is not a good sign.) Let’s see who acts first.

1/12/2017 UPDATE: DHS has published its proposed changes to investment amounts and TEAs in a Notice of Proposed Rule-making: EB-5 Investor Program Modernization (DHS Docket No. USCIS 2016-0006).

Countdown to reauthorization (CR to 4/28/2017)

The next sunset date for the regional center program is coming up on Friday 12/9, and I’ll update this post with relevant news as I receive it. (See my 9/29 post if you’d like to review the history of RC program authorizations.)

UPDATES:

  • 12/10/2016: President Obama signed into law H.R. 2028, the “Further and Continuing and Security Assistance Appropriations Act, 2017.” It is now Public Law 114-254. This extends Regional Center program authorization together with government funding and other authorities through April 28, 2017.
  • 12/9/2016: The Senate is up late voting on the CR (HR 2028), and tomorrow should bring the good news of no government shutdown or RC program lapse.
  • 12/8/2016: The Hill reports that the CR passed the House today, and the Senate is expected to vote tomorrow. GOP leaders are confident that it will reach the President by the deadline, though it’s facing some opposition.
  • 12/7/2016: IIUSA has issued an advocacy alert welcoming the CR and the short-term reauthorization of the EB-5 Regional Center Program through April 28. “EB-5 stakeholders and congressional offices have engaged in meaningful discussions all year, particularly over the past few months, to reach consensus and compromise for the healthy future of the Program. With a tight deadline to fund the federal government and address other pressing legislative issues, there was simply not enough time for a reform package to be passed during this Congress. The short-term extension through April 28 will ensure that the industry and legislators will have the opportunity to agree upon a comprehensive reauthorization bill that provides necessary reforms to the Program while allowing the Program to continue to grow, thrive and endure in the long term.”
  • 12/6/2016: Quoted from a House Appropriations Committee Press Release: “House Appropriations Chairman Hal Rogers today introduced a short-term Continuing Resolution (CR) (H.R. 2028) to prevent a government shutdown and continue funding for federal programs and services until April 28, 2017. The legislation also contains funding for emergency disaster relief.  …The CR extends funding for operations for most federal agencies, programs and services until April 28, 2017. It maintains the current budget cap level of $1.07 trillion put into place under the Budget Control Act of 2011. The legislation continues policy and funding provisions included in currently enacted fiscal year 2016 Appropriations legislation. It does not include controversial riders, or major changes in existing federal policy.   ….For the full text of the legislation, please visit: http://docs.house.gov/floor/”  The Appropriations Committee has also posted a nice section-by-section summary.
  • 12/6/2016: Lawmakers haggle over funding bill as shutdown nears, says The Hill
  • 12/5/2016: I hear that Goodlatte and Conyers’ H.R. 5992 EB-5 Reform Act is still under active negotiation behind the scenes. A staff draft of the bill dated 12/2/2016, just forwarded to me by a kind reader, shows significant revisions from the original bill and suggests concessions to industry pressure on TEA definitions, visa set-asides, minimum investment amounts, foreign government involvement, and account transparency requirements. The matter of retroactive effective dates is marked as controversial and “unresolved” in this draft. Provisions on direct jobs, public bonds, and loan restrictions are highlighted as points for discussion. I will be astonished if a substantive EB-5 reform bill gets passed soon, but Congress might exceed expectations. This draft in progress does show a lot of recent work

Policy Manual EB-5 Section: What’s New

The EB-5 program just shifted onto a new and slightly different foundation. USCIS Policy Manual Volume 6, Part G, published today, is now the controlling source for EB-5 policy guidance. Usually we get a review and comment period before new policy goes live, but the effective date for this policy (which I’ll call PM 6G for short) is November 30, 2016.

PM 6G consolidates and replaces (and expands on) the May 2013 EB-5 Policy Memo, EB-5 sections in the Adjudicator’s Field Manual, and other related prior USCIS guidance. It’s intended as a compendium of existing policy, but it’s not identical to the previous guidance. Here are significant points that I notice (based on reading PM 6G side-by-side with the May 2013 Policy Memo, and consulting my memory).

PM 6G introduces a few new petition filing instructions:

  • Chapter 3(B)(3) states that a regional center I-526 petition for a project not previously reviewed by USCIS must identify the project “as an actual project being presented for the first time,” and  “should contain an affirmative statement signed by a regional center principal confirming that the regional center is aware of the specific project being presented for the first time as part of the immigrant investor petition.”
  • Chapter 4(A) states that a regional center I-526 petition for a project previously reviewed by USCIS must submit the previously-approved documentation together with the investor’s documents. This is required even though the regional center previously submitted the documentation with the Form I-924. The petition must also include a copy of the regional center’s most recently-issued approval letter.
  • Chapter 5(B) states that a I-829 petition must include relevant documents previously submitted with the Form I-526, including the comprehensive business plan and economic impact analysis, if the petitioner is relying on such documents to meet his or her burden of proof. “This information is necessary to indicate whether there are material changes that would impact deference.”

PM 6G includes a few items that might be arguable as new policy:

  • Chapter 2(A)1 has a section on “using loan proceeds as capital”
  • Chapter 2(D)4 says that “USCIS may request additional evidence that the indirect jobs created, or to be created, are full time.” (The May 2013 Policy Memo had stated the opposite:Due to the nature of accepted job creation modeling practices, which do not distinguish whether jobs are full- or part-time, USCIS relies upon the reasonable economic models to determine that it is more likely than not that the indirect jobs are created and will not request additional evidence to validate the job creation estimates in the economic models to prove by a greater level of certainty that the indirect jobs created, or to be created, are full-time or permanent.” We need to get PM 6G revised to reflect that reasonable approach.) Chapter 2(D)(4) also confusingly defines direct jobs in the context of regional center job creation and economic analysis as “those jobs that establish an employer-employee relationship between the new commercial enterprise and the persons it employs.” This should be revised or expanded to reflect the alternate meaning of a “direct” job that is in fact used by economic models.
  • Chapter 2(D)6 incorporates the content of the 12/20/2012 Operational Guidance on tenant occupancy
  • Chapter 3(D) says that amendments are optional for changing a regional center’s “industries of focus, business plans, or economic methodologies,” but does not say that amendments are optional for a change in geographic boundaries.  The May 2013 Policy Memo had included geographic boundaries on the list of changes for which an amendment was not required.
  • Chapter 5(B) defines a first-in policy for allocating jobs to EB-5 investors, absent other agreement  (departing from the recent practice of saying no investors get jobs if there aren’t enough for all and there isn’t a job allocation agreement)

PM 6G provides some new examples, clarifications, and re-emphasis:

  • Chapter 2(A)2 lists types of documents that can be used to help demonstrate source of funds
  • Chapter 2(A)2 lists “administrative fees, management fees, attorneys’ fees, finders’ fees, syndication fees” as examples of expenses that will be considered to erode capital made available to the job-creating entity, if paid out of the EB-5 qualifying investment amount
  • Chapter 2(A)5 repeats the old point that TEA qualification is determined for each petitioner based on the  project location’s TEA status at the time of that petitioner’s investment or I-526 filing, while re-emphasizing the implication that the project location is not necessarily a TEA for all time, and just because some early investors qualified for the reduced investment amount isn’t determinative for later investors in the same project
  • Chapter 2(D)3 lists examples of evidence to be provided for a job-sharing arrangement in order to show that it truly involves job share of a full-time position, and not combination of part-time positions
  • Chapter 2(D)5 re-emphasizes that a reasonable economic methodology must be based on reasonable inputs, and gives examples of economic model inputs and relevant documentation to help establish their reasonableness. This discussion is repeated in Chapter 5(B), with odd lack of distinction between evidence required at the I-526 and I-829 stage.
  • Chapter 3(A) describes new detail required of the operational plan filed with the I-924 Application for Regional Center
  • Chapter 3(B)1 suggests specific content for the “general proposals and predictions” in a regional center application relying on hypothetical projects
  • Chapter 3(E) describes the process and issues in regional center termination
  • Chapter 4(C) and 5(C) discuss material change in terms of the same principles but with different language and different examples from the May 2013 Policy Memo. Unlike the memo, the manual discusses and gives examples of changes that would NOT count as material.
  • Chapter 5(B) tries to discuss evidence for regional center job creation at the I-829 stage, but needs more work to clearly address issues specific to regional center as distinct from direct investments, and to differentiate what’s required at I-829 from what’s required at I-526
  • Chapter 5(B)1 gives examples of kinds of construction jobs that do and don’t count as intermittent

What is the significance of PM 6G?  For investors, I guess it doesn’t make much difference because it doesn’t include major policy changes (yet) and basically says what their consultants knew already. It will just be a handy place to find all EB-5 policy, being more comprehensive and better written than the May 2013 memo. Attorneys will want to get busy finding problems and commenting on details that need to be changed.  I’ll have to spend Christmas going through years of blog posts and other documents updating the content and citations to reference PM 6G instead of the various superseded guidance and policy sources (and maybe spend Easter the same way when PM 6G gets revised based on new regulations). I dislike the fluidity of the online Policy Manual, and for myself am copying the content into stable old-fashioned page-numbered documents with navigation.(Here is a link to my folder, which I expect will eventually include many dated versions. You’re welcome to share, keeping in mind that the online manual is the most reliable source for the most current content.)

I look forward to linking to other reactions on the manual here, and may modify my own comments in this post.

Policy Manual EB-5 announcement

From: U.S. Citizenship and Immigration Services [mailto:uscis@public.govdelivery.com]
Sent: Wednesday, November 30, 2016 9:29 AM
Subject: USCIS Message: Policy Manual Available for Comment Employment-Based Fifth Preference Immigrants: Investors

Dear Stakeholder,

USCIS seeks your input on the USCIS Policy Manual item listed below which contains either new or revised policy guidance. Please note that this item is effective as of the date shown below.

Type of Document for Comment: USCIS Policy Manual
Title of Document: Employment-Based Fifth Preference Immigrants: Investors
Related Documents: Policy Alert
Opening & Closing Dates for Comment: November 30, 2016 – December 14, 2016
Effective Date of Policy: November 30, 2016

Please send all comments to publicengagementfeedback@uscis.dhs.gov and be sure to include the following to make your comments clear:

State the title of the relevant volume and section in the subject line of your message;
Refer to a specific portion of the document;
Explain the reason for any recommended change; and
Include data, information, or authority that supports the recommendation.

If you are unable to access the document through the link provided above, please do the following:

  1. Go to www.uscis.gov/outreach
  2. Select “Feedback Opportunities” on the left side of the page
  3. Select “Policy Manual for Comment” on the left side of the page

Kind Regards,

USCIS Public Engagement Division

New EB-5 Regs in 2017?

01/11/2017 Update: USCIS published an Advance Notice of Proposed Rulemaking  “EB-5 Immigrant Investor Regional Center Program” (Docket No. USCIS-2016-0008)  and Notice of Proposed Rule-making EB-5 Investor Program Modernization (DHS Docket No. USCIS 2016-0006).

–ORIGINAL POST–

While we’ve been focused on how Congress might change EB-5, the immigration service is taking action. Since Spring 2015, DHS has published Rule 1615-AC07 (Improvement of the Employment Creation (EB-5) Immigrant Regulations) bi-annually as an agenda item in the Office of Management and Budget’s Rule list. Since the “stage of rule-making” just said “Long-Term Actions,” with no specified timeline, I didn’t actually hope to see action any time soon. But now, the Fall 2016 OMB Rule list has upgraded the status of 1615-AC07 to “Proposed Rule Stage” and has added a timetable date: Notice of Proposed Rulemaking on date 01/00/2017. That means that in just a couple months, we could be getting our chance to read and comment on new regulations that make significant EB-5 program changes (including increased investment amount), and those regulations could go live shortly after the comment period closes. (Or not — my post from June discusses the regulatory process and how it’s played out before.) The Fall 2016 version of the rule notice goes into more detail on what DHS intends to accomplish with the new regulations, and promises to address a point not mentioned in earlier notices: “providing the opportunity to mitigate the harsh consequences of unexpected changes to business conditions through priority date retention in limited circumstances.” While new legislation from Congress might primarily focus on the regional center program, new DHS regulations will affect all EB-5 investors, and this notice concerns everyone in EB-5.

DHS/USCIS RIN: 1615-AC07 Publication ID: Fall 2016
Title: Improvement of the Employment Creation Immigrant Regulations

Excerpted from http://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201610&RIN=1615-AC07

Abstract:
DHS proposes to amend its regulations governing the employment-based, fifth preference (EB-5) immigrant entrepreneur category and EB-5 regional centers to modernize the EB-5 program based on current economic realities and to reflect statutory changes made to the program. DHS is proposing to update the regulations to include the following areas: priority date retention, increases to the required investment amounts, revision of the Targeted Employment Area requirements, clarification of the regional center designation and continued program participation requirements, and further definition of grounds for terminating regional centers.
Statement of Need:
The proposed regulatory changes are necessary to reflect statutory changes and codify existing policies, more accurately reflect existing and future economic realities, improve operational efficiencies to provide stakeholders with a higher level of predictability and transparency in the adjudication process, and enhance program integrity by clarifying key eligibility requirements for program participation and further detailing the processes required. Given the complexities involved in adjudicating benefit requests in the EB-5 program, along with continued program integrity concerns and increasing adjudication processing times, DHS has decided to revise the existing regulations to modernize key areas of the program.
Anticipated Costs and Benefits:
As a result of these amendments and resulting modernized program, DHS believes that regional centers, entrepreneurs, and the Federal each benefit. This rule would benefit regional centers by clarifying the requirements for designation and continued participation in the EB-5 program, making the application process more transparent for regional centers and streamlined to improve DHS operational efficiencies. The rule would benefit entrepreneurs seeking to participate in the program by providing the opportunity to mitigate the harsh consequences of unexpected changes to business conditions through priority date retention in limited circumstances. This rule would also provide a more transparent process for entrepreneurs seeking to participate in the regional center program by providing increased consistency and predictability of adjudications through the clarified regional center continued program participation requirements. These changes will also streamline the adjudication process and improve DHS operational efficiencies, resulting in improved adjudication times. Finally, the Federal Government will benefit from clarifications and enhancements to the EB-5 program to strengthen program integrity, reducing the risk of fraud and national security concerns in the program, as well as improving operational efficiencies to reduce overall program costs.

Election and EB-5 (updated), RC list changes

Political Changes and EB-5
In the new political climate, Regional Center EB-5 has an interesting position: it’s an immigration program whose strongest criticism has been that it unfairly benefits wealthy New York real estate developers. Perhaps we’re about to see EB-5 become an immigration program whose saving grace is its benefits to big developers (including President-elect Trump’s family). Or maybe EB-5 will be crushed between judiciary committee chairmen (still to be Senator Grassley and Rep. Goodlatte in the new Congress) who want reforms and a new administration that may aim to cut down on immigration generally? Maybe the Regional Center program will be simply ignored and punted down the road with more short-term extensions as the lame-duck Congress focuses on bigger spending bill issues and the Judiciary Committees get caught up in Supreme Court hearings? I don’t know. Preliminary comments on the election’s immigration and EB-5 impact: IIUSA letter to members, EB-5 Insights Post-Election Immigration Update, Klasko Law post on the Election Impact on EB-5. In the article Leahy to press ahead with EB-5 reforms in lame duck session (Nov. 16. 2016), VT Digger quotes sources saying that Senators Leahy and Grassley are continuing to push even now for any regional center reauthorization to be accompanied by reforms. However, the impression I get from reading political news is that Congress as a whole is determined to do and decide just as little as possible until Trump is President. House Republicans have already agreed it’s a good idea to extend government funding from December 9, 2016 into 2017 with another short-term spending bill, in order to defer big decisions until next year. It’s probable that the Regional Center program will piggy-back on that additional extension of existing appropriations and authorities, as it did before — if for no other reason than that Congress would have to make extra effort and go out of its way to specially exclude it. (Update: a CR has indeed extended the RC program with government funding through April 28, 2017.)

Regional Center List Changes
Additions to the USCIS Regional Center List, 10/03/2016 to 11/01/2016

  • EB-5 Fund CA, Inc. (California)
  • Home Paradise Texas Regional Center, LLC (Oklahoma, Texas): ushpic.com

Renamed:

  • CanAm Los Angeles County Regional Center, LLC (former name Los Angeles Film Regional Center) (California)
  • Central Southern Regional Center (previously USA South Regional Center) (Louisiana, Oklahoma, Texas)
  • Rural Economic Development Center LLC (former name 1900 Gulf Street Partners Regional Center LLC) (Kansas, Texas)

Removed, but not listed as terminated:

  • Los Angeles County Regional Center (California)
  • Mountain States Center for Foreign Investment (Utah)

New Terminations:

  • Montana Energy Regional Center LLC (former name USA Montana Energy Regional Center) (Montana) Terminated 11/1/2016
  • Dominion Mid-Atlantic Associates, Inc. (Virginia, Virginia) Terminated 10/20/2016
  • Mariana’s Investment Co, LLC (Commonwealth of Northern Marianas Islands) Terminated 10/27/2016
  • Northern Illinois Regional Center (Illinois) Terminated 10/13/2016

Final Fee Rule, Processing Updates, RC Withdrawal

Today the Federal Register published U.S. Citizenship and Immigration Services Fee Schedule, a final rule adjusting the fees required for most immigration applications and petitions. USCIS invites stakeholders to participate in a Fee Rule Engagement teleconference on November 2, 2016 from 3:30 to 4:30 PM EST. (To register, click on the USCIS registration page.)

The final rule is similar to the proposed rule that we reviewed this summer, with the addition of DHS response to public comments. Here are the portions of the rule particularly significant to EB-5 (summarized from PDF pages 17-20, 30-31, and 41 of the final rule).

Fee Increases

EB-5 petitions and applications become more expensive to file as of December 23, 2016.
newfees
The fee increase for Form I-924 is especially drastic, and I’m surprised to discover that USCIS apparently did not hear public feedback on its two most obvious problems: that it was assessed based on inaccurate assumptions about regional center revenue, and that it will discourage regional centers from voluntarily using I-924 to file the amendment requests and Exemplar I-526 that USCIS wants to encourage. IIUSA and AILA – did you drop the ball on commenting, or did USCIS just not pay attention? But the rule is final now, so we live with it. And Regional Centers, you might want to hustle to file any exemplars and amendments before December 23.

Processing Issues

  • The rule does not promise that fee increases will bring improved service for EB-5 petitions. The rule states that higher fees will be used to recover costs needed to sustain current operating levels, pay a share of services that DHS provides on a fee-exempt basis to others, bolster IPO’s fraud detection and national security capabilities, and make limited investments in technological improvements to bolster information security. These uses have merit, but none are directly linked to improved EB-5 processing times. But the rule does claim that the new I-924 fee “was, in part, calculated to allow USCIS to hire additional staff to process Forms I–924 and provide better and more thorough service.”
  • The rule includes in passing this interesting tidbit on how IPO currently handles I-829 adjudications:

DHS appreciates the suggestions for improving EB–5 processing times. DHS clarifies that USCIS already has processes in place to streamline adjudication of the business-related portions of multiple Forms I-829 associated with a single, new investment project. Specifically, when USCIS receives a regional center-associated Form I–829 that involves a new commercial enterprise, USCIS reviews the first two petitions associated with that new commercial enterprise to determine if there are specific project-related issues that would apply to all petitioners associated with the new commercial enterprise. After completing that review, USCIS commences adjudication of all Forms I–829 associated with that new commercial enterprise filed within a given period. Similarly, when USCIS receives a regional center-associated Form I–829 that involves a previously reviewed commercial enterprise, USCIS immediately assigns that petition for adjudication. In other words, USCIS currently adjudicates Form I–829 petitions in ‘‘first in, first out’’ order by new commercial enterprises.

  • The rule gives the welcome news that “USCIS is transforming how it calculates and posts processing time information to improve the timeliness of such postings, but more importantly, to achieve greater transparency of USCIS case processing.” To that end, “USCIS is evaluating the feasibility of calculating processing times using data generated directly from case management systems, rather than with self-reported performance data provided by Service Centers and Field Offices” and “USCIS is also considering publishing processing times using a range rather than using one number or date. This approach would show that, for example, half of cases are decided in between X and Y number of months.” (Or, as Sir. Humphrey Appleby might say: of course we understand that you want a usable processing report, and have convened an interdepartmental committee to conduct a feasibility study that will make recommendations at the appropriate juncture, in due course, when the moment is ripe, in the fullness of time. Rome wasn’t built in a day.)
  • The rule says that “USCIS does not have immediate plans to allow electronic filing for EB–5 requests, but appreciates commenters’ desire to avoid voluminous paper filings. USCIS plans to allow electronic filing for EB–5 requests in the future.”

Regional Center Withdrawal Procedure

The rule recognizes the problem that “Currently, there is no procedure for regional centers seeking to withdraw their designation and discontinue their participation in the program,” and offers to provide a withdrawal procedure to “allow a regional center to proactively request withdrawal without the need for the more formal notices sent out by DHS.” To this end, the rule amends the EB-5 regulations, replacing 8 CFR 204.6(m)(6) with the text I quote below. The new language is similar to the previous 8 CFR 204.6(m)(6) except that it adds failure to pay fees as a reason for termination and adds a rather vague paragraph stating that a regional center may notify USCIS by letter or other means if it wishes to withdraw from the program. The paragraph does not clarify what the letter should include, where it should be sent, what kind of decision USCIS has to make about the letter, and to what extent such a regional center will be treated differently from another whose designation is terminated involuntarily.

PART 204—IMMIGRANT PETITIONS
■ 8. Section 204.6 is amended by revising paragraph (m)(6) to read as follows:

  • 204.6 Petitions for employment creation aliens.

* * * * * (m) * * *
(6) Continued participation requirements for regional centers.
 (i) Regional centers approved for participation in the program must:

(A) Continue to meet the requirements of section 610(a) of the Appropriations Act.

(B) Provide USCIS with updated information annually, and/or as otherwise requested by USCIS, to demonstrate that the regional center is continuing to promote economic growth, including increased export sales, improved regional productivity, job creation, and increased domestic capital investment in the approved geographic area, using a form designated for this purpose; and

(C) Pay the fee provided by 8 CFR 103.7(b)(1)(i)(XX).

(ii) USCIS will issue a notice of intent to terminate the designation of a regional center in the program if:

(A) A regional center fails to submit the information required in paragraph (m)(6)(i)(B) of this section, or pay the associated fee; or

(B) USCIS determines that the regional center no longer serves the purpose of promoting economic growth, including increased export sales, improved regional productivity, job creation, and increased domestic capital investment.

(iii) A notice of intent to terminate the designation of a regional center will be sent to the regional center and set forth the reasons for termination.
(iv) The regional center will be provided 30 days from receipt of the notice of intent to terminate to rebut the ground or grounds stated in the notice of intent to terminate.
(v) USCIS will notify the regional center of the final decision. If USCIS determines that the regional center’s participation in the program should be terminated, USCIS will state the reasons for termination. The regional center may appeal the final termination decision in accordance with 8 CFR 103.3.
(vi) 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.

Visa Usage, GAO TEA Report, RC List Updates

Visa Usage
Here is a chart that visualizes how EB-5 fits into the big picture of U.S. immigration. The main chart is lifted from a New York Times article this week that discusses immigration levels. I added the box with detail on numerical limits within EB preference visas.
greencards
It’s worth gazing at this chart and considering how we feel about the allocations. The pie is unlikely to get larger: the message I hear from Washington is that no one has the political will to push for a greater total number of immigrants to the U.S. The pie  could be divided differently, if Mr. Trump or Ms. Clinton gets a chance to make comprehensive immigration reform happen. EB-5 is currently limited to barely 1% of the annual total (7.1% of the EB category), and EB-5 investors get still fewer numbers since they share the allocation with family members. This wasn’t a problem for years when the program didn’t really work, but now is a shame as EB-5 is working overtime and thousands of people eager to invest in US business and bring their resources to the US are stuck in years-long waiting lines. (For sobering figures on wait times, and thoughts about how to alleviate the problem, see the slides from Symposium on EB-5 Visa Usage at the IIUSA EB-5 Industry Forum October 2016.) The employment-based category as a whole is bursting at the seams as it tries to accommodate needs from health care to Silicon Valley with only 15% of total visas, so EB-5 stakeholders aren’t the only ones agitating strongly and loudly for a better piece of the pie. As the New York Times points out, the current legal immigration system prioritizes family reunification over employment-based preferences. Mr. Trump says he wants “to choose immigrants based on merit, skill and proficiency” (so far so good for EB-5, though his idea of reducing total immigration could pull the rug from under EB-5 visa numbers), while Ms. Clinton’s immigration platform keeps the focus on families. One or the other will probably get elected next month, and we’ll wait with bated breath to see what happens next with immigration. Maybe either will solve the problem by reducing the likelihood that a million sensible people a year will even want U.S. immigrant visas. (FYI: my chart and NYT’s chart aren’t exactly in parallel, since theirs shows percentages used in a given year while mine shows numerical limits — percentages that may not match actual usage in 2014.)

GAO Report
The Government Accountability Office has another EB-5 report, this one titled Immigrant Investor Program: Proposed Project Investments in Targeted Employment Areas (September 19, 2016). The report is addressed to Senators Grassley and Leahy and Representatives Goodlatte and Conyers, and responds to their request for information on EB-5 projects in recent I-526 petitions, specifically “(1) proportion of petitioners that did or did not elect to invest in a TEA; (2) proportion of petitioners basing a high unemployment TEA on various types of geographic areas; and (3) EB-5 investment as a proportion of the total investment in petitioners’ TEA projects.” GAO answers these questions with statistics from a random sample of 200 I-526 petitions filed in FY2015 Q4. The report will interesting for people who don’t already know where most EB-5 money goes, in terms of geography and industry, and how EB-5 normally fits into a project’s capital stack. The report is a gift to journalists itching to write a headline with “gerrymandering” in the title (though it also indicates that the majority of combined-census-area TEAs are actually quite small areas, comprising fewer than 11 tracts). I’ve gathered that Grassley et. al.’s ideal EB-5 project is a business with no non-immigrant funding in a thoroughly blighted Midwestern town, and the GAO report reflects the fact that indeed few EB-5 petitioners have chosen such projects. Of course TEA incentives are only one factor in this reality. Market factors also determine the kind of project that entrepreneurs are willing to undertake and investors are willing to fund. But the GAO report will inform the talks on EB-5 legislation that need to resume before December 9.

Regional Center List Updates
Additions to the USCIS Regional Center List, 9/16/2016 to 10/03/2016:

  • Eagle EB-5 Regional Center (California)
  • McCormick Regional Center LLC (Washington)
  • NY Entrepreneurs Fund, LLC (Connecticut, New Jersey, New York)

Restored to list of approved RCs (apparently removed by mistake last week):

  • Benefield California Regional Center, LLC (California)
  • HS Regional Center, LLC (California)
  • SAA Cedisus EB-5 Projects – SW Indiana Regional Center, LLC (Indiana)
  • Western Energy Regional Center (Oklahoma)

Renamed:

  • American Islands Regional Center (former name United States Virgin Islands Regional Center) (U.S. Virgin Islands (USVI))

New Terminations:

  • Northern Illinois Regional Center (Illinois) Terminated 10/16/2016
  • Arizona Alternative Energy Center, LLC (Arizona) Terminated 10/6/2016
  • Detroit Immigrant Investor Regional Center (Michigan) Terminated 9/30/2016
  • Yellowstone Montana Regional Center, LLC (Montana) Terminated 9/28/2016

H.R. 5992 Account Transparency Requirement

The Account Transparency Requirement proposed in Goodlatte and Conyers’ H.R. 5992 American Job Creation and Investment Promotion Reform Act of 2016 (see pages 64-72) is probably the most important new idea in the bill. Commentary on the bill has focused on suggestions that people don’t like (retrogression, set-asides), but we should also be discussing account transparency because it’s genuinely relevant to program integrity. I don’t see national security threats in EB-5, but misappropriation of funds shielded by lack of transparency is a live problem — the major factor in most SEC enforcement actions so far on EB-5 offerings.  H.R. 5992 may not become law, but any EB-5 bill that does get passed will certainly have the words “reform” or “integrity” in the title, and we should be working to refine relevant and effective integrity provisions.  Let’s consider H.R. 5992’s account transparency proposal, the impact it would have if enacted, and how it might be improved.

Summary of the Account Transparency Requirement Proposed by H.R. 5992

  1. A new commercial enterprise (NCE) must place each EB-5 investor’s funds in a “separate account” with the following characteristics:
      • The account contains only pooled investment funds of EB-5 investors for a single project
      • The account is at an insured US financial institution
      • At least one signatory on the account is an independent third party with a position such as a bank officer, broker-dealer, attorney, or CPA

    A job-creating enterprise that’s affiliated with the NCE must likewise hold investor funds in a separate account satisfying the above requirements. The proposal does not place requirements on accounts for an unaffiliated JCE.

  2. Funds may only be transferred out of the NCE account for one of the following purposes:
    • Refund an investor’s investment
    • Transfer to another account that also meets the above qualifications for a separate account
    • Transfer to a job-creating entity
    • Deploy funds in the project for which they were intended
  3. The following oversight and reporting is required:
    • Whenever the NCE accepts investor funds into its account, it must immediately send a notice to the investor, the regional center, and USCIS that contains this account information: contact info for the financial institution, the name of the independent signatory, and access to view the account balance online on an on-going basis.
    • Whenever the NCE transfers funds out of the NCE account, the transfer must have prior written approval from the independent signatory, and the NCE must immediately send a notice to the investor, the regional center, and USCIS that specifies the amount and destination of the transfer.
    • When an affiliated JCE deploys funds into a project, the independent signatory or another attorney, broker-dealer, or CPA has 30 days to “verify that the funds were deployed in the project for which they were intended,” and notify the investor, regional center, and USCIS accordingly.

Analysis and Links

I wrote up some thoughts on the AT proposal, but I’m demoting them to a comment on this post because I’m more interested in what other people think. What’s the perspective from lawyers who specialize in securities law issues? How would H.R. 5992’s Account Transparency Requirement work for large NCEs that already implement fund administration and independent fiduciaries? How would it work for small businesses using EB-5, and direct EB-5 cases? Do investors and their advisors see effective protections in this proposal? What’s the perspective from regulators and receivers working to sort out past misappropriation cases? How could the AT proposal be better directed toward the ultimate account transparency goals of deterrence, detection, and discovery and recovery? What are the best protections we can afford, for investors and for the healthy future of the program?

Articles on H.R. 5992 Account Transparency Requirement

  • Gary Friedland and Jeanne Calderon of NYU have started the conversation with a detailed analysis of the H.R. 5992 Account Transparency Requirement in “EB-5 2.0: Can Account Transparency Save the Program?”  (October 6, 2016 draft). They describe the background that underlies the need for an AT requirement, unpack the H.R. 5992 proposal point by point and discuss its goals and implications, and suggest areas for further discussion and improvement. A few of my takeaways from the article and subsequent emails with Dr. Friedland: For improved effectiveness, the AT proposal might further define the role and duties of the third party signatory and verifier, bolster account transparency by adding account balance reconciliation to the Regional Center’s Form I-924A annual report, consider expanding the scope of reports to be provided to investors in an NCE (e.g. quarterly account statements, notice of transfer of funds from other investors in the NCE, a copy of the Regional Center’s Form I-924A filing), and craft AT requirements for the special cases of small EB-5 projects and direct EB-5.
  • I hope to link to other topical articles here soon.

Other relevant content

  • Assuming that the people drafting the H.R. 5992 Account Transparency Requirement were primarily motivated to avoid another Jay Peak situation, I made a chart (as best I could, based on detail in the legal complaints and news reports) that illustrates how and where exactly money got misappropriated in a Jay Peake project. Here is my simplified chart of where the money went (or see Vermont DFR for the complete, complicated picture). In my chart, related party transactions, single signatories, and multiple layers in the flow of funds stand out as fault lines. The chart also shows why it’s necessary to do more than watch funds safely out the door of the NCE account.
  • Angelo Paparelli’s article All Checks but No Balances — The Systemic Failure to Protect EB-5 Investors (June 24, 2016) diagnoses a lack of meaningful oversight in EB-5 and defines a role for independent fiduciaries representing investors.
  • Ron Klasko’s article Attention Receivers and Litigators: EB-5 Investors Are Not Your Typical Clients (July 11, 2016) addresses the unique position and interests of EB-5 investors when problems arise in an investment project.
  • The EB5 Diligence webinar on Structural Weaknesses in Path America’s Offering (September 12, 2015) considers controls and procedures that might have averted the self-dealing and misappropriation that happened in the Path America case. The discussion is important because it could apply as well to other SEC EB-5 actions, most of which similarly involve related-party scenarios.

RC program extension to 12/9, reauthorization history, new RCs

Regional Center Program Authorization
The regional center program has been reauthorized through December 9, 2016 as part of the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017, and Zika Response and Preparedness Act signed today by the President. I held off on reporting this because I couldn’t find RC program reauthorization in the bill. But IIUSA assures me that they’ve gotten confirmation from multiple Congressional offices that RC program extension is in Division C (p. 125-127), so we’ll go with it. (UPDATE: If you’d like the detail, here are emails I received from a couple kind attorneys who explain how the language works. See also the article Congressional Research Service Analyzes Validity of EB-5 Program Extension.) The extension gives only a very short reprieve. Lawmakers are now leaving Washington and won’t be back until November 14, leaving just a few weeks to figure out what comes next — or (probably more likely) to redeploy short-term measures to defer substantial lawmaking to the next Congress.

For reference, I’ve compiled a timeline of regional center program legislation to date. Notice the varying authorization periods, the fact that new legislation has usually been finalized nearly on and sometimes after the sunset date, that RC program extension has usually been part of appropriations legislation, and that previous program extensions have been associated with few to no program changes.
rctimeline

  • 11/29/1990 – EB-5 is established as part of an immigration act (PL 101-649)
  • 10/6/1992 – RC program is established as a pilot within EB-5 and authorized for five years as part of an appropriations act (PL 102-395)
  • 11/26/1997 – RC program is authorized for an additional two years (with one small change) as part of an appropriations act (PL 105-119)
  • 10/30/2000 — RC program is authorized for an additional three years (with a couple small changes) as part of immigration-related legislation (PL 106-396)
  • 11/2/2002 – Significant changes are made to EB-5 as part of an appropriations act, but no change to the RC program sunset date (PL 107-273)
  • 12/3/2003 – RC program is authorized for an additional five years (with a few small changes) as part of standalone EB-5 legislation (PL 108-156)
  • 9/30/2008 – RC program is extended unchanged to 3/6/2009 as part of a continuing resolution (PL 110-329)
  • 3/11/2009 – RC program is extended unchanged to 9/30/2009 as part of an appropriations act (PL 111-8)
  • 10/28/2009 – RC program is extended unchanged to 9/30/2012 as part of an appropriations act (PL 111-83)
  • 9/28/2012 – RC program is extended (with one small change) to 9/30/2015 as part of immigration-related legislation (PL 112-176)
  • 9/30/2015 – RC program is extended unchanged to 12/11/2015 as part of a continuing resolution (PL 114-53)
  • 12/8/2015 – RC program is extended unchanged to 9/30/2016 as part of an appropriations act (PL 114-113)
  • 9/29/2016 – RC program is extended unchanged to 12/09/2016 as part of a continuing resolution (PL 114-223)

To be continued….(Note that Googling the PL number will readily bring up the legislation, and in most cases you can locate the RC program reference in the document by searching for 610(b).) We hope that the regional center EB-5 will eventually have the stability of a permanent program.

Regional Center List Changes

Additions to the USCIS Regional Center List, 09/12/2016 to 9/16/2016

  • American Southern Regional Center, LLC (Georgia)
  • California Bohong Premier Regional Center, LLC (California)
  • KCI Capital Limited (Colorado)
  • TLQ Partnership, LLC (California)
  • TriHaven Investment Group LLC (California)

Mysteriously re-added to the approved regional center list, though they’re also still listed on the page for terminated regional centers

  • Path America KingCo, LLC (Washington)
  • The Lawrence Economic Development Corporation (Ohio)

Removed from the regional center list (but not listed as terminated)

  • DC Partners Regional Center (Texas)
  • FP Advisors LLC (Colorado)

Regional center terminations:

  • American EB-5 Centers (Florida) Terminated 9/28/2016
  • Virginia Center for Foreign Investment and Job Creation (Virginia) Terminated 9/29/2016

About H.R. 5992 Reform Act proposals

As the 9/30/2016 deadline for regional center program reauthorization looms, we have so far (1) indication that short-term regional center program extension has been included in a continuing resolution to extend government funding through December 9, and (2) a new piece of EB-5 legislation to consider: H.R. 5992 American Job Creation and Investment Promotion Reform Act of 2016, sponsored by House Judiciary Committee Chairman Bob Goodlatte (R-VA) and co-sponsored by Ranking Member John Conyers (D-MI).

H.R. 5992 is basically Senator Grassley and Leahy’s S.1501 American Job Creation and Investment Promotion Reform Act of 2015 with additional content informed by the 2/11/2016 House Judiciary Committee Hearing “Is the Investor Visa Program an Underperforming Asset?” and the Jay Peak EB-5 disaster in Vermont. In the February House hearing, Goodlatte described his vision of what regional center EB-5 should be: a program that incentivizes a healthy percentage of EB-5 projects to locate in rural and depressed areas, and a program that attracts investors with entrepreneurial talent, not the merely wealthy. He expressed special concern about gerrymandering TEAs to benefit luxury projects, the fact that foreign investors can claim credit for all jobs created by their investment projects, and the deduction that, due to the backlog, “for [any reforms] to be effective, they would have to have some retroactivity if they are going to take effect in any way, shape, or form before 7 years from now.” Conyers, representing Detroit, likewise emphasized in the February hearing that “Steering investments to projects in our cities’ wealthiest neighborhoods at the expense of urban and rural communities that need it most is not what Congress intended when it established targeted employment areas and the lower investment level.” Conyers called for projects to locate within needy neighborhoods, not just in commuting distance of them, and for more clarity on the tangible job creation associated with regional center projects. We can sympathize with these genuine concerns, and yet they underlie the most counterproductive new proposals in H.R. 5992: retroactive application of new rules to petitions filed since 6/1/2015 (which would pull the rug from under at least $7 billion already deployed in US business), permanently accruing set-asides of already scarce visas for distressed urban and rural projects regardless of use, new requirements around direct job creation, and source of funds and age restrictions that would help change regional center EB-5 from a program that uses foreign investment to benefit U.S. entrepreneurs into one that asks the foreign petitioner to be both investor and entrepreneur. The Jay Peak fingerprints on H.R. 5992 are less controversial. We likely have Vermont to thank for pages of recourse options for innocent investors in case of project or regional center malfeasance, and for pages of new requirements for transparency and integrity in depositing and deploying investor funds.

It remains to be seen what will happen with H.R. 5992, which has no EB-5 industry support (in its current form) so far as I know. The bill has some good features, but eliminates most possible supporters by combining incentives that only really distressed players can use with administrative requirements and fees that only really wealthy players can afford, by promising USCIS a huge workload with impossible deadlines, and by proposing retroactivity that would harm a mind-boggling number of recent project and investors. H.R. 5992 was briefly scheduled for a committee markup session this week, but is off the Judiciary Committee calendar now and I haven’t noted either Goodlatte or Conyers talking about it. Don’t be too discouraged, Mr. Chairman and Ranking Member! We really could welcome reform legislation, just not quite this bill. I’ll update this post as I become aware of new developments related to H.R. 5992.

For additional reading:

Q3 2016 EB-5 Petition Stats, GAO Report, RC List Updates

Path to Reauthorization
I’ve been updating my post Looking toward RC program reauthorization as significant developments come to my attention. I’ll make a new post when the text of new legislation is released. The days between now and September 30 will be interesting. At least the regional center program is less controversial than the Zika virus, so far.

FY2016 Q3 EB-5 Petition Statistics
The USCIS Immigration and Citizenship Data page now has EB-5 petition statistics for the third quarter of fiscal year 2016. IPO processed fewer petitions overall in Q3 than in Q2 2016. I-526 receipts were slightly up from Q2, but still relatively low, and IPO processed more I-526s than it received in Q3. An unusually large number of I-829 petitions were denied in Q3. The backlog remains dire. My charts summarize data for I-526 and I-829 receipts, approvals, denials, and pending petitions from the USCIS reports. I also added bonus charts estimating the amount of investment and number of immigrants associated with petitions filed since 6/1/2015 (to help visualize the impact of retroactive rule changes, and why we don’t want them), and showing IPO staffing levels as reported by Mr. Colucci in EB-5 stakeholder meetings (since staff increases have been a major strategy for tackling the petition backlog) and recent processing time reports.

GAO Report
The U.S. Government Accountability Office has posted a follow-up to its August 2015 EB-5 study that identified weaknesses in USCIS’s fraud mitigation activities. The title of the 9/13/2016 report summarizes the GAO’s new findings: Immigrant Investor Program: Progress Made to Detect and Prevent Fraud, but Additional Actions Could Further Agency Efforts. The 2016 GAO study mentions a number of fraud mitigation measures that USCIS has implemented for EB-5:

  • The Fraud Detection and National Security (FDNS) unit has grown to 25 FTE staff, and IPO has created a specialized group focused on regulatory compliance.
  • FDNS is using overseas staff to attempt to identify potential sources of fraud stemming from any false statements by immigrant investors regarding their source of funds.
  • FDNS has planned at least 50 site visits in four states, and anticipates conducting additional site visits on a continual and as-needed basis. The first site visits began in August 2016.
  • FDNS has conducted risk assessments, and identified securities fraud as the most frequent source of fraud in the program.
  • USCIS has updated I-526 and I-829 forms to help capture additional information about petitioners and applicants that could be used to potentially identify fraud.
  • USCIS conducts selected background checks on all of its immigrant investors and regional-center principals, in cooperation with partners such as the Federal Bureau of Investigation and U.S. Customs and Border Protection.
  • USCIS recently signed a memorandum of understanding with the Financial Crimes Enforcement Network (FinCEN) and anticipates conducting additional reviews to help identify potential fraudulent actors and fraudulent financial activity in its regional centers.
  • USCIS will use I-829 interviews to expand collection of information that could be used to identify fraud. (But so far a comprehensive interview strategy has yet to be developed.)
  • USCIS hopes to implement a case management system for tracking and reporting data related to EB-5 investments and job creation. Project completion is “tentatively planned for some time in fiscal year 2017.”
  • USCIS is developing standard operating procedures for adjudication staff for each investor form, and hopes to finalize these procedures by Q1 of FY2017.

GAO found that USCIS continues to be hindered by a reliance on time-consuming reviews of paper files that preclude certain potential fraud-detection activities such as the use of text analytics to help identify indicators of potential fraud. The continuation of planned efforts to digitize the files, including the supporting evidence submitted by applicants and petitioners, could help USCIS better identify fraud indicators in the program.

Regional Center List Updates
Additions to the USCIS Regional Center List, 08/29/2016 to 09/12/2016

  • APIC Regional Center California (California)
  • AmerAsia EB5 Regional Center SF, LLC (California)
  • American Investment Fund Regional Center, LLC (Oregon, Washington): www.aif-rc.com
  • Invest Atlanta Regional Center (Georgia): www.investatlantarc.com
  • KOIT Global Investments (Indiana, Kentucky, Ohio, Tennessee): www.koitglobal.com
  • Southern California Investments Regional Center (California)
  • Sun Island Regional Center (California)
  • The Flame Regional Center, LLC (New Mexico, Texas)

Renamed:

  • Montana Energy Regional Center LLC (former name USA Montana Energy Regional Center) (Montana)

New Terminations:

  • Resource Regional Center Michigan, LLC (Michigan) Terminated 8/31/2016

Looking toward RC program reauthorization (with updates)

UPDATES:

— Original 9/5 Post —

Congress goes back to work tomorrow, and the EB-5 regional center program needs to be reauthorized by its next sunset date of September 30, 2016. What will happen over the next few days? Will the regional center program be temporarily extended as is, significantly changed, or left to expire? Here’s what I hear*:

  • The most likely scenario is for short-term RC program authorization to be included (just like last year) in a Continuing Resolution (CR) – the omnibus spending package that will need to be passed by 9/30 to keep the government funded. At least, industry groups are pushing for this to happen, realizing that substantial EB-5 legislation is very unlikely to be hammered out before 9/30. As a rider on the spending bill, the RC program would be extended (likely, as is) for the duration of the CR (which might be to the end of 2016 or through the lame-duck session of Congress into 2017). You can follow what’s happening with the CR generally at TheHill.com and other news sources. A short-term extension would give Congress and the industry more time to negotiate long-term reform and reauthorization (and more time to continue deferring hard decisions).
  • The House and Senate Judiciary Committees have been working on EB-5 legislation, and IIUSA expects to see a new bill soon, even as early as this week. The draft legislation has been kept confidential so far, but is expected to follow the framework of the S.1501 family of bills, with modifications. A longed-for provision that the bill will likely NOT include: an increase to the number of EB-5 visas. Increasing EB-5 visa numbers would require either increasing the total quota of immigrants to the U.S. or taking numbers from other immigrant categories – both very difficult politically, and unlikely to happen except in the context of comprehensive immigration reform (which is unlikely in the current economy and political climate). A much-feared provision that the bill might include: retroactive application. Retroactivity would be a practical disaster for the industry and for USCIS, but tempts Congressional leaders who want their changes to take affect soon (and not have to wait until the 6+ year backlog has worked its way through the system). I’m sure that advocacy groups are ready with their arguments for why retroactivity cannot be part of a bill designed to ensure the long-term health of the RC program. A contentious provision likely to feature in the new legislation: targeted employment area reform. This year’s House and Senate Judiciary Committee hearings on EB-5 focused on TEA issues. Non-controversial content that the bill is likely to include: integrity measures designed to discourage bad actors. Most stakeholders are ready to agree about that. But in any case, I don’t hear anyone predicting that a substantial EB-5 bill introduced this month might also be passed this month. The bill would give us something to discuss (in the breathing space we hope will be provided by another short-term extension), and its ultimate fate could vary depending on who controls Congress and the White House next year.
  • I have not heard anyone working in EB-5 advocacy predict that Congress will let the RC program expire at the end of this month. The industry expects reauthorization — at least a short-term one. However, I don’t hear people making very confident predictions about what will happen. Last year’s process surprised many insiders, and we can’t rule out surprises this year.
  • And just as a reminder: EB-5 itself is a permanent program and not hanging in the balance – only the regional center program is up for reauthorization.

*My sources are private conversations, a 9/2 IIUSA Advocacy Alert emailed by Peter Joseph to IIUSA members, a 9/1 post by Mintz Levin, and an 8/30 ILW webinar with Laura Reiff (EB-5 Coalition), Robert Divine, and Angelo Paparelli.

8/29 USCIS meeting (policy timeline, minor petitioners, RFC, more), AAO decisions (exit, investors in terminated RC), legislation comments, NASAA advisory

EB-5 World kept busy during my annual wilderness week, so this post is a long one. Before I get into detail, here are a few headlines: No new EB-5 policy or guidance likely this year, IPO steps up scrutiny of parties involved in regional centers and emphasizes due diligence responsibilities, Minors face challenges in qualifying as EB-5 petitioners, Wyoming gets its first regional center.

8/29/2016 EB-5 Stakeholder Meeting

USCIS hosted an EB-5 stakeholder teleconference on 8/29/2016 – ostensibly to review content that we couldn’t hear in the 7/28 engagement, but stakeholders wisely took the opportunity to ask new questions. Nicholas Colucci and Julia Harrison made new statements supplementing the prepared remarks for the 7/28 engagement. IIUSA has shared a recording with members. I was not able to record the event, but have summarized highlights for you.

  • USCIS Timeline for New Policy and Regulations: USCIS expects to finalize the EB-5 chapters for the USCIS Policy Manual by the end of this fiscal year or at least calendar year, and to hold off on releasing new policy and guidance until after those foundational chapters on existing policy have been published. Mr. Colucci described the policy manual as “a compendium of all existing policy of the EB-5 program, putting it all into a single document. As we draft new guidance with respect to the EB-5 program, what we will do is generally put it out for notice and comment and then finalize it in that manual. So it will be a document that gets added to as it goes along.” It will be nice to have existing policy gathered in one place, but what we really want is new policy. In her statement for the 7/28 meeting, Lori Mackenzie promised that “Among the topics we hope to further expand upon are issues associated with the requirements for job creation and investment sustainment that apply to EB-5 investors and the impact of misappropriation of funds on those requirements.” But for now, Mr. Colucci and Ms. Harrison declined to make statements about sustaining investment or dealing with investors following regional center termination, saying that these points would wait to be covered in future policy manual amendments, after the foundational content is completed (ie after this year). The draft Guidance on the Job Creation Requirement and Sustainment of the Investment for EB-5 Adjudication of Form I-526 and Form I-829 (first posted for comment in August 2015, and urgently needed) is now off the table until it can be issued in revised form for comment as a policy manual amendment. Regarding revised regulations, Mr. Colucci said “We are working on an EB-5 regulation. We don’t have a timeline for the publication of that regulation, but we continue to actively work on it.” He did not say anything about a November 2016 target (mentioned last month by DHS Secretary Jeh Johnson).
  • I-924 Requests for Clarification (RFC): Mr. Colucci pointed out that IPO has been issuing a number of RFCs to regional center applicants who did not respond completely to Form I-924 Part III(D), which asks for a list of principles, agents, individuals and entities that are involved in the management, oversight, and administration of the regional center. “What we’ve been finding is oftentimes this is left blank when the form is submitted. But as we review the supporting documentation, we see in fact a number of other names that should’ve been included in this section. What we’re doing as part of this Request for Clarification is determining whether other individuals are involved with the regional center, and if so, we’re seeking their identifying information.” I think we can assume that USCIS wants that complete list and identifying information for broader vetting and accountability – perhaps proactively implementing reform proposals from reauthorization bills that Congress hasn’t managed to pass yet.
  • Customer Service Issues: Mr. Colucci stated that IPO would not respond to duplicate requests sent to the Customer Service Mailbox within 15 days of the original request, but reminded people of the escalation process. (See the EB-5 Customer Support page.) USCIS.gov has added a Chinese translation of the support page, and a FAQ page addressing common questions from investors. In response to Q&A, USCIS invited people to use the customer service mailbox to notify USCIS of factual errors in an RFE or NOID notice, and said that USCIS may issue a replacement notice.
  • Minors as EB-5 Investors: Julia Harrison responded to questions about minors under the age of 14 being able to invest in the EB-5 program. She said “Just to clarify, for USCIS the statute and regulations don’t have an age limitation. However, it is important to understand that a minor normally lacks the legal capacity to enter into the various types of contracts that are necessary to demonstrate the qualifying investment. So, while the eligibility for any minor to enter into the contract would depend on the specific facts of the particular case, it could be difficult for them to be the principle petitioner because of the concerns related to their capacity to contract and the presumptive voidability of contracts signed by minors. When a minor does enter into a contract, the petitioner bears the burden of demonstrating via preponderance of the evidence that the minor or legal guardian who enters into this agreement on their behalf will be – that it will be binding on the minor petitioner in the relevant jurisdiction. And again that’s up to the petitioner to demonstrate that evidence when they submit their application to USCIS. For a child less than 14 years old, a parent or legal guardian may sign on their behalf, but you also need to be prepared to demonstrate, with evidentiary requirements, proof of the parent-child relationship.” In response to questions, Ms. Harrison suggested that it might be acceptable for parents to transfer investment on behalf of a minor child, so long as it’s clear that the capital belongs to the minor petitioner, not the parent. She further stated that IPO was not in a position to specify the nature of proof required to overcome a presumption of voidability, or even to give general guidance, but would adjudicate on a case-by-case basis. I wonder if Ms. Harrison was basically saying: IPO currently does not see how it’s practically possible for a minor to be an EB-5 petitioner, but is open to being convinced otherwise. Catherine DeBono Holmes has written articles Using the Uniform Transfers to Minors Act for Minor Investors in EB-5 Investment Funds (September 23, 2016) and Suggested Procedures and Possible Options for Accepting Minors as Investors in EB-5 Investment Funds (June 23, 2016). See also blog posts by Klasko Law and Wolfsdorf Rosenthal on minors as primary EB-5 applicants. These articles take a positive approach, but note that I’ve heard other prominent EB-5 lawyers express strong questions and reservations about the practicalities of minors as EB-5 petitioners.
  • The Rent-a-Center model: I’ll quote this from Mr. Colucci’s published remarks for the 7/28 engagement, since it seems to be a warning shot: “To uphold the integrity of the program, USCIS is focused on ensuring that regional centers exercise due diligence in the oversight of the capital investment and job-creating projects they sponsor. As the program has become more popular, the paradigm of regional center relationships has expanded. But let me remind everyone in the EB-5 community that due diligence, monitoring and oversight are the obligations of the designated regional center entity, and central to the integrity of the program. When we become aware of any threats to the integrity of the program, we seek to take corrective action.” IPO appears to be giving notice that they don’t like a hands-off regional center relationship. Regional centers that use a “rent-a-center” model, licensing third parties to use their designation for projects, should take note and take care to implement sufficient due diligence, monitoring and oversight.
  • Other Points: The teleconference was unusually rich in good questions that solicited new answers – though the answers are marginally bankable since they’re just off-the-cuff in context of a call. But for what it’s worth, I heard: Yes, the first I-526 in a pooled direct investment case establishes deference for subsequent I-526s (and USCIS is considering process adjustments that will make this more workable in the direct context); Yes, IPO accepts a loan secured by equity investment in the petitioner’s own business as an acceptable source of funds (but note a different story in the Ibrahim case being litigated, Ed.); No, USCIS does not defer to previous source of funds determinations, but only to the items listed in the Policy Memo deference policy; No, USCIS does not necessarily require proof of non-EB-5 funding already in the bank but looks for general preponderance of evidence (e.g. things like letters of commitment and term sheets); Yes, it should be sufficient to sustain an investment during the 2-year conditional residence period (implying that the investment need not also be sustained during the period when I-829 is pending); No, I-526 petition processing is not exactly FIFO but happens in a range that’s pegged to when IPO received the first I-526 for that project; No, IPO is not considering new policy to implement the Child Protection Act (and specifically, declines to hold I-526s in abeyance to add time in order to help protect child eligibility); No, IPO does not think that CPA practices for I-130 family-based petitions can be applicable for EB-5.

New AAO Decisions

AAO continues to dismiss appeals of USCIS denials of I-526 cases. Here are the most recent issues.

  • Investor Exit Strategies: JUL272016_01B7203, JUL272016_02B7203, and JUL272016_03B7203 discuss three petitioners in the same deal whose petitions were sunk by these two sentences in the Operating Agreement: “Members who are holders of the Class B Interests may demand a return of the capital contributions upon receipt of the approval of the I-829 Petition by Entrepreneur to Remove Conditions by the U.S. Citizenship and Immigration Services” and “In the event of the denial of the I-829 Petition by Entrepreneur to Remove Conditions, at the end of the five-year compliance period, following the USCIS’s Request for Evidence in connection with their I-829 petition, the Company intends to refund that member’s $1,000,000 subscription amount paid within 120 days if feasible.” More specifically, the petitions were sunk by two words — “demand” and “$1,000,000” — which USCIS and AAO agree flagged an impermissible redemption agreement. Using the word “demand” (i.e. “claim as due” “require”) profiled the petitioner as effectively a lender (and the investment no more at-risk than a loan), and naming a dollar figure triggered the Matter of Izummi prohibition against assuring the petitioner of a set repurchase price from a willing buyer. (The three cases are identical except that _01 has an additional source of funds issue.)
  • Investors in Terminated Regional Center: AUG032016_01B7203 through AUG042016_04B7203 represent six additional petitioners in the same position as the JUL182016_01B7203 case. All these investors were in the stage between I-526 approval and receiving conditional permanent residence (CPR) when their regional center was terminated. All had their I-526 approvals revoked, with identical justifications based on the policy prohibiting material change during the period between I-526 approval and green card. AAO agreed with USCIS in these cases. I hear through the grapevine that USCIS has gone further and revoked CPR for investors who were further in the process when their regional center was terminated – a very serious development, if the rumor proves to be true and to represent general practice. Material change policy wouldn’t justify such revocations, but we may not be able to discover USCIS’s practices and justifications until we see decisions on investor appeals. In yesterday’s conference call, IPO said they “don’t have guidance yet” for how investors are treated in the event of RC closure – but obviously they do, since they’re busy sending out notices of intent to deny and revoke to some investors, and apparently just unwilling to publicly disclose the current logic guiding their actions. Do people at IPO not care about their own job security, at least? How much adversity and uncertainty do they think the EB-5 program and investors can take, and still be there to provide the “investor program” in “investor program office”? Please, give us some transparency!

Publications of Note

  • Regional Center Program Reauthorization: A group of securities attorneys got together and redlined proposed legislation with comments and corrections from a securities perspective, and have submitted the document to Congress. You can read the EB5 Securities Roundtable suggestions here. With so many arguable points in last years’ proposals, it’s hard to imagine Congress finalizing anything substantial in the next couple weeks, but we’ll take a deep breath and see what happens. We’re now just days away from September 30, the next deadline for Congress to reauthorize the regional center program.
  • International Entrepreneur Rule: USCIS is proposing a new International Entrepreneur Rule which would allow certain international entrepreneurs to be considered for parole (temporary permission to be in the United States) to start or scale a U.S. businesses. This rule is quite unlike EB-5 and not related to EB-5, but – if implemented – could provide a narrow alternate path to U.S. residence for foreign entrepreneurs. Michele Franchett of Stone Grzegorek Gonzalez has a helpful summary, and Ron Klasko comments on the rule’s (non)relevance for EB-5 investors.
  • Sanctions for Brokering EB-5 Investment: Dan Lundy’s article of 8/24 discusses how and why the SEC is making examples of immigration lawyers who appeared to receive transaction-based compensation in connection with recommending a regional center or assisting in purchase of an EB-5 limited partnership interest. The most recent cases involved minor violations and relatively little money, but the SEC perceives immigration lawyers as gatekeepers for EB-5 and is going after them accordingly.
  • NASAA EB-5 Investor Advisory: The North American Securities Administrators Association has published an investor advisory for potential investors in EB-5 projects. The notice provides a due diligence checklist that’s handy for investors, and also for people who think about how to structure and write up proposals that will satisfy investor questions and concerns.

Regional Center List Updates

Additions to the USCIS Regional Center List, 07/27/2016 to 08/29/2016:

  • America California Construction, LLC DBA American California Regional Center (California): www.madisonrealtycompanies.com
  • America Commonwealth Regional Center (Delaware, District of Columbia, Maryland, New Jersey, New York, Pennsylvania, Virginia, West Virginia): acrc.us
  • American Heritage Regional Center, LLC (District of Columbia, Maryland, Virginia)
  • American Immigration Fund Regional Center (Florida)
  • EB5 of Ohio, LLC (Indiana, Kentucky, Ohio): www.eb5ofohio.com
  • CanAm Texas Regional Center (Texas): www.canamenterprises.com
  • F2E Regional Center, LLC (Colorado, Nebraska, Wyoming)
  • USASIA Pacific, Inc (Washington): usasiapacific.com
  • WAHA EB-5 Regional Center of New Orleans, LLC (Louisiana, Mississippi)

Renamed:

  • Global Pacific Regional Center (former name American Sun Regional Center) (California)

New Terminations:

  • EB-5 South Florida Regional Center, LLC (Florida) Terminated 8/3/2016
  • Alabama EB-5 Regional Center, LLC (Alabama) ) Terminated 8/3/2016

7/28 Meeting Notes (RC site visits & audits, I-829 interviews, redeployment), New AAO Decisions (RC geography, indebtedness)

7/28 Stakeholder Meeting

If you would like to review today’s USCIS EB-5 stakeholder engagement, best talk to someone who attended the meeting in person in Miami. I’ve uploaded my recording as usual, but much of it is barely audible. (Updates: USCIS emailed on 7/29 to apologize for the sound quality for phone participants, and published prepared remarks from Colucci and Mackenzie on 8/16 at the above link. Also, Cletus Weber has posted a summary more comprehensive than mine on the IIUSA blog.) Here are points of significance that I think I heard:

  • New Policy: IPO has a new Policy and Performance Division responsible for drafting policy. They’ve been working on revised EB-5 forms (i.e. revised Form I-526 currently out for comment) and on chapters on EB-5 for the in-progress USCIS Policy Manual. Eagerly-awaited policy on the requirement to sustain investment through the period of conditional residence (including the issues of redeployment and what happens to investors in case of regional center termination) will be part of these forthcoming policy manual chapters or amendments to the manual. USCIS will send this policy out in draft form for comment before finalizing it. We can expect to see the draft “in the near future” but “not tomorrow.” Until then, we can look back to the August 2015 draft memo to “see what we’re thinking,” but may also expect changes based on public feedback to that draft and IPO’s consultation with securities professionals.
  • New Regulations: No update on when exactly we may see new regulations published for comment.
  • Compliance: IPO Chief Colucci reports that his office is in contact with Immigration and Customs Enforcement (ICE) and the SEC at least weekly, and again encouraged the public to submit tips on any suspected EB-5-related malfeasance. Contact IPO through the website (https://www.uscis.gov/eb-5) or call the Fraud Detection and National Security (FDNS) team directly at (202) 357-9326.
  • Regional Center Site Visits and Audits: IPO provided this information:
    • Site visits will generally be at the job-creating enterprise site, unannounced, performed by local FDNS staff, and mostly observational (not necessarily interacting with people on site). Their purpose will be to assess whether what’s happening at the JCE site is consistent with what was proposed/represented to IPO.
    • Regional center audits will generally be at the regional center’s office, announced (by letter and by telephone call to the RC principal), involve interaction with management and staff, and may last a week or more. Their purpose is to assess RC compliance with applicable laws and regulations, and they will be conducted in accordance with generally accepted goverment audit standards.
  • I-829 Interviews: IPO is in a beta/testing phase with I-829 interviews, and developing a strategy for them in response to last year’s GAO report recommendations. Interviewees are currently selected at random. Interviews are conducted by video. It is understood that the petitioner may not have exhaustive info about the investment ready to hand, and petitioners will have opportunity to supplement the record in writing after the interview.
  • Processing: IPO has 25,000+ petitions pending. Premium processing continues unlikely as the Congressionally-mandated fee limit is low enough that nearly all EB-5 applicants could be expected to take advantage of PP, were it offered to them. Meanwhile, prospective investors are apparently starting to wonder whether even a lifetime is sufficient time to complete the EB-5 process. IPO addressed a number of questions on the topic of “what happens if the petitioner dies before I-829 is adjudicated” (short answer: case-by-case determination) and “can someone under 18 apply as the primary petitioner” (short answer: yes and no — not prohibited under the regs but IPO foresees practical issues such as capacity to enter into contracts that are binding on the petitioner).
  • Other items:
    • The Commerce Department study commissioned by IPO to assess the EB-5 program’s economic impact is “in the final stages of review” and will be released “in the next couple weeks.” The study covers FY2012-2013, so old news now, but its impact assessments are reportedly higher than estimates for the same period by industry groups (who had less data to work with).
    • Congress has approved funds for IPO to implement a new data system (hooray!) that will allow for better tracking.
    • I won’t bother repeating what Mr. Lyons said about feasibility studies (the obvious – IPO doesn’t require one by default, but may ask for one if the project’s feasibility isn’t established by other means) and pro forma financials (the obvious – that a business plan had better include them). I do appreciate clever Mr. Lawler’s insight into what would encourage Mr. Lyons to repeat himself so we all could hear.
    • Mr. Colucci emphasized that due diligence by regional centers is essential to the integrity of the EB-5 program, and that IPO is focused on regional center responsibility for monitoring and oversight of projects.
    • IPO is translating some EB-5 web content.

New I-924 AAO Decision: Geographic Area

Matter of R-T-E-R-C-, LLC (JUL152016_01K1610) addresses a grey area for regional center designation – how to justify a request for a certain geographic area. The statute and regs say that a regional center is to be designated for a “limited geographic area,” but naturally applicants want to claim the largest area possible. The common way to accomplish this goal, especially since the May 2013 policy memo, is to formulate a hypothetical project (often flag hotels, because they are easy to write up and pack a fairly wide economic impact) and then hypothetically locate that project at strategically chosen locations throughout the desired geography – strategically chosen so that the aggregate impact areas of each project essentially blanket the desired geography. USCIS has approved many RC applications and amendment requests that use this method, but apparently the amendment request in JUL152016_01K1610 came before a new adjudicator who didn’t feel right about designating a huge geographic area (all of Texas and part of New Mexico) just based on seven hypothetical projects. AAO agreed that “it is particularly challenging to define the geographical scope for a regional center that has only proposed hypothetical projects,”  but AAO was compelled by the applicant’s arguments that commuting patterns show that the hypothetical projects would, if real, affect 249 of Texas’ 254 counties, and that worker spending habits and supply chain would also contribute to state-wide impact. AAO also found that “while the Form 1-924 instructions require that the geographic area be contiguous, there is no requirement for an applicant to show contiguous – for example, county-by-county – economic growth throughout the requested geographical area.” The appeal was sustained.

New I-526 AAO Decisions: Source of Funds

The latest AAO decisions on I-526 appeals (JUL072016_01B7203, JUL072016_02B7203, JUL112016_01B7203) continue to press the point that indebtedness only counts as capital placed at risk if secured by the petitioner’s own assets. JUL072016_02B7203 finds that USCIS remarks on indebtedness at the 4/22/2015 stakeholder meeting are a correct reading of relevant statutory and regulatory requirements. JUL112016_01B7203 further argues that remarks at that meeting were not a new rule or new policy, instituted without due procedure, but were just clarifying existing requirements. JUL112016_01B7203 adds a reminder that capital is not at risk if the NCE is overcapitalized (doesn’t show a use for the full amount of investment) and fails to present sufficient evidence of the actual undertaking of business activity (just entering into a lease is insufficient).

Regional Center List Changes
Additions to the USCIS Regional Center List, 07/05/2016 to 07/27/2016.

  • 5 Starr Regional Center LLC [ID1504052589] (Oklahoma)
  • Advantage America Southern California Regional Center, LLC (California): www.aaeb5.com
  • AmerInvest Regional Center East, LLC (Connecticut, New York)
  • AmerInvest Regional Center West, LLC (California)
  • CV West Coast Regional Center, LLC (California)
  • Golden State Northern California Agriculture Development, LLC (California)
  • One World Development Fund, Inc. (Texas): www.oneworldrc.com

New Terminations:

  • US EB5 New York City Regional Center (Connecticut, New Jersey, New York, Pennsylvania) Terminated 7/13/2016
  • Harris Real Estate Fund LLC (former name U.S. Federal Investment Immigration Fund, LLC) (Arizona) Terminated 7/13/2016
  • South Dakota International Business Institute (SDIBI) (South Dakota) Terminated 7/7/2016
  • California Regional Center, LLC (California) Terminated 7/12/2016
  • Harris Investment Immigration Fund, LLC (California) Terminated 7/13/2016