What is material change?

November 5, 2015 3 Comments

Summary
The EB-5 process allows limited leeway for change in documents or in reality. Ideally and in principle, all EB-5 petitioners fully demonstrate eligibility in their original I-526 documents, and investment projects go on to develop exactly as foreseen in the I-526 business plan. In real life, there are new circumstances and unforeseen events, not to mention mistakes and omissions, and change happens. This post discusses how and when change is (and is not) a problem in EB-5. (Last update: 01/2019)

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

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

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

What are the principles behind the material change issue?

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

What kind of change is material?

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

What kind of change is not material?

  • A change that affects facts not related to the immigrant investor’s eligibility
  • A change that occurs in accordance with a business plan, as a natural progression of the business

At what point is material change a problem?

  • Material changes are generally NOT acceptable during the period between a petitioner filing I-526 and receiving conditional permanent residence (CPR). This period includes both I-526 processing and the consular or adjustment of status process. If material changes occur in this period, the petitioner must go back to square one and file a new I-526 petition with the new scenario. (Filing a new I-526 is painful thanks to loss of priority date. That will change if USCIS finalizes priority date protections proposed in the  draft regulations posted 01/2017.) Redeployment policy creates one exception/qualification to material change policy. Switching investment projects (under certain conditions) before CPR is not considered “material” provided that investor capital is being redeployed after the initial deployment already met job creation requirements. (6 USCIS-PM G Chapter 4(C))
  • Material changes CAN be allowable during a petitioner’s conditional residence period (after the investor receives the EB-5 visa, and before removing conditions). USCIS will not deny an I-829 petition solely based on failure to adhere to the plan filed with the I-526 Petition. The I-829 petitioner should still demonstrate that he filed the Form I-526 plan in good faith with full intention to follow the plan outlined in the petition, and must still show that he meets the requirements for removal of conditions. USCIS is currently formulating new policy concerning the circumstances under which EB-5 funds might be removed from a project or moved from one project to another during the petitioner’s CPR period (draft memo). The more closely a petitioner adheres to the I-526 plan, the more he can rely on receiving deference to USCIS’s prior approval of that plan. (6 USCIS-PM G Chapter 5(C))
  • Material changes CAN be made between I-924/exemplar I-526 approval and actual I-526 filing. However, USCIS will not show deference (will re-adjudicate) when a new filing involves a different project from a previous approval, or the same previously approved project with material changes to the project plan.

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

Changes judged to be material

  • A change made belatedly to correct a deficiency in the original filing (making an un-approvable petition approvable)
    • A petitioner filed Form I-526 in 1996 with a partnership agreement containing certain provisions. In 1997, USCIS issues a memorandum objecting to such provisions. The petitioner then files partnership agreement amendments to remove those provisions from his documents. (Matter of Izummi)
    • A petitioner filed a Form I-526 based on investment in a troubled business. When USCIS points out that the business does not qualify as troubled, the petitioner abandons the troubled business claim and substitutes a plan to create a new business instead. (Matter of Izummi)
    • A petitioner filed I-526 with a business plan and operating agreement that anticipated investment in and job creation by two NCE subsidiaries. In RFE, USCIS noted that one subsidiary was not wholly-owned and thus would not create eligible jobs. In response to RFE, the NCE revised the business plan and operating agreement to indicate that investment and job creation would be concentrated in the wholly-owned subsidiary. AAO agreed that this constituted an impermissible material change because made to cure deficiencies noted by USCIS in its RFE (MAR192019_01B7203.pdf)
    • A petitioner filed I-526 with documents including a provision that USCIS judged to be an impermissible debt arrangement. In response to NOID, the petitioner relinquished her rights under those provisions. USCIS found that although the waiver addressed the concerns, the new evidence presented a set of facts not established at the time of filing, and resulting in a material change to the original petition. (JUN252018_01B7203)
    • A petitioner filed a Form I-526 with documents foreseeing a return on investment that did not derive from the underlying investment. USCIS judged this did not qualify as investment at risk for the purpose of generating a return on that investment. In response to NOID, the petitioner submitted amended organizational documents. USCIS found that the amended documents remedied the deficiencies, but represented material change because they presented a set of facts not established at the time the petition was filed. (FEB282018_02B7203)
    • A petitioner filed a Form I-526 describing a loan model for direct investment, which would not qualify. In response to RFE, the petitioner modifies the structure to equity investment in a job-creating new commercial enterprise. (APR232014_01B7203)
    • A petitioner filed a Form I-526 associated with investment in a portfolio of projects. In response to RFE questioning aspects of this structure, the petitioner identifies one project within the portfolio as the target for her investment. (MAY172013_01B7203)
    • A petitioner filed a Form 1-526 in 2012 with a redemption clause. In April 2013, in response to RFE, the petitioner signs Agreement of Waiver to remove that clause (MAY272014_01B7203)
    • A petitioner filed a Form I-526 that does not indicate a management or policy-making role for the petitioner. An amended Operating Agreement filed in response to RFE identifies the petitioner as managing member of the NCE (Oct262009_01B7203)
    • A petitioner filed a Form I-526 in October 2012 for investment in a business that also depends on funds from other investors. In response to RFE, the petitioner provides letters of commitment for the additional investment, but the letters are dated after October 2012. (MAY272014_01B7203)
    • A petitioner filed a Form I-526 in October 2012 for investment in a project not yet underway. In response to RFE, the petitioner provides some evidence of business activity (land purchase, contracts made), but the documents are dated 2013. (MAY272014_01B7203)
    • A petitioner filed a Form 1-526 with a plan for an export business. In response to RFE pointing out deficiencies in the plan, the petitioner submits a new plan for the export business plus a restaurant. (SEP052013_02B7203)
    • A petitioner filed a Form I-526 with Operating Agreement provisions that suggest funds might not be at risk for job creation. When challenged, the petitioner files an amended Operating Agreement that removes the problematic provisions. (Feb182010_04B7203)
    • The petitioner files a Form I-526 on June 1, 2008, based on a $400,000 investment. In response to an RFE, the alien provides proof of the remaining required amount being invested on July 15, 2008. (2008 USCIS adjudicator training)
    • A petitioner filed a Form 1-526 with an arrangement for half of the capital to be paid back to him as a guaranteed return. In response to an RFE, he declares the arrangement null and void. (2008 USCIS adjudicator training)
  • A change that creates a new deficiency (making an approvable petition un-approveable)
    • A petitioner filed a Form I-526 associated with investment in a new commercial enterprise that wholly owns an employment-creating subsidiary. After filing, the subsidiary was no longer wholly owned by the NCE. (Jan072011_01B7203)
  • Changing fundamental aspects of the business plan, particularly those that affect determinations about EB-5 eligibility
    • The petitioner’s I-526 petition and documents subsequently provided to USCIS indicate a shift from focus on retail sales to retail and wholesale, to realty and investment. AAO/USCIS found these changes to be material because “The Petitioner has not explained how this change in business focus (e.g. from retail to realty and investment services) is a natural progression of the business. Further, such a modification in the nature of the NCE’s business activities would be ‘predictably capable of affecting’ our determination of whether the Petitioner will prospectively create the requisite qualifying jobs.” A change of structure in the Operating Agreement is also material. AAO was also concerned that the shift in business focus could be associated with location change, which would also be material. “A change in the location of the NCE would ‘have a tendency to influence’ or would be ‘predictably capable of affecting’  our determination of eligibility for immigrant investor purposes as the location of the investment determines the required capital investment threshold.” (MAY102016_02B7203 dismisses the original appeal, while APR262017_02B7203 dismisses the motion to reopen and reconsider)
    • A petitioner filed a Form 1-526 with a plan for a grocery store. Later, she adds a plan for a restaurant not mentioned in the original filing. (FEB162005_01B7204)
    • A petitioner filed a Form 1-526 for investment a Regional Center project that owns and will redevelop a property. Subsequently, the property is lost to foreclosure and has to be re-acquired with new financing. This temporarily puts the project in doubt and permanently changes development budget numbers used in the economic impact analysis. (Feb182010_04B7203)
    • A petitioner filed Form I-526 for a regional center-sponsored project. After I-526 approval, but before the investor receives a visa, the regional center is terminated. The project did create jobs, but in a job-creating entity separate from the new commercial enterprise (OK for regional centers, not OK for direct EB-5). Proceeding without regional center involvement would require the NCE to absorb the JCE and make it a wholly-owned subsidiary. This structural change would constitute a material change to the original petition. (JUL182016_01B7203)
  • Changing or losing regional center sponsor
    • If a regional center immigrant investor changes the regional center with which his or her immigrant petition is associated after filing the Form I-526 petition, the change constitutes a material change to the petition.  (Language added for the first time on 8/4/2018 to the Policy Manual 6 USCIS-PM G Chapter 4(C))
    • The termination of a regional center associated with a regional center immigrant investor’s Form I-526 petition constitutes a material change to the petition (Language added for the first time on 6/14/2017 to the Policy Manual 6 USCIS-PM G Chapter 4(C))
    • A Petitioner invested in a project whose regional center sponsor was terminated. The petitioner wished to continue to pursue an EB-5 visa as an individual investor independent of a regional center. USCIS found that this would lead to material changes. Outside the RC program, the petitioner would need to demonstrate both the requisite direct job creation and that the JCE is the wholly-owned subsidiary of the NCE. But meeting those conditions would necessitate material changes and thus a new petition, because having insufficient qualifying jobs is a material change, and requiring the NCE to absorb the JCE would be a material change. (AUG032016_01B7203).
    • A petitioner filed a Form I-526 associated with a project sponsored by a Regional Center. Before I-526 was approved, the Regional Center lost its designation. The petitioner then amended the petition based on investment in a project within a different Regional Center. (AUG062014_01B7203)

Changes judged NOT material

  • Changes to aspects of the petition that don’t significantly affect the petitioner’s eligibility one way or another (ie changes not made to correct deficiencies in the original filing; changes that alter aspects of the business not fundamental to the petitioner’s eligibility)
    • “If the organizational documents for a new commercial enterprise contain a liquidation provision, that does not otherwise constitute an impermissible debt arrangement, the documents may generally be amended to remove such a provision in order to allow the new commercial enterprise to continue to operate through the regional center immigrant investor’s period of conditional permanent residence. Such an amendment would generally not be considered a material change because facts related to the immigrant investor’s Form I-526 eligibility would not change.” (6 USCIS-PM G Chapter 4(C) “Material Change”.)
    • A petitioner filed Form I-526 with a business plan that anticipated that the NCE would provide shuttle and tour services, with auto accessories sale as a sideline (about 10% of business). A subsequent site visit found little evidence of shuttle/tour service and auto accessories sale accounting for far more than 10% of the business. But AAO found that “Merely shifting the percentages of the types of services the Petitioner said the NCE would offer is not, by itself, a sufficient basis to deny the petition.” (JUN302017_01B7203)
    • The petitioner files a Form 1-526 and invests $1,000,000 in a business that is planning to operate a Chinese restaurant. In the RFE, it is revealed that the business has decided to operate a Peruvian restaurant instead. This is not a material change. (2008 USCIS adjudicator training)   [However, the petitioner in JUL062017_01B7203 tried to cite this training material to support an argument that she hadn’t committed a material change in changing from a fast food franchise restaurant to catering service to full-service seafood restaurant with catering. AAO did not accept the argument, finding that “The NCE’s business plans two and three constitute a material change to the original one because they represent far more than a change in food styles. …in addition to the type of food, business plans two and three include changes to the NCE’s nature of business, services offered, location, start-up costs, and staffing needs. These changes are material and are made to correct a deficiency in the original submission”]
  • Changes that are more modification of than departure from the original (revised documents that have strong continuity with documents originally filed)
    • The petitioner files Form I-526 with a partnership agreement and investment agreement that are inconsistent with each other. He subsequently files a set of amendments to the partnership agreement specifically to iron out those inconsistencies. (Matter of Izummi)
    • The petitioner files a Form 1-526 based on a Regional Center project that involves a loan agreement. In response to RFE expressing concern about a closing date already passed, the petitioner submits a renegotiated loan agreement extending the date. (JUL192005_01B7203)
    • A pending Form I-526 does not contain redeployment language, and the investment documents are subsequently amended to allow redeployment. “If the further deployment of capital is within the scope of the new commercial enterprise’s business activities in existence at the time the Form I-526 petition was filed, and amendments to the investment documents do not materially alter the facts in existence at the time of filing, such amendments, when considered under the totality of the circumstances, could likely not be considered a material change.” (7/19/2017 Talking Points)
  • Other examples of changes not judged material
    • “For example, if at the time of filing the immigrant petition, no jobs have yet been created, but after approval of the immigrant petition and before the investor has obtained conditional permanent resident status, the investment in the new commercial enterprise results in the creation of 10 jobs in accordance with the investor’s business plan as filed, such a change would not be considered to be material.” (6 USCIS-PM G Chapter 4(C) “Material Change”.)
    • The petitioner files Form I-526 based on investment in two hair salons. These salons use the investment but end up going out of business after 1.5 years, before I-526 adjudication. The petitioner intends to make additional investment and open new salons in the same TEAs with a different management company and different staffing plan. This is not judged a material change. (AUG152017_01B7203)
    • A regional center filed an amendment/exemplar request that USCIS initially denied, in part based on impermissable material changes from previous filings. AAO disagreed. “While the location, the Borrower, and the JCE differ from the initial filing, these changes are permissible because the hospital project is substantively similar to the management structure, construction and development entities, and economic analysis in the original 2015 business plans’ proposed project, and moreover, these changes were not an attempt to remedy a deficient petition.” For example, the petitioner showed that a new JCE was formed in response to evolving business needs before a NOID was ever received from USCIS. However, the decision notes the difference in material change standards for I-924 vs. I-526, and leaves unclear whether such changes would also be non-material for investor petitions. (AUG152018_01K1610)

Conclusion: What should we then do?

  • Try to file I-526 documents that fully demonstrate the petitioner’s eligibility (because if anything essential to demonstrating eligibility is missing from the original filing, or if some provisions/conditions in the filing would make the petitioner ineligible, those issues may not be possible to fix without committing material change)
  • Put EB-5 investment in enterprises/projects that are able to proceed predictably according to plan, at least for the first few years while the investor is waiting for conditional permanent residence (because the investor can get derailed by material change if the project departs significantly from the business plan while USCIS/DOS are still in process of reviewing the investor’s documents). Where aspects of the business are subject to short-term change and variation from plan, explicitly foresee that in the business plan and offering documents.
  • Try to choose a stable regional center sponsor. If the regional center loses its designation, every path to salvaging investor petitions may be blocked by material change problems.
  • Between filing I-526 and receiving an EB-5 visa, be careful when answering challenges and providing new evidence to USCIS/DOS. Points to make to support the case that any changes are NOT material:
    • Facts related to investor eligibility did not change
    • Change was not an attempt to remedy a deficient petition
    • Change was not in response to challenge by USCIS (change pre-dated RFE/NOID)
    • Change occurred as part of “natural progression of the business” and “in response to evolving business needs”
    • Fact pattern is “substantively similar” to original filing
  • Relax a bit once investors have conditional permanent residence, since material change won’t automatically derail them now, but don’t relax too much. Keep USCIS apprised of major new developments, and retain evidence of good faith efforts to follow the original business plan.

Additional Reading

  • In its Comment on Proposed EB-5 Regulations (p. 6-10), AILA explains why USCIS should specify that “a change is material if, after filing, the change causes the exemplar or EB-5 petition to no longer satisfy the eligibility requirements … Any other change may be significant or insignificant, but is not material to the ultimate approvability of the petition.”
  • A Business Plan is Not a Statue — Impacts of Business Plan Changes (Nov 17, 2016) by H. Ronald Klasko likewise argues that “A material change should be a change that makes an approvable project un-approvable, or makes an un-approvable project approvable.”

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

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

November 3, 2015 Leave a comment

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

Articles (China Retrogression, SEC Actions)

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

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

Renamed:

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

Additions to the list of Terminated Regional Centers

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

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

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

November 2, 2015 3 Comments

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

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

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

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

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

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

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

i-924types

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

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

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

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

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

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

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

AAO decisions relating to 1-924 project issues

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

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

Filed under EB-5 Resources

EB-5 Timing Issues

October 22, 2015 Leave a comment

See my updated versions of this post EB-5 Timing Issues: Not a Fast Track (January 12, 2016) and EB-5 Timing Issues and Visa Wait: Process and Data (October 13, 2017)

Filed under EB-5 Resources

I-924A Reminder, Processing Times, New RCs

October 19, 2015 Leave a comment

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

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

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

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

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

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

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

Filed under EB-5 Resources, New RC

Direct v RC Structure (AAO decision), New RCs

October 15, 2015 Leave a comment

New AAO Decision (Direct EB-5 Investment Structure, Evidence Standard, Multiple Investors)
I keep seeing evidence of confusion about how direct EB-5 and Regional Center EB-5 differ, and cases that try to use a Regional Center structure for direct investment. Test question: Which structures in Figure 1 are options for a direct EB-5 investment in a hospice business: A and B, or B only? (Assume that the hospice is owned by the entity in whose box it appears.)
Figure1
The correct answer is: B only, because job creation in A is indirect with respect to the new commercial enterprise. Counting indirect jobs requires Regional Center sponsorship; in direct EB-5, you can only count employees who provide labor for and receive wages directly from the new commercial enterprise. The NCE and the hospice could potentially have different tax ID numbers, but they must be a single enterprise (a single entity, or one entity wholly owns the other) in order for the NCE to count the hospice jobs as direct jobs. If the NCE makes a loan to or investment in another enterprise, the jobs resulting from that investment don’t count because they’re not the NCE’s direct jobs. Figure 1 is similar to the fact pattern from an actual direct EB-5 case that USCIS denied in 2011 and whose appeal the Administrative Appeals Office just dismissed (see decision OCT022015_01B7203 Matter of H-G-). The petitioner in this case first filed I-526 with a Structure A fact pattern, was denied, then reported on appeal that “the entity previously in the middle … has been dissolved to make this a direct investment and job creator” (Structure B). But the fix came too late; a petitioner must demonstrate eligibility at the time of filing and may not make material changes in an effort to make a deficient petition conform to regulatory requirements.

Another timely reminder in the Oct. 2nd AAO decision concerns evidence quality. AAO quotes 8 C.F.R. § 103.2(b)(2) to support the point that a petitioner must submit primary evidence unless it’s demonstrated to be non-existent or unavailable. (In this case, the petitioner provided letters from city officials saying that licenses had likely been issued, but should have provided copies of the licenses themselves or demonstrated the unavailability of such primary evidence.)

I’m also interested in the decision’s statement on the issue of multiple investors. The AAO writes that since the I-526 petition revealed that at least six EB-5 investors would be involved in this enterprise, the business plan should have shown the total investment and job creation for all six investors, and the petition should have included an agreement among the investors for job allocation.

New and Removed Regional Centers
Additions to the USCIS Regional Center List, 09/21/2015 to 10/08/2015

  • MW International LLC (California)
  • Paramount Regional Center, LLC (California)
  • EB5 Affiliate Network New York/Tri-State Regional Center (Connecticut, New Jersey, New York): eb5affiliatenetwork.com
  • Liberty EB5 Regional Center (Pennsylvania)

Additions to the USCIS list of Terminated Regional Centers

  • Next Bay Properties, LLC (California), terminated 10/1/2015

Filed under EB-5 Law & Policy, New RC

Congress passes RC extension to 12/11/2015

September 30, 2015 1 Comment

Today Congress passed a short-term spending bill that keeps the government running through December 11, 2015, and, among other incidentals, the EB-5 Regional Center program running without changes for the same period. The President is expected to sign later tonight, so I trust that this post is not premature. IIUSA has already made a statement.

So what’s likely to happen between now and December 11, the deferred sunset date for the Regional Center program? Not counting today, the Regional Center program has been reauthorized six times since 1992 (in 1997, 2000, 2002, 2003, 2009, 2012), and almost every time the authorization happened the way it did today, as part of the appropriations process. 2012 was the only time the Regional Center program has had stand-alone legislation instead of being packaged with a spending bill. (The 2012 legislation passed unanimously in the Senate and by a vote of 412-3 in the House, and made a few tweaks to the Regional Center statute and no changes to direct EB-5.) But lobbyists who spoke in IIUSA’s legislative update webinar last Friday opined that we shouldn’t expect another simple extension of the Regional Center program from December 11; we should anticipate legislation with substantive changes. Reportedly a collection of Congressional representatives interested in EB-5 have actually gotten together and formed a working group that has been meeting to discuss the Regional Center program and hammer out legislation fit to garner the bipartisan, bicameral, and urban-rural support that it will need to pass. The group is expected to go public with a work product soon, now that the short-term extension is in place. The lobbyists mentioned that the two most contentious issues for this group are the Targeted Employment Area definition and effective dates. I suppose that these are sticking points because both issues will create new “haves” and “have nots,” and interested parties each hope to be on the side of the “haves” when it comes to enjoying the TEA incentive and taking advantage of grandfathering if any. The lobbyists didn’t mention argument over new integrity measures or an increase to the minimum EB-5 investment amount; I take it those are givens. I don’t hear any serious rumors that the EB-5 Regional Center program will be dropped — $14.38 billion in foreign direct investment is a pretty big golden egg, and that’s what EB-5 has brought in since the beginning, according to IIUSA numbers, with $1.4 billion in the last quarter alone – but I also don’t hear anyone optimistic that the next three months will be easy. Congress reportedly still has a low appetite for immigration issues since the Executive Actions on immigration, and it has so much to fight about between now and December besides EB-5. (See also Ron Klasko’s 10/6 blog on this topic.)

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

Short-term RC extension by CR?, New RCs

September 22, 2015 2 Comments

Regional Center Program Authorization Update
Congress now has just seven working days before the Regional Center program sunsets, and substantive reform/re-authorization bills are not even out of committee. We’re now pinning our hopes on temporary extension as part of a continuing resolution (CR). Today the Senate took a step in this direction, releasing its proposal for a CR that would extend current funding levels for the federal government through December 11, 2015 and reauthorize the EB-5 Regional Center program for the same period. See the IIUSA news release for further detail. We hope that the House follows the Senate’s lead, and that the Regional Center program won’t be allowed to lapse on September 30th.

New Regional Centers
Even as the Regional Center program’s future hangs in the balance, new Regional Centers continue to be approved.
Additions to the USCIS Regional Center List, 09/08/2015 to 09/21/2015

  • Baypointe EB5 Regional Center, LLC (Alabama): baypointeeb5.com
  • Amaxi Regional Center, LLC (California): www.metroteahouse.com
  • Summit Regional Center (California)
  • FP Advisors LLC (Colorado)
  • EB5 Florida Real Estate Regional Center, LLC (Florida): www.eb5floridarealestateregionalcenter.com
  • Liberty Kansas Regional Center (Kansas and Missouri)
  • Queensfort Capital Massachusetts Regional Center, LLC (Massachusetts): queensforteb5.com
  • Mid America Investment Group, LLC (Arkansas, Mississippi, Tennessee)
  • Big Apple Regional Center (New Jersey, New York, Pennsylvania)
  • NatureAll Co., Inc. EB-5 Regional Center (New Jersey): natureallusa.com

FYI: The FOIA reading room on the USCIS website, which rarely gets updated, has a new file called FY2014 Regional Center Termination Notices. Don’t get excited, however, unless you’re just interested in the form of termination notices, since the reason for termination is neatly and completely redacted from each letter.

Filed under EB-5 Law & Policy, New RC

9/17 EB-5 Interactive (I-924A), New RCs

September 17, 2015 Leave a comment

9/17 EB-5 Interactive (I-924A)
Today USCIS held the EB-5 Interactive Series: Annual Reporting Requirements for Continued Eligibility within the Regional Center Program, (Form I-924A). I have uploaded my recording here, and will update this post with helpful commentary posted others. The teleconference focused strictly on the Form I-924A, and provided filing tips and suggestions for avoiding a Notice of Intent to Terminate. I gathered two main points: (1) take the Form I-924A seriously, because your Regional Center’s continued eligibility really does depend on what you report in this form; (2) when in doubt, explain. The form has confusing and ambiguous fields, and a Regional Center’s activity in a given year may extend beyond the investment and job creation boxes, so USCIS welcomes supplementary narrative. Don’t only fill out the form, but explain the numbers you’re reporting and provide additional content as needed to demonstrate that your center has done something to promote economic growth in the past fiscal year.

New Regional Centers
Additions to the USCIS Regional Center List, 09/03/2015 to 09/08/2015

  • Civitas Alabama Regional Center (Alabama) www.civitascapital.com
  • ARC Atlantic Regional Center, LLC (California) arcrc.org
  • CA EB5 Express (California)
  • Rota EB5 Regional Center (Marianas)
  • East West Regional Center, LLC (Connecticut, New Jersey, New York, Pennsylvania)
  • Miami Film Regional Center (Florida) www.linkedin.com/in/jeffersonsimmons1
  • EB5 Affiliate Network State of Illinois Regional Center, LLC (Illinois) eb5affiliatenetwork.com
  • LaSalle Street Regional Center (Illinois, Indiana, Wisconsin)
  • Civitas Great Plains Regional Center (Kansas, Missouri, Oklahoma) www.civitascapital.com
  • Civitas Louisiana Regional Center (Louisiana) www.civitascapital.com
  • Boston Regional Center (Massachusetts)
  • Civitas Masachussetts Regional Center (Massachusetts) www.civitascapital.com
  • Advantage America Nevada Regional Center LLC (Nevada)
  • North Atlanatic Regional Center, LLC (New Jersey, New York, Pennesylvania)
  • G&CW Regional Center, LLC (New York)
  • EB5 Affiliate Network States of Washington and Oregon Regional Center, LLC (Oregon, Washington) eb5affiliatenetwork.com
  • Royal White Cement EB-5 Regional Center LLC (Texas)
  • Texas Mining & Resource Center, LLC (Texas)

Filed under New RC, Updates from USCIS

8/13 Engagement Remarks, Pending Petitions, New RCs

September 3, 2015 Leave a comment

8/13/2015 Engagement Notes
USCIS has posted prepared remarks from the August 13, 2015 EB-5 Stakeholder Engagement.

  • IPO Chief Nicholas Colucci discusses EB-5 program statistics, the new EB-5 InTouch series of engagements and a recent China trip, EB-5 protocols, the new IPO compliance team, and GAO report recommendations.
  • IPO Deputy Chief Harrison remarks on processing workflow and times (and exceptions to the FIFO principle), and announces an EB-5 Interactive Engagement on September 17, 2015 that will discuss I-924A filings.

FY2015 Q3 EB-5 Petition Processing Statistics
The Q3 petition processing statistics that I reported last week have now been officially posted on the USCIS website. Here is a bonus chart just showing the number of pending petitions. The I-526 trend finally shows some good news last quarter, while the backlog of I-829 petitions continues to grow.
2015Q3pending

New RCs
Additions to the USCIS Regional Center List, 08/03/2015 to 09/03/2015

  • WDS Media Regional Center (California) wdshollywood.com.cn/regional-center
  • Lexin New York Regional Center (Connecticut, New Jersey, New York, Pennsylvania) lexineb5.com
  • EB-5 Bonds New York, LLC (Connecticut, New York)
  • Good Life EB5 Georgia Regional Center, LLC (Georgia) www.goodlifeeb5.com
  • USCFID Georgia LLC (Georgia)
  • American Dream Fund Hawaii Regional Center, LLC (Hawaii) www.adreamfund.com
  • USA ODI Regional Center, LLC (Maryland, Virginia, West Virginia)
  • Sunpin Massachusetts Regional Center, LLC (Massachusetts)
  • American Gateway Investments, LLC (New Jersey)
  • Howard Hughes New York Regional Center, LLC (New York)
  • Saipan Regional Investment Center, LLC (Marianas)
  • Oklahoma State Regional Center, LLC (Oklahoma) www.oklahomastaterc.com
  • IZON, LLC (South Carolina)
  • Dallas Regional Center (Texas)
  • Oklahoma State Regional Center, LLC (Texas) www.credgroup.com/RC.html

Filed under New RC, Updates from USCIS

USCIS EB-5 Communication Protocols

August 27, 2015 3 Comments

USCIS has added a new page called EB-5 Resources to the EB-5 section of its site. So far, the page posts training materials on “EB-5 Protocols” that deal with procedures for and strict limitations on stakeholder communication and senior intervention in adjudications. These protocols are necessary to preserve the appearance of integrity and fairness in adjudications (welcome) and to protect the dignity and power of midlevel civil servants, regardless of (in)competence (less welcome). Sir Humphrey Appleby would approve.

Filed under Updates from USCIS

2015 Q3 Petition Processing

August 24, 2015 5 Comments

Because we’d all like to see some upward-trending lines for a change today, here are charts showing EB-5 petition processing statistics for the first three quarters of FY2015. The third quarter stats are not official yet, but I calculated them from numbers verbally reported by IPO Chief Nicholas Colucci at last week’s stakeholder engagement. (UPDATE: now they are official, and posted here by USCIS  here.) The improvement in I-526 processing volume is particularly significant and heartening.
Q32015I526 Q32015I829

We also learned from Mr. Colucci that I-924 submissions have spiked, with 252 receipts since the beginning of the fiscal year and about 55 filed in July alone.

The Q&A portion of the teleconference provided some interesting insights into the huge variation we see in processing times, with some approvals coming through in weeks and others dragging on for years. Julia Harrison admitted that a bunch of 2012 and 2013 cases had gotten out of order for various reasons, particularly in connection with the moves from the California Service Center and then between facilities in Washington D.C., and that USCIS was now prioritizing older cases that had fallen through the cracks. USCIS confirmed that they do have separate workflows for RC and non-RC cases, and that the direct EB-5 workflow has gotten much slower. This contradicts a rumor I’ve heard promoted that direct cases can expect faster processing than RC cases, but USCIS stated that they’re working hard to bridge the gap between the RC and direct workflows.
The chart of IPO processing times is not so pretty (and also not very informative, considering that the standard deviation seems to be 12 months), but here it is (based on times posted here).
IPOtimes

Filed under EB-5 Statistics, Updates from USCIS

USCIS reminder not to use DHS Seal or Signature

August 14, 2015 Leave a comment

From: U.S. Citizenship and Immigration Services [mailto:uscis@public.govdelivery.com]
Sent: Friday, August 14, 2015 12:30 PM
Subject: USCIS Message: Unauthorized Use of the DHS Seal

Dear Stakeholder,

USCIS would like to remind you that no one, including EB-5 regional centers, may use the official U.S. Department of Homeland Security (DHS) seal without first obtaining express written approval from the Secretary of DHS or the Secretary’s designee. The Secretary’s express written approval is also required to use the DHS seal coupled with the U.S. Citizenship and Immigration Services (USCIS) signature.

If an EB-5 regional center or related entity displays the DHS seal or USCIS signature on its website, electronic and printed forms, or promotional and marketing materials without express written approval, USCIS may refer the regional center or related entity to the Department of Justice or the Federal Trade Commission for further action.

If you use the DHS seal or USCIS signature without approval, you may be:

·        Improperly implying that the U.S. government is endorsing the regional center,

·        Inaccurately suggesting a special relationship with USCIS,

·        Engaging in unfair or deceptive trade practice under 15 U.S.C. §§ 45 and 52, and

·        Violating U.S. criminal statutes which protect the DHS seal and USCIS signature and which address the improper use of federal agencies’ seals, official badges, identification cards and other insignia. See 18 U.S.C. §§ 506, 701 and 1017.

Improper use of the DHS seal and USCIS signature can confuse the public and prevent them from being able to identify what communications are officially from DHS or USCIS. This negatively impacts DHS’ and USCIS’ ability to effectively communicate with the American public. Therefore, DHS only permits the use of the DHS seal and USCIS signature for very specific purposes.

For information on how to request approval to use the DHS seal, visit this DHS page.

Kind Regards,

USCIS Public Engagement Division

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

8/13 Meeting Recording, GAO Report

August 13, 2015 Leave a comment

In case you missed today’s EB-5 stakeholder meeting, here is a link to my recording. The recording sound quality is not my fault; that’s how it sounded on the phone too. (Also, Peng & Weber have typed up a transcript of part of the meeting.) UPDATE: USCIS has posted opening statements.

Here is a link to the Government Accountability Office’s newly-released report “Immigrant Investor Program: Additional Actions Needed to Better Assess Fraud Risks and Report Economic Benefits” (August 2015).

Both the meeting and the report give an interesting look into details of actions already taken to protect and improve EB-5 program integrity. Congress may be busy vacationing and not passing bills, but agencies are still making change happen. The meeting did not reveal much about the draft policy memo, except to show that USCIS is as much at sea as everyone else when it comes to the practicalities of applying an investment requirement that’s divorced from job creation, and thus divorced from the governing logic of the EB-5 program and existing guidance for the parameters of acceptable EB-5 investment. Apparently USCIS plans to add more detail and clarification to the final memo, but hasn’t yet figured out how to clarify the sustainment issue. Stakeholders were repeatedly invited to submit their suggestions. The GAO report is worth reading, being well researched and much more serious and thoughtful than the narrowly political and personal-grievance-fueled March 2015 OIG report.

Filed under EB-5 Events

New USCIS Position on RC Names

August 11, 2015 Leave a comment

From: U.S. Citizenship and Immigration Services [mailto:uscis@public.govdelivery.com]
Sent: Tuesday, August 11, 2015 3:27 PM
Subject: USCIS Message: EB-5 Regional Centers Naming Conventions

Dear Stakeholder,

USCIS would like to remind you that EB-5 regional centers and related commercial enterprises should not contain the words “United States,” “U.S.,” “US” and “Federal” in their names. If you use these words in the name of your regional center or enterprise, you may falsely imply a relationship between the entity using the name, and USCIS, DHS and the U.S. government. Using such names on websites, promotional and other marketing materials could also be considered deceptive acts or practices and false advertisements, which may violate federal laws governing unfair trade and false advertisements. See 15 U.S.C. §§ 45 and 52.

If a regional center or related commercial enterprise has a questionable name, the Immigrant Investor Program Office (IPO) may refer it to the Federal Trade Commission for further action.

Additionally, use of the words “Federal” or “United States” in advertising by businesses engaged in the financial services sector may be a violation of 18 U.S.C. § 709, which prohibits false advertising or the misuse of names to indicate a federal agency. In this situation, IPO may refer regional centers and related commercial enterprises with questionable naming practices to the Department of Justice for further action.

Kind Regards,

USCIS Public Engagement Division

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 EB-5 Law & Policy

The basics: investment+job creation (draft policy memo comment)

August 11, 2015 4 Comments

Reading the new draft EB-5 policy memo Guidance on the Job Creation Requirement and Sustainment of the Investment for EB-5 Adjudication of Form I-526 and Form I-829, I see why USCIS delayed the release for a year. The memo has good and bad points in the details, but I’ll leave those for the experts and just point out the big issue: that the memo is fundamentally out of sync with the basic logic of the EB-5 program.

The foundation and organizing principle of the EB-5 program is the nexus between investment and job creation. A petitioner doesn’t get EB-5 benefits just by committing $1,000,000 or just by creating 10+ jobs. Rather, EB-5 eligibility arises at the intersection between investment and job creation – when capital is made available for and results in job creation. Eligibility requirements for investment and job creation are intimately intertwined in the EB-5 regulations and precedent decisions: a qualifying investment is one that’s linked to qualifying job creation, and vice versa.

Astonishingly, the new draft policy memo decouples investment and job creation, and treats them without coherence as separate eligibility grounds independently affected by visa retrogression.

The memo was written to address the retrogression situation: the fact that unavailability of visas effectively adds years to the theoretical 2.5-year window that’s between an investor’s I-526 and I-829 (and accordingly to the window between investment and investor exit). We want the memo to tell us how that expanded timeframe affects EB-5 eligibility requirements.

The draft memo’s answer is that USCIS will not require jobs resulting from the investment to still be in existence at I-829, provided that they were created and sustained for 2+ years, but that USCIS will require the investment to be still deployed at I-829, even if it was sustained for 2+ years and resulted in the qualifying job creation. If the original business plan was accomplished before investors reach I-829, the draft memo says, then the new commercial enterprise must re-deploy the capital in a new “at risk” activity throughout the petitioner’s permanent residence period. (Note that “at risk” in EB-5-world means actually invested and not just promised (per 8 CFR 204.6(j)(2)), made available for purposes of job creation (per Matter of Izummi) and associated with the actual undertaking of business activity (per Matter of Ho).)

The new draft memo doesn’t just mean that investors can’t be paid back personally before they reach I-829 (we expected that), but that an EB-5-funded loan can’t be repaid to the new commercial enterprise unless the NCE promptly turns around and makes a new loan to another project – even though the new loan would have no nexus with the qualifying job creation. The memo states that “to the extent that all or some portion of the new commercial enterprise’s claim against the job-creating entity is repaid to the new commercial enterprise during the sustainment period, the new commercial enterprise must continue to deploy such repaid capital in an ‘at risk’ activity for the remainder of the sustainment period” and “the capital will not be considered ‘at risk’ if it is merely being held in the new commercial enterprise’s bank account or an escrow account during the sustainment period.”

Project companies will not complain about this draft memo because a business generally wants to redeploy capital and not let it sit around, and even better when that redeployment has no job creation or other EB-5 eligibility strings attached plus the investor exit can be unspecified upfront and extended indefinitely. But I don’t like to see theoretical mishmash, and I also feel for investors. If this draft becomes policy, then EB-5 offerings will have to say here is the project you’re investing in, but be aware that your funds may be redeployed in an unspecified number of other future projects that you can’t review now because we don’t know now what they will be – we just know that your capital is required to stay in circulation even after this business plan is accomplished and after your job creation requirements have been met until your immigration paperwork finally grinds to its conclusion.

Filed under EB-5 Law & Policy

New Draft EB-5 Policy Memo

August 10, 2015 Leave a comment

From: U.S. Citizenship and Immigration Services [mailto:uscis@public.govdelivery.com]
Sent: Monday, August 10, 2015 10:43 AM
Subject: USCIS Message: Policy Memorandum, PM-602-0121

Dear Stakeholder,
USCIS has posted the following draft policy memorandum for your review:

Comment Process: Please email all comments to ope.feedback@uscis.dhs.gov by Tuesday, September 8, 2015. Please include the following to make your comments clear:
·        State the title of the relevant memo in the subject line of your message;
·        Refer to a specific portion of the memo;
·        Explain the reason for any recommended change; and
·        Include data, information, or authority that supports the recommendation.

For complete information on the comment process, visit the Feedback Opportunities section of www.uscis.gov.

If you are unable to access the memorandum through the links provided above, please do the following:

  1. Go to www.uscis.gov/outreach
  2. Select “Feedback Opportunities” on the left side of the page

Kind Regards,
USCIS Public Engagement Division

Filed under EB-5 Law & Policy

RC Reauthorization Status, New RCs

August 6, 2015 4 Comments

Reauthorization Status
The current authorization of the Regional Center program is set to expire after September 30, 2015, and timely reauthorization is looking doubtful what with our representatives being on vacation much of the time between now and then, and with none of the proposed/pending legislation looking advisable to pass without discussion and revision. What will happen on October 1 if Congress hasn’t acted in time? We also asked this question in 2012, last time the program was up for reauthorization, and got vague answers from USCIS (“This as a question that will just have to be addressed when and if it occurs, and the Service does not have a response at this time” was the message at the 1/23/2012 EB-5 stakeholder meeting. The 5/1/2012 EB-5 stakeholder meeting executive summary stated that all existing regional center designations would expire automatically and that USCIS would not approve new Regional Center designations, but did not comment on what would happen with Regional Center-associated investor petitions.). We’ll see what USCIS has to say in next week’s engagement (8/13/2015). In the meantime, advocacy groups (IIUSA, EB5 Coalition) are still pressing for timely action, and we may after all get a bill passed at around 11:58 pm on the 30th, as has happened before. Here are the proposals on the horizon, so far as I know.

    • S.1501 – American Job Creation and Investment Promotion Reform Act of 2015. Sponsored by Senator Leahy (D-VT) and Senator Grassley (R-IA). Introduced in the Senate on June 3, 2015, referred to committee, and much analyzed and largely panned since then by the EB-5 community. The bill’s good aspects – that it extends (by five years) and seeks to improve the Regional Center program and is sponsored by important people – seem outweighed by its problems – that its provisions would drastically redirect and severely curtail the scope of the RC program (discouraging large raises, large projects and urban development in favor of small EB-5-dominated projects in rural areas), and that it brands the RC program as a hotbed of corruption and proposes ham-fisted measures that wouldn’t necessarily forestall bad actors, who can be glibber than most in attesting virtue, but would place an unwieldly regulatory burden and risk on people actually trying to do things right. IIUSA reports that they continue to have close discussions with the bill’s drafters – and other relevant Senate offices – as alternative language is considered by the sponsoring offices.
    • H.R.3370 – To amend the Immigration and Nationality Act to promote innovation, investment, and research in the United States, and for other purposes. Sponsored by Representatives Zoe Lofgren (D-CA) and Luis Gutierrez (D-IL). Introduced in the House on July 29, 2015, and referred to committee. I think this is a pretty good bill (aside from being nearly unreadable in bill form – read Rep. Lofgren’s section summary first before you try the legislation itself or you’ll get confused). The bill proposes a couple new EB visa categories in Title I (I don’t see the proposed EB-6 category being used much, as VC risk/unpredictability and immigration aren’t a great mix, but in any case it wouldn’t take visas away from or otherwise affect the EB-5 program) and discusses the EB-5 Regional Center program in Title II (starting on p. 17). The bill would permanently authorize the RC program, double the qualifying EB-5 investment amount (which is a leap, but not unreasonable considering investor visa thresholds in other countries), open the possibility of doubling the annual EB-5 visa allocation, and make other changes that I think would generally improve the footing of the EB-5 program. The proposals regarding TEAs and job creation (p. 38-41) strike me as particularly well-considered and reasonable. The concurrent filing and premium processing provisions would be very popular (though with a fee of only $5000, I believe that 100% of EB-5 petitioners would go for premium processing, making the service impossible to deliver in practice). The proposals for improved program integrity in this bill look serious but largely reasonable and justifiable rather than punitive and alarmist, as in S.1501. I’m just concerned that this bill, like S.1501, charges USCIS to regulate – and holds RCs responsible for keeping in line – a constellation of people who we’d all like to see controlled but who are not necessarily amenable to control by either RCs or USCIS. USCIS is supposed to work with the FBI to conduct background checks of and Regional Centers may be heavily sanctioned based on the behavior of anyone who can be considered “involved” with a regional center or an associated commercial enterprise (i.e. “if he or she is the principal, representative, administrator, owner, officer, board member, manager, executive, general partner, fiduciary, marketer, promoter, director, or other similar position of substantial authority for the operations, management, or promotion of the regional center or associated commercial enterprise, respectively”). In practice, does this mean that FBI agents have to show up at the offices of licensed migration agents in China who happen to be sourcing investors for Regional Centers and say okay hands out everybody, we’re taking fingerprints? How will the Chinese government feel about the US coming in to lay down the law in a domain that it is concerned to regulate itself and to protect from foreign influence? Considering that most EB-5 offers are made entirely abroad, and often by independent third parties who owe first allegiance to their own local regulations, how would Regional Centers handle the requirement “to monitor and supervise all offers and sales of securities which are made by associated commercial enterprises to ensure compliance with the securities laws of the United States, and to maintain records, data, and information relating to all such offers and sales of securities”? Certainly the selling and investor recruitment process is a major challenge, complication and source of confusion and vulnerability for the EB-5 program and for Regional Centers and deserves to be addressed, but easier said than done.
    • H.R. 616 American Entrepreneurship and Investment Act of 2015. Sponsored by Representative Polis (D-CO) and Amodi (R-NV), and now with 22 co-sponsors. Introduced in the House January 28, 2015, referred to committee March 17, 2015. This bill proposes permanently authorizing the Regional Center program without overhauling it, and briefly suggests a few modest and generally-welcome clarifications and improvements. I don’t know why this bill hasn’t gained more traction – possibly because the general mood seems to be that the program needs some significant changes if it’s to be made permanent.
    • Rumor has it that Judiciary Committee Chairman Bob Goodlatte (R-VA) and Representative Darrel Issa (R-CA) plan to introduce legislation in early September that will be similar to their SKILLS Act (HR2131) proposal from last year, with some additions. As originally written, this bill proposed new EB-6 and EB-7 categories (defined differently from Lofgren’s), tweaked a bunch of visa categories, and had one line about the Regional Center program, proposing to make it permanent. The new version will reportedly include some additional EB-5 program changes, but less drastic than those in S.1501.

Carolyn Lee has assembled a handy bill comparison chart. See also Pat Hogan’s letter on the mood in Washington as of Sept. 2015.

New Regional Centers
Additions to the USCIS Regional Center List, 6/23/2015 to 8/3/2015

  • American Coast Regional Center (California)
  • EB-5 Impact Capital Regional Center, LLC (California and Nevada)
  • EB5 International, LLC (California): www.eb5international.com
  • EB5 Affiliate Network Washington, D.C. Regional Center, LLC (District of Columbia, Maryland, Virginia, West Virginia): eb5affiliatenetwork.com
  • Maryland Global Regional Center, LLC (District of Columbia, Maryland, Virginia, West Virginia): www.cgrc.info
  • Civitas Northern Florida Regional Center (Florida): www.civitascapital.com
  • EB5 Financing Management Company, LLC (Florida)
  • Civitas Illinois Regional Center (Illinois): www.civitascapital.com
  • EB5 Affiliate Network State of Hawaii Regional Center, LLC (Hawaii): eb5affiliatenetwork.com
  • Massachusetts Wealth and Happiness Regional Center, Inc. (Massachusetts)
  • EB5 Affiliate Network State of North Carolina Regional Center, LLC (North Carolina): eb5affiliatenetwork.com
  • Ocean Pacific Regional Center, LLC (Oregon)
  • Harmonia Regional Center, LLC (Texas): harmoniaeb5.com
  • Name Change: Gotham City Regional Center, LLC changed to Silverstein Properties Regional Center LLC (Connecticut, New Jersey, New York, Pennsylvania): silversteinrc.com

USCIS Website
I also note that USCIS has done a little revamp of the EB-5 section of its website, separating what used to be the main page into two pages, one about the EB-5 program and one about the EB-5 visa but still mysteriously (pointedly?) omitting the informational page that used to be there about the Regional Center program. They do slap a nice big forbidden icon on the link to the list of terminated Regional Centers, a list already with plenty of indignity for the subset of centers that landed there not by fault but by choosing not to continue with the program.

Filed under EB-5 Law & Policy, New RC

White House Report, SEC Oil&Gas, I-829

July 26, 2015 Leave a comment

EB-5 Program Changes To Be Initiated by USCIS and DOS
The White House released a report Modernizing & Streamlining our Legal Immigration System for the 21st Century (July 2015) that summarizes recommendations from various agencies for how to streamline and modernize the immigration system, as directed in the President’s executive actions of November 2014. “The recommendations in this report reflect actions that agencies will take to modernize our system for efficiency and applicant accessibility, streamline legal immigration avenues, and strengthen our humanitarian system.” The lack of buzz around this report makes me think that the public doesn’t expect the recommendations to turn into action any time soon, but nevertheless keep in mind two recommendations that reflect commitments by USCIS and the Department of State to make changes that affect the EB-5 program:

Recommendation 1: Update standards for the EB-5 Program. By enhancing program integrity and updating eligibility requirements, this program can better serve our nation. DHS intends to pursue rulemaking to achieve those goals, including by requiring conflict-of-interest disclosures by Regional Center principals, enhancing background checks and public disclosure requirements, and increasing the minimum qualifying level of investment. DHS will also take steps to improve the adjudication and approval of Regional Center applications.
Recommendation 2: Clarify options for potential EB-5 investors to obtain visitor visas. State will amend its guidance in the Foreign Affairs Manual to clarify that potential EB-5 investors can obtain visitor visas to examine or monitor potential qualifying investments if they otherwise qualify for the visitor visa.

SEC Charges Oil Company and CEO
SEC Charges Oil Company and CEO in Scheme Targeting Chinese-Americans and EB-5 Investors, reads the SEC’s press release. The SEC charged a Bay Area oil and gas company and its CEO with running a $68 million Ponzi-like scheme and affinity fraud that targeted the Chinese-American community in California and investors in Asia, including some solicited as part of the EB-5 Program. The scheme was conducted primarily outside the EB-5 program (EB-5 investor funds accounted for a just $8 million of the $68 million involved), and it’s hardly surprising when a new company promising 20-30% returns for oil and gas exploration gets charged with fraud, but the case is still interesting from an EB-5 perspective because it involves technical selling and registration issues. Seyfarth Shaw LLP has a good article on this topic: SEC charges EB-5 fund operators and finders. As the article points out: “The SEC’s actions against various participants in EB-5 transactions make it clear that, whether or not an offering involves alleged fraud, offerors of EB-5 project securities and other persons participating in the promotion of such projects must be careful to comply with all aspects of the applicable securities laws, including either registering or securing exemptions for the offering of the securities and complying with the broker-dealer and investment adviser rules.”

New Form I-829
People preparing to file the Form I-829 should keep in mind that USCIS has posted a new version with significant updates that particularly affect Regional Center investors. An EB-5 Insights blog post summarizes the changes.

TEAs and Multipliers
The July 2015 Regional Center Business Journal includes some very good articles. I particularly appreciated two articles discussing the logic of TEAs and Scott Barnhart’s aptly titled article “Economic Multipliers in the EB-5 Arena: Voodoo Economics or Sound Economic Practice?”

I-526 Backlog
The CIS Ombudsman’s 2015 Annual Report to Congress, has a section on the EB-5 program, including this sobering chart.
I526volume

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

The basics: Regional Center investment structure and direct and indirect job creation

July 12, 2015 Leave a comment

With the EB-5 Regional Center program needing reauthorization by September 30 this year, and with the one piece of legislation on the table so far (the Leahy Grassley bill) offering to restructure it while reauthorizing it, I’d like to step back and look at what fundamentally characterizes the Regional Center program. What sets the RC program apart from regular “direct” EB-5 (which doesn’t need reauthorization)? What key features does any Regional Center program reauthorization bill need to protect?

The EB in EB-5 stands for employment based, and both direct and Regional Center EB-5 reward investment that results in job creation – 10 or more jobs per EB-5 investor. The major difference lies in which jobs can be credited to EB-5 investors, which in turn affects investment amount and structure and economic impact potential. Consider the following figures.
FigureAB
The key difference between Figure A and Figure B is indirect job creation, and the key benefit from this difference is that many more and much bigger projects can get funded with the Figure B structure. To elaborate:

  • The traditional “direct” EB-5 program only allows EB-5 investors to be credited with “direct jobs,” defined as W-2 employees of the new commercial enterprise (NCE) that receives EB-5 investor equity. This fact limits the countable jobs (and therefore the maximum EB-5 investment) and also possible structures. There can be only one pot in direct EB-5: all the EB-5 money goes in that one pot as equity and only the full time W-2 jobs in that one pot can be credited to investors. If your business involves multiple entities (for example a holding company for the property and a management company for operations), then you have two pots and direct EB-5 won’t work for you (unless the management company is a wholly-owned subsidiary of the holding company, making them essentially a single entity). If your project creates jobs for people who aren’t your W-2 employees (e.g. construction workers on your job site), the direct EB-5 program doesn’t allow counting those jobs. If you’d prefer to segregate EB-5 investors in a separate entity rather than giving them a management role directly in your business and mixing them with your non-EB-5 investors, it’s hard to do that with direct EB-5. If you’d like the EB-5 funds to eventually come into the business as a loan rather than equity, direct EB-5 doesn’t allow that either. All this lack of flexibility results from the fact that there can’t be more than one enterprise/layer involved, which in turn follows from the fact that the buck literally stops with the new commercial enterprise, thanks to the direct job limitation. The NCE is where the money has to be invested and spent and where the jobs have to be created; any associated job creation that’s not within that one new commercial enterprise is “indirect” by EB-5 definition and can’t be used to justify EB-5 investment.
  • The Regional Center program provides an attractive alternative to traditional direct EB-5 because Regional Center investors can be credited with “indirect” jobs, which EB-5 policy defines as “those that are held outside of the new commercial enterprise but are created as a result of the new commercial enterprise.” (Policy Memo p. 8) Indirect job creation opens up a new world of structure possibilities. Figure B shows a typical regional center investment with two pots: the new commercial enterprise (NCE) and the job-creating enterprise (JCE). The NCE is still subject to EB-5 requirements (must a single entity, must receive equity from the EB-5 investors, must give EB-5 investors a management role), but the business and job creation are separated in another pot that’s not so limited. The job-creating enterprise can encompass multiple entities, can receive investment from the NCE as debt or equity, can separate EB-5 and non-EB-5 investors, and can raise funds based on economic impact. If the Regional Center NCE has employees, it can verify them by submitting payroll records, just like a direct EB-5 NCE. However the typical Regional Center NCE has no business beyond investment and no employees. Instead, Regional Center investors in the NCE usually take credit for indirect jobs (i.e. the jobs created outside the NCE but resulting from the NCE’s investment – what’s in the green-shaded box in Figure B). These include impacts that an economic model would call direct (relating to the first round of inputs purchased by the subject industry) and indirect (relating to subsequent rounds of inputs purchased by supporting industries). If the job-creating enterprise funded by EB-5 investment is a hotel, the economic model would capture the employees required to build and operate the hotel and also some employment impacts of the hotel’s supply purchases. These new jobs could be on the payrolls of numerous third parties (the general contractor, the hotel manager, etc.), but it doesn’t matter because the NCE doesn’t have to control payroll records to verify job creation that happens outside it. EB-5 policy allows for using reasonable economic methodologies to calculate job creation outside the NCE but resulting from the NCE’s investment. For an example, the economist could use RIMS II Type II multipliers developed by the U.S. Bureau of Economic Analysis to calculate the employment impacts associated with the verified expenditures and revenues of a project funded by EB-5 investment.
    TableA

Why is all this important? When you’re judging whether a piece of Regional Center reauthorization legislation is worth supporting, keep my Figure B in mind. Make sure that the legislation retains the possibility of the NCE and JCE as distinct entities, crediting EB-5 investors with job creation that’s outside the NCE aka indirect. If that core defining feature is compromised, then whatever the legislation would authorize, it’s not the Regional Center program. The Leahy Grassley bill is currently not clear on indirect job creation or the distinction between NCE and the JCE. The bill proposes regulating Regional Centers as if and assuming that they control JCEs, which is often not the case in the Figure B model (and not necessarily desirable either, considering potential conflicts of interest). A number of provisions are just confusing given the NCE/JCE distinction (ie do the provisions about non-EB-5 investors on p. 6 apply to the NCE or JCE?). Most critically, the bill proposes limiting indirect job creation. Maybe the section on p. 4 only intended to require investors to count some jobs beyond those generated from supply purchases, which is fair, but the terms are not defined and can just as well mean that at least 10% of jobs need to be direct jobs within the NCE, which would destroy the Regional Center model.

To avoid confusion, anyone using the term “indirect job” must specify if he means the EB-5 policy definition (see p. 8 of the Policy Memo) or an economic model definition, and if so which model, since RIMS II and others slice up the impact pie slightly differently (for example see p. 33 and 50 of the RIMS II Handbook). And he should think about the definition. Regional Center program critics tend to talk about indirect jobs as if they were mere mathematical phantoms. That’s not the case. The carpenter who installs the floor at the EB-5-funded hotel and the housekeeper who will clean it both have heads that you can go touch if you like, although they both can be indirect jobs by the EB-5 policy definition. Their existence is usually inferred using financial data and economic models rather than verified by payroll records, since the Regional Center EB-5 investor is at a remove and probably lacks access to the payroll records, but that doesn’t make their employment a fiction. Heads get harder to locate and to touch when you get down to economist-definition indirect jobs, which look at ripple effects beyond the project site, but they’re not fictional either. (Or at any rate you have to go up against the Bureau of Economic Analysis, the 1973 Nobel committee, and John Maynard Keynes himself to argue that multiplier effects are bogus. See the forthcoming July RCBJ for a good article on this topic: “Economic Multipliers in the EB-5 Arena: Voodoo Economics or Sound Economic Practice?” bu Scott Barnhart.)

The benefits that come with indirect job creation are many. It’s possible to raise more EB-5 money when you can count more jobs – not only the W-2 jobs in a single entity but the wider economic impact of a given project. It’s possible to fund larger and more complex businesses when you’re not limited to all spending and employment occurring within a single entity. It’s possible to be a Regional Center and raise money for various independent projects in the community when you can set up NCEs separate from the JCEs and can verify job creation using economic methodologies. Architects of the Regional Center program intended it to facilitate the concentration of EB-5 immigrant investor capital into larger projects deemed more likely to have significant regional and national impact. Indirect job creation has made this vision possible. A typical direct EB-5 venture raises less than $2 million, as compared with raises in the tens of millions per project possible with indirect job creation and a Regional Center structure. We wouldn’t be talking about EB-5’s $3.58 billion contribution to GDP if we didn’t have the Regional Center program.

Filed under EB-5 Resources

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