RC designation: use it or lose it (AAO termination decisions)

July 13, 2016 22 Comments

What is an EB-5 regional center? What kind of tool is the regional center program meant to be? These questions do not have clear answers. We can see USCIS’s uncertainty in its continually changing template for regional center designation letters, with each iteration giving a slightly different statement of what’s being designated exactly and what responsibilities are inherent in designation. AAO challenged USCIS’s fuzzy standards for approving or denying regional center applications in the I-924 denial decision discussed in my previous post (Matter of A-C-R-C). And now the ambiguity around what defines a regional center in the first place is spilling into ambiguity about how a regional center lives or dies. USCIS has terminated 62 regional centers, mostly within the last year. Two centers that appealed their terminations give us insight into USCIS thinking about the nature of regional center designation (see the 2016 Termination appeals folder on the USCIS website).

I’ll focus on JUN202016_01K2610 Matter of A-L-V- LLC (presumably referring to American Life Ventures Everett, LLC, which was terminated in March 2015) because it’s such a clean case. USCIS and the AAO grant that A-L-V pursued multiple potential EB-5 projects over the years, filed I-924A on time every year, and was not involved in any kind of trouble, but nevertheless deserved termination based on failure to promote economic growth. A-L-V (which was designated in 2008) argued that potential projects had not been developed as actual projects due to and out respect for economic conditions, that the regulations do not expressly state that a regional center must be ready to sponsor a project within a particular timeframe and provide marketing related information, and furthermore that its efforts in actively and continuously pursuing EB-5 projects demonstrate that it is promoting economic growth. Neither USCIS nor AAO accepted these arguments. For them, the bottom line was that A-L-V had not raised EB-5 investment and was not actively engaged in soliciting investors (and thus that NCEs and JCEs has not been formed and EB-5 investment had not created jobs) for eight years. A-L-V was not given credit for prudence or high standards in taking time to choose viable and appropriate projects before pursuing EB-5 offerings.

The following paragraphs are copied in both the 2016 termination decisions, which makes me think that they reflect a formal statement from USCIS that deserves careful attention.

The regulation at 8 C.F.R. § 204.6(e) defines a regional center as “any economic unit, public or private, which is involved with the promotion of economic growth, including increased export sales, improved regional productivity, job creation, and increased domestic capital investment.” In order for the regional center to demonstrate such economic growth, it “must provide updated information to demonstrate the center is continuing to promote economic growth, improved regional productivity, job creation, or increased domestic capital investment in the approved geographic area … on an annual basis,” through the filing of its annual Form I-924A. USCIS Policy Memorandum PM-602-0083, supra, at 23; 8 C.F.R. § 204.6(m)(6). The phrase “continuing to promote economic growth” indicates that the regional center has previously promoted economic growth and is presently doing so. In determining whether the regional center has promoted economic growth and is continuing to do so, several factors should be collectively considered. These aspects include the amount of aggregate immigrant capital and aggregate direct and indirect job creation or preservation; the number of industries that have been the focus of immigrant investment capital investments; the total new commercial enterprises (NCEs) or job creating enterprises (JCEs); and the quantity of Forms 1-526, Immigrant Petition by Alien Entrepreneur, and Forms l-829, Petition by Entrepreneur to Remove Conditions, that have been filed reflecting capital investments sponsored by the Applicant.

The EB-5 Program provides for flexibility in the types and amounts of capital that can be invested, the types of commercial enterprises into which the capital can be invested, and how the resulting jobs can be created. This flexibility serves the promotion of investment and job creation and recognizes the dynamics of the business world in which the EB-5 Program exists. USCIS Policy Memorandum PM-602-0083, supra, at 27. Application of this flexibility will vary based on circumstances. For example, it is reasonable to provide greater flexibility to a regional center with a more recent USCIS designation whereas a regional center with a longer period of designation that has not shown any economic growth to the geographic area, may receive less flexibility. In addition; the regional center’s progress in developing actual projects should be taken into account, including the steps taken to identity and pursue developmental projects, how the projects have progressed in the pipeline, and the likelihood of those projects promoting economic growth in the immediate future. Moreover, USCIS may consider any reasonable, temporary delays, such as natural disasters or litigation, which may have prevented the regional center from promoting economic growth in a timely manner, and any alternative plans or actions taken as a result of unexpected delays. This flexibility, however, is not an open-ended allowance in which the regional center can indefinitely explore potential projects or remain stagnant on either a hypothetical or actual plan.

Let’s think about the answer to the question “What is an EB-5 regional center?” that’s implied in the A-L-V termination and this statement. The answer I’m getting is: “A regional center is an entity engaged in raising EB-5 capital and developing EB-5 projects.” This definition appears to protect regional centers with an active EB-5 offering, and also regional centers that are not shy about promoting EB-5 to investors despite not yet having a viable project. This definition threatens entities who applied for regional center designation in order to have EB-5 available as one tool in the toolkit, while also using other economic development and financing tools. Indeed two of the most recent regional center terminations were of economic development agencies that appear to be reputable and active in promoting economic growth generally. But I guess they did not sponsor an EB-5 project within the timeframe that USCIS considered necessary to maintain regional center designation. This aggressive “use it or lose it” stance is counterproductive. Why wouldn’t we want public agencies and other virtuous parties to be able to treat regional center EB-5 as one of several economic development and financing tools – something to have on hand and ready to use if and when the need arises, although EB-5 is only the right tool in select cases, and would be used only occasionally? It’s not as if the designation taken away from Little City Economic Development Corporation opens a new place for someone else – so why revoke it?  I guess that USCIS is panicking because ill-defined designation standards have produced a roster of 800+ regional centers of wildly varying character and motivation, and now it’s faced with the challenge of culling the crowd.  Culling may be necessary, but something’s not right when public agencies and active but over-prudent RCs are among the first victims. (For more discussion, see the comments.)

UPDATE: I recommend Joseph Whalen’s Position Paper Presented to IPO on RC Termination.

Filed under EB-5 Law & Policy, Updates from USCIS

New Regs, TEAs, RC Audits, RC Designation AAO, RC List Changes

July 7, 2016 1 Comment

New EB-5 Regulations Update
In testifying before the June 30, 2016 Senate Judiciary Committee hearing on oversight of Homeland Security Operations, DHS Secretary Jeh Johnson briefly commented on forthcoming EB-5 regulations. To quote from the exchange at about hour 2:25 of the hearing (video linked above):

Senator Grassley to Secretary Johnson: You and I have had a few discussions about the EB-5 program and I thank you. At least two occasions we’ve had long discussions about that, so thank you. I know you share my concerns about the program. I appreciate the fact that you are working to issue regulations that mirror reforms that Chairman Goodlatte, Senator Leahy, Congressman Conyers, and I have been pushing. Will the regulations you planned roll out soon, and finally do away with gerrymandering to prevent regional centers from using an unlimited number of census tracts to build in affluent areas even though they are not high unemployment areas as the law envisions?

Secretary Johnson: Limiting gerrymandering was one of the changes that we are developing, consistent with your recommendations, sir. And as I think we discussed the other day, we intend to put these changes out for notice and comment, I think in November – as soon as November. That is on the list, yes sir.

That “I think” and “as soon as” don’t sound very confident, but it’s nice to see a possible date mentioned.

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).

Targeted Employment Area Debate
Speaking of targeted employment areas, the debate on this issue has taken an intriguing turn. EB-5 industry groups have thought of a way to make concessions while removing the sting from concessions, and have proposed accepting more limiting TEA definitions while at the same time closing the difference between TEA and non-TEA investment amounts. Here’s how the logic looks:

  • TEA definition restrictive to needy areas + substantial monetary incentive to invest in a TEA = substantial incentive to invest in needy areas (This is the theory behind the TEA concept)
  • Loose TEA definition that can encompass prosperous areas + substantial monetary incentive to invest in a TEA = little incentive to invest in needy areas, and an extra incentive for investment in prosperous areas (This is how Senator Grassley and other critics perceive current practice)
  • TEA definition restrictive to needy areas + minor monetary incentive to invest in a TEA = minor incentive to invest in needy areas, and little competition to the natural advantages of prosperous areas (This is the compromise being proposed by industry groups – conceding on TEA definitions while effectively protecting the status quo by changing the monetary incentive variable.)

I’ll be interested to see whether any TEA critics take the industry’s proposed compromise seriously. Can we count on Senator Grassley to be so focused on gerrymandering that he’ll be satisfied with concessions on that point and overlook the other part of the TEA incentive equation? Will he be impressed by IIUSA’s map of sites that would be privileged under its virtuously restrictive proposed TEA parameters, and not consider that definitions are irrelevant if investment levels erode the advantage of being a TEA? (IIUSA leadership suggests $700,000 for non TEAs $600,000 for TEAs which would narrow the gap to insignificance and also – accounting for inflation — make both TEA and non-TEA investments cheaper than they were in 1990, when the $1,000,000/$500,000 thresholds were set.) If there has to be change at all, the industry proposal is the kind of change that successful regional centers and EB-5 investors would naturally like to see.

Regional Center Audits
Joseph Whalen has pointed out a job posting on USAJobs.gov that provides insight into what USCIS plans for its regional center auditors to do. IPO is looking to hire people with accounting, business, and legal background and experience to “conduct audits of regional centers and associated entities; provide written reports to support an agency action/adjudication; and utilize audit findings to conduct statistical analysis to develop risk mitigation strategies.” The listed duties focus on financial auditing and analysis of financial documentation.

Regional Center AAO Decision
I’m late in commenting on this year’s first AAO decision on an I-924 application (APR282016_01K1610 Matter of A-C-R-C-, LLC), but the case is worth reviewing for people interested in regional center application content requirements. The case discusses a regional center application based on actual and hypothetical projects, and addresses several points of ambiguity: (1) How much evidence is needed to qualify an actual project in a regional center application? (2) If an actual project plan has deficiencies, can it be modified to cure the deficiencies or removed from the application without triggering a material change problem? (3) If a hypothetical plan has deficiencies, can it still form a basis for approving a regional center application? In denying the application, USCIS apparently gave or implied the following answers (1) a lot (including evidence such as feasibility study, market study, and research citations); (2) no; (3) yes. In reviewing the appeal, the AAO sends the case back to USCIS to further explain or revisit its determinations.

I’m particularly interested in the hypothetical plan issue. In Matter of A-C-R-C-, LLC, USCIS identified a few deficiencies in the hypothetical business plan and economic analysis (specifically in the data cited and in the estimated timeline), but then sidelines these deficiencies as irrelevant, since the hypothetical projects would not be receiving deference anyway. But can the quality of hypothetical analysis be disregarded, if a regional center can be designated based on hypothetical projects? (In 2014, 65% of initial I-924 approvals were based on hypothetical projects only, and I expect to find the 2015/2016 average even higher.) I hope that USCIS rethinks this issue in forthcoming policy/regulations, because the EB-5 community does not benefit from a flood of new regional centers that were not necessarily required to present reasonable and credible proposals for how they might deploy EB-5 investment. We don’t want the bad old days of requiring all I-924 projects to be so-called shovel-ready (that’s not realistic considering year+ processing times, and not in line with the base requirement for regional center applications to present “a general proposal, for the promotion of economic growth”). But even projects in the hypothetical planning stage can and should be held to standards of credibility and reasonableness, and have a bar higher than that set in the May 2013 EB-5 Policy Memo (which defined “hypothetical” simply as “a project proposal that is not supported by a Matter of Ho compliant business plan.”). I think of Pacific Proton Therapy Regional Center, which was initially designated in 2012 based on a hypothetical plan. Four years later the SEC is bringing charges, having discovered that the principals raised and spent quite a bit of money while their project never did become any more than hypothetical. Perhaps USCIS should have pressed for more evidence upfront that the applicants really had the connections and resources and a viable game plan to make their ambitious project possible to realize.

For those who like to see processing time case studies, here is the history for Matter of A-C-R-C-, LLC: Form I-924 filed in July 2013, USCIS issues RFE in July 2014, applicant responds to RFE in October 2014, USCIS issues notice of intent to deny in April 2015, applicant responds to NOID in May 2015, USCIS denies application in August 2015, AAO remands application to USCIS in April 2016.

RC List Changes
Additions to the USCIS Regional Center List, 06/10/2016 to 07/05/2016.

  • American Lending Center Colorado Regional Center, LLC (Colorado): usa-rc.com
  • American Lending Center Virginia Regional Center, LLC (District of Columbia, Virginia): usa-rc.com
  • Benefield California Regional Center, LLC (California)
  • George Washington Immigration Group, LLC (Connecticut, New Jersey, New York)
  • HS Regional Center, LLC (California)
  • Huana Group (U.S.), Inc. (California)
  • New Genesis Gulf South Regional Center, LLC (Louisiana, Mississippi)
  • SAA Cedisus EB-5 Projects – SW Indiana Regional Center, LLC (Indiana): saacedisus.com
  • San Diego EB-5 Regional Center (California): sdeb5.com
  • Texas Capital Advisors Regional Center (“TCARC”) (Texas)
  • TriHaven Investment Group Southern California (California)
  • Western Energy Regional Center (Oklahoma): wercregionalcenter.com

Terminations:

  • Washington Development Regional Center (Washington) Terminated 6/17/2016
  • American Gateway Investments, LLC (New Jersey) Terminated 6/7/2016
  • The Lawrence Economic Development Corporation Terminated 6/6/2016(Ohio)

Filed under EB-5 Law & Policy, New RC, Updates from USCIS

RC Sanctioned $1M for Agent Payments

June 14, 2016 2 Comments

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

Filed under EB-5 in the News, EB-5 Law & Policy

Changes from DHS and/or Congress? RC List Updates

June 10, 2016 4 Comments

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).

Regulatory Changes

How close are we to getting the revised EB-5 regulations promised by USCIS? My best guess is: pretty close — at least by Spring 2025. The rulemaking process for a federal agency (according to Wikipedia) goes like this:

  1. give advance notice of proposed rulemaking
  2. publish actual proposed regulatory language (“notice of proposed rulemaking” or NPRM) in the Federal Register
  3. public comment period, which may last 30 to 180 days or so
  4. if comments precipitate drastic revisions, a second draft may be published in the Federal Register for further comments
  5. the proposed rule becomes a final rule, with minor modifications and full response to comments submitted by the public
  6. the final rule becomes effective (with most rules becoming effective some time after initial publication to give regulated parties time to come into compliance)

So far, DHS has accomplished Step 1 in this process for new EB-5 regulations, publishing Rule 1615-AC07 in the Office of Management and Budget’s Spring 2015 Rule list (and reposting in Fall 2015 and Spring 2016). The 2015/2016 OMB notice indicates general content areas for revision to EB-5 regulations: create distinct regulations for direct and regional center investors; and make changes to regulations for the designation of Targeted Employment Areas, indirect job creation, the required investment amount, material change’s effect on conditional residency, the regional center designation process, and monitoring for regional center compliance. USCIS held a stakeholder meeting and online feedback session on possible revised regulations in April 2014 and again in April 2016. But that’s all still Step 1, and we have no indication of when the process could progress to Step 2 and beyond. [UPDATES: DHS Secretary Johnson testified on 6/30/2016 that he foresees progressing to Step 2 as early as November 2016. IPO Chief Nicholas Colucci said in the 8/29/2016 EB-5 Stakeholder meeting that his office was actively working on the regulation but had no timeline for publishing it. The Fall 2016 OMB list notice gives a target date of 01/00/2017 for Notice of Proposed Rulemaking]

The entire rulemaking process could theoretically happen within a year, and there’s been plenty of talk about its urgency, but I’m not holding my breath. For context, the regulation dealing with EB-5 petitions approved 1995-1998 (RIN 1615-AA90) has appeared as a proposed rule the OMB agenda biannually since 2003, the proposed regulatory language was finally published in the October 2011 Federal Register, the public comment period was completed in November 2011, and the rule entered the final stage March 2015. It remains to be seen whether the promised new EB-5 regulations can be promulgated in less than thirteen years. We’ve heard since 2014 that USCIS is actively working on them, so two years down, at any rate.

If USCIS drags its feet on regulations, it can also make changes by publishing new policy. For example, you can now provide feedback on a new Interim Policy Memo on the topic (not EB-5 specific, but relevant to EB-5 applications and petitions) of Signatures on Documents Filed with USCIS. (UPDATE: In the 8/29 EB-5 Stakeholder Meeting, IPO reported that they are currently compiling existing policy for the EB-5 chapters for the USCIS Policy Manual, and expect to issue future new policy as amendments to the manual.)

Legislation
How close are we to getting new legislation that affects EB-5? The tidbits and rumors I hear suggest (1) that we’re unlikely to see a substantial reform/reauthorization bill before September 30, considering the few Congressional workdays left and the election, (2) that substantial reform legislation is still in active discussion (Grassley and Leahy staffers met just last week with securities attorneys to discuss a forthcoming edition of the S.1501), (3) that the regional center program will probably get another clean short-term extension beyond September 30, 2016, to give more time for substantial legislation, and (4) that the next short-term extension is likely to be genuinely short, considering that the leaders motivated to insist on urgent program changes have even more ammunition and motivation than they did last year.

The House has a couple new bills with some relevance to EB-5. H.R.5203 – Visa Integrity and Security Act of 2016 would tweak the application and review process for all visa categories (not EB-5-specific, but could affect some EB-5 investors). The EB-5 Insights blog has a summary of key provisions, if you’re interested but don’t want to read the bill. H.R. 5398: Immigration for a Competitive America Act of 2016 doesn’t mention EB-5 but proposes to increase the total number of employment-based visas from 140,000 to 253,000 (+81%), which would effectively increase the EB-5 visa allocation by 81% as well. As of now the bills haven’t gotten far and GovTrack rates them at 0%-3% chance of being enacted, but FYI the proposals are out there.

Regional Center List Updates
Additions to the USCIS Regional Center List, 05/23/2016 to 06/10/2016

  • Deictic Investment Group – California (California)
  • Onefire Healthcare Services, LLC d.b.a. Onefire Regional Center (Oklahoma)
  • Texas First Regional Center, LLC (Texas)
  • Texas Regional Investment Center (Texas): www.texasric.com
  • West Bridge Regional Center, LLC (Texas): www.westbridgeregionalcenter.com
    No longer listed:

  • TriHaven Investment Group Southern California (California)

New Termination

  • Palm Beach Raceway LLC (Florida) Terminated 5/31/2016

Filed under EB-5 Law & Policy, New RC

AAO Decisions, RC List Changes

May 26, 2016 Leave a comment

Newly-Posted AAO Decisions on I-526 Cases (existing business, business plan credibility, material change, indebtedness)

Several interesting 2016 AAO decisions on I-526 cases were uploaded this week to the USCIS website:

  • MAY032016_01B7203: Direct EB-5 case in which the petitioner purchased two gas stations through bankruptcy court following the previous owner’s Chapter 11 bankruptcy liquidation, reopened them under his new company, and claimed this as creation of a new business with new job creation. USCIS/AAO declined to credit the business or jobs involved as “new” despite purchase from bankruptcy, because the purchase documents did not unambiguously show that the business was non-operational prior to sale, and that the petitioner merely purchased assets, not a business.
  • MAY032016_02B7203: Direct EB-5 case in which the petitioner invested in a business (house-flipping) that by its nature would be unlikely create the required number of jobs, submitted a business plan that naturally didn’t make a good job creation case, paid EB-5 document and legal fees from the enterprise, and had a messy expenditure paper trail that didn’t clarify that the costs attributed to the enterprise were actually billed to and paid by the enterprise.
  • MAY052016_01B7203: In which a petitioner attempts to overcome a finding of fraud by claiming that she didn’t willfully misrepresent material facts because she didn’t know about the material facts filed with her petition. The AAO maintained that her stated ignorance related to filings is not reasonable, and supports a finding of deliberate avoidance.
  • MAY102016_01B7203: In this direct EB-5 case, the business plan is judged non-credible based, as usual, on inconsistencies: in this case, inconsistencies between the business plan and how the business subsequently developed.
  • MAY102016_02B7203: This direct EB-5 petitioner did not demonstrate that he was eligible at the time of initial I-526 filing, but committed material change when he filed a revised Form 1-526 that changed the NCE’s name and location and materially altered its industry focus, among other changes.
  • MAY112016_01B7203: This regional center case turns on the issue of indebtedness as source of the petitioner’s investment, and includes extensive discussion of the “USCIS Interpretation of Indebtedness.”
  • MAY112016_02B7203: This is another petitioner in the regional center case involving investment in a troubled hospital. (I discussed this case in detail in my 4/7 post. Also note that the petitioners fought the case with a civil action against USCIS and they won.)

Additions to the USCIS Regional Center List, 05/03/2016 to 05/23/2016.

  • C Chase Hotel & Resort Regional Center LLC (Connecticut, New Jersey, New York, Pennsylvania)
  • Harmonia Regional Center New York (Connecticut, New Jersey, New York): harmoniaeb5.com
  • LA Growth Fund, LLC (California)

New Terminations:

  • US EB5 Nevada Regional Center, LLC (Nevada) Terminated 5/12/2016
  • US EB5 Florida Regional Center (Florida) Terminated 5/9/2016
  • Middle Georgia Regional Center (Georgia) Terminated 5/4/2016
  • Global Investment Consulting, Inc. (Indiana) Terminated 5/3/2016

Filed under EB-5 Law & Policy, New RC

4/25 meeting notes, RC list changes

April 25, 2016 Leave a comment

4/25/2016 Listening Session
Today’s EB-5 stakeholder meeting with USCIS was indeed a listening session — a venue for stakeholder opinions and not for tips and answers from USCIS. In case you’re a lawmaker or regulator and interested in reviewing insightful comments from the public, here is my recording. For the rest of us, who are mainly just curious about what USCIS has to say, here are a few tidbits that came out in the meeting:

  • USCIS will be initiating an IDEA community campaign to collect additional input on EB-5 regulation/policy changes. When that goes live, I’ll post a notice here.
  • I-829 interviews will begin this year, at first virtually, and interviewees may bring counsel, Regional Center representatives, and Regional Center counsel.
  • An audit program for regional centers is being implemented this year, and site visits are being expanded for direct and regional center projects.
  • IPO is up to 126 staff and on track to have 171 employees by year end.
  • IPO did not give any hints about the anticipated content of or timeline for revised regulations or new policy.
  • IPO will work closely with Congress up to the next deadline for regional center program reauthorization (September 30, 2016), and just in case will prepare “what if” guidance for two sunset scenarios: if the Regional Center program lapses but Congress apparently intends to reauthorize it, or if Congress indicates its desire to end the program.
  • IPO Chief Nicolas Colucci reported some preliminary processing data. Q2 2016 receipts: 849 (I-526), 886 (I-829), 40 (I-924). Completions from October 2015 to March 2016 (Q1-Q2 2016): 4,141 (I-526), 1,255 (I-829), 135 (I-924). The big story in these numbers is I-526 receipts, as illustrated in the following figure.
    Q22016I526

Regional Center List Changes
Additions to the USCIS Regional Center List, 04/19/2016 to 04/25/2016

  • Regional Center of the Pacific (California)

Additions to the USCIS list of terminated regional centers:

  • WRC EB-5 Regional Center, Inc. (Washington) Terminated 4/13/2016

Filed under EB-5 Events, EB-5 Law & Policy, EB-5 Statistics, New RC, Updates from USCIS

4/25 Meeting Questions, Program Changes, New RCs

April 19, 2016 7 Comments

Discussing EB-5 Changes with USCIS

Next Monday 4/25 USCIS will hold an EB-5 listening session to give stakeholders a chance “to provide feedback on potential EB-5 regulatory and other policy changes.” This week USCIS emailed “a list of topics that we would like your input on,” as follows: “Minimum investment amounts; The TEA designation process; The regional center designation process, including, but not limited to, the exemplar process and the designation of the geographic scope of a regional center; and Indirect job creation methodologies.” This list gives us an interesting tip of the hand on the areas USCIS plans to address in forthcoming revised regulations and new policy.

So what are the potential changes? I’ve summarized issues and proposals that are on the table in these four categories, with special reference to Secretary Jeh Johnson’s legislative wish list as expressed in his April 2015 letter to Senators Grassley and Leahy, and provisions that have been included in EB-5 reform bills. All these items were put on the table for Congressional action, and I’m not entirely clear about how much USCIS has power to change through regulation and policy, absent legislation. And I don’t hold my breath for USCIS much more than for Congress to get things done. But I hope to hear more on Monday about what USCIS has in the pipeline, and this list may help spur your thinking on feedback you’d like to give during the meeting.

— Minimum investment amounts —
What DHS suggested to Congress:
— Increase both the TEA and base investment amounts, considering that they haven’t been adjusted in 25 years. And link minimum thresholds to inflation indices going forward. (Jeh Johnson letter)
Proposals from EB-5 legislation:
— Leahy & Grassley: base amount $1.2M, $800K in TEA, and CPI adjustments every five years
— Lofgren & Gutierrez: base amount $2M, $1M in TEA
— Flake, Polis, Paul, Schock: no change proposed
Other notes:
— In an IIUSA member poll, 72% thought raising the TEA level to $800K workable for their business; 15% thought the $2M/$1M level workable.
— Judiciary committee hearings have all mentioned the need to raise investment amounts. The Senate TEA hearing discussed Congressional intent for the base amount to be the norm and TEA investment an exception to incentivize a limited number of projects.
— The US investor visa amount is indeed rather low compared with other major investor visa programs. (Migration Policy Institute report.)

— The TEA designation process —
What DHS suggested to Congress:
— Prevent jerrymandering by limiting TEAs to a specified number of contiguous census tracts. Also include closed military bases. (Jeh Johnson letter)
Suggestions from legislative proposals:
— Leahy & Grassley: new set-asides, new NMTC-inspired categories, limit gerrymandering, USCIS designates rather than states, TEA designation valid for 2-year period
— Flake, Polis, Paul, Schock: no change
Other notes:
— In an IIUSA poll, 59% percent thought the 12-census tract California model viable for the industry, 36% thought the NMTC-modeled category could work.
— Judiciary committee hearings have expressed strong and divisive opinions about what types of projects should be incentivized and which type of geographic areas privileged, what types of incentives would be effective, and who should designate TEAs.
— Some interesting analysis has been done on the potential impact of TEA change proposals, including by Friedland & Calderon.

— The regional center designation process, including, but not limited to, the exemplar process and the designation of the geographic scope of a regional center —
What DHS suggested to Congress:
— Require RC principals to be US citizens or permanent residents with records free of certain criminal and civil violations. Require exemplar filing (business plan and organizational documents) in advance of individual investor filings. (Jeh Johnson letter)
Suggestions from legislative proposals:
— Most 2015 bills include a provision requiring exemplar I-526 filing for project pre-approval, and include a provision prohibiting foreign RC ownership.
Other notes:
— I haven’t noticed other people talking about regional center geographic scope as a sensitive issue, and interested to see this point raised now. I’ve been remarking since late 2013 on the many multi-state regional centers getting designated, and wondering what IPO thinks “regional center” means. The law establishing the program specifies that “a Regional Center shall have jurisdiction over a limited geographic area, which shall be consistent with the purpose of concentrating pooled investment in defined economic zones” (Section 610(a) of the Departments of Justice and Related Agencies Appropriations Act 1993).

— Indirect job creation methodologies —
What DHS suggested to Congress:
— I can’t recall USCIS proposing changes in indirect job creation methodologies.
Suggestions from legislative proposals:
— The Leahy & Grassley bill proposed adding a requirement that at least 10% of RC project jobs be verifiable direct jobs. (Their original bill would also limit EB-5 investor credit for job creation based on percentage of their investment in the enterprise and says that at least 50% of all indirect jobs in a TEA project must be created within the TEA.)
Other notes:
— In an IIUSA poll, 39 respondents agreed with a 10% direct jobs requirement.
— Speakers at both House and Senate judiciary committee hearings questioned whether it’s fair to let EB-5 investors count all the jobs in a project when they provided only a small portion of funding needed for that project. I don’t resonate with this concern (after all, it’s common for a small piece of the capital stack to be a piece without which that whole project could not proceed), but apparently it’s fixed in the Congressional imagination as a concern. But I don’t know whether it’s in USCIS’s possible policy/regulation reach.
— There have been suggestions in the past about getting other agencies (ie Department of Commerce) involved in vetting and/or setting rules for EB-5 economic analysis, but I haven’t heard this bruited recently. I wonder whether this is the indirect jobs issue currently on USCIS’s radar.

Articles on Proposed Changes
The latest edition of the Regional Center Business Journal has a valuable article by Peter Joseph discussing the schedule between now and September 30, 2016 and what may happen in Congress during that time (page 19), and also a roundtable of EB-5 experts discussing the possibilities for changes through policy and regulation (p 38).

Regional Center List Changes
Additions to the USCIS Regional Center List, 04/13/2016 to 04/19/2016

  • EB5 International III LLC (Oregon, Washington)
  • Global Alliance Carolina Regional Center, LLC (North Carolina)

Filed under EB-5 Law & Policy, New RC

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

April 14, 2016 2 Comments

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

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

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

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

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

Removed from the list

  • Deictic Investment Group LLC (California)

Filed under EB-5 Events, EB-5 in the News, EB-5 Law & Policy, New RC

4/13 Hearing, 2016 AAO Decisions (NCE requirement), RC List Changes

April 7, 2016 Leave a comment

Senate Judiciary Committee Hearing Rescheduled 4/13
The Senate Judiciary Committee’s provocatively titled hearing on The Distortion of EB-5 Targeted Employment Areas: Time to End the Abuse has been rescheduled for Wednesday April 13th.  The hearing will be streamed live at the above link.

AAO Decisions: Regional Center NCE, Jobs Allocation, At Risk Requirement
Several 2016 AAO decisions on I-526 cases have been posted on the USCIS website. I’m particularly interested in MAR252016_02B7203 (and the nearly identical _03 and _04), which deal with a regional center investment. Here’s what I’m particularly surprised or intrigued to hear AAO saying in the MAR252015 cases:

  • In the Regional Center context, the job-creating entity’s history and creation date are not relevant to the question of whether EB-5’s “new” commercial enterprise requirement has been met. When the regional center investment involves a new commercial enterprise and a separate job-creating enterprise, only the NCE has to qualify as “new.” In making this point, AAO argues against a position commonly taken by USCIS. In the MAR252016 case, the petitioner invested in a limited partnership formed in 2013 that deployed capital in a hospital established in the 1960s. In its denial, USCIS predictably cited Matter of Soffici and indicated that the NCE requirement wouldn’t be met unless the hospital were restructured or substantially expanded. (Soffici deals with a new enterprise’s purchase of an old hotel and says “It is the job creating business that must be examined in determining whether a new commercial enterprise has been created”.) AAO countered that: “We disagree with the Chief’s analysis. Soffici, unlike this case, did not involve a regional center project.” AAO argues that the relevant precedent is rather Matter of Izummi, which did deal with a regional center case, and “In Izummi, when determining what constituted a ‘new commercial enterprise’, we reviewed the date of creation of the entity in which a petitioner had invested or intended to invest, not the job creating entity where the funds were ultimately to be deployed.”
  • A petitioner can’t get credit for any jobs created by the project if the project didn’t create enough jobs for all EB-5 investors in the project (unless there is an agreement among all investors about how jobs will be allocated). In the MAR252016 case, AAO wouldn’t consider whether any of the 61 new jobs finally claimed could be credited to the petitioner, since there were 11 other EB-5 investors in the project and no job allocation agreement on file. This is not new policy, but an important reminder. Make and file a job allocation agreement, just in case!
  • An EB-5 investment does not meet the “at risk” requirement if the business plan does not “present a comprehensive analysis of the potential net profit available for distribution to each of the limited partners” and therefore fails to “sufficiently establish that there is a reasonable chance for gain, especially in the foreseeable future.” This is not technically a new point (the full “at risk” requirement is “at risk for the purpose of generating a return on the capital placed at risk”), but I haven’t seen AAO/USCIS focus on insufficient profit analysis as a basis for denial.

I’ll let you read the MAR252016 decisions for yourself to get the rest of the story. The case also involves the hot issues of troubled business qualification and the separation of ownership, management, and employment among multiple entities, and AAO doesn’t raise all the questions or reach all the conclusions I would’ve expected. What AAO doesn’t say in this case may be as significant as the points that are made. To assist in following the case, I’ve done my best to illustrate the fact pattern (reading around redactions, so mistakes are possible).
Fig-1UPDATE: You can read more about this case in a civil suit filed by the petitioners. (Update: the petitioners won the suit.)

AAO Decisions: Search Function
The Administrative Appeals Office has launched a search tool for most non-precedent decisions since 2005. Just enter a search term in the box under “AAO Non-Precedent Decision Repository” and poof – links to all AAO decisions where that term is mentioned, with sorting options. I love it. (And now regret that weekend spent downloading EB-5 decisions one by one to make my own searchable master file.)

Regional Center List Changes
Additions to the USCIS Regional Center List, 03/21/2016 to 04/05/2016

Terminations

  • Path America KingCo, LLC (Washington), Terminated 3/23/2016
  • MCIG Regional Center (Florida) Terminated 3/29/2016
  • Velocity Regional Center (California), Terminated 3/24/2016

Filed under EB-5 Events, EB-5 Law & Policy, New RC

Senate TEA Hearing

February 26, 2016 Leave a comment

Update: the Senate hearing on EB-5 Targeted Employment Areas has been postponed.

The Senate Judiciary Committee is more serious about EB-5 than I expected, and already has another hearing scheduled for next week, on Wednesday March 2, with the provocative title The Distortion of EB-5 Targeted Employment Areas: Time to End the Abuse. Senator Grassley is making good on his vow in December for Continued Push to Reform EB-5 after Fixes Ignored in Omnibus Spending Bill. Senator Grassley is concerned that “the status quo will not benefit Middle America. It benefits New York City and other affluent areas at the expense of areas in Iowa, Kentucky, Wisconsin, and Vermont,” and he is disturbed by reports such as Wall Street Journal’s September 2015 article How a U.S. Visa-for-Cash Plan Funds Luxury Apartment Buildings. On the other hand, Senators representing coastal America are likely to point out that big cities also struggle with unemployment and economic distress, and that it’s not right to make the TEA issue into a regional fight or impose a rural model on urban areas. If you’d like to review arguments on various sides in advance of this hearing, consider Jeanne Calderon’s research on the history and current use of the TEA incentive and impact of potential changes, Carolyn Lee’s 2014 article on State Designations of EB-5 Targeted Employment Areas (explaining the logic of current practice), and Jeff Campion’s 2015 article Targeted Employment Areas: Where Are We Now (giving the urban perspective). The proposed new TEA provisions in last year’s draft legislation were awkward and confusing, probably the result of too many contradictory compromises, but maybe all these hearings can result in a more reasonable reform proposal.

Filed under EB-5 Law & Policy

H.R.4530, Resources, RC List Update

February 12, 2016 Leave a comment

H.R.4530 Introduced
Even as Representatives Goodlatte, Conyers, Issa, and Lofgren (who worked with Senators Leahy and Grassley on their legislation last year) were speaking in yesterday’s House EB-5 hearing about how they think EB-5 incentives are misused and need to be re-oriented, representatives Polis and Amodei introduced H.R.4530-EB-5 Integrity Act of 2016, a bill that proposes to keep current EB-5 incentives in place. I’ve added the bill to my comparison chart, but you don’t need to read it; H.R.4530 is a carbon copy of Senator Flake’s S.2415 (and FYI entirely different from the H.R. 616 American Entrepreneurship and Investment Act of 2015 introduced by Polis and Amodei last January). I don’t know whom to cheer in this legislative mix. The Grassley/Leahy camp bill included at least one provision that would touch and could hurt (sometimes even fatally) each segment of the regional center world, while the Flake/Polis camp bill is crafted to ensure that the current winners don’t get their boats rocked and keep winning, with TEA incentives and the investment amount the same and the kind of integrity measures that conveniently double as anti-competitive measures. Diversity in the regional center world can be a problem, because fragmented markets are hard to work with and small-scale players have a relative probability of being unprofessional if not rogue and causing trouble. On the other hand, diversity means that EB-5 is relatively likely to fund the kind of projects that Congressional representatives want to see to help justify the regional center program — the hotels in third tier cities, the logistics companies in blighted industrial areas, the affordable housing, the entertainment and agricultural projects in rural areas, and so on. If regional center investment becomes all small safe loans to luxury developments in gateway cities, then immigrant investors will benefit but the American public, media, and Congress may turn against what looks like essentially a low-bar green card purchase transaction plus jobs-neutral government subsidy for attractive projects that would’ve proceeded anyway, just more expensively without the green card incentive to lower capital costs. On the other hand, the cause of integrity would not be advanced by deciding to limit the regional center program to unattractive projects entirely dependent on hapless foreign investors, or providing too much leeway for issuers that lack resources to operate professionally. If I were called to testify, I don’t know what changes I’d suggest to maximize EB-5’s potential benefits and minimize risks.

Resources
This quarter’s editions of the Regional Center Business Journal and EB-5 Investors Magazine (so far just out in paper form, but to be posted here soon) both have a number of great articles. In RCBJ, I particularly appreciated “What we Learn From SEC Investigation” by Ronald Fieldstone and Jay Rosen, who provide a comprehensive review of the types of violations that get investigated by the SEC, the specific activities that are focus of investigations, and the SEC investigation process from subpoena through discovery, deposition, negotiation and settlement. Lili Wang writes helpfully in RCBJ about the question we all ask “What Do Chinese Migration Agents Really Want?”, and EB-5 Investors Magazine also takes up this theme with two interesting migration agent interviews. Gregory White, Mark Katzoff and Angelo Paparelli authored an article for v.3.3 EB5 Investors Magazine (that I hope will soon be available online) on the important topic of “Avoiding the Inadvertent Investment Company.” The article describes how a regional center or issuer may avoid (and what will happen if it doesn’t avoid) being tagged as an investment company, including possible rescission, ineligibility to satisfy the EB-5 “at risk” capital rules and a duty to register as an investment advisor. EB5 Diligence also had a webinar this week on the topic Are Regional Centers Acting As Unregistered Investment Advisors? Another hot topic is the “rent-a-center” model for regional center investment, which has become increasingly popular and has also appeared in the cross-hairs of some legislative reform proposals. Rohit Kapuria has posted a thoughtful article Is the EB-5 Regional Center “Pure” Rental Model Sustainable?, and EB5 Projects will host a free webinar on 2/23 concerning Immigration & Securities Issues with Renting Buying & Selling an EB-5 Visa Regional Center.

USCIS Engagement Notes
USCIS has updated the 2/3 EB-5 Stakeholder invitation page with copies of the written opening statements made by Nicholas Colucci, Julia Harrison, and Lori MacKenzie. Also FYI I keep a master directory of USCIS EB-5 stakeholder meetings and a handy searchable PDF compilation of all published meeting notes (for those times when you can remember USCIS discussing a topic but forget where and when).

Processing Times
Not that we put much stock in IPO processing time averages (at least not without keeping a 10-month or so standard deviation in mind), but USCIS Processing Time Information has been updated as of 12/31/2016: 16 months for I-526, 16.2 months for I-829, and 8.5 months for I-924 (all up about 0.5 months from the previous report).

Regional Center List Changes
Additions to the USCIS Regional Center List, 01/28/2016 to 2/10/2016.

  • Bluegrass International Fund, LLC (Indiana, Kentucky): www.bluegrass-fund.com
  • East Coast Regional Center, LLC (New Jersey, New York)
  • Howard Hughes Hawaii Regional Center, LLC (Hawaii)
  • Mid-Atlantic Regional Center (Connecticut, Delaware, Maryland, New Jersey, New York, Pennsylvania): aseb5.com
  • Yellow Rock Regional Center of Washington, LLC (Washington)

Renamed:

  • Florida East Coast EB5 Regional Center LLC (former name United States Growth Fund, LLC) (Florida)
  • Prosperity Regional Center (former name U.S. Prosperity Regional Center) (Florida)
  • Investus LLC (former name New Mexico Foreign Investments LLC) (New Mexico)
  • New York Dream Regional Center LLC (former name Tri-State USA Regional Center) (New York)

Filed under EB-5 Law & Policy, EB-5 Resources, New RC

2/11 House Hearing Detail

February 11, 2016 Leave a comment

You can now review video, testimonies, and statements from today’s House Judiciary Committee Hearing “Is the Investor Visa Program an Underperforming Asset?” (FYI, I’ve also uploaded my audio recording.)

In the written testimony, IPO Chief Nicholas Colucci essentially reiterates his Senate testimony, GAO Director Rebecca Gambler discusses the GAO’s August 2015 study of the EB-5 program and USCIS’s slow progress toward implementing GAO recommendations for better risk assessment and reporting, NYU Professor Jeanne Calderon discusses her program research and the history and use of the Targeted Employment Area incentive, and Matt Gordon advocates for maximizing the social value of EB-5 and making program changes that would benefit his direct-EB-5-focused company.

The hearing began with opening statements by Committee Chairman Bob Goodlatte (R-VA), Ranking Member John Conyers (D-MI), and Zoe Lofgren (D-CA), who agreed that the regional center program has good potential but needs significant reform, particularly in practices that have departed from Congressional intent to incentivize investment in needy urban and rural areas. Targeted Employment Area issues were a focus throughout the hearing, including the question period that brought in Darrell Issa (D-CA), Louie Gohmert (R-TX), Jackson Lee (D-TX), Trey Gowdry (R-SC), and Judy Chu (D-CA). Most speakers deplored gerrymandering and TEA incentives for luxury real estate developments, and emphasized the need to increase the minimum EB-5 investment amount (focusing on areas of reform that were part of the Leahy/Grassley legislation but excluded from the Flake bill). Job creation was an additional focus area in this hearing, with Conyers, Calderon, Gambler, and Gordon regretting the limited data on regional center job creation, and Goodlatte and Issa questioning whether it makes sense to let EB-5 investors count the total jobs created by the project they invest in, even if their investment accounts for a small percentage of the capital stack. The issue of effective dates was raised several times, with Goodlatte arguing that reforms would need some retroactivity in order to be effective (considering that there are 6+ years of investors already in the backlog pipeline, and this could defer program reforms 6+ years if they only applied to new investors filing after enactment). Colucci indicated that regulatory changes being formulated by USCIS (to TEA procedures and the investment amount) would be forward-looking per tradition, not retroactive. He did not say when USCIS will come out with proposed changes to the regulations or how much USCIS would increase the investment amount (though he mentioned they are considering the legislative proposals as a reference point). The hearing brought up a number of questions that the witnesses lacked the background to answer, and I found myself wishing that the roster had included someone with direct regional center experience. Darrell Issa did request that a letter from IIUSA be included in the hearing record, and this may provide additional perspective.

In sum, the House hearing’s answer to the question “Is the investor visa program an underperforming asset?” seemed to be “Yes, it is underperforming Congressional intent to attract investment to and create jobs in areas of greatest need.” This hearing did not have much to say about anti-fraud/abuse measures or increased oversight (the focus of the Senate hearing), but expressed concern that EB-5 isn’t getting the best “bang for the buck” because investor funds aren’t being directed for maximum economic and job creation benefit.

Filed under EB-5 Law & Policy

2/2 Senate Hearing Detail

February 2, 2016 Leave a comment

If you are involved in the regional center program, you should review what happened today in the Senate Judiciary Committee Hearing on “The Failures and Future of the EB-5 Regional Center Program: Can it be Fixed?” We heard testimony from IPO Chief Nicholas Colucci and SEC Division of Enforcement Associate Director Stephen Cohen, statements by Senators Grassley, Leahy, and Feinstein, and an extensive question and answer period that brought in Senators Cornyn, Schumer, Flake, Blumenthal, Tillis, Sessions, Perdue, and Klobuchar. The judiciary committee website link above currently has video of the hearing and written statements by Grassley, Leahy, Colucci, and Cohen. (After watching the video be sure to read the statements, as they are very informative and include content beyond what their authors said in the hearing.) In case the video disappears, I’ve also uploaded my audio recording of the hearing. (Also, see this post for more on the letter from DHS Secretary Jeh Johnson, which was frequently referenced in the hearing.)

I don’t know whether Senator Grassley came away from this hearing with further clarity on the character and prospects of regional centers, but we definitely get a fascinating view of the thinking and activities going on behind the scenes now at USCIS, at the SEC, and in Congress relative to the RC program. The senators present largely advocated for fixing not nixing (or mending not ending) the program (except for Senator Feinstein, who called for an end and also pressed her odd belief that USCIS and the SEC should specially investigate the victims in a fraud case). The senators expressed general commitment to reform while differing in their diagnosis of the nature and magnitude of problems, and in their visions for what the RC program should be. Perhaps most interesting, the senators drew out Chief Colucci to discuss specific integrity measures and program changes that are already in place and in the pipeline at USCIS, regardless of legislation.

Filed under EB-5 Law & Policy, Updates from USCIS

RC Hearing, RC List Update

January 29, 2016 1 Comment

2/2 Hearing on the Regional Center Program
The Senate Judiciary Committee/Senator Grassley have titled next week’s hearing “The Failures and Future of the EB-5 Regional Center Program: Can it be Fixed?” Good heavens! No wonder journalists started calling me yesterday wondering what’s blowing up in EB-5, and disappointed to discover that this insider knows a thousand boring little problems but no big story of pervasive failure to justify such a hearing title. But tis the season for politics, and EB-5 can appear as a golden opportunity to bash immigration plus the wealthy plus real estate developers plus Commies plus New Yorkers all in one rabble-pleasing blow. And Regional Centers may just have to get in line with police officers and Muslim Americans as victims of our politicians’ inclination to profile entire communities based on a few isolated actors. If I were a typical regional center innocently engaged in unremarkable project finance, I’d be worried about a powerful Congressman asking “do you have a future and can you be fixed?” while under the impression that I’m failing and am inherently likely to be facilitating terrorist travel, economic espionage, money laundering, and investment fraud. Hopefully the hearing will call speakers who provide our leaders a more accurate impression of what’s actually going on in the regional center program. The hearing will stream live on the Senate Judiciary Committee website at 10 am EST on Tuesday Feb. 2.

New RCs
Meanwhile, USCIS continues to process EB-5 applications and petitions. The average posted I-526 processing time jumped to 15.5 months as of 11/30/2015 (up from 12.8 months reported as of 10/31). USCIS has also updated the regional center list, and posted a new PDF file that gives the identification number for each regional center. I can’t think how this could possibly help anyone (what we need, USCIS, is for you to please post the designation letters that show who’s behind these RCs and what you’ve approved them for), but the list with ID numbers is there FYI.

Additions to the USCIS Regional Center List, 1/14/2016 to 01/28/2016.

  • Ashcroft/Sullivan New England Economic Development Center (Massachusetts, Rhode Island): aseb5.com
  • Liongate Regional Center, LLC (Washington)
  • MCFI Nevada (Nevada):www.mcfiusa.com

Renamed:

  • Central Western Regional Center LLC (former name USA Midwest Regional Center LLC) (Illinois, Indiana, Kansas, Kentucky, Michigan, Missouri, Ohio, Pennsylvania, Wisconsin)
  • Green Card Solutions Regional Center (former name Shrimp House US LLC) (Florida)

Filed under EB-5 Law & Policy, New RC

Thinking about RC legislation (with comparison chart)

January 27, 2016 1 Comment

The Regional Center Program has just eight months before it needs another authorization from Congress. Significant EB-5 legislation may be unlikely this election year (I hear people hoping for another short-term extension by 9/30/2016), but we can foresee future directions in the flurry of reform proposals. To help visualize where we are, I’ve made a chart of EB-5 bills that are or were recently on the table. My chart is idiosyncratic (limited to provisions that particularly interest me as a business plan writer) and oversimplified, but it gives a handy overview. I’ve generously uploaded my original to Google docs, in case you’d like to enlarge the font or edit a new version with your own favorite nuances. (NOTE: the Google docs version linked above is now more updated than the chart image below.)
lucidcompchart
The comparison chart highlights areas of consensus and difference, and helps us think about what changes we should prepare to accept (or take action to forestall). Besides the rows dominated by “yes” (likely directions) and the rows full of differences (points of open debate), I’m particularly interested in the left-most columns: S.2415, because it’s the most recent proposal, and the Discussion Draft/S.1501 update, because it came nearest to enactment. These two bills are superficially very similar; S.2415 is a partially defused version of S.1501. S.2415 omits two of the most disruptive changes proposed in S.1501 – changes to TEA definitions and the qualifying EB-5 investment amount – and neatly clips difficult integrity measures by means of three simple terms: “affiliated,” “involved,” and “associated.” The integrity measures in S.1501 (and others) are hard because they would make regional centers responsible for the actions of parties often (in current practice) outside RC control. S.2415 reduces those proposed responsibilities by replacing “job-creating entity” in S.1501’s integrity proposals with the more limited “affiliated job creating entity” (with “affiliated” defined as controlled, managed, or owned by people involved with the regional center or new commercial enterprise) and by adding term definitions that limit who would count as “parties associated” or “persons involved” when it comes to compliance matters involving enterprises, agents, promoters, and attorneys. (To see for yourself, compare the term definitions on p. 29, 37, and 61 of S.2415 with those on p. 30, 37, and 76 of the Discussion Draft, and follow use of those terms.) S.2415 retains the basic shape of S.1501’s regional center integrity measures and program improvements, keeps the reforms that only inconvenience USCIS (additional reports and tasks) or that mainly hurt small regional centers (ie the annual fee), and cuts no corners when it comes to protecting against hypothetical national security threats. I don’t know whether S.2415 retains enough similarity to S.1501 to get any smiles from Senator Grassley (who is on the warpath, judging by quotes yesterday to RadioIowa in advance of his coming hearing on the EB-5 program), or whether it’s modified enough to have EB-5 community support broader than the interests represented by Senator Flake (and Cornyn and Schumer). I wait with impatience to hear legislative updates from people who know what’s happening right now on Capitol Hill. I’m also looking forward to 2/9 in San Francisco, where I’ll be part of a panel that NES Financial has organized to “discuss integrity measures and compliance requirements that have remained consistent through recent drafts of EB-5 legislation, and highlight solutions and strategies that will allow issuers to prepare for these changes.”

Filed under EB-5 Law & Policy

RC Program Extended to 9/30/2016

December 19, 2015 Leave a comment

The Consolidated Appropriations Act, 2016, which includes a sentence authorizing the Regional Center program through September 30, 2016 (in Section 575 on PDF page 285) has been passed by Congress and signed by the President. Now it will become law, and the EB-5 status quo can continue for another few short months. If the alternative draft EB-5 legislation recently under discussion had been enacted instead, we’d now have a higher minimum investment amount for all EB-5 investors, more guarded and complicated targeted employment area parameters, limitations on foreign ownership of EB-5 enterprises, provisions that would curb the big EB-5 users as well as fees and requirements that could all but eliminate the little guys, solid new integrity measures, a heavier paperwork burden on regional centers and USCIS, and a relatively stable long-term footing. As it is, nothing in EB-5 has changed for now except the regional center program sunset date.

What happened is a mixed blessing. I’m glad that the most recent draft reform bill didn’t become law, as it included a few dangerously ambiguous, counterproductive, gratuitous and impracticable points (at least in the last version I saw) in addition to many wise and important modifications. But I’m also sad that we didn’t manage anything substantive or long-term this time around, despite an enormous amount of effort in that direction.

The last-minute clean regional center program extension in the omnibus bill could be interpreted cynically as a victory for a few powerful players who lobbied well to ensure that the trough not move just so long as they’ve got their snouts in it, regardless of long-term program viability and overall health (and as a victory for representatives who can continue to be courted and lobbied/bankrolled so long as they keep issues pending by deferring instead of resolving them). Or the short extension can be viewed positively as a victory for the majority who could benefit from giving Congressional leaders and stakeholders a few more months to come up with what they tried for but didn’t quite manage to produce this year: a really clear and practicable long-term authorization proposal worthy of enactment, something whose well-drafted language and provisions would support solid reform and progress and protect the regional center program’s broad-based benefits. But such a victory would require people to be willing to return to the table and get right back to the hard work of trying to forge lasting solutions. And will they be willing? Many who were at the long-term authorization table have a bitter taste in their mouths right now, disappointed that they didn’t hammer out better legislation in time and suspecting that even if they had the result could still have been preempted at the last minute. But their hope and efforts must be renewed, or the regional center program will not have a future.

For commentary on what happened, where we are now, and what will happen next, see Stephen Yale-Loehr’s article Congress Extends EB-5 Program for One Year Without Changes, Posted 12/16/15 and Senator Grassley’s statement on his website Grassley Vows Continued Push to Reform EB-5 after Fixes Ignored in Omnibus Spending Bill, Posted 12/17/2015.

Filed under EB-5 Law & Policy

Legislative Update: bill text with simple extension

December 16, 2015 5 Comments

UPDATE: See the post RC Program Extended to 9/30/2016

Last night Congressional leaders finalized the text of Senate amendment to H.R. 2029 Military Construction and Veterans Affairs and Related Agencies Appropriations Act, 2016 [Consolidated Appropriations and Tax Measures] (aka the omnibus appropriations bill, the spending bill, the funding bill, the spending deal, the spending package). Now the language is set, and we wait for Congress to vote and the President to sign. We’ve expected EB-5 to be one passenger on this omnibus, bringing Regional Center reauthorization and likely substantive EB-5 program changes as discussed in the discussion draft legislation put together by Judiciary Committee leaders and circulated last week by Senators Leahy and Grassley. I panicked at first when I downloaded the bill and didn’t find language from the EB-5 discussion draft or matches to EB-5-related search terms, but I finally located an EB-5 mention on PDF page 708 of the omnibus, as follows:

SEC. 575. Section 610(b) of the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1993 (8 U.S.C. 1153 note) shall be applied by substituting ‘‘September 30, 2016’’ for the date specified in section 106(3) of the Continuing Appropriations Act, 2016 (Public Law 114–53).

That’s all I can find — a proposed simple extension of the Regional Center program authorization for the reminder of the fiscal year, with no other EB-5 program changes. (As a reminder, Public Law 114-53 on pdf page 9 extends the Regional Center program to September 30, 2015, and  Section 610(b) of the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1993 (Public Law 102-395) (pdf page 47) is the act that established the regional center program.)

I keep an eye on The Hill and Congressional sites for updates on what’s happening with the legislation. Stop-gap measures may continue to be passed as needed to give the government a few more days of funding (and the regional center program and other programs a few more days of authorization) while our representatives take more time to read the enormous appropriations bill and make up their minds. They are reportedly likely to pass the bill, eventually (though the provisions include some doozies), as a majority do not want a government shutdown and do want a Christmas vacation. Meanwhile, the Regional Center program is still authorized (extended together with federal funding through stopgap measures), but rather in suspense while we wait to see what happens with the appropriations bill. The State Department January Visa Bulletin, for example, has not authorized any visa numbers for regional center investments, pending legislation to extend the program. Assuming that the bill does pass, people offering EB-5 investments still shouldn’t relax assuming no further change until the next regional center program expiration at September 30, 2016. Congress could still pass standalone EB-5 legislation and USCIS could still come out with new regulations any time, and the intense discussions around this year’s reauthorization show commitment to change on all sides. I would especially expect an increase to the minimum investment amount and additional integrity measures sooner rather than later.

Filed under EB-5 Law & Policy

2015 Visa Statistics, RC Termination, SEC Action, New RCs

December 10, 2015 2 Comments

2015 EB-5 Visa Statistics

Update: The corrected summary data table can be found in my 3/7/2016 post 2015 Visa Statistics by Country.

Other Items of Note

  • SEC Action on Attorneys: We’ve known for months that the SEC has been pursuing a crack-down on unlicensed persons acting as unregistered brokers, and specifically: immigration attorneys who take compensation for selling EB-5 investors on projects, despite lacking qualifications and licensure to give investment advice. Here is a copy of the SEC’s detailed complaint against one law office: SEC v. Hui Feng and Law Offices of Feng & Associates P.C. This 7/12/2015 article in Mondo Visione lists seven other individuals and firms who have also settled enforcement actions with the SEC, and links to copies of the Cease and Desist order for each. Honestly, I feared to see a lot more names on this list, but perhaps the SEC is starting with a warning shot and giving time for others to get their affairs in order. The detailed Feng complaint is good reading for anyone who receives or pays commissions for selling EB-5 investments, as the SEC goes into detail about what exactly was wrong and why it was wrong in the Feng case.
  • Regional Center Termination: One of the Regional Centers terminated in 2015 was brave enough to fight back, and now we can read about its case in the Administrative Appeals Office decision Matter of K-R-C, LLC, dated November 17, 2015. AAO dismissed the appeal, as nearly always happens, but it’s interesting to see what kind of evidence USCIS considered significant, the issues judged to be problematic, and the timeline of USCIS’s interactions with the Regional Center. A moral of this denial, as with so many other cases anatomized by the AAO, is the overwhelming importance of clear and clean paperwork. The case focuses on little things like how expenditures were coded on this or that document and how statements were worded on this or that filing and whether the proper reports were made at the proper time. This denial decision doesn’t go so far as trying to prove problems with the business itself, but terminates the RC based on issues apparent in the paperwork describing the business. Spend good money on your secretaries and bookkeepers and document preparers, because their humble work pushing papers and keeping numbers in order and documents in line could prove essential.
  • I-829 Approvals and Denials: I don’t expect anyone besides Mr. Whalen to click on this link, but FYI a very heavily redacted file titled I-829 RFEs, denials and approvals for NY and FL during 2009-2010 has appeared in the USCIS FOIA Reading Room in the Employment Based Petitions category. Connoisseurs may be interested in reviewing the I-829 RFE template used in 2009-2010 and seeing which lawyers were filing I-829 back then.
  • Legislative Update: Whatever I hear, I add to the first paragraph of my previous post.

New Regional Centers
Additions to the USCIS Regional Center List, 12/03/2015 to 12/08/2015

  • LCR Atlantic Gulf Regional Center (Florida, Georgia) www.lcrcapital.com
  • Southern California EB-5 Regional Center, LLC (California)

Filed under EB-5 Law & Policy, EB-5 Statistics, New RC

Legislative Update, New RCs

December 4, 2015 Leave a comment

Legislative Update (see paragraph end for continuing updates)
It looks as if the Regional Center program may get reauthorized next week after all, with significant but not terminal changes. The chairs and ranking members of the House and Senate Judiciary Committees have reached an agreement on a reform package that may be included in the omnibus appropriations legislation that Congress is working on to fund the federal government past December 11. IIUSA’s Board of Directors has voted in favor of the legislation, stating in a letter to members that “we believe that, on balance, the bill achieves real reform with minimal disruption to ongoing job-creating economic activity and establishes a fair market for attracting investors going forward, with everyone under the same rules at the same time.” See IIUSA’s blog post and Senator Leahy’s press release, which includes a one-page summary and link to a discussion draft of the legislation (version MDM15J00 of American Job Creation and Investment Promotion Reform Act of 2015). See also Senator Grassley’s press release. The WSJ blog’s post Fight Over Green Card Investor Program May be Near End discusses the proposal’s supporters and opponents. Michael Homeier’s 12/7 email and 12/9 email and Martin Lawler’s 12/9 post share insiders views of on-going lobbying efforts. As reported by IIUSA on 12/11:

Today, the House passed a short-term funding bill (H.J. 2250) by a voice vote to avoid a government shutdown. The original EB-5 extension is included. Yesterday, the Senate passed the short-term, five-day continuing resolution (CR) by unanimous consent, giving lawmakers until December 16th to pass a long-term spending bill for the rest of fiscal year 2016.
Senate leaders have noted that they will not vote on a funding bill until the House does.  As a result, Congressional leaders will be facing a tight deadline due to the nature of Senate procedure.
Reports indicate that the House may vote on a long-term funding bill as early as Tuesday, December 15th.  As soon as the House passes a bill, Senate Majority Leader Mitch McConnell (R-KY) is expected to file cloture on the funding measure immediately, forcing Senators to wait 30 hours before they can vote on final passage and send a budget bill to President Obama to be signed into law. Negotiations between House Republicans and Democrats are ongoing and IIUSA continues to provide updates on the status of those negotiations.
Now that the fate of EB-5 legislation is firmly linked to the omnibus appropriations legislation, I keep watching The Hill site for new “spending bill” articles, which report on progress of that legislation.
12/15 Update: Here is a link to the finalized Military Construction and Veterans Affairs and Related Agencies Appropriations Act, 2016 [Consolidated Appropriations and Tax Measures]. Page 708 has a simple extension of the Regional Center program to September 30, 2016, and I can’t find any other EB-5 changes.

New and Renamed Regional Centers
Meanwhile, USCIS is still busily adjudicating Regional Center applications, and accepting name changes from RCs affected by the Cautions on Names of Regional Centers.

Additions to the USCIS Regional Center List, 11/12/2015 to 12/03/2015.

  • American Lending Center Florida, LLC (Florida)
  • American Lending Center Illinois, LLC (Illinois)
  • Bart Investment Group, LLC (Florida)
  • Chicago First Regional Center Inc (Illinois)
  • EB5 Group New York Regional Center, LLC (Connecticut, New Jersey, New York, Pennsylvania) www.eb5groupllc.com
  • EB5 Land Regional Center (Washington)
  • First American Regional Center, LLC (California)
  • Golden Sun Development Regional Center (Washington)
  • Greater New York Business Regional Center (New Jersey, New York, Pennsylvania)
  • High Stone Regional Center, LLC (Connecticut, New Jersey, New York)
  • Lifezone Development Regional Center (Washington)
  • ON Regional Center, LLC (California)
  • Piedmont Regional Center, Inc. (Georgia, North Carolina, South Carolina, Tennessee)
  • Sino Indus BK Capital LLC (New Jersey, Pennsylvania)

Renamed:

  • AFC Regional Center LLC (former name New York Federal Regional Center) (New Jersey, New York, Pennsylvania)
  • West Maingate Regional Center, LLC (former name US Maingate Regional Center, LLC) (California)
  • American Lending Center LLC (former name United States Employment Development Lending Center) (California)
  • Greystone EB5 Southeast Regional Center LLC (former name Greystone Florida Regional Center LLC) (Florida)
  • Harris Real Estate Fund LLC (former name U.S. Federal Investment Immigration Fund, LLC) (Arizona)

Filed under EB-5 Law & Policy, New RC

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

November 13, 2015 Leave a comment

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

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

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

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

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

Filed under EB-5 in the News, EB-5 Law & Policy, EB-5 Resources, New RC

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