Articles & Resources (Ombudsman, Visa Numbers, Investor Protection, Redeployment, RC Audits), Washington Updates, RC List Changes

Helpful Articles and Resources

Washington Updates
What is happening with EB-5 in Washington? I wish I knew. Immigration policy generally looks like an orphan child.  The top three leadership posts at USCIS are all still filled by “acting” people (Lee Cissna was nominated but still not confirmed as Director), and now we’re missing a DHS Secretary as well, until Congress can find time to confirm a replacement for John Kelly. That can’t facilitate significant USCIS action like finalizing regulations or hiring. The White House website listed immigration as a top issue a few months ago, and gave an immigration policy statement, but not anymore. (8/2 Update: The White House is now talking about immigration with the RAISE Act.) I hear rumors that lobbyists are still actively talking to Congressional staffers about EB-5 legislation and regional center program reauthorization, but don’t know where that will lead. Congress has so many fish to fry. We wonder whether Congress can even figure out funding the government past September 30, and there’s talk of another short-term Continuing Resolution, which could mean another series of hop-and-skip extensions of the RC program, whose current authorization is tied to the 2017 funding bill. But it’s hard to predict. Insights or insider information, anyone? (8/3 Updates: Senator Cornyn, author of the draft EB-5 legislation released most recently, has announced Building America’s Trust Act, a new immigration bill that doesn’t appear to address EB-5. Representative Brian Fitzpatrick has introduced H.R.3471 with the promising title “To amend section 203(b)(5) of the Immigration and Nationality Act to implement new reforms, and to reauthorize the EB-5 Regional Center Program, in order to promote and reform foreign capital investment and job creation in communities in the United States, and for other purposes.” I’ll report more fully when the bill text becomes available.)

Regional Center List Changes

Additions to the USCIS Regional Center List, 07/17/2017 to 8/1/2017

New Terminations:

  • Anacostia Regional Center (District of Columbia) Terminated 7/18/2017
  • AAA Florida Senior Living Regional Center, LLC (Florida) Terminated 7/12/2017
  • Allied Artist High Desert EB5 Regional Center (New Mexico) Terminated 7/12/2017
  • Rosti Capital Regional Center (California) Terminated 7/17/2017

IPO Suggested Order of Documentation

IPO has added a very valuable resource to the EB-5 Resources page on the USCIS website:

Suggested Order of Documentation

Form I-526

Form I-829

Form I-924

The links direct to pages that provide a suggested list and order of contents for each EB-5 form. The regulations and Form Instructions already describe the evidentiary requirements for EB-5 petitions and applications, and these new pages don’t add new requirements. Rather, they provide the content in handy checklist form and suggest a way to standardize submissions by arranging required documents in a predictable order. We keep asking IPO what we can do to help improve the adjudication process and processing times, and this is a very helpful response. Immigration lawyers take note! If we can widely adopt the suggested order of documentation for each form, and most petitions take on a standard shape, with the same tabs in the same order, this will certainly support operational efficiencies at IPO and should help reduce processing times. Julia Harrison flagged this resource at today’s Employment Visa engagement in San Jose. I’ll write another post with more complete report of helpful input from the IPO representatives Julia Harrison and Jan Lyons, Kurt Vicha of FDNS, and Charlie Oppenheim from Department of State.

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

Regional Center Termination Reasons

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

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

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

Legal Win for EB-5 Investors

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

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

Trends, Pitfalls, and Ethics in Working with Overseas Agents

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

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

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

DHS Director and EB-5

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

Regional Center List Changes

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

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

New Terminations

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

Goodlatte statement; IIUSA TEA Analysis

Two important new press releases:

  1. House Judiciary Committee Chairman Bob Goodlatte announces on behalf of House and Senate Judiciary Committee members that “Lawmakers Remain Committed to Good-Faith Talks to Reform Investor Visa Program Ahead of Expiration” (April 19, 2017)
  2. IIUSA announces First-Ever Comparative Analysis Report on EB-5 TEA Policy Reform (April 20, 2017). This very valuable report and mapping tool  takes a comprehensive look at the impact the different TEA policy proposals would have on the EB-5 Regional Center program at both a national and state-by-state level. For those of you who downloaded my TEA summary earlier, note that I erred in providing a link to an NMTC mapping tool based on old data. You should look instead at the IIUSA interactive mapping tool, which uses the dataset that would actually be required to determine TEA qualification under new proposals.

Meanwhile, a 4/19 post by Miller Mayer reports on a version of EB-5 reform legislation that I haven’t even seen, though Miller Mayer says “all major EB-5 industry representatives have agreed to this tentative compromise.”

Washington updates, articles, RC list updates

Washington Updates

  • Legislation: Another piece of EB-5 legislation has been thrown into the ring – this one from Rand Paul: S.727 Invest in Our Communities Act. Dianne Feinstein made an extreme bargaining statement with S.232, which threatens to eliminate the EB-5 program entirely, and Rand Paul’s bill takes the opposite pole – offering to make the regional center program permanent with more visas for everyone, better processing times, more investor protections, reasonably limited integrity measures, and no changes to the investment amount or Targeted Employment Area incentive. I’ve entered S.727 in my bill comparison chart, but I guess it lacks sufficient compromise to gain traction (and the similar S.2122 from Mr. Paul in 2015 didn’t go anywhere) . I can’t guess what will happen between now and April 28, but am following what The Hill has to say about prospects for a continuing resolution or omnibus spending bill. UPDATE: An April 6, 2017 letter from Senators/Representatives Grassley, Leahy, Conyers, Goodlatte, and Feinstein encourages Congressional leadership not to extend the RC program on April 28 unless accompanied by reforms. (Then why don’t any of these people introduce reform legislation??)
  • Regulations: Recall the April 11 deadline if you want to comment on USCIS proposed EB-5 regulations USCIS 2016-0006 and USCIS-2016-0008. So far, 0006 (with proposed TEA and investment amount changes) has 54 comments and 0008 (the advance notice requesting feedback on regional center designation issues) just 11 comments.

Other Resources

  • Wolfsdorf Rosenthal and EB-5 Insights have posts about a new kind of source of funds RFE that requests SOF evidence for people transfering funds on behalf of an EB-5 investor.
  • Carolyn Lee of Miller Mayer discusses the newly-unveiled regional center compliance audit program.
  • A journalist called to ask me for the story behind the surge of regional center terminations in 2015 and 2016. In case anyone else is interested in this topic, here are the sources I sent him.

RC List
Additions to the USCIS Regional Center List, 03/01/2017 to 04/03/2017:

  • Coastline Regional Center (Washington)
  • Extell Utah Regional Center (Utah): eb5extell.com
  • Mainsail Florida Regional Center (Florida)

Removed from the list of terminated RCs, and restored to the list of approved RCs:

  • South Dakota International Business Institute (SDIBI) (South Dakota)

New Terminations:

  • San Gabriel Valley Regional Center (California) Terminated 3/15/2017
  • Washington Center for Foreign Investment, LLC (Maryland) Terminated 3/28/2017

By the way I work hard to keep my blog Regional Center List complete and consistent with information from USCIS, but the task is not easy and I welcome regional centers to correct my information.

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 risky 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 some 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 some 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 many 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

For the related question of how long the EB-5 process as a whole can take, see my post EB-5 Timing Issues: Not a Fast Track.

Here is a nice post reviewing options for investors with long-pending petitions: Options for EB-5 Investors When Form I-526 Petitions Are Pending Too Long (June 8, 2016) by Joseph M. Barnett, Esq.    If it comes to a mandamus complaint, here are examples: www.slideshare.net/BigJoe5/tag/mandamus

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: Three Immigration Lawyers Sanctioned by the SEC for Brokering EB-5 Investments (August 24, 2016) discusses how and why the SEC is making examples of immigration lawyers who appeared to receive transaction-based compensation in connection with recommending a regional center or assisting in purchase of an EB-5 limited partnership interest. The most recent cases involved minor violations and relatively little money, but the SEC perceives immigration lawyers as gatekeepers for EB-5 and is going after them accordingly.
  • NASAA EB-5 Investor Advisory: The North American Securities Administrators Association has published an investor advisory for potential investors in EB-5 projects. The notice provides a due diligence checklist that’s handy for investors, and also for people who think about how to structure and write up proposals that will satisfy investor questions and concerns.

Regional Center List Updates

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

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

Renamed:

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

New Terminations:

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

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. [UPDATE: this offering is now subject to an SEC complaint targeting some apparently no-so-grey areas.] 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

May 2017 Update: I’m demoting my original post from January 2016 to an attachment, as people keep consulting the post but all the numbers I used to try calculating timing have changed significantly since then. It’s hard to answer the question “how long will the EB-5 process take.” It depends on where the investor was born, when the investor filed I-526 relative to filing surges, how many petitions and applications get denied or abandoned, how processing times change, how demand changes, and whether Congress agrees to make changes to visa numbers or allocations or the filing process. The bad news, in short, is that the sheer number of people already in line for an EB-5 visa, plus the annual visa quota and per-country limitation, currently means that new China-born investors could be waiting a decade just to get a visa number for conditional permanent residence. Just a few years ago, companies could think in terms of a 5-year exit strategy to comfortably cover EB-5 investors through I-829 approval, but that could look more like 15-year exit strategies in today’s bad-case scenario. But the bad case won’t be reality for everyone — or maybe no one, if legislative proposals are enacted. Or the bad case could get even worse (as it did since I first wrote this post in October 2016, when the visa backlog looked about six years long), if surges in I-526 petition filing continue without other changes. Here is a spreadsheet with my ongoing attempt to calculate the backlog effect. Note that this simplistic approach does not model the influence of filing surges that create different time horizons for investors from different periods. And of course, it doesn’t reflect the fact that new legislation could change the picture entirely. For background on visa timing — the main wild card in the EB-5 process — see Robert Divine’s article The Realities and Implications of Chinese EB-5 Investors’ Wait for Visa Numbers (January 4, 2016).

Stages in the EB-5 Process

STAGE CONSIDERATIONS ESTIMATED DURATION
 (A)  Planning, paperwork, investment Must commit investment and meet other requirements before filing I-526
 (B)   File I-526, receive priority date, and wait for USCIS to process I-526 petition Can’t make material changes to the petition or depart materially from the business plan during this period In 2015-2016, average processing time ranged 13-17 months (USCIS target is < 6 months)
 (C)  Receive I-526 approval, wait for visa interview or I-485 status adjustment (may include waiting for visa number) Can’t make material changes to the petition or depart materially from the business plan during this period From a few months to about 10 years from I-526 filing, if waiting for a visa number (variable depending on whether China-born, where in queue, and whether visa numbers or allocation change). This spreadsheet has the quantitative factors that I know of.
 (D)  Receive green card; begin two-year conditional permanent residence period Investment must be sustained and at risk; job creation must occur; material change may be ok 24 months exactly (file I-829 after Month 21)
 (E)   Wait for USCIS to process I-829 petition For petitions processed in 2015-2016, average ranged 12-29 months
 (F)  Receive I-829 approval and conditional permanent residence No longer subject to EB-5 program requirements

Notes on EB-5 Stages

  • 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), but has not finalized it yet. (In the meantime, the industry has tried to figure out reasonable redeployment policies.) 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.) Note that proposed regulations and proposed legislation both offer to relax the material change policy and protect priority dates in light of long waits.
  • 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.
  • Planning Horizon: USCIS policy requires the I-526 business plan to show that jobs can be created within 2.5 years of I-526 approval.  However, businesses and investors should keep in mind that investors might not actually be verifying job creation until a decade after I-526 approval, considering the visa backlog and retrogression effect for EB-5 investors, not to mention processing times. 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.

Potential changes that would affect the EB-5 process and wait times

  • Increase the EB-5 visa quota: I list this because it’s the most obvious/simplest solution for the current dire picture, but I’m told that it is a political impossibility. Increasing the EB-5 visa quota would require increasing the total US visas and/or reorganizing how the total visa pie gets divided among different types. That would require comprehensive immigration reform — something that’s not on the table at all now and not expected any time soon.
  • Increase EB-5 visa availability by counting investors only toward the EB-5 quota, not spouses and children. This is a live possibility, included in several versions of EB-5 reform legislation and suggested to DHS for revised regulation (see p. 22-29 of the EB5-IC comment). And indeed, there’s a good argument for this being the original intent of Congressional representatives who designed the EB-5 program. If about 10,000 investors can get visas per year, then about 30,000 people can get cleared from the backlog per year (average 3 visas per investor), and wait times would shorten dramatically. Currently, just over 3,000 investors get visas per year, with family members taking the remainder of EB-5 visas.
  • Increase EB-5 visa availability by allowing EB-5 to recapture unused visas (see p. 22-29 of the EB5-IC comment)
  • Lighten the burden on China-born EB-5 investors by removing the per-country cap for visas. This has been suggested by a couple recent bills. It wouldn’t speed up the visa queue overall, but would mean that China-born investors don’t get held back by retrogression, and other investors don’t get to jump ahead i.e. would share/mitigate the long wait.
  • Use visa set-asides to incentivize Targeted Employment Area investment. This has been proposed in several EB-5 reform bills, and would shorten the visa wait time for new TEA investors while pushing other investors even further back in line. However, it’s likely that most set-aside visas would shortly return to the general pool (since the reform bills make TEA status difficult to achieve and the set-asides temporary) and thus the impact could be limited.
  • Change the filing stages: Several legislative proposals suggest allowing investors to file I-829 after having sustained investment and job creation for at least 24 months, even if they are still waiting for a visa number. In this way, when they finally receive the green card, it can be permanent rather than conditional permanent residence (skipping Step D in the table above). Several EB-5 bills have also proposed to allow concurrent filing of I-526 and I-485.
  • Mitigate the negative impact of long waits by adding more flexibility to the material change policy: Several legislative proposals and revised regulations provide more options and recourse for investors in case of material change, recognizing that such changes are inevitable over the course of years.
  • Mitigate the negative impact of long waits by adding protection for children who would otherwise age out: Several legislative proposals offer to do this.
  • Improve petition processing times: IPO continues to reaffirm its commitment to bring down processing times through staffing and efficiencies. I-829 petition times in particular should see improvement soon, as IPO has launched a new team devoted to I-829 adjudication.

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
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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)