Articles (Project Oversight, Redeployment, TEA Changes), RC list changes

EB-5 Articles

What to do if you suspect your EB-5 project is in trouble (February 17, 2017) by Catherine DeBono Holmes, Esq., Daniel B Lundy, Esq. and Jeffrey E. Brandlin, CPA, CIRA, CFF
This article gives practical advice for managers and investors in EB-5 investment funds. It offers a checklist of warning signs that an EB-5 project may be in trouble, defines a role for a construction monitor/accountant and lists tasks that person should accomplish, describes monitoring systems that should be in place, suggests steps for investors to take if they are not satisfied with monitoring and reporting, and begins to address the question of what EB-5 investors should do in case of a fraud enforcement action. I particularly recommend this article to EB-5 investors, as a reminder of what they can demand and what they should do after investment. EB-5 managers are not necessarily motivated to meet a high and expensive standard for oversight (a manager affiliated with the project owner may not see the need, an unaffiliated manager may prefer to keep at arms length from the project, and the odd bad actor lives on opacity). EB-5 investors, however, certainly benefit from exercising their rights to active and on-going due diligence. People drafting EB-5 legislation and regulations may also be interested in this article, as they consider appropriate requirements for EB-5 managers.

Standards and Guidelines for Redeployment of EB-5 Investment Funds – A White Paper (February 21, 2017) by Klasko Immigration Law Partners, LLP, Arnstein & Lehr LLP, Jeffer Mangels Butler & Mitchell LLP
This article steps into the grey area that USCIS has left by failing to finalize or replace its DRAFT guidance on the Job Creation Requirement and Sustainment of the Investment for EB-5 Adjudication of Form I-526 and Form I-829 (8/10/1015). At issue is the question of what EB-5 enterprises can do with EB-5 money considering that (1) an EB-5 investor’s funds are required to remain at risk in the enterprise throughout the investor’s conditional residence period, (2) visa backlogs mean that the investor might not be reaching the I-829 stage until up to 10 or more years following the initial investment, and (3) most EB-5 deals involve loans due to be repaid to the enterprise in less than 10 years. The draft guidance memo suggested that “to the extent that all or some portion of the new commercial enterprise’s claim against the job-creating entity is repaid to the new commercial enterprise during the sustainment period, the new commercial enterprise must continue to deploy such repaid capital in an ‘at risk’ activity for the remainder of the sustainment period” and “the capital will not be considered ‘at risk’ if it is merely being held in the new commercial enterprise’s bank account or an escrow account during the sustainment period.” Although this suggestion is questionable, and not final policy, it’s the only indication we have of USCIS’s thinking, and the authors of the above-linked article suggest practical ways to satisfy that standard for sustained investment. The authors explain why investment in publicly-traded or privately-held securities or real estate investment should comply with the “at risk” requirement, and they suggest guidelines for making such investments in a manner that complies with Federal securities laws and state law fiduciary obligations.

EB-5 Proposed Regulations: A Missed Opportunity, Next Steps for Reform (Rev. 2/14/17) by NYU Scholar-in-Residence Gary Friedland, Esq. and Professor Jeanne Calderon, Esq.
In this article, the authors once again address the sticky issue of EB-5 Targeted Employment Areas from an academic rather than industry perspective. They discuss TEA changes in proposed regulations and proposed legislation with reference to their database of EB-5 projects, which is dominated by the kind of large big-city projects that make poster children for TEA reformers. The EB-5 industry will not join the authors in lamenting that the draconian proposed regulations appear doomed by timing, but it should account for and consider effective response to the evidence that the authors present in support of TEA reform.

Regional Center List Changes
Additions to the USCIS Regional Center List, 02/04/2017 to 02/22/2017

  • Invest Guam Regional Center (Guam)
  • Universal Regional Center (California)
  • Discovery Northeast, LLC (New Jersey, New York, Pennsylvania)
  • Star EB5 Group (Connecticut, Delaware, New Jersey, New York, Pennsylvania)

Understanding USCIS Processing Time Reports–Updated

Every month, the USCIS Processing Time Information page updates a chart titled “Average Processing Times for Immigrant Investor Program Office” that looks like this.
chart
What does this chart mean?

1. The report provides a metric for inquiries
The single unambiguous function of this report is to indicate when petitioners may begin to complain. A stakeholder email from USCIS in January 2017 explained,

We post case processing times on our website as a guide for when to inquire (service request) about a pending case. For the last several years, we have posted case processing times using two different formats: For cases that were within our production goals, we listed processing times in weeks or months; For cases that were outside of our production goals, we listed processing times with a specific date.
Always refer to your I-797C, Notice of Action, and look for “receipt date” to determine when we accepted your case. If the receipt date on the USCIS Processing Times web page is after the date we have listed on your notice, you should expect to hear from us within 30 days. If after those 30 days, you have not heard from us, you may make an inquiry on your case. We recommend using our e-request tool for all case inquiries.

With this in mind, the table can be read to mean “As of November 30, 2016, we were processing at least some I-526 cases filed as of August 7, 2015. If your I-526 petition was filed before 8/7/2015 and you haven’t heard from us, you may start making inquiries.”

2. The report is not a reliable guide for the processing time for any given petition
You might think “As of November 30, 2016 we are processing I-526 cases as of August 7, 2015” means that “the I-526 processing time is 16 months, and an I-526 filed now can expect a decision 16 months later.”  This is not a safe assumption because 2017 filings will face different adjudication factors than 2015 filings.  Huge surges in petition filings will put a negative strain on processing times, even as IPO works on staffing improvements that should have a positive influence. It’s hard to project into the future and guess how the moving pieces will even out.

Or you might think that the processing time report means “as of November 30, 2016 IPO has finished processing I-526 cases from before 8/7/2015, its current workload is mostly composed of August 2015 cases, and my turn is coming soon if my petition was filed on or after 8/7/2015.” This interpretation is not safe because it assumes (1) that the posted processing time is not only average but also typical, and (2) that IPO follows a first-in-first out policy in adjudications. We have reason for doubt on both these points. I don’t know how IPO calculates the processing dates that it posts (and IPO Deputy Chief Julia Harrison has said a couple times that she doesn’t either and can’t explain it), but we can assume a lot of deviation. (For example, compare my charts of reported processing times and actual processing times for I-924 applications in 2015.) And IPO has indicated that it does not necessarily process EB-5 petitions in date order. With respect to I-526 “Generally speaking we do our adjudications not in a strict first-in-first-out order but in a range of first-in-first-out based on when we received the first application related to a specific project,” and likewise “USCIS adjudicates Form I–829 petitions in ‘first in, first out’ order by new commercial enterprises”. (See my on-going log of USCIS communications regarding processing times.) If IPO processes petitions in batches by project, then a majority of petitions may be out of date order. And exemplar filings can influence processing times, for good or ill. IPO has said that exemplar petitions facilitate processing for subsequent I-526 petitions.  However EB-5 Insights reported on 3/15/2017 that IPO seems to have an unofficial policy to hold in abeyance pending I-526 Petitions when an Exemplar I-924 Petition associated with the same new commercial enterprise has been filed.

3. The report reflects processing trends
We can scrutinize the processing times report to try to follow processing trends, get a sense of whether IPO is speeding up or slowing down, and try (though this is perilous, as noted above) to project the future. FYI here are charts based on my log of dates/months reported in monthly updates to the IPO processing times table since 2014. (And you may access my spreadsheet here.)

Further Discussion
In the past, EB-5 investor readers have used the comments section of this blog to trade experience with processing dates, and I got a request to open up a discussion forum instead to facilitate this exchange. So I have set up http://eb5.freeforums.net/ as a platform for investors to share experience with and questions about EB-5 petition processing.

I-924A Resources

USCIS has kindly shared IPO Deputy Chief Julia Harrison’s Talking Points IIUSA and AILA Conferences October 2016. There isn’t any breaking news here, but I’ll repeat Ms. Harrison’s first point. “Regional Centers: Don’t forget to file your Form I-924A between October 1 and December 29.” All Regional Centers that were designated as of September 30 this year must file this annual report.

I-924A Resources for Regional Centers

Go to the USCIS website for the Form I-924A and Instructions: https://www.uscis.gov/i-924a. Note that there’s a significantly revised version this year, so don’t reuse last year’s form. USCIS gives additional guidance for completing the form in I-924A Filing Tips (2015) and I-924A Q&A (2011).

The deadline for I-924A filing this year is December 29, but plan to file by December 22 if you want to avoid the new $3,035 filing fee.

Remember that I-924A stakes are high. This form is at the center of an annual review in which USCIS reassesses whether each RC can keep its designation. In preparing to file, consider what we know about the review process. Form I-924A goes to the IPO Compliance Unit at USCIS, which takes the following steps.

  • IPO reviews the info provided in the I-924A for timeliness, accuracy, and completeness
  • IPO considers the Form I-924A responses (and any supplemental narrative and exhibits filed with the form) to determine whether the RC is fulfilling its basic mandate to promote economic growth. If the RC does not have investment or jobs to report in the Form I-924A, IPO will look to see whether the RC makes a compelling case for future activity and mitigating 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 identify 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.” See RC Designation: Use it or lose it )
  • IPO checks the numbers and claims reported in the I-924A against other info that it has on file for the RC, and red flags any inconsistencies
  • IPO performs an Internet search and searches internal databases looking for derogatory information related to the RC and its projects and principals
  • IPO investigates the RC’s online presence (the RC’s website, online content from agents and promoters) and looks for any impropriety. IPO particularly looks for use of the DHS seal or USCIS signature; any claims about guaranteed returns, guaranteed approvals, or expedited treatment of petitions; and any language (including entity names) that implies a special relationship with USCIS, DHS, or the US government. Keep in mind Cautions on Names of Regional Centers and Enterprises, and Unauthorized Use of DHS Seal.
  • IPO will issue a Notice of Intent to Terminate if the RC fails to submit required information, or if IPO determines based on its I-924A review that the RC no longer serves the purpose of promoting economic growth, and no longer remains eligible for designation. 70 RC have been terminated so far (54 in 2015/2016 alone), so this is not an idle threat.

(My sources: EB-5 stakeholder meetings on 8/13/2015, 9/17/2015, 2/3/2016; AAO termination appeals in 2015 and 2016; and FOIA material)

A regional center that hasn’t been active and doesn’t see future prospects may consider taking this chance to proactively withdraw from the program, instead of waiting to be terminated.  The recent Fee Rule says that “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.”

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

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

8/29/2016 EB-5 Stakeholder Meeting

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

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

New AAO Decisions

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

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

Publications of Note

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

Regional Center List Updates

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

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

Renamed:

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

New Terminations:

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

Investors in Terminated RC, Portfolio Investments

So long as USCIS persists in not publishing new regulations or policy, we have to keep looking at case-specific sources for hints at what it’s thinking. Here are a couple recent EB-5 insights from non-policy sources.

Investors in a Terminated Regional Center

If a project loses its regional center sponsor, can an investor still continue with the project and count the jobs it creates? The investor in the JUL182016_01B7203 case was not allowed to do so. This petitioner invested in early 2012 and received I-526 approval in 2014. Then USCIS terminated his project’s regional center sponsor in 2015, and issued a notice of intent to revoke his approved petition shortly thereafter. At this point three years had passed since the investment and petition filing, but the petitioner did not yet have conditional permanent residence and was thus still in that vulnerable no-material-change period. USCIS and AAO considered whether he should be able to continue with the process independently and count direct jobs as if he were a direct investor, but decided not. The reason: the jobs were in a job-creating enterprise separate from the new commercial enterprise (a structure only allowed for regional center projects) and changing that structure would be a material change. So the investor would have to start over with a new I-526 petition.

We can’t tell whether the decision might have been different had the project not been cited in the regional center termination decision, or had EB-5 investors secured a new regional center sponsor for the project. But the decision suggests a pretty hard line on the point that: “During the period of conditional residence, a petitioner is expected to implement the business plan underlying the original petition, and USCIS guidance acknowledges that a petitioner may need to adjust his or her plans during this time. But when such changes are material, USCIS policy requires the investor to file a new petition.” Expect to see this line challenged, as investors line up with their attorneys to complain about being punished for actions by RC principals – actions that do not necessarily implicate the investors and sometimes not the projects either. Long processing times, retrogression, and possible regional center program sunset add urgency to the material change issue for regional center investors. Klasko Law has a post on Path America Regional Center and Giving Innocent Investors a Way Forward (12/3/2015), and the State of Vermont is advocating for options for its investors (but no response from USCIS so far). In the meantime, I’ve added this case to an on-going log of material change examples in my material change post.

Portfolio Flexibility, Debt-Like Investments

USCIS has produced interesting documents as defendant in a suit brought by investors in Quartzburg Gold, LP, a Idaho State Regional Center project. You can find all the case material by Googling the LP name or the case number (1:15-cv-00273-CKK). I’m particularly interested in USCIS statements on two boundaries that investors and project companies naturally try to push: investor assurances and project flexibility. Investors want to get their money back eventually and demand security, while USCIS is on the alert for debt-like arrangements and guaranteed returns. Project companies like flexibility to work with unpredictable reality, while USCIS wants the I-526 business plan to specifically predict what will happen and then match what does happen.

The Quartzburg case addresses the grey areas of portfolio investment flexibility and re-deployment. The Quartzburg Gold, LP Limited Partnership Agreement defined investment “Projects” to include four named mine projects (with one marked as tentative) and potential additional or replacement mine projects. The LPA provided that “The General Partner has authority to approve funding of other projects identified by Idaho State Gold Company, either in addition to or replacement of the preceding projects, to the extent appropriate based upon the capital requirements of the listed Projects, the General Partner’s ongoing due diligence, and contingencies that may arise in development of the foregoing Projects.” USCIS went on to deny a bunch of I-526 petitions for limited partners in this agreement, with one ground being the fact that “which mining projects ultimately would receive capital was uncertain at the time of filing.” In a 4/15/2016 statement for the court, USCIS argues that,

Plaintiffs cannot satisfy their burden of showing they will create the requisite number of jobs because they have acknowledged (and the past demonstrates) that their business plan is wholly speculative because the projects themselves are subject to change…. As such, it was not arbitrary and capricious for USCIS to conclude that a business plan analyzing a tentative list of possible projects is insufficient to show likelihood that 160 investors are likely to show their investments are each likely to create ten new jobs.

In a 5/2016 statement, USCIS protests further that,

Contrary to Plaintiffs’ claim, Defendants are not requiring the initial business plan to remain entirely static throughout adjudication. But, at a minimum, the petitioner must submit a business plan that is based on JCEs that are more than just possible projects. Whether the plan for one particular JCE may adapt over time is one matter; the complete overhaul of the entire business plan is another.

I quote all this because people are filing similar EB-5 deals right now. For example, I think of franchisees who offer investment in a pipeline of currently-identified plus potential future franchise locations. If USCIS applies its Quartzburg Gold arguments to such cases, they will be denied for depending on possible projects. But it’s hard to know with USCIS. Sometimes relatively speculative portfolio scenarios are not challenged as such. Even in Quartzburg Gold, USCIS denied a bunch of petitions for other reasons before raising the JCE uncertainty issue. Matter of Izummi treats an NCE with “actual and proposed loan activities” in multiple identified and potential companies, and finds fault with how the business model was implemented but does not challenge the model per se. And that’s a precedent decision. It will be interesting to see the outcome of the Quartzburg litigation. Meanwhile I’ve added this example to my on-going master post on portfolio investments.

I won’t go into the “at risk” part of the Quartzburg case, but you can read the documents to learn how USCIS smells an equity arrangement to determine whether it’s really a debt-like arrangement. I’d just like to point out this intriguing series of events.

  • 2/16/2010: USCIS designates Idaho State Regional Center
  • 12/22/2010: Reuters makes a splash with “Special Report: Overselling the American dream overseas.” The article begins “In a conference room in an office building in downtown Shanghai, Jason Lee is literally selling the American dream” and goes on to report the specifics of Mr. Lee’s sales pitch: invest in an Idaho State RC gold mine project with “a 100 percent money-back guarantee”; just lend $500,000 to the mine today and eventually be repaid with 500 ounces of gold. The Reuters journalists attended an event for Chinese investors, read a Mandarin brochure for the Idaho project, and then contacted USCIS to ask whether these promises didn’t violate fundamental EB-5 rules. “The immigrant investor’s investment cannot be guaranteed,” confirmed the USCIS spokesperson. Reuters also contacted the Idaho State RC principal, who protested that he did not have an agent in Shanghai and no redemption promises were being made to investors. EB-5 got little press back in 2010, and this Reuters article (which also covered other RC projects) attracted attention.
  • 6/9/2011: USCIS initiates a Government Motion to Reopen its approval of Idaho State RC, and issues an RFE notifying the regional center that it must remove all language from organizational documents that could be construed as redemption agreements. The regional center complies, and USCIS issues a new designation letter dated 9/13/2011 that cites its review and approval of revised organization documents dated 7/1/2011.
  • 2012-2013: Investors file I-526 petitions based on investment in the gold mine projects of Quartzburg Gold, LP, sponsored by Idaho State RC.
  • 2013: USCIS starts to issue Notices of Intent to Deny on the Quartzburg Gold, LP investors, with the first 69 all citing just one problem: a provision in the organizational documents that looks like a redemption agreement.

(I know about the first and third bullet points from the RC’s designation letters, the second from my brilliant memory, and the rest from the litigation paperwork. I don’t know how these events are linked, but we can speculate. Maybe the moral is that journalism has power and one can’t be too careful about what’s said – and overheard — in China. Also, that it’s unsafe to rely on the words “the following documents have been reviewed and approved” in a regional center designation letter.)

3/2017 UPDATE: Here is a decision on the case.

Reviewing EB-5 Business Plans

Here’s my conclusion from reading years of USCIS evidence requests and AAO decisions on EB-5 cases: the most common EB-5 business plan problems are basic and easy to catch. This post offers a simple three-step process that anyone can use to identify the few most common Request For Evidence and denial triggers in business plans. I also discuss paths to more in-depth review that can help preempt questions from investors and USCIS.

Short-Cut Review for I-526 Business Plans

  1. Does this EB-5 package include a business plan?

Quick Answer: Look for a document that says “Business Plan” on the cover and whose table of contents includes (at least) section headings like “Business Description,” “Market Analysis,” and “Financials.” If the package doesn’t have such a document, it doesn’t have a business plan.

Common problems: The I-526 petition may have a collection of relevant documents that aren’t gathered and clearly labeled as a business plan, or may have a document that is called a business plan but is really only a business description. The lack of market analysis or financial projections is a clear tip-off that this document is not a business plan.

For more depth: Analyze the purported business plan against the Matter of Ho definition of a comprehensive business plan and other business plan checklists, while considering which content is and is not essential in this specific case. I offer an in-depth review service, and the documents linked on my Business Plans page describe content standards and goals to keep in mind.

  1. Does the business plan describe a proposal that fits EB-5 requirements?

Quick Answer: Check the following:

  • Whether the plan states the amount of EB-5 investment and shows a budget whose total is no less than the investment amount
  • Whether the plan has a staffing section that anticipates 10+ new full time jobs created per EB-5 investor and includes words like “job descriptions” and “hiring schedule” (direct EB-5 cases), or whether the plan provides inputs for an economic model estimate of 10+ jobs per EB-5 investor (regional center cases)
  • Whether the plan describes an enterprise and jobs that are new following EB-5 investment (or handles preexisting business and pre-investment jobs in a compliant manner)
  • Whether the plan shows 100% of EB-5 investment channeled into job-creating enterprise(s), and (for direct EB-5) whether equity investment and job creation occur in a single enterprise
  • Whether the plan has a timeline that anticipates imminent plan implementation and use of investment and job creation within about three years

Common problems: An amazing number of supposed EB-5 plans don’t even try to show that the full EB-5 investment amount will be used and the required number of new jobs will be created. Such omissions guarantee an evidence request, or denial if the nature of the business can’t in fact accommodate the EB-5 minimums for investment and job creation. Many plans have also been denied for failure to deal with nuances in business acquisition/expansion scenarios, to link investment and job creation, or to establish that the plan is likely to be implemented and accomplished within a certain time.

For more depth: Have an expert analyze the plan with an eye to all EB-5 requirements that affect the subject business, from the “new” issue to the “at risk” issue. Assess whether the plan adequately addresses potential USCIS concerns (based on regulations and policy) and investor concerns (such as risk, return, and timing). My review service considers these factors.

  1. Is the business plan credible?

Quick Answer:  

  • Credibility from evidence: Turn to the business plan market analysis section and check for references and citations. Confirm that they exist and can be followed to the cited third-party sources, via web links or with reference to exhibits also included in the I-526 package. No credit for unsourced market data, cited but irrelevant data, or citations to unverifiable or weak sources. Extra credit if helpful citations also appear in the business plan sections on schedule, permits, budget, and financials. Exhibits (such as a separate third-party market study) can bear the burden of providing third-party evidence, but the business plan should still reference those exhibits while making claims. If the business plan does not reference any verifiable external evidence, then it does not establish credibility. Think “which claim or projection, if inaccurate, would be a deal-breaker” and ensure that those points are as well-supported as possible. It can be tough to find third-party support for some types of proposals, but the business plan is asking to be challenged if it fails to show off at least a modicum of verifiable detail.
  • Credibility from internal consistency: Make list of 5-10 important details in the business plan (e.g. for a hotel: owner name, number of keys, building square footage, construction start and end dates, total budget) and then spot check the business plan and supporting documents to confirm that those details are the same wherever they appear. If the spot check catches discrepancies, get them fixed or explained and look for more.
  • Credibility from external consistency: Google the entity names, the project/business name, the names of company principals, and the business address, and read the first few search results for each. The business plan had better preemptively address any significant apparent discrepancies with online information.

Common problems: The words “verifiable detail” or “inconsistencies” appear in nearly every RFE and denial decision that challenges EB-5 business plan credibility.

For more depth: Closely review the business plan and associated documents for numerical discrepancies, even minor ones (e.g. Year 1 ADR estimated at $126 in the business plan and $129 in the economic analysis) and logical discrepancies (e.g. a 40-full-time-employee call center with $300,000 annual payroll expense and a 2,000-square-foot office). Encourage the business owner to try to think about possible future discrepancies (e.g. whether the schedule in the plan is a safe bet or should be qualified for a better chance of fitting what eventually happens). Ask someone with strong research skills and sources to read the plan and suggest ways to strengthen third-party support and validation. Finally, consider how presentation might be improved. Cognitive bias makes people unconsciously assign credibility to attractive documents, and react negatively to material that is ugly or hard to read. I attempt to consider these issues in writing and review.

 

Avoiding I-526 Business Plan Problems

To avoid problems in business plan review, start by getting the EB-5 plan prepared by someone who knows something about EB-5 and – more importantly – about business. The faulty EB-5 plans I’ve seen can largely be traced to faults in two kinds of authors.

People who understand business but not EB-5 prepare business plans that have good content, just not quite the right content. The plan prepared by a passionate entrepreneur will describe the concept beautifully and at length, but may neglect the nitty-gritty detail needed to help outsiders grasp how and why the business will work. The plan prepared by a professional writer without EB-5 experience will explain the business well but may neglect detail needed to assess compliance with EB-5-specific requirements (e.g. whether the date and conditions of formation qualify the enterprise as “new,” whether the timing and nature of employment meet EB-5 requirements, whether the investment qualifies as being at risk, whether the structure is compliant). A writer unfamiliar with EB-5 is likely to omit content that’s needed to answer questions from EB-5 readers and may unwittingly describe a business that is not suitable for EB-5. A good general-purpose business plan can be a good start, however. An EB-5 attorney or a writer like me can advise on how to rework the plan for the EB-5 context.

People who understand EB-5 but not business prepare business plans that have a good table of contents, but fall apart on closer inspection. The writer knows the expected Matter of Ho categories for EB-5 business plan content, but lacks the background and resources to fill those sections with meaningful material. The writer may try to compensate by cutting-and-pasting, populating sections he or she is not sure how to handle with a patchwork of clips from more and less relevant sources, or by cleaving to a template, writing every proposal as if it were a typical EB-5 real estate project. This is how local demographics end up in the market analysis for an export company, hotel expense items in financials for a factory, legal jargon in a restaurant description, and an economic model in a discussion of marketing strategy. This is how readers get very confused. In general, clients should try talking business with an EB-5 service provider before paying for a business plan. I will not quote to write a plan if I lack the background and resources for the subject industry, and others should also respect their professional limitations. Little can be done to salvage a plan written by someone who didn’t understand the subject business, or how to write about business generally.

How long does I-924 take?

01/2017 Update: I have newer charts with data through January 2016 here.

–ORIGINAL POST–

USCIS reports a 8.5-month processing time for the Form I-924 Application for Regional Center as of December 31, 2015 (per the February 2016 IPO processing times report). This number does not distinguish between initial applications and amendment requests, and does not hint at the possible range of actual processing times. It has some base in averaged reality, but we don’t know how it’s calculated.

For more perspective, compare the average times USCIS reported from March 2014 to March 2015 (recorded from past IPO processing time reports) with the times for actual I-924 approvals from the same period (recorded from available regional center designation letters, which show approval date, filing date, and application type).

i924comp

The numbers from designation letters suggest that I-924 amendments in 2014/early 2015 were processed much more quickly and predictably than initial designation requests (although USCIS has said there’s no separate workflow or special treatment for amendments), and that actual processing times have often far exceeded what one would expect from reported averages. The trend from 2014 into 2015 looks somewhat positive. A scatterplot of approvals shows an increasing number of approvals coming in under 10 months (but also that USCIS was still working on applications that had been in the pipeline for 2-3 years). I will be interested to see how the numbers change when I have more letters to add to the data set. USCIS designated 208 new regional centers in FY2015, and there were 902 Form I-924 applications pending at USCIS as of January 2016 (as reported by Mr. Colucci in statements on 2/2 and 2/3). I guess that many of the pipeline I-924s are amendments/Exemplar I-526 filed in mid-2015 ahead of anticipated program changes, not new RC applications, but still 902 is a big number. Regional center applicants filing Form I-924 today should not be too alarmed by the processing time outliers in 2014/2015 (many of those 2-3 year cases were caught up and delayed in the confusion over tenant occupancy, which has been cleared now), but they also shouldn’t count on finishing the process in nine months, considering the backlog and IPO’s past performance.

i924timeplot

Portfolio investments, existing business

Noticing traffic to old articles about EB-5 investments that involve diversification and existing business, I’ve re-written the following posts with reference to more recent official and unofficial guidance from USCIS.

EB-5 business plan matrix

I’m preparing for a webinar next week that will discuss “What goes into an EB-5 business plan?” This is a good question, and depends on the further questions “What does the business plan need to accomplish?” and “In what context will the business plan be used?” The following matrix helps visualize the goals and contexts that can affect EB-5 business plan content.

BPmatrix

People who talk about EB-5 plans tend to focus on just one quadrant – 1A, positive standards for success in USCIS review – and especially on Matter of Ho-compliance. But if you study examples of EB-5 plans gone wrong (AAO denial decisions, lawsuits, unfunded projects), you know that it’s not enough to simply follow the business plan definition in the EB-5 precedent decision Matter of Ho. A plan can be beautifully detailed, covering all the Matter of Ho points from business description down to income projections, but still fail USCIS review due to inconsistencies with external evidence or to mismatch with program requirements (for example describing an enterprise that isn’t “new” or jobs that aren’t “qualifying” as defined by the EB-5 regulations). A perfunctory, formulaic business plan written to satisfy bare minimum requirements can pass USCIS review, but that document will never reach USCIS if it needs to and fails to attract investors. USCIS won’t table a plan for being an ungainly document, or ignore it because the proposal isn’t sufficiently appealing, or cite it in a lawsuit for being misleading. Investors may well do all those things. In my documents detailing direct and regional center EB-5 business plan standards (linked from my Business Plans page), I consider factors in each quadrant of the above matrix of goals and contexts. Investor review is not always an issue (not all investors look to the EB-5 business plan to introduce the business), and review outside USCIS takes different forms depending on the advisors involved. But it’s generally wise to look beyond the Matter of Ho box when writing or reviewing an EB-5 business plan.

H.R.4530, Resources, RC List Update

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

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

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

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

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

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

Renamed:

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

SEC Priority Review, RC List Update

SEC Review of EB-5 Offerings in 2016
The Office of Compliance Inspections and Examinations at the Securities and Exchange Commission has named EB-5 in its list of Examination Priorities for 2016. Specifically OCIE promises that “We will review private placements, including offerings involving Regulation D of the Securities Act of 1933 or the Immigrant Investor Program (“EB-5 Program”) to evaluate whether legal requirements are being met in the areas of due diligence, disclosure, and suitability.” To remind yourself of the particular due diligence, disclosure, and suitability requirements that pertain to a private placement, see the article Private Placements Under Regulation D published at investor.gov. This article gives a short and clear summary overview as well as links to government sources with additional information. Be sure you review your offering for compliance before the SEC does. For links to EB-5-specific commentary from consultants, see the Securities Issues & EB-5 section of my Resources page.

USCIS Regional Center List Updates

Changes to the USCIS Regional Center List, 12/22/2015 to 1/14/2016

Newly Designated:

  • American Lending Center New York Regional Center, LLC (New Jersey, New York, Pennsylvania): www.usa-rc.com
  • American Pioneer Regional Center, LLC (Illinois, Indiana, Wisconsin)
  • Americas Green Card Regional Center (Maine, Massachusetts, New Hampshire): www.americasgreencardcenter.com
  • Colorado Headwaters RC, LLC (Colorado)
  • Florida EB-5 Quantum Investments, LLC (Florida)
  • Future American Now Regional Center, LLC (Florida)
  • Savannah World Trade Center for Investment, LLC (Georgia)
  • VR EB-5 Express, LLC (Connecticut, Massachusetts, New Hampshire, Rhode Island)
  • West Virginia EB-5 Regional Center, LLC (West Virginia): eb5affiliatenetwork.com

Renamed:

  • Immigration Funds LLC (former name United States Investors Regional Center) (Maine, Massachusetts, New Hampshire)
  • Mebo Property Development Regional Center, LLC (former name Mebo Property Development LLC ) (California)
  • New England Family Regional Center LLC (former name New England Federal Regional Center) (Connecticut)
  • Golden Gate Global (former name San Francisco Bay Area Regional Center) (California)

Terminated:

  • Chicago Regional Center (Illinois)

EB-5 Timing Issues: Not a Fast Track

December 2016 UPDATE: Since writing this post, I’ve worked harder to understand the factors influencing visa wait times, and realized that conclusions are perilous. It seems impossible to make a good equation to predict when X investor from Y country filing at Z time can expect to get a green card and remove conditions, as much as we really need to be able to do that. There are too many time-variable variables and questions about how to project from the data we have on petition filings and approvals, pending applications, historical processing times, historical cut-off date movement, and historical visa allocations. It’s also possible that Congress could shake up visa numbers or allocations (advocates are pressing hard for this), changing the picture for EB-5 investors. One important reality not captured by my chart in the following post is that investors filing at different times will face very different scenarios depending on where they enter the queue in relation to filing surges, and how processing times vary over time. My post below from January 2016 foresaw a six-year visa wait, and the same calculation a year later estimates an eight-year wait for conditional permanent residence for China-born investors. (Here is a spreadsheet with my ongoing attempt to think about the backlog effect, and delays that investors may expect.)

— ORIGINAL POST JANUARY 2016 —

I am posting a new version of my timing post from last October, with edits inspired by Robert Divine’s article The Realities and Implications of Chinese EB-5 Investors’ Wait for Visa Numbers (January 4, 2016).

Mr. Divine’s article reminds us that we need to look at backlogs, not only at posted processing times and cut-off dates, when assessing how long the EB-5 process is likely take. And we’ve recently heard shocking news about backlogs: as of December 2015 there were about 20,000 I-526 petitions pending at USCIS and about 21,000 pending EB-5 visa applications, which means about 57,000 people are currently in line for an EB-5 visa. (See Mr. Divine’s article for the sources and calculations behind these numbers, which are estimates only but with good backup.) [Update: For backlog numbers as of September 2016, see the visa capacity and visa usage slides from the October 2016 IIUSA conference.] With the annual EB-5 visa cap set at about 10,000 visas, it will take that queue about six years to advance through the system. So if you are an EB-5 investor entering the queue today, it may take you six or seven years just to reach the window where you can get conditional permanent residence (based on the number of people in front of you and the annual visa allocation, regardless of how efficient USCIS/DOS may get with processing times). And that means it may be nine to eleven years before you can expect to have conditions removed and think about exiting the investment. At least, that’s a realistic scenario if you are a China-born EB-5 visa applicant filing today. If you were born somewhere else, you’ll have opportunity to cut in front of China-born applicants, who make up about 85% of the EB-5 visa queue, when the State Department imposes a “cut-off date” for China (which happens whenever it becomes apparent both that that the annual EB-5 visa quota will likely be reached for the year and that China-born applicants are likely to exceed the technically allotted 7% of those visas). And if you filed before 2015, you have the advantage of at least being in line ahead of the over 14,000-petition surge that happened last year.
eb5timeline

Investors and businesses using EB-5 investment should look long and hard at the timing scenarios in the chart above, and consider the implications. That T3 scenario is dire. It’s hard on investors, who are generally interested in immigrating sooner rather than later, may have children who will age out in less than six years, and who don’t want to maximize the time their capital is tied up at negligible interest. It’s hard on businesses, who’ll have to try to make predictable plans on a decade horizon, will be limited in how they can close out successful projects, and face a long period of dealing with EB-5 record-keeping and reporting. And it’s reason to lobby our leaders to adjust the visa allocation, increase protection for derivative children, and/or reconsider China demand for EB-5. For thoughts on possible responses, see Ron Klasko’s post “Winning the Numbers Game” (January 14, 2016).

This a selfless post for me, considering that my livelihood depends on US businesses being interested in EB-5 investors, and vice versa. As a business plan writer, I benefit from the popular impression (propagated largely by ill-informed criticism from journalists and politicians, but also encouraged by some promoters) that EB-5 is an easy process and a fast track to residency. It doesn’t help me to point out that the process can realistically involve a decade commitment, at least for China-born investors, and significant timing risks. And yet, as Robert Divine concludes his article: “Securities issuers need to disclose these age-out and eligibility risks to prospective EB-5 investors, who otherwise may be lulled into complacency by the Visa Bulletin that appears to reflect a two-year waiting period. And USCIS and Congress need to take action to provide more protection of the reasonable expectations of today’s and yesterday’s investors and their children.”

Notes on Timing Considerations (These notes keyed to the “EB-5 Investor Timeline Estimate” chart above have not been changed from my original post in October)

  • Investment and Escrow: During Stage (A), the EB-5 investor’s full investment must be committed to the enterprise (in the enterprise account, escrowed, or otherwise contractually committed). If escrow is used, investor funds must be released to the enterprise at latest before (D) begins.
  • Sustaining Investment: The investment must be sustained from (B) through (D) and must be actively deployed in job-creating activities at least during (D). USCIS is drafting new policy to address how exactly funds need to be deployed during (D). The EB-5 investor may not recoup or draw down his investment before (E) and may be wisest to wait until (F) to exit.
  • Material Change: The deal needs to be planned and structured carefully during (A), as the petitioner will have limited opportunity to fix any deficiencies after filing I-526. The EB-5-funded enterprise must closely follow the I-526 business plan at least during (B) and (C), when material changes are not permissible. USCIS allows some flexibility to depart from the business plan during (D). (See also my post on what material change means.)
  • Job Creation: The investor can claim job creation that occurs from (B) to (D), and following his investment in (A). Under limited circumstances, he can also claim jobs created before the date of his investment or after the date that he filed I-829. In principle, he should be able to claim jobs that no longer exist when he files I-829 provided that the jobs were created and sustained for more than two years (but USCIS has not clearly confirmed this).
  • Planning Horizon: We are required to assume the T1 scenario in the Time column when giving USCIS a plan for using funds and creating jobs, but should assume the T2 or T3 scenarios when planning the investor’s exit strategy. The T1 estimate has investors reaching the I-829 stage 2.5 years after I-526 adjudication (the idealized scenario envisioned by USCIS policy). USCIS requires the I-526 business plan to show how job creation could occur during this theoretical 2.5-year window. The longer estimate looks at current processing time averages, retrogression, and backlogs, and sees that investors may not actually reach I-829 and remove conditions until 5 to 10 years after filing I-526. The difference between theory and reality means that petitioners can expect more time than officially planned to create jobs, but also a longer period of having to sustain their investments. EB-5 investment must be sustained throughout the conditional residence period (D), so premature exits must be avoided and exit strategies should consider realistic timing. Five years used to be a standard target for investor exit, but can be dangerously early for the average investor today.
  • References: USCIS petition processing times, DOS visa availability, EB-5 Policy Memo (on investment, escrow, material, change, job creation), Draft Policy for sustaining investment, EB-5 investor process. Ask me if you need references to the AAO decisions that discuss eligibility at I-526 filing, investment timing, job creation timing, and material change.

The Basics: Direct and Regional Center EB-5 Comparison

This post doesn’t break any news, but addresses a basic question: what is the difference between direct EB-5 and regional center EB-5?

In a nutshell, the answer is that a regional center investment is associated with a designated regional center and therefore may count indirect job creation, while a direct EB-5 investment is not associated with a regional center and may not count indirect jobs.

These two differences – regional center affiliation and indirect job creation – are the only fundamental differences between direct and regional center EB-5. The two tracks share the same basic EB-5 requirements: investment of capital in a new commercial enterprise that creates jobs. Contrary to popular misconception, direct and regional center EB-5 have the same minimum investment amounts, the same targeted employment area incentives, and (USCIS claims) about the same average petition processing times.

However, the two fundamental differences between direct and regional center EB-5 have implications that make direct and regional center investments quite different in practice. (Click on the images below to see full-size versions of the comparison charts, or click here for a PDF version.)
comparison chart_Page_1
comparison chart_Page_2
comparison chart_Page_3
Examples
Some common scenarios will illustrate the differences, as described above, between direct and regional center investment:

  • Real estate development projects are the most common investment for regional center EB-5 but awkward-to-impossible for direct EB-5. Indirect job creation allows the regional center investor in a landowner to count construction contractor jobs, indirect impacts of supply purchases, and sometimes even jobs created by the tenants of the completed development. A direct investor who invests in the same landowner could only count the permanent W-2 employees of the landowner – but normally the landowner wouldn’t have any. Most construction work gets done by employees of a variety of contractors, none of which “indirect” jobs count for direct EB-5, and any direct employee positions lasting only the duration of the construction project may also be disqualified because they are not permanent.
  • Hotels are a common investment for both regional center and direct EB-5, but subject to different considerations. The regional center hotel investment has the luxury of segregating EB-5 investors in an entity that neither owns nor controls the hotel, but simply exists to raise EB-5 capital and make a debt or equity investment in the hotel. This entity can claim credit for hotel jobs, thanks to indirect job creation. Direct investors, on the other hand, can only get credit for direct jobs and so can’t be segregated, but must have equity interest in the hotel owner/employer. (This can bring up liability issues, and may mean that direct EB-5 investors have to be vetted as owners in the franchising and liquor license process.) It’s no problem for regional center EB-5 if one entity owns the hotel and a separate management company hires the hotel employees, since indirect job creation doesn’t take into account which name appears on payroll records. In direct EB-5, this is a problem. Direct EB-5 can’t separate investment from job creation, and therefore the entity that uses EB-5 capital to develop the hotel needs to be the same entity with new hotel employees on its payroll. (If multiple entities are involved in direct EB-5, they must be essentially united by a wholly-owned subsidiary relationship.) Furthermore, a hotel will be able to claim more job creation as a regional center project than as a direct project. A new-build 120-room Homewood Suites might subscribe two direct EB-5 investors based on a business plan anticipating creation of 23 full-time positions, or twelve regional center EB-5 investors based on an economist’s calculation that hotel construction and operation will result in 130 new jobs. Why are the two jobs numbers so different for the same hotel? First, the direct investor can only count hotel employees while the regional center investor can also count construction-associated jobs and economist-defined indirect and induced jobs (associated with supply purchases and employee spending). Second, the direct investor can only count payroll-record-verified full time positions, while an economic model is relatively generous in counting operating jobs. The economist’s multipliers are based on averages, cannot distinguish between full-time and part-time employment, do not consider who holds the jobs, and are not finely tuned to reflect labor variations among hotels of different flags and scales. The economic model calculates average direct employment for an average hotel with a given verified revenue, and this number usually exceeds the number of discrete, verifiable 35+ hour per week positions at an individual hotel. Finally, I-829 paperwork may be easier for the regional center investment than the direct investment. The hotel with direct investors needs to sign up for E-Verify, take special care that its employees are qualifying, maximize full-time employment, and prepare stacks of payroll records to verify job creation. The offering with regional center investors and an economic analysis using expenditure and revenue inputs can (in theory) not worry about individual employees but rather track expenditures and revenue, and prepare financial statements to verify employment by verifying economic model inputs.
  • Small businesses such as restaurants and gas stations are likely to use direct EB-5. Such businesses tend to require only a couple EB-5 investors and will have sufficient direct jobs to justify those investors without needing to rely on indirect job creation. They can generally accommodate EB-5 investors as equity members and don’t require the complex investment structures only possible for regional center EB-5. No regional center affiliation means no regional center fees, no geographic limitation, and no vulnerability to regional center program changes. Regional center investment could work for these projects too and has the attraction of flexibility. But these projects may not be attractive to regional centers, which are often unwilling to sponsor offerings that only need a couple investors, and direct EB-5 provides a viable alternative.
  • Investments involving multiple layers and diversification can work in the regional center context but not for direct EB-5. If a direct EB-5 case has multiple entities in the flow of EB-5 capital or in the staffing plan, then those entities must be united by a wholly-owned subsidiary relationship. If they aren’t so related, then the case will be denied. For example see OCT022015_01B7203 Matter of H-G- (direct investment in a new commercial enterprise that invests in a separate job-creating business), NOV122014_01B7203 and DEC042013_01B7203 (direct investment and job creation divided among several enterprises), JUN182013_01B7203 and JUN042013_01B7203 (job creation in partially-owned subsidiaries).

Regulatory Background
What rules underlie the practical differences between direct and regional center EB-5? To quote the EB-5 Policy Memo: “The EB-5 Program is based on three main elements: (1) the immigrant’s investment of capital, (2) in a new commercial enterprise, (3) that creates jobs.” Direct and regional center EB-5 investors share these elements and the requirement to contribute capital (equity not debt) to a (single) new commercial enterprise and create jobs. The difference comes in term definitions. “Employee” for a direct investor can only mean “an individual who provides services or labor for the new commercial enterprise and who receives wages or other remuneration directly from the new commercial enterprise.” The word has an additional sense for the regional center investor: “an individual who provides services or labor in a job which has been created indirectly through investment in the new commercial enterprise.” The EB-5 regulations at 8 CFR § Sec. 204.6(e) define terms:

  • Commercial enterprise means any for-profit activity formed for the ongoing conduct of lawful business including, but not limited to, a sole proprietorship, partnership (whether limited or general), holding company, joint venture, corporation, business trust, or other entity which may be publicly or privately owned. This definition includes a commercial enterprise consisting of a holding company and its wholly-owned subsidiaries, provided that each such subsidiary is engaged in a for-profit activity formed for the ongoing conduct of a lawful business. This definition shall not include a noncommercial activity such as owning and operating a personal residence.
  • Employee means an individual who provides services or labor for the new commercial enterprise and who receives wages or other remuneration directly from the new commercial enterprise. In the case of the Immigrant Investor Pilot Program, “employee” also means an individual who provides services or labor in a job which has been created indirectly through investment in the new commercial enterprise. This definition shall not include independent contractors.
  • Invest means to contribute capital. A contribution of capital in exchange for a note, bond, convertible debt, obligation, or any other debt arrangement between the alien entrepreneur and the new commercial enterprise does not constitute a contribution of capital for the purposes of this part.

Updates and RC List Changes

Updates

  • IPO Processing Times: Average I-526 and I-924 processing times both show marked improvement in the most recent IPO update from the USCIS website.
    IPO1015
  • New AAO Decisions: A couple more AAO decisions on I-526 cases have been uploaded to the 2015 folder on the USCIS website. DEC042015_02B7203 (Matter of H-Y-) is particularly colorful. The petitioner took a path common to failed EB-5 petitions: apparently trying to put an existing business into a new shell and sell it as a new business with job creation. But she met with aggressive investigation from the USCIS adjudicator, who sorted evidence with a fine-toothed comb and searched out company information online and even called the business and talked to an employee.
  • The U.S. Securities and Exchange Commission has published a 118-page
    Report on the Review of the Definition of “Accredited Investor” (December 18, 2015)
  • EB-5 Legislation: I’ve decided not to give regular legislative updates, assuming that you have your own sources if you care about this topic, and that I should resist the comments I’m tempted to make. (There have been several recent additions to the legislative sausage factory– see the IIUSA blog for links. The EB5 Insights blog discusses a substantive new Manhattan-approved entry in detail.)

Regional Center List Changes
New approvals and name changes on the USCIS Regional Center List, 12/08/2015 to 12/22/2015

  • American Immigration Group-NYRC (Connecticut, New Jersey, New York): eb5aig.net
  • American Lending Center Georgia, LLC (Georgia): www.usedlc.com
  • New Empire EB-5 Regional Center, LLC (Connecticut, New Jersey, New York, Pennsylvania)
  • QueensFort Capital California Regional Center, LLC (California): queensforteb5.com
  • Seattle Pacific Area Regional Center, LLC (Washington)
  • South Pacific Regional Center, LLC (Hawaii)
  • Texas Coast Regional Center Corporation (Texas)

Renamed:

  • Continental Regional Center LLC (former name USA Continental Regional Center, LLC) (California)
  • Fleet New York Metropolitan Regional Center LLC (former name Federal New York Metropolitan Regional Center) (New York)
  • Invest Midwest Regional Center (former name Civitas Indiana Regional Center) (Indiana)
  • CUCC Business Regional Center, Inc (former name U.S. Business Regional Center Inc.) (New York)

Additions to the list of Terminated Regional Centers

  • Twin Development LLC Regional Center (Washington) terminated 12/8/2015

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

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

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

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

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

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

What is material change?

Summary
The EB-5 process allows limited leeway for change in documents or in reality. Ideally and in principle, all EB-5 petitioners fully demonstrate eligibility in their original I-526 documents, and investment projects go on to develop exactly as foreseen in the I-526 business plan. In real life, there are new circumstances and unforeseen events, not to mention mistakes and omissions, and change happens. This post discusses how and when change is (and is not) a problem in EB-5. (Last update: 01/2017)

Before I wade into details and examples, here’s a rough metric.

Q. What kind of changes can be a problem in EB-5?
— A. Material changes that affect decision-making.
Q. When are material changes a problem?
— A. While decision-making is in process.

And here’s where to find the official policy on material change: USCIS Policy Manual, 6 USCIS-PM G (November 30, 2016) Chapter 4(C) and Chapter 5(C).

What are the principles behind the material change issue?

  • In visa petition proceedings, a petitioner must establish eligibility at the time of filing and that a petition cannot be approved if, after filing, the petitioner becomes eligible under a new set of facts or circumstances. See, e.g., Matter of Izummi, 22 I. & N. Dec. at 176
  • The petitioner must continue to be eligible for classification at the time of adjudication of the petition. 8 C.F.R. § 103.2(b)(1)
  • Form 1-829 approval is predicted by Form 1-526 approval and successful execution of the approved plan. Chang v.United States of America, 327 F. 3d 91 1 (9″ Cir. 2003) (Current policy now states that “USCIS does not deny petitions to remove conditions based solely on the failure to adhere to the business plan contained in the Form I-526 immigrant petition.” 6 USCIS-PM G Chapter 5(C))
  • Black’s Law Dictionary defines “material” as “having some logical connection with the consequential facts” and of “such a nature that knowledge of the item would affect a person’s decision-making process; significant; essential.”

What kind of change is material?

  • A change that’s part of an effort to make an apparently deficient petition conform to USCIS requirements
  • A change that reflects a substantial alteration in circumstances on which USCIS is relying in making its decision, and that would tend to influence the decision
  • A change that asserts eligibility under a materially different set of facts that did not exist when the immigrant first filed the petition
  • All elements of a petition can be subject to material change issues (including the business plan, offering documents, and evidence of investment and source of funds)

What kind of change is not material?

  • A change that occurs in accordance with a business plan and other supporting documents as filed
  • A change that affects facts not related to the immigrant investor’s eligibility

At what point is material change a problem?

  • Material changes are NOT acceptable during the period between a petitioner filing I-526 and receiving conditional permanent residence. (This period includes both I-526 processing and the consular or adjustment of status process). If material changes occur at this time, the petitioner must go back to square one and file a new I-526 petition with the new scenario. My post on timing issues has a chart of the EB-5 process with estimated times. (But note that draft regulations posted 01/2017 propose priority date protection language that would effectively allow material changes after I-526 approval.)
  • Material changes CAN be allowable during a petitioner’s conditional residence period (after the investor receives the EB-5 visa, and before removing conditions). USCIS will not deny an I-829 petition solely based on failure to adhere to the plan filed with the I-526 Petition. The I-829 petitioner should still demonstrate that he filed the Form I-526 plan in good faith with full intention to follow the plan outlined in the petition, and must still show that he meets the requirements for removal of conditions. USCIS is currently formulating new policy concerning the circumstances under which EB-5 funds might be removed from a project or moved from one project to another during the petitioner’s CPR period (draft memo). The more closely a petitioner adheres to the I-526 plan, the more he can rely on receiving deference to USCIS’s prior approval of that plan. (6 USCIS-PM G Chapter 5(C) “Material Change”.)
  • Material changes CAN be made between I-924/exemplar I-526 approval and actual I-526 filing. However, USCIS will not show deference (will re-adjudicate) when a new filing involves a different project from a previous approval, or the same previously approved project with material changes to the project plan.

Examples of material change (with fact pattern source in parentheses)

Changes judged to be material

  • Switching the investment project
    • A petitioner files a Form I-526 based on investment in a troubled business. When USCIS points out that the business does not qualify as troubled, the petitioner abandons the troubled business claim and substitutes a plan to create a new business instead. (Matter of Izummi)
    • A petitioner files a Form I-526 associated with a project sponsored by a Regional Center. Before I-526 is approved, the Regional Center loses its designation. The petitioner then amends the petition based on investment in a project within a different Regional Center. (AUG062014_01B7203)
    • A petitioner files a Form I-526 associated with investment in a portfolio of projects. In response to RFE questioning aspects of this structure, the petitioner identifies one project within the portfolio as the target for her investment. (MAY172013_01B7203)
  • Changing the investment structure or terms (correcting a deficiency, creating a new deficiency, or shifting the petition enough that different rules apply to it)
    • The petitioner files Form I-526 in 1996 with a partnership agreement containing certain provisions. In 1997, USCIS issues a memorandum objecting to such provisions. The petitioner then files partnership agreement amendments to remove those provisions from his documents. (Matter of Izummi)
    • The petitioner files a Form I-526 describing a loan model for direct investment. In response to RFE, the petitioner modifies the structure to equity investment in a job-creating new commercial enterprise. (APR232014_01B7203)
    • The petitioner files Form I-526 for a regional center-sponsored project. After I-526 approval, but before the investor receives a visa, the regional center is terminated. The project did create jobs, but in a job-creating entity separate from the new commercial enterprise (OK for regional centers, not OK for direct EB-5). Proceeding without regional center involvement would require the NCE to absorb the JCE and make it a wholly-owned subsidiary. This structural change would constitute a material change to the original petition. (JUL182016_01B7203)
    • The petitioner files a Form I-526 with Operating Agreement provisions that suggest funds might not be at risk for job creation. When challenged, the petitioner files an amended Operating Agreement that removes the problematic provisions. (Feb182010_04B7203)
    • The petitioner files a Form I-526 associated with investment in a new commercial enterprise that wholly owns an employment-creating subsidiary. After filing, the subsidiary was no longer wholly owned by the NCE. (Jan072011_01B7203)
    • The petitioner files a Form 1-526 in 2012 with a redemption clause. In April 2013, in response to RFE, the petitioner signs Agreement of Waiver to remove that clause (MAY272014_01B7203)
    • The petitioner files a Form 1-526 with an arrangement for half of the capital to be paid back to him as a guaranteed return. In response to an RFE, he declares the arrangement null and void. (2008 USCIS adjudicator training) (See also MAY272014_01B7203)
    • The petitioner files a Form I-526 that does not indicate a management or policy-making role for the petitioner. An amended Operating Agreement filed in response to RFE identifies the petitioner as managing member of the NCE (Oct262009_01B7203)
  • Belatedly committing investment, belatedly showing funds at risk (making a change for the right too late)
    • The petitioner files a Form I-526 on June 1, 2008, based on a $400,000 investment. In response to an RFE, the alien provides proof of the remaining required amount being invested on July 15, 2008. (2008 USCIS adjudicator training)
    • The petitioner files a Form I-526 in October 2012 for investment in a business that also depends on funds from other investors. In response to RFE, the petitioner provides letters of commitment for the additional investment, but the letters are dated after October 2012. (MAY272014_01B7203)
    • The petitioner files a Form I-526 in October 2012 for investment in a project not yet underway. In response to RFE, the petitioner provides some evidence of business activity (land purchase, contracts made), but the documents are dated 2013. (MAY272014_01B7203)
  • Changing fundamental aspects of the business plan
    • The petitioner files Form I-526 indicating investment in a retail business. In a revised Form I-526, the petitioner materially alters its industry focus to realty and investment services. A change of structure in the Operating Agreement is also material. And the petitioner does not show that change of location does not constitute a material change. (MAY102016_02B7203)
    • The petitioner files a Form 1-526 with a plan for an export business. In response to RFE pointing out deficiencies in the plan, the petitioner submits a new plan for the export business plus a restaurant. (SEP052013_02B7203)
    • The petitioner files a Form 1-526 with a plan for a grocery store. Later, she adds a plan for a restaurant not mentioned in the original filing. (FEB162005_01B7204)
    • The petitioner files a Form 1-526 for investment a Regional Center project that owns and will redevelop a property. Subsequently, the property is lost to foreclosure and has to be re-acquired with new financing. This temporarily puts the project in doubt and permanently changes development budget numbers used in the economic impact analysis. (Feb182010_04B7203)

Changes judged NOT material

  • Changes to aspects of the petition that don’t significantly affect the petitioner’s eligibility one way or another (ie changes not made to correct deficiencies in the original filing; changes that alter aspects of the business not fundamental to the petitioner’s eligibility)
    • “If the organizational documents for a new commercial enterprise contain a liquidation provision, that does not otherwise constitute an impermissible debt arrangement, the documents may generally be amended to remove such a provision in order to allow the new commercial enterprise to continue to operate through the regional center immigrant investor’s period of conditional permanent residence. Such an amendment would generally not be considered a material change because facts related to the immigrant investor’s Form I-526 eligibility would not change.” (6 USCIS-PM G Chapter 4(C) “Material Change”.)
    • [Speaking of material changes between I-924 exemplar and actual I-526] If after approval of the application for regional center designation the space is leased to a different type of tenant (for example, a different type of restaurant that yields different expected employment or a non-restaurant), or fails to achieve previously projected occupancy rates, this change alone will not necessarily constitute a material change that triggers the elimination of deference. It is not necessarily a material change if a shopping mall fails to lease 1 out of 50 retail spaces. (6 USCIS-PM G Chapter 2(D) subsection 6 “Tenant Occupancy Methodology”.)
    • The petitioner files a Form 1-526 and invests $1,000,000 in a business that is planning to operate a Chinese restaurant. In the RFE, it is revealed that the business has decided to operate a Peruvian restaurant instead. (2008 USCIS adjudicator training)
  • Changes that are more modification of than departure from the original (revised documents that have strong continuity with documents originally filed)
    • The petitioner files Form I-526 with a partnership agreement and investment agreement that are inconsistent with each other. He subsequently files a set of amendments to the partnership agreement specifically to iron out those inconsistencies. (Matter of Izummi)
    • The petitioner files a Form 1-526 based on a Regional Center project that involves a loan agreement. In response to RFE expressing concern about a closing date already passed, the petitioner submits a renegotiated loan agreement extending the date. (JUL192005_01B7203)
  • Changes that were anticipated in the originally-filed documents
    • “For example, if at the time of filing the immigrant petition, no jobs have yet been created, but after approval of the immigrant petition and before the investor has obtained conditional permanent resident status, the investment in the new commercial enterprise results in the creation of 10 jobs in accordance with the investor’s business plan as filed, such a change would not be considered to be material.” (6 USCIS-PM G Chapter 4(C) “Material Change”.)
    • The petitioner files a Form 1-526 with a plan for Project A and a partnership agreement that anticipates that funds could be moved to a different project. After I-526 approval but before I-829, funds are indeed moved to a Project B. (Apr232010_01B7203)

Conclusion: What should we then do?

  • Try to file I-526 documents that fully demonstrate the petitioner’s eligibility (because if anything essential to demonstrating eligibility is missing from the original filing, or if some provisions/conditions in the filing would make the petitioner ineligible, those issues may not be possible to fix without committing material change)
  • Put EB-5 investment in enterprises/projects that are able to proceed predictably according to plan, at least for the first few years while the investor is waiting for conditional permanent residence (because the investor can get derailed by material change if the project departs significantly from the business plan while USCIS/DOS are still in process of reviewing the investor’s documents). Where aspects of the business are subject to short-term change and variation from plan, explicitly foresee that in the business plan and offering documents.
  • Try to choose a stable regional center sponsor. If the regional center loses its designation, every path to salvaging investor petitions may be blocked by material change problems.
  • Between filing I-526 and receiving an EB-5 visa, be careful when answering challenges and providing new evidence to USCIS/DOS. Take care to emphasize ways in which the new/changed material you’re providing has basic continuity with the original filing. Show that you are modifying or elaborating rather than making major changes/substitutions. Where changes have occurred that don’t affect eligibility one way or another, point that out.
  • Relax a bit once investors have conditional permanent residence, since material change won’t automatically derail them now, but don’t relax too much. Keep USCIS apprised of major new developments, and retain evidence of good faith efforts to follow the original business plan.

Additional Reading
In View of the Language of the Statutory Section In Question (August 23, 2016) by Joseph Whalen discusses the origin of the “eligibility at time of filing” concept, and how it came to be applied (and misapplied) to the EB-5 visa classification.

Update on RC Renewal, Articles (Retrogression, SEC), New and Removed RCs

Legislative Update
Last week Congress passed a two-year budget deal that raises funding levels and suspends the debt limit until 2017. This accomplishment eases the way for the spending package that needs to passed by December 11 to keep the federal government funded. And it could be good news for the EB-5 Regional Center program, if RC program reauthorization could be folded into the appropriations bill as has happened in the past. But we hear that powerful voices in Congress want standalone legislation with changes and reform, not just another reauthorization, and we aren’t hearing of progress toward making that happen. A couple bills came out in October, but we haven’t seen substantial new contenders – no work product from the negotiations by Grassley, Leahy, Goodlatte, and Issa; no new version of the leading Senate bill S. 1501; and nothing that looks like it has a serious chance of satisfying enough interests to pass. (EB5 Coalition has a bill comparison chart summarizing current offerings.) I am happy to report that IIUSA has just come out with an EB-5 legislative compromise proposal based on consultation with a broad base of stakeholders plus assessment of what could fly on Capitol Hill. For details, see the announcement: IIUSA Delivers Compromise EB-5 Legislative Proposal to Congress. We hope to inspire our representatives to engage in some compromising of their own, and avoid an impasse that would let the Regional Center program expire on December 11.

Articles (China Retrogression, SEC Actions)

New and Terminated Regional Centers
Additions to the USCIS Regional Center List, 10/19/2015 to 11/02/2015

  • City Connections Regional Center LLC (California must be USCIS error, presumably should be Connecticut, New Jersey, New York, Pennsylvania): www.ccrceb5.com
  • Deictic Investment Group LLC (California)
  • MCFI Southern California / Arizona (Arizona, California): www.mcfiusa.com
  • South Atlantic Coast Regional Center LLC (Florida, Georgia, North Carolina, South Carolina)

Renamed:

  • California Golden Pacific Regional Center, LLC (former name U.S. Golden Pacific Regional Center, LLC) (California)

Additions to the list of Terminated Regional Centers

  • USA Lifestyles Regional Center (Maine) terminated 10/13/2015
  • Spring Hill Homes LP Regional Center (Texas) terminated 10/22/2015

I-924 options: What are actual and hypothetical projects? What does exemplar mean?

This post doesn’t break any news, but replaces an outdated post from 2011 that I notice has been getting a lot of traffic. (Most recently updated January 2017 based on the 11/2016 EB-5 Policy Manual chapter.)

Regional Center application project types and actual, hypothetical, and Exemplar business plans

USCIS Policy Manual, 6 USCIS-PM G (November 30, 2016) Chapter 3 summarizes the requirements for an application for regional center designation,

A regional center seeking to participate in the Regional Center Program must submit a proposal using the Application For Regional Center Under the Immigrant Investor Program (Form I-924).

USCIS may designate a regional center based on a general proposal for the promotion of economic growth, including increased export sales, improved regional productivity, job creation, or increased domestic capital investment. The statute further provides that a regional center shall have jurisdiction over a limited geographic area, which shall be described in the proposal and consistent with the purpose of concentrating pooled investment in defined economic zones.

In addition, the establishment of a regional center may be based on general predictions, contained in the proposal, concerning the kinds of commercial enterprises that will receive capital from immigrant investors, the jobs that will be created directly or indirectly as a result of such capital investments, and the other positive economic effects such capital investments will have on the area.

The Policy Manual goes on to explain that “the level of verifiable detail required for a Form I-924 to be approved and provided deference may vary depending on the nature of the application filing,” and provides three options for type of application filing: hypothetical, actual, and exemplar. Table 1 summarizes each type as defined at 6 USCIS-PM G Chapter 3(B).

i-924types

USCIS asks the applicant to label the project documents included in the I-924 application, identifying whether they are presented as hypothetical, actual, or examplar. One application may include a mix of project types, and USCIS may decide to re-classify and approve an “actual” project as “hypothetical” if it’s not sufficiently detailed.

The standard for actual/exemplar business plan content is clear and rigorous: the same “Matter-of-Ho-compliant” standard that applies to the I-526 business plan. The standard for hypothetical plans was not defined from 2013 to 2016, and appeared to be very low. The new Policy Manual introduced in November 2016, however, gives some positive guidance for hypothetical plan content.

General proposals and predictions may include a description of the project parameters, such as:

* Proposed project activities, industries, locations, and timelines;

* A general market analysis of the proposed job creating activities and explanation regarding how the proposed project activities are likely to promote economic growth and create jobs; and

* A description, along with supporting evidence, of the regional center principals’ relevant experience and expertise. (quoted from 6 USCIS-PM G Chapter 3(B))

A regional center applicant may classify its potential real project as “hypothetical” because it’s not sufficiently advanced for detailed description, or may submit business plans for projects that are purely hypothetical scenarios — just examples of the kind of thing the regional center might do. Hypothetical projects are relatively easy to write up, and applicants can apply for very expansive geographic areas by including many hypothetical projects in the application. My log of new regional center designations from 2013 to 2015 (based on RC designation letters) shows that about 85% of initial regional center designations have been based on hypothetical projects.  However, approval of “actual” or “exemplar” documents can be valuable, thanks to deference.  Once USCIS has granted an actual or exemplar approval in the I-924 context, it will not (generally) revisit those same documents when they appear in investor I-526 petitions. From 2013 to 2015, USCIS issued 122 letters formally approving actual projects that were filed with I-924 initial applications or amendment requests.

AAO decisions relating to 1-924 project issues

  • JUN272013_01B7203, DEC302013_01B7203, and FEB102014_02B7203 are examples of AAO decisions that require USCIS to reconsider I-526 denials that neglected to fully address deference to I-924 approvals. These decisions indicate that AAO (if not always USCIS) take the deference policy seriously.
  • A few AAO decisions indicate limits on what can be approved as a “hypothetical” plan.  FEB212014_01K1610 concludes that “While USCIS does not define the level of detail required for a general proposal, merely identifying the NAICS industry categories and the eventual input-output model without analyzing how the model would apply to a hypothetical project that falls under the industry categories is insufficient to meet the applicant’s burden within these proceedings.” In AUG222016_01K1610, AAO and USCIS refused to consider the actual, active project of another regional center, including the economic impact analysis, as the Applicant’s hypothetical project.
  • In JUL192013_01K1610, AAO withdrew a denial, finding that USCIS should not have required a proposal based on hypothetical projects to provide detail such as letters of intent from lenders, commitments from prospective partners, and extensive cost and location detail.

Finally, recall that an I-924 application for initial designation must include a business plan for the Regional Center itself in addition to the kind of project proposals described in this post. See the I-924 Instructions item #4 and #6 for ideas about what to include in a regional center operational plan. The AAO decision JUL092015_01K1610 discusses an application that was denied in part for failing to submit a sufficient operational plan.

EB-5 Timing Issues

See my updated version of this post EB-5 Timing Issues: Not a Fast Track (January 12, 2016)

I-924A Reminder, Processing Times, New RCs

I-924A Reminders
As Regional Centers prepare Form I-924A annual report filings (due December 29th), here are a few points to keep in mind:

  • Use the I-924A Form and Instructions and the filing address posted on the USCIS website. For filing tips, refer to the Questions and Answers Form I-924A from 2011 and the September 17, 2015 engagement on Form I-924A (recording here).
  • Your purpose in filing Form I-924A is to show continued eligibility to participate in the Regional Center Program, specifically by demonstrating that the Regional Center is continuing to promote economic growth, improved regional productivity, job creation, or increased domestic capital investment in the approved geographic area. (As per Section 610(a) of the Appropriations Act and 8 CFR 204.6(m)(6))
  • Each Form I-924A will be reviewed by a new compliance group within IPO. As part of its review, this group will:
    • Review the info provided in the I-924A for timeliness, accuracy, and completeness
    • Consider both your Form I-924A responses and any supplemental narrative and exhibits that you choose to provide to determine whether your Regional Center did something to promote economic growth in FY2014
    • Check the numbers you report in the I-924A against other info USCIS has on file for your RC, and red flag any inconsistencies
    • Perform an Internet search and a search through internal databases looking for derogatory information related to your Regional Center and its projects and principals
    • Investigate your Regional Center’s online presence (RC’s website, online content from agents and promoters) and look for any impropriety (USCIS has said they particularly look for use of the DHS seal or USCIS signature; any claims about guaranteed returns, guaranteed approvals, or expedited treatment of petitions; and any language (including entity names) that implies a special relationship with USCIS, DHS, or the US government. Keep in mind USCIS’s Cautions on Names of Regional Centers and Enterprises, and Unauthorized Use of DHS Seal)

    (Sources: 8/13/2015 stakeholder meeting, 9/17/2015 engagement, and FOIA material)
    Prepare the I-924A with this review in mind. Add narrative explanation to your I-924A as needed to avoid any questions about apparent inconsistencies, derogatory information, or inactivity. And review and fix any problems with your web presence now.

IPO Processing Times
For what it’s worth, here’s another chart tracking average processing times reported for IPO. Just keep in mind that anecdotal evidence suggests a huge standard deviation around these averages.
IPtimes831
I think the real processing story is in volume of receipts and approvals, but we’ll have to wait a few months before USCIS publishes those numbers for the fourth quarter.

New Regional Centers
The USCIS Regional Center list has now exceeded a thousand entries, expanded in part by the large number of multi-state Regional Centers approved since late 2013. In allowing RCs to claim huge geographic areas, IPO has liberally interpreted Congressional intent that “a Regional Center shall have jurisdiction over a limited geographic area, which shall be consistent with the purpose of concentrating pooled investment in defined economic zones” (Section 610(a) of the Departments of Justice and Related Agencies Appropriations Act 1993).

Additions to the USCIS Regional Center List, 10/08/2015 to 10/19/2015

  • AGC California Regional Center, LLC (California)
  • Global America Regional Center (California)
  • MCFI – Northern California, LLC (California): www.mcfiusa.com
  • Invest CNMI, LLC (Northern Marianas Islands): investcnmillc.bridgecapitaltestsites.com
  • AGC New York Regional Center, LLC (Connecticut, New Jersey, New York, Pennsylvania)
  • American EB-5 Properties Regional Center, LLC (Northern Connecticut, New Jersey, New York): apeb5.com
  • Ironstate Regional Center, LLC (Connecticut, New Jersey, New York, Pennsylvania)
  • American National Immigration and Education Center LLC (District of Columbia, Maryland, Virginia, West Virginia) http://amniec.com/
  • Central Western Regional Center LLC (Illinois, Indiana, Michigan, Missouri, Ohio, Pennsylvania, Wisconsin) USCIS Designation Letter
  • Ashcroft/Sullivan/Baybridge Mid-Atlantic Economic Development Center (Maryland): aseb5.com
  • CMB North Dakota Regional Center (North Dakota): www.cmbeb5visa.com
  • Landy Resources Management, LLC (North Dakota)
  • EB 5 Capital-Texas Regional Center (Texas): www.eb5capital.com
  • Lone Star EB-5 Regional Center (Texas)