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

December 5, 2016 8 Comments

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 9/29/2016 post if you’d like to review the history of RC program authorizations, and my 4/27/2017 post for updates on the more recent reauthorization countdown.)

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

Filed under EB-5 Law & Policy

Policy Manual EB-5 Section: What’s New

November 30, 2016 Leave a comment

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.

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

Policy Manual EB-5 announcement

November 30, 2016 Leave a comment

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

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

New EB-5 Regs in 2017?

November 22, 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).

–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.

Filed under EB-5 Law & Policy

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

November 11, 2016 Leave a comment

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

Filed under EB-5 Law & Policy, New RC

Final Fee Rule, Processing Updates, RC Withdrawal

October 24, 2016 1 Comment

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.

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

Visa Usage, GAO TEA Report, RC List Updates

October 21, 2016 8 Comments

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

Filed under EB-5 Law & Policy, New RC

H.R. 5992 Account Transparency Requirement

October 14, 2016 1 Comment

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.

Filed under EB-5 Law & Policy

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

September 29, 2016 28 Comments

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

Filed under EB-5 Law & Policy, New RC

About H.R. 5992 Reform Act proposals

September 15, 2016 5 Comments

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:

Filed under EB-5 Law & Policy

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

September 13, 2016 13 Comments

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

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

Looking toward RC program reauthorization (with updates)

September 5, 2016 12 Comments

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.

Filed under EB-5 Law & Policy

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

August 30, 2016 3 Comments

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: Three Immigration Lawyers Sanctioned by the SEC for Brokering EB-5 Investments (August 24, 2016) 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

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

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

July 28, 2016 2 Comments

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
  • California Regional Center, LLC (California) Terminated 7/12/2016
  • Harris Investment Immigration Fund, LLC (California) Terminated 7/13/2016

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

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

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