EB-5 Updates

H.R. 5992 Account Transparency Requirement

October 14, 2016 1 Comment

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

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

A new commercial enterprise (NCE) must place each EB-5 investor’s funds in a “separate account” with the following characteristics:

The account contains only pooled investment funds of EB-5 investors for a single project

The account is at an insured US financial institution

At least one signatory on the account is an independent third party with a position such as a bank officer, broker-dealer, attorney, or CPA

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

Funds may only be transferred out of the NCE account for one of the following purposes:

Refund an investor’s investment

Transfer to another account that also meets the above qualifications for a separate account

Transfer to a job-creating entity

Deploy funds in the project for which they were intended

The following oversight and reporting is required:

Whenever the NCE accepts investor funds into its account, it must immediately send a notice to the investor, the regional center, and USCIS that contains this account information: contact info for the financial institution, the name of the independent signatory, and access to view the account balance online on an on-going basis.

Whenever the NCE transfers funds out of the NCE account, the transfer must have prior written approval from the independent signatory, and the NCE must immediately send a notice to the investor, the regional center, and USCIS that specifies the amount and destination of the transfer.

When an affiliated JCE deploys funds into a project, the independent signatory or another attorney, broker-dealer, or CPA has 30 days to “verify that the funds were deployed in the project for which they were intended,” and notify the investor, regional center, and USCIS accordingly.

Analysis and Links

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

Articles on H.R. 5992 Account Transparency Requirement

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

I hope to link to other topical articles here soon.

Other relevant content

Assuming that the people drafting the H.R. 5992 Account Transparency Requirement were primarily motivated to avoid another Jay Peak situation, I made a chart (as best I could, based on detail in the legal complaints and news reports) that illustrates how and where exactly money got misappropriated in a Jay Peake project. Here is my simplified chart of where the money went (or see Vermont DFR for the complete, complicated picture). In my chart, related party transactions, single signatories, and multiple layers in the flow of funds stand out as fault lines. The chart also shows why it’s necessary to do more than watch funds safely out the door of the NCE account.

Angelo Paparelli’s article All Checks but No Balances — The Systemic Failure to Protect EB-5 Investors (June 24, 2016) diagnoses a lack of meaningful oversight in EB-5 and defines a role for independent fiduciaries representing investors.

Ron Klasko’s article Attention Receivers and Litigators: EB-5 Investors Are Not Your Typical Clients (July 11, 2016) addresses the unique position and interests of EB-5 investors when problems arise in an investment project.

The EB5 Diligence webinar on Structural Weaknesses in Path America’s Offering (September 12, 2015) considers controls and procedures that might have averted the self-dealing and misappropriation that happened in the Path America case. The discussion is important because it could apply as well to other SEC EB-5 actions, most of which similarly involve related-party scenarios.

Filed under EB-5 Law & Policy

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

September 29, 2016 28 Comments

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

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

11/29/1990 – EB-5 is established as part of an immigration act (PL 101-649)

10/6/1992 – RC program is established as a pilot within EB-5 and authorized for five years as part of an appropriations act (PL 102-395)

11/26/1997 – RC program is authorized for an additional two years (with one small change) as part of an appropriations act (PL 105-119)

10/30/2000 — RC program is authorized for an additional three years (with a couple small changes) as part of immigration-related legislation (PL 106-396)

11/2/2002 – Significant changes are made to EB-5 as part of an appropriations act, but no change to the RC program sunset date (PL 107-273)

12/3/2003 – RC program is authorized for an additional five years (with a few small changes) as part of standalone EB-5 legislation (PL 108-156)

9/30/2008 – RC program is extended unchanged to 3/6/2009 as part of a continuing resolution (PL 110-329)

3/11/2009 – RC program is extended unchanged to 9/30/2009 as part of an appropriations act (PL 111-8)

10/28/2009 – RC program is extended unchanged to 9/30/2012 as part of an appropriations act (PL 111-83)

9/28/2012 – RC program is extended (with one small change) to 9/30/2015 as part of immigration-related legislation (PL 112-176)

9/30/2015 – RC program is extended unchanged to 12/11/2015 as part of a continuing resolution (PL 114-53)

12/8/2015 – RC program is extended unchanged to 9/30/2016 as part of an appropriations act (PL 114-113)

9/29/2016 – RC program is extended unchanged to 12/09/2016 as part of a continuing resolution (PL 114-223)

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

Regional Center List Changes

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

American Southern Regional Center, LLC (Georgia)

California Bohong Premier Regional Center, LLC (California)

KCI Capital Limited (Colorado)

TLQ Partnership, LLC (California)

TriHaven Investment Group LLC (California)

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

Path America KingCo, LLC (Washington)

The Lawrence Economic Development Corporation (Ohio)

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

DC Partners Regional Center (Texas)

FP Advisors LLC (Colorado)

Regional center terminations:

American EB-5 Centers (Florida) Terminated 9/28/2016

Virginia Center for Foreign Investment and Job Creation (Virginia) Terminated 9/29/2016

Filed under EB-5 Law & Policy, New RC

About H.R. 5992 Reform Act proposals

September 15, 2016 5 Comments

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

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

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

For additional reading:

Carolyn Lee and Stephen Yale-Loehr have an initial analysis and summary of the Goodlatte EB-5 bill and an article on impacts for investors and promoters (published 9/12 and 9/13)
A 9/12/2016 letter from IIUSA, EB-5 Investment Coalition, AILA, the U.S. Chamber of Commerce, and the Real Estate Roundtable lists industry concerns with the language in H.R. 5992
My bill comparison chart compares H.R. 5592 with bills from last year
NYU Scholar-in-Residence Gary Friedland, Esq. and Professor Jeanne Calderon, Esq. discuss the account transparency proposals in H.R. 5992 EB-5 2.0: Can Account Transparency Save the Program? (Draft, 10/6/16)
(to be updated as I find additional relevant material)

Filed under EB-5 Law & Policy

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

September 13, 2016 13 Comments

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

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

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

The Fraud Detection and National Security (FDNS) unit has grown to 25 FTE staff, and IPO has created a specialized group focused on regulatory compliance.

FDNS is using overseas staff to attempt to identify potential sources of fraud stemming from any false statements by immigrant investors regarding their source of funds.

FDNS has planned at least 50 site visits in four states, and anticipates conducting additional site visits on a continual and as-needed basis. The first site visits began in August 2016.

FDNS has conducted risk assessments, and identified securities fraud as the most frequent source of fraud in the program.

USCIS has updated I-526 and I-829 forms to help capture additional information about petitioners and applicants that could be used to potentially identify fraud.

USCIS conducts selected background checks on all of its immigrant investors and regional-center principals, in cooperation with partners such as the Federal Bureau of Investigation and U.S. Customs and Border Protection.

USCIS recently signed a memorandum of understanding with the Financial Crimes Enforcement Network (FinCEN) and anticipates conducting additional reviews to help identify potential fraudulent actors and fraudulent financial activity in its regional centers.

USCIS will use I-829 interviews to expand collection of information that could be used to identify fraud. (But so far a comprehensive interview strategy has yet to be developed.)

USCIS hopes to implement a case management system for tracking and reporting data related to EB-5 investments and job creation. Project completion is “tentatively planned for some time in fiscal year 2017.”

USCIS is developing standard operating procedures for adjudication staff for each investor form, and hopes to finalize these procedures by Q1 of FY2017.

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

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

APIC Regional Center California (California)

AmerAsia EB5 Regional Center SF, LLC (California)

American Investment Fund Regional Center, LLC (Oregon, Washington): www.aif-rc.com

Invest Atlanta Regional Center (Georgia): www.investatlantarc.com

KOIT Global Investments (Indiana, Kentucky, Ohio, Tennessee): www.koitglobal.com

Southern California Investments Regional Center (California)

Sun Island Regional Center (California)

The Flame Regional Center, LLC (New Mexico, Texas)

Renamed:

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

New Terminations:

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

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

Looking toward RC program reauthorization (with updates)

September 5, 2016 12 Comments

UPDATES:

9/28-29: H.R. 5325 – Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017, and Zika Response and Preparedness Act passed the House and Senate, and has been signed by the President. It effectively extends the RC program through December 9, 2016.
9/22: IIUSA reported on 9/22 that “Today, Senate Majority Leader Mitch McConnell filed a Continuing Resolution (CR) that would extend federal funding, and the EB-5 Regional Center Program, through December 9, 2016.” We may start our short sigh of relief, though Senator Leahy and Senator Grassley are not pleased.
9/21: Last night the Senate took another step toward agreement on a continuing resolution that would fund the government through December 9. I’ll continue to monitor thehill.com, and will report if I hear anything about short-term regional center program extension being included in the spending bill.
9/15: You can now visit Congress.gov to read H.R. 5992 American Job Creation and Investment Promotion Reform Act of 2016. Sponsor Bob Goodlatte and co-sponsor John Conyers have yet to make press release on this bill (but the energetic Chuck Grassley has a flurry of EB-5 statements on the House bill, the GAO report, foreign involvement in EB-5, and reauthorization). I have a post with commentary.
9/13: An entry for H.R. 5992 American Job Creation and Investment Promotion Reform Act of 2016 has been created at congress.gov. You can watch live stream of a Judiciary Committee meeting on 9/14 8-11 am EST titled Markup of: The “American Job Creation and Investment Promotion Reform Act”; HR 5982, the “Midnight Rules Relief Act”; and, HR 5801, the “Protect and Grow American Jobs Act.” Update: The EB-5 bill was removed from the agenda for the 9/14 markup meeting, and has not been rescheduled.
9/12: Senate Majority leader Mitch McConnell expects to move forward this week on a continuing resolution through December 9, and Senate Republican #2 John Cornyn said he thinks that the continuing resolution will include a regional center program extension.

— Original 9/5 Post —

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

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

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

Filed under EB-5 Law & Policy

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

August 30, 2016 3 Comments

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

8/29/2016 EB-5 Stakeholder Meeting

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

USCIS Timeline for New Policy and Regulations: USCIS expects to finalize the EB-5 chapters for the USCIS Policy Manual by the end of this fiscal year or at least calendar year, and to hold off on releasing new policy and guidance until after those foundational chapters on existing policy have been published. Mr. Colucci described the policy manual as “a compendium of all existing policy of the EB-5 program, putting it all into a single document. As we draft new guidance with respect to the EB-5 program, what we will do is generally put it out for notice and comment and then finalize it in that manual. So it will be a document that gets added to as it goes along.” It will be nice to have existing policy gathered in one place, but what we really want is new policy. In her statement for the 7/28 meeting, Lori Mackenzie promised that “Among the topics we hope to further expand upon are issues associated with the requirements for job creation and investment sustainment that apply to EB-5 investors and the impact of misappropriation of funds on those requirements.” But for now, Mr. Colucci and Ms. Harrison declined to make statements about sustaining investment or dealing with investors following regional center termination, saying that these points would wait to be covered in future policy manual amendments, after the foundational content is completed (ie after this year). The draft Guidance on the Job Creation Requirement and Sustainment of the Investment for EB-5 Adjudication of Form I-526 and Form I-829 (first posted for comment in August 2015, and urgently needed) is now off the table until it can be issued in revised form for comment as a policy manual amendment. Regarding revised regulations, Mr. Colucci said “We are working on an EB-5 regulation. We don’t have a timeline for the publication of that regulation, but we continue to actively work on it.” He did not say anything about a November 2016 target (mentioned last month by DHS Secretary Jeh Johnson).

I-924 Requests for Clarification (RFC): Mr. Colucci pointed out that IPO has been issuing a number of RFCs to regional center applicants who did not respond completely to Form I-924 Part III(D), which asks for a list of principles, agents, individuals and entities that are involved in the management, oversight, and administration of the regional center. “What we’ve been finding is oftentimes this is left blank when the form is submitted. But as we review the supporting documentation, we see in fact a number of other names that should’ve been included in this section. What we’re doing as part of this Request for Clarification is determining whether other individuals are involved with the regional center, and if so, we’re seeking their identifying information.” I think we can assume that USCIS wants that complete list and identifying information for broader vetting and accountability – perhaps proactively implementing reform proposals from reauthorization bills that Congress hasn’t managed to pass yet.

Customer Service Issues: Mr. Colucci stated that IPO would not respond to duplicate requests sent to the Customer Service Mailbox within 15 days of the original request, but reminded people of the escalation process. (See the EB-5 Customer Support page.) USCIS.gov has added a Chinese translation of the support page, and a FAQ page addressing common questions from investors. In response to Q&A, USCIS invited people to use the customer service mailbox to notify USCIS of factual errors in an RFE or NOID notice, and said that USCIS may issue a replacement notice.

Minors as EB-5 Investors: Julia Harrison responded to questions about minors under the age of 14 being able to invest in the EB-5 program. She said “Just to clarify, for USCIS the statute and regulations don’t have an age limitation. However, it is important to understand that a minor normally lacks the legal capacity to enter into the various types of contracts that are necessary to demonstrate the qualifying investment. So, while the eligibility for any minor to enter into the contract would depend on the specific facts of the particular case, it could be difficult for them to be the principle petitioner because of the concerns related to their capacity to contract and the presumptive voidability of contracts signed by minors. When a minor does enter into a contract, the petitioner bears the burden of demonstrating via preponderance of the evidence that the minor or legal guardian who enters into this agreement on their behalf will be – that it will be binding on the minor petitioner in the relevant jurisdiction. And again that’s up to the petitioner to demonstrate that evidence when they submit their application to USCIS. For a child less than 14 years old, a parent or legal guardian may sign on their behalf, but you also need to be prepared to demonstrate, with evidentiary requirements, proof of the parent-child relationship.” In response to questions, Ms. Harrison suggested that it might be acceptable for parents to transfer investment on behalf of a minor child, so long as it’s clear that the capital belongs to the minor petitioner, not the parent. She further stated that IPO was not in a position to specify the nature of proof required to overcome a presumption of voidability, or even to give general guidance, but would adjudicate on a case-by-case basis. I wonder if Ms. Harrison was basically saying: IPO currently does not see how it’s practically possible for a minor to be an EB-5 petitioner, but is open to being convinced otherwise. Catherine DeBono Holmes has written articles Using the Uniform Transfers to Minors Act for Minor Investors in EB-5 Investment Funds (September 23, 2016) and Suggested Procedures and Possible Options for Accepting Minors as Investors in EB-5 Investment Funds (June 23, 2016). See also blog posts by Klasko Law and Wolfsdorf Rosenthal on minors as primary EB-5 applicants. These articles take a positive approach, but note that I’ve heard other prominent EB-5 lawyers express strong questions and reservations about the practicalities of minors as EB-5 petitioners.

The Rent-a-Center model: I’ll quote this from Mr. Colucci’s published remarks for the 7/28 engagement, since it seems to be a warning shot: “To uphold the integrity of the program, USCIS is focused on ensuring that regional centers exercise due diligence in the oversight of the capital investment and job-creating projects they sponsor. As the program has become more popular, the paradigm of regional center relationships has expanded. But let me remind everyone in the EB-5 community that due diligence, monitoring and oversight are the obligations of the designated regional center entity, and central to the integrity of the program. When we become aware of any threats to the integrity of the program, we seek to take corrective action.” IPO appears to be giving notice that they don’t like a hands-off regional center relationship. Regional centers that use a “rent-a-center” model, licensing third parties to use their designation for projects, should take note and take care to implement sufficient due diligence, monitoring and oversight.

Other Points: The teleconference was unusually rich in good questions that solicited new answers – though the answers are marginally bankable since they’re just off-the-cuff in context of a call. But for what it’s worth, I heard: Yes, the first I-526 in a pooled direct investment case establishes deference for subsequent I-526s (and USCIS is considering process adjustments that will make this more workable in the direct context); Yes, IPO accepts a loan secured by equity investment in the petitioner’s own business as an acceptable source of funds (but note a different story in the Ibrahim case being litigated, Ed.); No, USCIS does not defer to previous source of funds determinations, but only to the items listed in the Policy Memo deference policy; No, USCIS does not necessarily require proof of non-EB-5 funding already in the bank but looks for general preponderance of evidence (e.g. things like letters of commitment and term sheets); Yes, it should be sufficient to sustain an investment during the 2-year conditional residence period (implying that the investment need not also be sustained during the period when I-829 is pending); No, I-526 petition processing is not exactly FIFO but happens in a range that’s pegged to when IPO received the first I-526 for that project; No, IPO is not considering new policy to implement the Child Protection Act (and specifically, declines to hold I-526s in abeyance to add time in order to help protect child eligibility); No, IPO does not think that CPA practices for I-130 family-based petitions can be applicable for EB-5.

New AAO Decisions

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

Investor Exit Strategies: JUL272016_01B7203, JUL272016_02B7203, and JUL272016_03B7203 discuss three petitioners in the same deal whose petitions were sunk by these two sentences in the Operating Agreement: “Members who are holders of the Class B Interests may demand a return of the capital contributions upon receipt of the approval of the I-829 Petition by Entrepreneur to Remove Conditions by the U.S. Citizenship and Immigration Services” and “In the event of the denial of the I-829 Petition by Entrepreneur to Remove Conditions, at the end of the five-year compliance period, following the USCIS’s Request for Evidence in connection with their I-829 petition, the Company intends to refund that member’s $1,000,000 subscription amount paid within 120 days if feasible.” More specifically, the petitions were sunk by two words — “demand” and “$1,000,000” — which USCIS and AAO agree flagged an impermissible redemption agreement. Using the word “demand” (i.e. “claim as due” “require”) profiled the petitioner as effectively a lender (and the investment no more at-risk than a loan), and naming a dollar figure triggered the Matter of Izummi prohibition against assuring the petitioner of a set repurchase price from a willing buyer. (The three cases are identical except that _01 has an additional source of funds issue.)

Investors in Terminated Regional Center: AUG032016_01B7203 through AUG042016_04B7203 represent six additional petitioners in the same position as the JUL182016_01B7203 case. All these investors were in the stage between I-526 approval and receiving conditional permanent residence (CPR) when their regional center was terminated. All had their I-526 approvals revoked, with identical justifications based on the policy prohibiting material change during the period between I-526 approval and green card. AAO agreed with USCIS in these cases. I hear through the grapevine that USCIS has gone further and revoked CPR for investors who were further in the process when their regional center was terminated – a very serious development, if the rumor proves to be true and to represent general practice. Material change policy wouldn’t justify such revocations, but we may not be able to discover USCIS’s practices and justifications until we see decisions on investor appeals. In yesterday’s conference call, IPO said they “don’t have guidance yet” for how investors are treated in the event of RC closure – but obviously they do, since they’re busy sending out notices of intent to deny and revoke to some investors, and apparently just unwilling to publicly disclose the current logic guiding their actions. Do people at IPO not care about their own job security, at least? How much adversity and uncertainty do they think the EB-5 program and investors can take, and still be there to provide the “investor program” in “investor program office”? Please, give us some transparency!

Publications of Note

Regional Center Program Reauthorization: A group of securities attorneys got together and redlined proposed legislation with comments and corrections from a securities perspective, and have submitted the document to Congress. You can read the EB5 Securities Roundtable suggestions here. With so many arguable points in last years’ proposals, it’s hard to imagine Congress finalizing anything substantial in the next couple weeks, but we’ll take a deep breath and see what happens. We’re now just days away from September 30, the next deadline for Congress to reauthorize the regional center program.

International Entrepreneur Rule: USCIS is proposing a new International Entrepreneur Rule which would allow certain international entrepreneurs to be considered for parole (temporary permission to be in the United States) to start or scale a U.S. businesses. This rule is quite unlike EB-5 and not related to EB-5, but – if implemented – could provide a narrow alternate path to U.S. residence for foreign entrepreneurs. Michele Franchett of Stone Grzegorek Gonzalez has a helpful summary, and Ron Klasko comments on the rule’s (non)relevance for EB-5 investors.

Sanctions for Brokering EB-5 Investment: Three Immigration Lawyers Sanctioned by the SEC for Brokering EB-5 Investments (August 24, 2016) discusses how and why the SEC is making examples of immigration lawyers who appeared to receive transaction-based compensation in connection with recommending a regional center or assisting in purchase of an EB-5 limited partnership interest. The most recent cases involved minor violations and relatively little money, but the SEC perceives immigration lawyers as gatekeepers for EB-5 and is going after them accordingly.

NASAA EB-5 Investor Advisory: The North American Securities Administrators Association has published an investor advisory for potential investors in EB-5 projects. The notice provides a due diligence checklist that’s handy for investors, and also for people who think about how to structure and write up proposals that will satisfy investor questions and concerns.

Regional Center List Updates

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

America California Construction, LLC DBA American California Regional Center (California): www.madisonrealtycompanies.com

America Commonwealth Regional Center (Delaware, District of Columbia, Maryland, New Jersey, New York, Pennsylvania, Virginia, West Virginia): acrc.us

American Heritage Regional Center, LLC (District of Columbia, Maryland, Virginia)

American Immigration Fund Regional Center (Florida)

EB5 of Ohio, LLC (Indiana, Kentucky, Ohio): www.eb5ofohio.com

CanAm Texas Regional Center (Texas): www.canamenterprises.com

F2E Regional Center, LLC (Colorado, Nebraska, Wyoming)

USASIA Pacific, Inc (Washington): usasiapacific.com

WAHA EB-5 Regional Center of New Orleans, LLC (Louisiana, Mississippi)

Renamed:

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

New Terminations:

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

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

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

Investors in Terminated RC, Portfolio Investments

August 9, 2016 2 Comments

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.

Filed under EB-5 Resources

Reviewing EB-5 Business Plans

August 5, 2016 Leave a comment

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

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. (My business plan writing and review services are described on my service website.)

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.

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.

Filed under EB-5 Resources

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

July 28, 2016 2 Comments

7/28 Stakeholder Meeting

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

New Policy: IPO has a new Policy and Performance Division responsible for drafting policy. They’ve been working on revised EB-5 forms (i.e. revised Form I-526 currently out for comment) and on chapters on EB-5 for the in-progress USCIS Policy Manual. Eagerly-awaited policy on the requirement to sustain investment through the period of conditional residence (including the issues of redeployment and what happens to investors in case of regional center termination) will be part of these forthcoming policy manual chapters or amendments to the manual. USCIS will send this policy out in draft form for comment before finalizing it. We can expect to see the draft “in the near future” but “not tomorrow.” Until then, we can look back to the August 2015 draft memo to “see what we’re thinking,” but may also expect changes based on public feedback to that draft and IPO’s consultation with securities professionals.

New Regulations: No update on when exactly we may see new regulations published for comment.

Compliance: IPO Chief Colucci reports that his office is in contact with Immigration and Customs Enforcement (ICE) and the SEC at least weekly, and again encouraged the public to submit tips on any suspected EB-5-related malfeasance. Contact IPO through the website (https://www.uscis.gov/eb-5) or call the Fraud Detection and National Security (FDNS) team directly at (202) 357-9326.

Regional Center Site Visits and Audits: IPO provided this information:

Site visits will generally be at the job-creating enterprise site, unannounced, performed by local FDNS staff, and mostly observational (not necessarily interacting with people on site). Their purpose will be to assess whether what’s happening at the JCE site is consistent with what was proposed/represented to IPO.

Regional center audits will generally be at the regional center’s office, announced (by letter and by telephone call to the RC principal), involve interaction with management and staff, and may last a week or more. Their purpose is to assess RC compliance with applicable laws and regulations, and they will be conducted in accordance with generally accepted goverment audit standards.

I-829 Interviews: IPO is in a beta/testing phase with I-829 interviews, and developing a strategy for them in response to last year’s GAO report recommendations. Interviewees are currently selected at random. Interviews are conducted by video. It is understood that the petitioner may not have exhaustive info about the investment ready to hand, and petitioners will have opportunity to supplement the record in writing after the interview.

Processing: IPO has 25,000+ petitions pending. Premium processing continues unlikely as the Congressionally-mandated fee limit is low enough that nearly all EB-5 applicants could be expected to take advantage of PP, were it offered to them. Meanwhile, prospective investors are apparently starting to wonder whether even a lifetime is sufficient time to complete the EB-5 process. IPO addressed a number of questions on the topic of “what happens if the petitioner dies before I-829 is adjudicated” (short answer: case-by-case determination) and “can someone under 18 apply as the primary petitioner” (short answer: yes and no — not prohibited under the regs but IPO foresees practical issues such as capacity to enter into contracts that are binding on the petitioner).

Other items:

The Commerce Department study commissioned by IPO to assess the EB-5 program’s economic impact is “in the final stages of review” and will be released “in the next couple weeks.” The study covers FY2012-2013, so old news now, but its impact assessments are reportedly higher than estimates for the same period by industry groups (who had less data to work with).

Congress has approved funds for IPO to implement a new data system (hooray!) that will allow for better tracking.

I won’t bother repeating what Mr. Lyons said about feasibility studies (the obvious – IPO doesn’t require one by default, but may ask for one if the project’s feasibility isn’t established by other means) and pro forma financials (the obvious – that a business plan had better include them). I do appreciate clever Mr. Lawler’s insight into what would encourage Mr. Lyons to repeat himself so we all could hear.

Mr. Colucci emphasized that due diligence by regional centers is essential to the integrity of the EB-5 program, and that IPO is focused on regional center responsibility for monitoring and oversight of projects.

IPO is translating some EB-5 web content.

New I-924 AAO Decision: Geographic Area

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

New I-526 AAO Decisions: Source of Funds

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

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

5 Starr Regional Center LLC [ID1504052589] (Oklahoma)

Advantage America Southern California Regional Center, LLC (California): www.aaeb5.com

AmerInvest Regional Center East, LLC (Connecticut, New York)

AmerInvest Regional Center West, LLC (California)

CV West Coast Regional Center, LLC (California)

Golden State Northern California Agriculture Development, LLC (California)

One World Development Fund, Inc. (Texas): www.oneworldrc.com

New Terminations:

US EB5 New York City Regional Center (Connecticut, New Jersey, New York, Pennsylvania) Terminated 7/13/2016

Harris Real Estate Fund LLC (former name U.S. Federal Investment Immigration Fund, LLC) (Arizona) Terminated 7/13/2016

California Regional Center, LLC (California) Terminated 7/12/2016

Harris Investment Immigration Fund, LLC (California) Terminated 7/13/2016

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

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

July 13, 2016 22 Comments

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

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

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

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

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

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

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

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

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

July 7, 2016 1 Comment

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

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

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

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

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

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

TEA definition restrictive to needy areas + substantial monetary incentive to invest in a TEA = substantial incentive to invest in needy areas (This is the theory behind the TEA concept)

Loose TEA definition that can encompass prosperous areas + substantial monetary incentive to invest in a TEA = little incentive to invest in needy areas, and an extra incentive for investment in prosperous areas (This is how Senator Grassley and other critics perceive current practice)

TEA definition restrictive to needy areas + minor monetary incentive to invest in a TEA = minor incentive to invest in needy areas, and little competition to the natural advantages of prosperous areas (This is the compromise being proposed by industry groups – conceding on TEA definitions while effectively protecting the status quo by changing the monetary incentive variable.)

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

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

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

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

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

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

American Lending Center Colorado Regional Center, LLC (Colorado): usa-rc.com

American Lending Center Virginia Regional Center, LLC (District of Columbia, Virginia): usa-rc.com

Benefield California Regional Center, LLC (California)

George Washington Immigration Group, LLC (Connecticut, New Jersey, New York)

HS Regional Center, LLC (California)

Huana Group (U.S.), Inc. (California)

New Genesis Gulf South Regional Center, LLC (Louisiana, Mississippi)

SAA Cedisus EB-5 Projects – SW Indiana Regional Center, LLC (Indiana): saacedisus.com

San Diego EB-5 Regional Center (California): sdeb5.com

Texas Capital Advisors Regional Center (“TCARC”) (Texas)

TriHaven Investment Group Southern California (California)

Western Energy Regional Center (Oklahoma): wercregionalcenter.com

Terminations:

Washington Development Regional Center (Washington) Terminated 6/17/2016

American Gateway Investments, LLC (New Jersey) Terminated 6/7/2016

The Lawrence Economic Development Corporation Terminated 6/6/2016(Ohio)

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

RC Sanctioned $1M for Agent Payments

June 14, 2016 2 Comments

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

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

Changes from DHS and/or Congress? RC List Updates

June 10, 2016 4 Comments

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

Regulatory Changes

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

give advance notice of proposed rulemaking

publish actual proposed regulatory language (“notice of proposed rulemaking” or NPRM) in the Federal Register

public comment period, which may last 30 to 180 days or so

if comments precipitate drastic revisions, a second draft may be published in the Federal Register for further comments

the proposed rule becomes a final rule, with minor modifications and full response to comments submitted by the public

the final rule becomes effective (with most rules becoming effective some time after initial publication to give regulated parties time to come into compliance)

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

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

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

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

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

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

Deictic Investment Group – California (California)

Onefire Healthcare Services, LLC d.b.a. Onefire Regional Center (Oklahoma)

Texas First Regional Center, LLC (Texas)

Texas Regional Investment Center (Texas): www.texasric.com

West Bridge Regional Center, LLC (Texas): www.westbridgeregionalcenter.com

No longer listed:

TriHaven Investment Group Southern California (California)

New Termination

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

Filed under EB-5 Law & Policy, New RC

EB-5 Petition Processing Q2 2016

May 31, 2016 1 Comment

The Immigration and Citizenship Data page on the USCIS website has been updated with official numbers for I-526 and I-829 processing from January to March 2016 (FY2016 Q2). Extraordinarily low I-526 receipt numbers in Q2 balance abnormally high numbers in the previous two quarters. I-829 receipts are back on a normal trajectory after that odd dip in Q4 last year. The number of I-526 petitions processed in Q2 went up while the volume of I-829 processing fell proportionally. The previous quarter shows the same trend in reverse, suggesting that IPO has been allocating resources back and forth between I-526 and I-829. Besides the receipt trend, which is important but old news now, I note the number of I-526 denials. One fourth of the I-526 cases processed last quarter were denied — the most denials we’ve seen since 2013. Meanwhile, the petition backlog was dented but remains daunting.

Filed under EB-5 Statistics, Updates from USCIS

AAO Decisions, RC List Changes

May 26, 2016 Leave a comment

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

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

MAY032016_01B7203: Direct EB-5 case in which the petitioner purchased two gas stations through bankruptcy court following the previous owner’s Chapter 11 bankruptcy liquidation, reopened them under his new company, and claimed this as creation of a new business with new job creation. USCIS/AAO declined to credit the business or jobs involved as “new” despite purchase from bankruptcy, because the purchase documents did not unambiguously show that the business was non-operational prior to sale, and that the petitioner merely purchased assets, not a business.

MAY032016_02B7203: Direct EB-5 case in which the petitioner invested in a business (house-flipping) that by its nature would be unlikely create the required number of jobs, submitted a business plan that naturally didn’t make a good job creation case, paid EB-5 document and legal fees from the enterprise, and had a messy expenditure paper trail that didn’t clarify that the costs attributed to the enterprise were actually billed to and paid by the enterprise.

MAY052016_01B7203: In which a petitioner attempts to overcome a finding of fraud by claiming that she didn’t willfully misrepresent material facts because she didn’t know about the material facts filed with her petition. The AAO maintained that her stated ignorance related to filings is not reasonable, and supports a finding of deliberate avoidance.

MAY102016_01B7203: In this direct EB-5 case, the business plan is judged non-credible based, as usual, on inconsistencies: in this case, inconsistencies between the business plan and how the business subsequently developed.

MAY102016_02B7203: This direct EB-5 petitioner did not demonstrate that he was eligible at the time of initial I-526 filing, but committed material change when he filed a revised Form 1-526 that changed the NCE’s name and location and materially altered its industry focus, among other changes.

MAY112016_01B7203: This regional center case turns on the issue of indebtedness as source of the petitioner’s investment, and includes extensive discussion of the “USCIS Interpretation of Indebtedness.”

MAY112016_02B7203: This is another petitioner in the regional center case involving investment in a troubled hospital. (I discussed this case in detail in my 4/7 post. Also note that the petitioners fought the case with a civil action against USCIS and they won.)

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

C Chase Hotel & Resort Regional Center LLC (Connecticut, New Jersey, New York, Pennsylvania)

Harmonia Regional Center New York (Connecticut, New Jersey, New York): harmoniaeb5.com

LA Growth Fund, LLC (California)

New Terminations:

US EB5 Nevada Regional Center, LLC (Nevada) Terminated 5/12/2016

US EB5 Florida Regional Center (Florida) Terminated 5/9/2016

Middle Georgia Regional Center (Georgia) Terminated 5/4/2016

Global Investment Consulting, Inc. (Indiana) Terminated 5/3/2016

Filed under EB-5 Law & Policy, New RC

EB-5 Form Fee Increases, RC List Changes

May 4, 2016 2 Comments

Proposed Fee Increases
USCIS published a notice of proposed rulemaking in the Federal Register inviting public comment, for 60 days, on the proposed U.S. Citizenship and Immigration Services Fee Schedule: (http://federalregister.gov/a/2016-10297). The rule explains that: “USCIS conducted a comprehensive fee review, after refining its cost accounting process, and determined that current fees do not recover the full costs of the services it provides. Adjustment to the fee schedule is necessary to fully recover costs for USCIS services and to maintain adequate service.” Here are fee changes affecting EB-5 forms (see Table 9 on page 87):

Form I-924A (to be titled “Annual Certification of Regional Center”): new $3,035 fee

Form I-924 application for regional center designation or amendment: increase from $6,230 to $17,795

Form I-526 immigrant petition: increase from $1,500 to $3,675

Form I-829 petition to remove conditions: no change (still $3,750)

The public has three months to comment (see pages 1-2 of the proposed rule for directions). The rule specifically invites feedback from regional centers, noting that:

DHS does not have sufficient data on the revenue collected through administrative fees by regional centers to definitively determine the economic impact on small entities that may file Form I-924. DHS requests any data that would help to further assess the impact on small entities in the regional centers. DHS is publishing the initial regulatory flexibility analysis to aid the public in commenting on the small entity impact of its proposed adjustment to the USCIS Fee Schedule. (page 89)

In commenting, consider DHS’s attempt to analyze regional center revenue sources and the potential impact of the proposed I-924 fee increase (page 99-101).

The rationale for fee changes in the proposed rule gives an interesting look behind the scenes at DHS. For example, Table 6 on page 8 lists “Completion Rates per Benefit Request” – meaning “touch time,” or the time an employee with adjudicative responsibilities actually handles a case (not including queue time or time spent waiting for additional evidence or supervisory approval). EB-5 processing times run to months and years, but (prepare to gasp) the average amount of time an employee actually works on EB-5 forms, according to this table: I-526: 6.5 hours; I-829: 5.5 hours; I-924: 40 hours; I-924A: 5 hours. And footnote 61 on page 55 gives more detail than I’ve seen before on compliance efforts for EB-5:

USCIS is committed to strengthening and improving the overall administration of the EB-5 Program. The EB-5 Program encompasses Forms I-526, I-829, I-924, and I-924A. The cost baseline includes $16.0 million in FY 2016 and $15.9 million in FY 2017 for additional staff that would comprise a specialized team of forensic auditors, compliance officers, and other staff, whose primary focus would be to ensure regulatory compliance. This would directly contribute to the integrity of the program by providing the USCIS Investor Program Office with employees who have specialized knowledge required to adjudicate these benefits. In addition to enhanced staffing, USCIS would make additional IT systems investments to make case processing more efficient. USCIS would add $1.7 million in FY 2016 and $1.8 million in FY 2017 to improve the case management system and further develop its risk management strategy to ensure program compliance.

Regional Center List Changes
Additions to the USCIS Regional Center List, 04/25/2016 to 05/03/2016.

American Lending Center North Carolina, LLC (North Carolina, South Carolina): usa-rc.com

Atlantic Coast Regional Center, LLC (Connecticut, Delaware, District of Columbia, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia): www.eb5acrc.com

Excelsior EB-5 Regional Center LLC (Connecticut, New Jersey, New York): excelsioreb5.com

New Terminations

Hidalgo McAllen Reynosa Regional Center, LLC (Texas) Terminated 4/26/2016

Filed under New RC, Updates from USCIS

IDEA Community Invite

April 27, 2016 Leave a comment

From: U.S. Citizenship and Immigration Services [mailto:uscis@public.govdelivery.com]
Sent: Wednesday, April 27, 2016 3:53 PM
Subject: USCIS Message: Idea Community Feedback on Potential EB-5 Regulatory and Policy Changes

Dear Stakeholder,

As mentioned at the EB-5 listening session on April 25, USCIS is considering potential EB-5 regulatory and policy changes and we want to hear from you, our stakeholders. That’s why we hosted the listening session to begin receiving your individual feedback. We want to continue to hear your thoughts and ideas. Specifically, we would like to hear your individual thoughts on the following four topics:
·        Minimum investment amounts;
·        The TEA designation process;
·        The regional center designation process, including, but not limited to, the exemplar process and the designation of the geographic scope of a regional center; and
·        Indirect job creation methodologies.

As you may know, minimum investment amounts have remained constant since 1991. We would like your feedback on whether these amounts ($1 million or $500,000) should increase and, if so, the methodology and process by which you believe an increase would be most effective.

We’d also like your thoughts on targeted employment areas (or “TEAs”) and the TEA designation process. We are specifically seeking your feedback on how the process currently works for you and, if improvements can be made, your input for improving it.

Another topic on which we are seeking feedback is the regional center designation process, including, but not limited to, the exemplar process and the designation of the geographic scope of a regional center. We are seeking stakeholder feedback on how the process currently works for you and, if improvements can be made, your input for improving it.

Finally, we’d like to hear from you on indirect job creation methodologies.

We are using the USCIS Idea Community, an online crowdsourcing tool, as one method for you to submit your individual feedback and input on these four topics. Please note that we are only seeking individual input. We are not seeking group or consensus advice. Participating in the USCIS Idea Community is easy. All you need is an active email address. You can create a profile and submit ideas.

You can visit the USCIS Idea Community to submit your ideas on the four topics listed above until May 11, 2016.

See you in the USCIS Idea Community!

Please do not reply to this message. Contact us at Public.Engagement@uscis.dhs.gov or USCIS-IGAOutreach@uscis.dhs.gov with any questions.

Filed under Updates from USCIS

4/25 meeting notes, RC list changes

April 25, 2016 Leave a comment

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

USCIS will be initiating an IDEA community campaign to collect additional input on EB-5 regulation/policy changes. When that goes live, I’ll post a notice here.

I-829 interviews will begin this year, at first virtually, and interviewees may bring counsel, Regional Center representatives, and Regional Center counsel.

An audit program for regional centers is being implemented this year, and site visits are being expanded for direct and regional center projects.

IPO is up to 126 staff and on track to have 171 employees by year end.

IPO did not give any hints about the anticipated content of or timeline for revised regulations or new policy.

IPO will work closely with Congress up to the next deadline for regional center program reauthorization (September 30, 2016), and just in case will prepare “what if” guidance for two sunset scenarios: if the Regional Center program lapses but Congress apparently intends to reauthorize it, or if Congress indicates its desire to end the program.

IPO Chief Nicolas Colucci reported some preliminary processing data. Q2 2016 receipts: 849 (I-526), 886 (I-829), 40 (I-924). Completions from October 2015 to March 2016 (Q1-Q2 2016): 4,141 (I-526), 1,255 (I-829), 135 (I-924). The big story in these numbers is I-526 receipts, as illustrated in the following figure.

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

Regional Center of the Pacific (California)

Additions to the USCIS list of terminated regional centers:

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

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

4/25 Meeting Questions, Program Changes, New RCs

April 19, 2016 7 Comments

Discussing EB-5 Changes with USCIS

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

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

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

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

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

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

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

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

EB5 International III LLC (Oregon, Washington)

Global Alliance Carolina Regional Center, LLC (North Carolina)

Filed under EB-5 Law & Policy, New RC

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

April 14, 2016 2 Comments

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

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

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

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

America FX Regional Center, LLC (California)

EB5 International II, LLC (California)

Hawaiian Ohana Regional Center (Hawaii)

Luichi, Inc. (Nevada)

Manhattan Metropolitan Regional Center (Connecticut, New Jersey, New York)

Watercrest Florida Regional Center, LLC (Florida)

Removed from the list

Deictic Investment Group LLC (California)

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

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