Aug
29

RCBJ Retrospective: The Impact of Chinese Quota Retrogression On EB-5 Investors and EB-5 Investments by Tammy Fox-Isicoff and H. Ronald Klasko

The Impact of Chinese Quota Retrogression On EB-5 Investors and EB-5 Investments (Vol. 1, Issue 2, June 2013, Pgs. 8-11, Originally Published in Dec. 2012)

by Tammy Fox-Isicoff and H. Ronald Klasko

The EB-5 quota for China is expected to retrogress in 2013. This quota retrogression will impact not only EB-5 filings for Chinese nationals, but also EB-5 investments for applicants from other countries. This article will explore the ramifications of Chinese EB-5 quota retrogression for Chinese nationals and for the EB-5 program.

Background

Although the EB-5 program’s quota has remained unchanged since EB-5 became law in 1990, the approximate 10,000 quota for investors and derivative family members has been more than enough to satisfy demand. In fact, in no previous fiscal year has demand exceeded 50% of the allocated quota.
However, with the increasing popularity of regional center investments, EB-5 visa usage reached its highest level in the fiscal year ending September 30, 2012. The December 2012 Department of State Visa Bulletin predicted that the quota usage could be so high in the fiscal year ending September 30, 2013, that the per country limit may have to be imposed in the second half of the fiscal year. Once that happens, the only country that would be affected is China since approximately 80% ofthe world’s EB-5 investors are from China.

At this time, the U.S. Department of State has no idea how long of a “backlog” there may be should there be a need to impose a China cut-off date. That could only be determined if a cut-off is established, and would be dependent on several variables. Even though a cut-off date is not certain for FY2013, the
increased demand makes the establishment of a cut-off date in the coming years almost inevitable.

 

Direct EB-5 Filings

Though most Chinese nationals choose to invest in a regional center, EB-5 visa quota retrogression for Chinese natives will all but eliminate the possibility of direct EB-5 filings. In order to obtain approval of an EB-5 petition, the investor must demonstrate that he or she has invested or is actively in the process of investing the required amount of capital. The petitioner must demonstrate that the required amount of capital is at risk. Evidence of mere intent to invest will not suffice. As a practical matter, USCIS has required the petitioner to demonstrate that the entire investment of $1,000,000 or $500,000 (if in a targeted employment area) has been made at the time of filing the form I-526, Immigrant Petition by Alien Entrepreneur.

With quota retrogression, it may be several years between the filing of the form I-526 and the time the investor can lawfully immigrate to the United States and manage his investment.  For nationals of countries with investment treaties with the U.S., this problem is solved by the availability of the E-2 visa, which allows the investor to come to the U.S. to oversee the investment.  However, no such treaty exists for Chinese nationals.

An investor who will have no way to directly manage his investment for many years due to quota retrogression will be unlikely to invest.  Even if he did, an EB-5 petitioner must demonstrate that he will be engaged in the management of the new commercial enterprise.  A petitioner who cannot immigrate to the United States for many years because of quota retrogression may not be able to demonstrate that he will be able to manage a direct EB-5 investment.

In addition, for direct EB-5 investments, the I-526 petition must be accompanied by evidence that the new commercial enterprise will employ not fewer than ten qualifying employees within the next two years. A comprehensive business plan must to be submitted showing the jobs that will be created and the approximate dates of hire. The plan must demonstrate that the ten qualifying employees will be employed within the next two years.  The business plan should contain a detailed market analysis, including competing businesses, their strengths and weaknesses. It defies logic that a petitioner could submit a credible business plan when he or she has no idea of the prospective timeline for immigrating to the United States. A petitioner who will have no ability to manage his investment will have no ability to employ and oversee the requisite employees.

Similarly, the ability of a Chinese investor to invest in a “troubled business” to obtain residence under the EB-5 program will be all but eliminated because of Chinese quota retrogression as the petitioner must demonstrate maintenance of the number of existing employees at no less than the pre-investment level for a period of two years. When the petitioner may not immigrate for two (2) years, this may be impossible.

Chinese Quota Retrogression and the Child Status Protection Act

Chinese EB-5 quota retrogression will create a conflict between project developers, the agents and the Chinese investors. The project developers and the agents are anxious to obtain approval of form I-526. Many projects hold a petitioner’s funds in escrow until the form I-526 is approved. Thus, approval of the form I-526 is often crucial to freeing up the investor’s capital for use in the investment.

So how is this prompt-as-possible approval of the I-526 petition inconsistent with the investor’s interest? It may be if the investor has a child reaching age 21. Here’s why.

The Child Status Protection Act (“CSPA”) freezes the age of children who are derivative beneficiaries of an I-526 petition while the petition is pending, but not once the petition is approved and awaiting the quota to become available.13 A Chinese petitioner with children age eighteen or older will want to freeze a child’s age for as long as possible if Chinese EB-5 priority dates retrogress. The longer the time the I-526 is pending, the longer the time the child’s age is frozen. Thus, it will be beneficial for certain Chinese nationals who have children close to “aging out” to draw out the I-526 petition process. It might be advantageous for a Chinese national to receive a Request for Evidence as such a request makes the petitioning process longer. It might also be advantageous for the Chinese national to delay responding to the Request for Evidence until the latest possible date, again drawing out the petitioning process. For example, form I-526 was filed for Mr. Wang on October 1, 2012. At the time the I-526 was filed, Mr. Wang’s son’s age was 20 and the priority date was current. While the I-526 was pending, Chinese EB-5 priority dates retrogressed to October 1, 2011. If Mr. Wang’s 526 is approved on October 1, 2013, Mr. Wang can deduct the entire period of time the I-526 was pending (twelve months) from his son’s actual age, likely saving him from “aging out.”

Chinese EB-5 priority date retrogression will make it imperative for counsel to carefully track the ages of a petitioner’s children and to strategize how to prolong the I-526 petitioning process, if a child is close to “aging out.” It will also be imperative for counsel to make certain that the immigrant visa is applied for within one (1) year of the priority date becoming current, in order to be able to take advantage of the period of time the child’s age is frozen during the petitioning process.

Counsel representing the project and the investor may have to resolve ethical issues with the developers of the project and the investor pertaining to protracting the I-526 processing time.

Impact On Length Of Investment and Investor Exit Strategy

Pursuant to 8 CFR§216.6(c)(1)(iii), the investor’s investment in the new commercial enterprise must be “sustained” during the two years of conditional residence. Although the regulation is unclear as to whether the investment must be sustained until the filing of the condition removal petition or until the
approval of the condition removal petition, USCIS appears to have required the sustaining of the investment through the approval of the I-829 petition. So how long is this period in which the investment must be sustained? If the average processing time of an I-526 petition is 8 months, and if it takes
approximately one year to complete the adjustment of status process, or the conditional immigrant visa and U.S. entry process, and another two years is added for the filing of the I-829 petition and another approximately 4 to 8 months is added for the approval of the petition to remove conditions on residence, one sees that, from the time of the investment and filing of the I-526 petition until the time conditions are removed and the investment no longer must be sustained, in most cases, between 4 and 5 years have elapsed.

So what happens in the event of quota retrogression? The time period before which the investor cannot have his investment capital returned is extended by the length of the quota retrogression. From the investor’s point of view, this means that the investment money will be tied up for a longer period of time and any “exit strategy” will become more protracted.

There are particular issues for regional center investors. A significant majority of regional centers utilize the so-called “loan model”. Under this model, the investor is an equity investor in the new commercial enterprise. The new commercial enterprise is, in turn, a lending company that lends the EB-5 investors’ investment money to the project developer (the so-called “job creating enterprise”). Traditionally, the loan from the new commercial enterprise to a job-creating enterprise is five years (for the reasons indicated above), sometimes with provision for one or two year extensions (to cover any outliers),
creating a five year exit strategy for investors.

Quota retrogression will require lengthening of the loan time period, which will delay the investor’s return of investment proceeds. From the point of view of the job-creating enterprise, this could be good news or bad news. It means that the generally low interest EB-5 money will be available for a longer
period of time. However, many project developers seek to refinance or sell the business, which could have significant negative consequences for the condition removal process for the investors if it occurs before the approval of the I-829.

Quota retrogression highlights the importance of USCIS addressing an unanswered question. What if a five year loan is, in fact, paid back to the new commercial enterprise at the end of the five years? However, with quota retrogression, the new commercial enterprise cannot pay the loan proceeds with interest back to the investors until the conditions are removed, which perhaps may be multiple years later. Is the investment in that event “sustained”? The authors believe that the answer is in the affirmative, but USCIS has yet to opine. The reason that the authors believe that the investment has been sustained is because the regulatory requirement is that the investment be sustained in the new commercial enterprise and not in the job-creating enterprise. If the investor’s money has been used to create the jobs in the job-creating enterprise, and if the loan proceeds have been returned to the new commercial enterprise, and if the new commercial enterprise has not redeemed the investors’ investment, the investment has clearly been “sustained” in the new commercial enterprise. Since the new commercial enterprise is “formed for the ongoing conduct of lawful business” presumably the new commercial enterprise could lend the money elsewhere once the job creation requirement is met, although there is no specific requirement that it do so.

One issue that could be raised is that an investment that sits in a company bank account may not be considered to be “at risk” or being used for job creation. However, in the example cited, the necessary job creation has already occurred and the investment money was placed at risk in creating the jobs. Furthermore, the “capital at risk” requirement is a requirement of the I-52617 and not a requirement of the I-829. The only requirements of the I-829 are that the investment in the new commercial enterprise has been sustained and the jobs created (or will be created within a reasonable time). These requirements are satisfied in the case of a five year term loan even if quota retrogression results in a delay in the return of the investment money from the new commercial enterprise to the investor.

Two and One Half Year Rule

USCIS presently applies an adjudicative standard, articulated in the controversial Neufeld Memorandum of December of 2009, requiring proof that the requisite ten jobs will be created within 2½ years of the approval of the investor’s I-526 petition. This does not appear in the statute, regulation or any precedent decision. Rather, it is a creature of a non-binding memorandum.

The premise of the rule is faulty to begin with but loses any foundational justification once there is quota retrogression.  The rule is premised on a six month period to complete adjustment of status or consular conditional immigrant visa processing.  The two year conditional residence is then added to arrive at the 2½ year requirement.

The “rule” is faulty for at least four reasons even without quota retrogression:

  • Neither the adjustment of status process nor the consular conditional immigrant visa process is usually completed within six months;
  • With the conditional immigrant visa process, the investor and his family have an additional six months after issuance of the conditional immigrant visa to actually immigrate to the U.S. and commence the two year period of conditional residence;
  • The regulations clearly state that the jobs do not all have to be created by the time of filing of the condition removal petition. The jobs do not even have to be created by the time of the adjudication of the condition removal petition, which is traditionally many months after the two years. Rather, the regulatory requirement is that the jobs must be created within a “reasonable time” after the adjudication of the I-829 condition removal petition; and
  • The two year job creation rule is arguably inapplicable to regional center investments.

With quota retrogression, the foundation of the rule is not only faulty but completely destroyed.  As a practical matter, when the quota retrogresses, there will be no reliable indicator of when any particular investor’s priority date will be reached.  Until the priority date is reached, no adjustment of status application can be filed and no conditional immigrant visa interview can be scheduled.  As arbitrary as the 2½ year rule is presently, it would be completely unjustifiable with quota retrogression which could result in the investor having to prove the requisite job creation before he ever even becomes a conditional permanent resident.

An examination of the regulations reveals that quota retrogression, while creating a major stumbling block for direct EB-5 investors, is actually helpful to investors in a regional center.  The job creation regulation, 8CFR§204.6(j)(4), is divided into three parts – “general”, which applies to direct EB-5; “troubled business”; and “immigrant investor pilot program”.  The “general” requirement (arguably not applicable to troubled businesses and regional center pilot program investors) is that the comprehensive business plan shows the need for at least ten qualifying employees within the next two years.  The troubled business regulation requires that the I-526 petition include evidence that the number of existing employees will be maintained at no less than the pre-investment level for at least two years.  The qualification of a business as a troubled business is premised on the business’ net loss during the 12 or 24 month period prior to the I-526 priority date.

However, for the large majority of investors who invest in regional centers, there is no two year job creation rule to be found anywhere in the regulations. Rather, 8CFR§204.6(j)(4)(ii) only requires evidence that the direct or indirect employment will be created from the investment but with no time period specified whatsoever. 8CFR§204.6(m), which is the added regulatory section relating to regional centers, lists the requirement that the regional center describe how it will promote economic growth through job creation and how jobs will be created; but there is likewise no mention whatsoever of a time period. In the absence of such a two year time period for regional center investors, the only time period that exists is the requirement in 8CFR§216.6(c)(1)(iv)23 that the jobs be created “within a reasonable time” following the approval of the condition removal.

Therefore, it would be a reasonable expectation that USCIS will withdraw its arbitrary 2½ year rule once quota retrogression is a reality.  Presumably, unless some completely arbitrary standard is applied, the requirement would revert to the regulatory requirement that the regional center investor must prove that the indirect and induced employment will occur within a reasonable time after the conditions on residence are removed, which could be 4, 5, 6 or even more years from the time of filing the I-526 petition, depending on how backlogged the Chinese quota becomes.

Impact of Job Creation

The 2½ year rule has significantly restricted indirect and induced job creation projections, and therefore the number of investors who can provide EB-5 capital to a given project. The reason is that in many projects, such as hotels, office buildings and shopping centers, stabilized occupancy may not occur for two or more years after construction is completed. If the construction period is, say, 18 months, and stabilized occupancy (and the job creation that goes with it) does not occur for another 24 months, the job creation resulting from stabilized occupancy may occur after the 30 month period. The result has been that in many projects indirect and induced jobs from construction are the only jobs that can be counted. With the expected elimination of the 2½ year rule, the often significant operations jobs numbers can be added to the mix, increasing the number of jobs and therefore the number of investors per project.

Also, if the 2½ year rule is eliminated, a project including a mix of Chinese and non-Chinese EB-5 investors could have the benefit of allocating job creation over an extended period of time.  For example, the non-Chinese EB-5 investors, who will be able to file their I-829 petitions much sooner, could be allocated the construction jobs whereas the Chinese investors could be allocated the operations jobs. Furthermore, with the protracted filing date of I-829 petitions for Chinese investors, developers will have longer periods of time to meet the required inputs in the economist’s job projection report, such as longer periods of time to expend the money, produce the necessary revenues, employ the necessary direct employees, achieve the necessary occupancy rate, complete construction, etc.  Meeting these projected inputs is critical for the investors to meet the job creation requirement to be able to remove conditions on their residence.

Conclusion

We can speculate on whether EB-5 quota retrogression for Chinese nationals will have an impact on the number of Chinese investors who choose to invest under the EB-5 program. However, no speculation is necessary regarding the impacts of quota retrogression on investors who have already invested or will invest in the future. The impacts, as this article has revealed, will be profound – for the investors, for the investment entities and for the policies of the government agency that regulates the program.

 View a PDF Version of the Article Here.

Aug
28

IIUSA Statement on Federal Indictment of Mr. Anshoo Sethi

As the association representing over 220 EB-5 Regional Centers across the country that account for over 95% of the capital flowing through the EB-5 Program, IIUSA welcomes and advocates for enforcement of all anti-fraud, securities and immigration laws.  Our position is clear:  efficient and effective enforcement of U.S. securities laws is as essential for the EB-5 program as it is for any investment vehicle. In 2013, IIUSA filed an amicus brief supporting the SEC action to stop the Intercontinental Regional Center Trust of Chicago, et al (all nonmembers of IIUSA) from making misleading claims about investment opportunities.

The efficacy of the U.S. justice system is one of the primary reasons the U.S. is the top destination for foreign direct investment globally.  Proper oversight, transparency, and compliance with all applicable laws and regulations are critical to maintain the confidence of all stakeholders and ensure that the EB-5 program continues bring much needed-capital and U.S. job creation to local communities. A comprehensive peer-reviewed economic study found that during fiscal year 2012, investments made through the EB-5 program contributed $3.39 billion to U.S. GDP and supported over 42,000 U.S. jobs – at no cost to taxpayers.

Aug
25

IIUSA VP Robert C. Divine on Saturday’s Announcement of EB-5 Visa Unavailability for China for Remainder of FY-2014

IIUSA VP Robert C. Divine on Saturday’s Announcement of EB-5 Visa Unavailability for China for Remainder of FY-2014

Robert C. Divine, Vice President, IIUSA; Shareholder, Immigration Group Chairman Baker Donelson Bearman Caldwell & Berkowitz, P.C.

Saturday’s dramatic announcement of EB-5 visa unavailability for China for the remainder the fiscal year provides a low impact “dry run” for a process that will have more “bite” next fiscal year. (For the record, Saturday was August 23, 2014).First, let’s remember what Saturday’s announcement does NOT do: It does not affect any I-526 or I-829 processing at all, does not delay immigrant processing for people not born in mainland China, and does not even affect mainland Chinese after next month. But let’s think about what it portends.

The announcement reflects that for the first time ever the full annual allocation by Congress of almost 10,000 visa numbers will have been given out by the end of next month-the end of the fiscal year. The August 2014 USCIS “performance data” on I-526 petitions reflects that in the first three quarters of this fiscal year USCIS approved about 4,000 petitions. That probably fits pretty well with the demand of up to 10,000 visas including the investors’ family members. That same report reflects that petitions filed have increased to 3,000 per quarter, or 1,000 per month, which is a pace that at least doubles the annual allocation of visa numbers. USCIS reports a whopping 10,375 petitions pending, about 75% of which are likely to be approved, so as USCIS ramps up its capacity to adjudicate I-526 petitions, the State Department will have to take action earlier in each fiscal year to avoid USCIS and consular offices from giving out too many EB-5 visas and green cards. So far the excess demand for EB-5 visa numbers has been “hidden” in the USCIS I-526 adjudication backlog. But as USCIS volume of adjudications increases, it becomes the State Department’s job to stem the tide.

As everyone knows but needs to remember, for the forseeable future the visa number problem only affects investors born in mainland China (and who do not have an immigrating spouse born elsewhere, under special “chargeability” rules). This is because (1) China has been accounting for 80% of the demand and (2) the law limits any one country to 7% of the numbers by right. China’s 7% allocation is already essentially used up by the Chinese Student Protection Act of 1992, which required that visa numbers allocated to Chinese nationals under that law be taken out of future allocations for China EB-5 at 700 per year, so mainland Chinese essentially get only whatever numbers are not used up by people born elsewhere. Last year less than 1,700 visas were used by the rest of the world, leaving lots for mainland China, and that does not seem to be changing fast. So the State Department has to guess how many visa numbers the rest of the world will use in the year and allocate the rest in an orderly way to applicants from mainland China in the order in which the investor filed the Form I-526 that was approved.

This year the phenomenon of using up the world’s EB-5 numbers seems to have sneaked up on the State Department, so that it had to suddenly say “no more for mainland China” for the one month left in the rest of the year. Everything re-sets onOctober 1, when visas may be issued again freely, but maybe as early as January but probably later we can expect the State Department in its monthly “Visa Bulletin” at http://travel.state.gov/content/visas/english/law-and-policy/bulletin.html to post a “cut-off date” for mainland China that essentially says that only those applicants whose approved I-526 was filed before that date may be approved by USCIS for adjustment of status or scheduled by a U.S. consulate for immigrant visa interview. Given that most people with approved I-526 petitions filed more than a year before, reflecting USCIS processing times, we can expect the cut-off date to be more than one year earlier than the Visa Bulletin being published. Here is what we can expect in the Visa Bulletin:

We should not expect the cut-off dates next year to have drastic effect, but the effects will increase over time if demand for visa numbers going forward continues to exceed supply. When a visa number cut-off is earlier than the person’s I-526 filing date, it only delays when they can use the approved I-526 to process for the conditional permanent residence. It does not affect USCIS processing of I-526 and I-829 petitions at all for anyone. Delaying the acquisition of conditional residence can have the following effects:
  • Age-Outs: This is complicated, but the bottom line lessons are for Chinese investors to pick their EB-5 investment and file I-526 well before any child reaches age 21 (not at the last minute) and to have everyone in the family who is immigrating to pursue the next steps after I-526 approval as soon as they can.
  • Maintenance of Investment and jobs: delaying when Chinese investors obtain conditional residence also delays when they can remove conditions two years later, and that delays the point to which mainland Chinese must maintain their investment and any operational jobs claimed for I-829 purposes. This creates some thorny questions that USCIS has not clearly answered, particularly concerning the effect of a liquidity event in the job creating enterprise before the end of an investor’s conditional residence.
  • Material changes: delaying the date of conditional residence leaves the Chinese investor more vulnerable to revocation of petitions arising from material changes to the project occurring before that point.
  • I-526 expedites: These are rare anyway, and they become less useful for investors from mainland China, because they don’t expedite visa availability which is based on the date the I-526 was filed.
  • Escrow practices: No effect, since even when escrow is used it must release in full upon I-526 approval (if not in part or in full before that point), which is not affected.
  • TEA: No effect, since I-526 filing “locks in” TEA qualification for an investor.
Robert C. Divine is an immigration attorney at Baker Donelson Bearman Caldwell & Berkowitz, PC, who served as Chief Counsel and Acting Director of USCIS from 2005-2006.  He has been Vice President of the Association to Invest in the USA (IIUSA) since 2010. 
Aug
23

China Employment Fifth (EB-5) preference category has become “Unavailable” for the remainder of FY 2014

China Employment Fifth (EB-5) preference category has become “Unavailable” for the remainder of FY 2014

Chicago, IL – August 23, 2014

Effective immediately Saturday, August 23, 2014 the China Employment Fifth (EB-5) preference category has become “Unavailable” for the remainder of FY-2014. This action is necessary because the maximum level of numbers which may be made available for use by China EB-5 applicants during FY-2014 has been reached.

Department of State processing: The establishment of a monthly cut-off or “Current” status for a numerically controlled preference category applies to those applicants who were reported documentarily qualified prior to the determination of cut-off dates and allocation of visa numbers that month. Therefore, all China EB-5 applicants who have been scheduled for interview at an overseas post based on the original establishment of the August and September cut-off dates would have been allocated visa numbers for potential use by their case. Such applicants will not be impacted by the “Unavailability” of the China EB-5 category for the remainder of FY 2014. In this context, “Unavailability” means that no additional numbers are available for “comeback” cases originally scheduled for interview in an earlier month who are just now returning, or for those first requesting an interview. The only exception would be if a post had “otherwise unused” numbers available, because applicants either failed to appear or failed to overcome a refusal during the month (i.e. August or September) of originally scheduled interview.

U.S. Citizenship and Immigration Services (USCIS) processing: USCIS Offices may continue to accept and process China Employment Fifth preference cases and submit them in the normal manner. However, instead of being acted upon immediately, those cases will be held in the Visa Office’s “Pending Demand” file until October 1, 2014. At that time, all eligible cases will be automatically authorized from the “Pending Demand” file under the FY 2015 annual numerical limitation. Each USCIS requesting office will receive an e-mail notification of such authorizations, which will be effective immediately.

Charles Oppenheim, U.S. Department of State, Chief, Immigrant Visa Control and Reporting Division

IIUSA to Address Visa Cut-off Implications at September Trade Mission to China

The reality of the visa limit being reached in FY2014 for China leads to an inevitability of retrogression in FY2015 if changes are not made by Congress to current EB-5 statute which place limits on the number of visas allotted per country or increases the annual allotment.

IIUSA will address implications of the visa cutoff and retrogression scenarios for FY2015 at its trade mission to the China International Fair for Investment and Trade (CIFIT) from September 6-10 in Xiamen.

Read IIUSA VP Robert C. Divine’s Comments on EB-5 Visa Unavailability for China for Remainder of FY-2014

Saturday’s dramatic announcement of EB-5 visa unavailability for China for the remainder the fiscal year provides a low impact “dry run” for a process that will have more “bite” next fiscal year. (For the record, Saturday was August 23, 2014).First, let’s remember what Saturday’s announcement does NOT do: It does not affect any I-526 or I-829 processing at all, does not delay immigrant processing for people not born in mainland China, and does not even affect mainland Chinese after next month. But let’s think about what it portends. To Continue Reading, Click Here

Aug
20

Department of State Passport And Visa Issuance Database Back On Track

Last week, the Department of State Bureau of Consular Affairs (DOS) issued an update stating that they have made significant process and have issued most of the worldwide backlog of non-immigrant visa cases. While work is ongoing to bring theConsular Consolidated Database (CCD) back to full operational capacity, DOS are printing visas with very few delays.

DOS’ global database (also known as the Consular Consolidated Database or CCD) holds more than 100 million records of visa cases and 75 million photographs, with links to other federal agency security databases, including the FBI’s Integrated Automated Fingerprint Identification System (IAFIS) and the Department of Homeland Security’s Automated Biometric Identification System (IDENT). It is also the gateway to the Department of State Facial Recognition system and the NameCheck system used to approve, record, and print visas and other documents. The CCD underwent a software update on July 20th resulting in a catastrophic crash leaving countless people around the world unable to travel for several days in late July. To learn more about the CCD database, click here.
Aug
20

USCIS Director León Rodríguez Discusses Ongoing Improvements of EB-5 Program in August 14th Public Engagement Dialogue

Leon Rodriguez

On August 14th, the U.S. Citizenship and Immigration Services (USCIS) held a special stakeholder engagement teleconference with USCIS Director León Rodríguez to allow the new Director (Rodriguez was confirmed on June 26th) to officially introduce himself and his position on a range of immigration issues, including the EB-5 Program. The one-hour dialogue also featured a brief question and answer session which further illuminates Director Rodríguez’s position on EB-5 issues, including the staffing of the new Immigrant Investor Program Office, use of electronic processing of petitions, combating fraud, processing times and the backlog of EB-5 cases. To listen to a recording of the dialogue, click here (Basecamp Access Required).

On staffing the new Immigrant Investor Program Office (IPO) in Washington, D.C. 

“Before I got here, critical steps were taken to improve the EB-5 Program. First, by centralizing the EB-5 Program office in Washington. And then by being very intentional about staffing the unit with individuals who are experts in transactional law, white collar investigations, economics to make sure that as we conduct reviews of increasingly complex transactions, we are doing so with the right personnel and skill sets. We are in the process of ensuring that we fully staff the EB-5 unit to effectively process applications to do in a way that most effectively the United States.”

On Shift to Automated Immigration Processing Systems (ELIS)

This is a multi-year process by moving from paper-based to automated processing. As we launch this automated program, we seek to do so in a way that gets it right. We look forward to discussing more of USCIS efforts in this area as time goes on.

On the Issue of Combating Fraud 

This is a lot of concern about fraud and unauthorized practice of immigration law. We are working to ensure that immigration benefits are not granted to those who present a threat to national security or public safety, and we continue to develop our Fraud Detection and National Security Directorate (FDNS).

On Processing Times Across All Visa Categories 

One of our challenges is that we live in a dynamic environment. So as we do our best to predict and forecast workloads, but workloads shift as a result of pressures we do not foresee. This is a high priority for me, based on stakeholder input, that as we have new contingencies in nature of workload, we are always conscious of delivering our service as efficiently as we can. We have improved the efficiency in which we post processing times – from 45 days down to 30 days – I know we are exploring options to provide more meaningful processing times to customers. 

On the Backlog of EB-5 Cases

We have seen dramatically increased workload from FY2007 to FY2013, when receipts of I-526 and I-829 petitions have increased by 700 percent and 500 percent respectively. With a fully staffed Investor Program Office with the right kinds of people, we continue to focus on reducing backlog. That the IPO is staffed in Washington gives USCIS the opportunity for direct management oversight. 

July 29, 2014 -  House Committee on the Judiciary held a hearing on the Oversight of U.S. Citizenship and Immigration Services (USCIS)- Director Rodríguez statement on the EB-5 Program 

“USCIS continues to enhance the EB-5 Immigrant Investor visa program, both to improve efficiency and service delivery and to provide greater security.  USCIS has centralized EB-5 program operations in Washington, D.C.  This unit, augmented with staff with expertise in economics and transactional law, are dedicated solely to the review and adjudication of EB-5 petitions and applications.  In May 2013, USCIS published a comprehensive policy memorandum to guide EB-5 adjudications.  On the security side of the program, USCIS has expanded security checks to cover Regional Centers and executives participating in the program, and has embedded Fraud Detection and National Security Directorate (FDNS) officers and intelligence professionals to work alongside EB-5 adjudications officers.  In order to provide information to stakeholders, USCIS now hosts a series of quarterly stakeholder engagements.” (Read Full Written Testimony Here). 

Aug
18

Regional Center Limbo: How Low Can You Go? by Robert C. Divine

Regional Center Limbo: How Low Can You Go?

by Robert C. Divine, Vice President, IIUSA; Chairman of the Immigration Group of Baker, Donelson, Bearman, Caldwell, & Berkowitz, P.C. 

 

Now that USCIS in its May 30, 2013 EB-5 Adjudications Policy Memorandum has recognized that (due to a 2002 law that trumps a 1991 regulation) a regional center application can be based on “general proposals” and does not always require “verifiable detail,” we have all wondered just how general the proposal can be and still be approved. In a recent non-precedent decision posted by USCIS on its web site, the USCIS Administrative Appeals Office has defined a low bar by affirming the denial of an application that stated that it had no actual or hypothetical projects and presented only a list of some companies in the region and their industries and submitted the RIMS II Handbook saying that it would “utilize third parties familiar” with RIMS II. The AAO stated:

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. ..Simply submitting the RIMS II Handbook without any economic analysis as to how that tool might work in the industries identified does not meet the applicant’s burden of supporting its proposal with an economically or statistically valid tool.
On the issue of promotion of the regional economy, the AAO held that the assertion that the RC will maintain a web site and use the “rolodex contacts” of the RC’s managers is insufficient.  The center director had found that submission of a “pro forma” Form I-924A was insufficient to show how the RC would fulfill its duties of administration, oversight and monitoring of investment activities under its sponsorship, but the AAO said that because it had other grounds on which to dismiss the appeal it would not decide whether 8 CFR 204.6(m)(6) (which addresses “Termination of participation of regional centers” for failure to submit annual reports or failur to keep promoting economic growth) requires any evidence in an initial RC application.

For those who have spent tens or hundreds of thousands of dollars on regional center applications including project development plans, this decision might be comforting-that still there are at least some actual requirements.  But the AAO’s language suggests that a pretty bare bones hypothetical with a simple economic analysis might be sufficient to show that the applicant knows how to spot or organize a project that matches enough job creation with the minimum EB-5 capital planned for use with funds from other unspecified sources.  The decision does not address whether third party validation of construction cost and timeline or third party market study validating an operational pro forma is necessary for an RC application based on a hypothetical project.  The decision does not give hints about what showing is required to support a broad geography for RC approval.

The AAO also found that the application had made incorrect claims about the RC entity’s legal formation at the time of application and later and implied that this made it hard to believe anything else the applicant said.  That part of the decision reminds us all to be careful and consistent with details in applications to USCIS.

 

To view the PDF, please click here.

 

Aug
13

Department of State Passport And Visa Issuance Database Crash Has Worldwide Impact

The Department of State Bureau of Consular Affairs (DOS) is currently experiencing technical problems with its system that issues visas, passports, and related documents. This has resulted in universal delays in issuing visas that are no limited to any particular country or visa type.

DOS’ global database (also known as the Consular Consolidated Database or CCD) holds more than 100 million records of visa cases and 75 million photographs, with links to other federal agency security databases, including the FBI’s Integrated Automated Fingerprint Identification System (IAFIS) and the Department of Homeland Security’s Automated Biometric Identification System (IDENT). It is also the gateway to the Department of State Facial Recognition system and the NameCheck system used to approve, record, and print visas and other documents. The CCD underwent a software update on July 20th resulting in a catastrophic crash leaving countless people around the world unable to travel for several days in late July. Although service has been restored in a limited capacity, it continues to have significant problems, including outages.

The downtime and ongoing limited use has resulted in a growing backlog of visa and passport processing in the U.S. and at consular posts abroad.  It is not clear just how many people have been impacted or left stranded waiting for their U.S. travel documents, but it is estimated that more than 50,000 applicants have been affected. To learn more about the CCD database, click here.
Aug
12

Recordings of USCIS Webinars on ELIS Form I-526 (7/30) and ELIS Document Library (8/5) – Are Available to Members Through Basecamp

USCIS ELIS Form I-526, Immigrant Petition by Alien Entrepreneur Webinar (July 30th)

On July 30th, U.S. Citizenship and Immigration Services (USCIS) Public Engagement Division hosted a webinar on USCIS ELIS (Electronic Immigration System) Form I-526, Immigrant Petition by Alien Entrepreneur. 

The USCIS ELIS Form I-526 allows customers to:
  • Submit their petition electronically,
  • Upload evidence, and
  • Track case status in real-time.
Form I-526 petitioners can:
  • Access electronic copies of documents pertaining to their investment,
  • Attest the documents are true and accurate copies, and
  • Supplement their electronic or paper-based Form I-526 petition with documents stored in the document library.
Resources: 
  • Webinar Recording (55:00) - Click Here (Basecamp)
  • Benefits of USCIS ELIS Fact Sheet - Click Here
  • Tips for Form I-526 in USCIS ELIS - Click Here
  • USCIS ELIS Help and Customer Support - Click Here
  • E-Filing Steps for Representatives - Click Here
  • USCIS ELIS Information for Attorneys and Accredited Representatives - Click Here
Step-by-step Overview of the USCIS ELIS Document Library Webinar (August 5th)

On August 5th, USCIS held a webinar which included a Step-by-step Overview of the USCIS ELIS Document Library and a short Q&A. 

The USCIS ELIS Document Library allows regional centers to provide immigrant investors in new commercial enterprises with electronic copies of their investment-related documents, including:
  • Organizational,
  • Transactional, and
  • Offering documents.
Resources: 
  • Webinar Recording (56:00) - Click Here (Basecamp)
  • How to Attest to the Deal Package - Click Here
  • Guidance for Regional Center Document Library Managers - Click Here
  • Paying the USCIS Immigrant Fee using USCIS ELIS - Click Here
Aug
11

New SEC Interpretations Regarding Accredited Investors Impact EB-5 Reg D Offerings by Robert Ahrenholz and Mariza McKee, Kutak Rock LLP

New SEC Interpretations Regarding Accredited Investors Impact EB-5 Reg D Offerings
by Robert Ahrenholz and Mariza McKee, Kutak Rock LLP

On July 3, 2014, the Division of Corporation Finance (Division) of the Securities and Exchange Commission (SEC) released Compliance and jobsDisclosure Interpretations relating to accredited investors (AI Interpretations). The AI Interpretations are of particular importance to the EB-5 community because they clarify verification matters that often apply to non-U.S. persons.

The Jumpstart Our Business Startups Act, enacted in 2012, required the SEC to adopt rules and measures that amended existing exemptions from registration under the Securities Act of 1933 and that created new exemptions that allow issuers to raise capital without registration. As a result, Rule 506(c) of Regulation D was adopted, which eliminates the SEC’s prohibition against using general solicitation and advertising in private offerings of securities under Rule 506 if all investors are accredited investors, the issuer takes reasonable steps to verify their accredited investor status, and certain other conditions of Regulation D are satisfied. In order to verify the accreditation of its investors, the issuer may employ one of four non-exclusive safe harbor verification methods or use the principles-based verification method. This method requires an objective determination by the issuer as to whether the steps taken were “reasonable” in the context of the given facts and circumstances of each investor and transaction.

In evaluating accreditation under the principles-based method, an issuer should consider: (1) the nature of the investor and the type of accredited investor that the investor claims to be; (2) the amount and type of information the issuer has regarding the investor; and (3) the nature of the offering, including such information as the manner in which the investor was solicited to participate in the offering and the terms of the offering (e.g., the minimum investment amount).

Under Rule 501 of Regulation D, an “accredited investor” includes a natural person who: (1) has earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the two previous years, and reasonably expects to earn a comparable amount for the current year (income-based verification); or (2) has a net worth that exceeds $1 million (as interpreted by the SEC), either alone or together with a spouse (net worth-based verification). Pursuant to the Division’s recent AI Interpretations and of importance to EB-5 practitioners, if a potential investor’s income is not reported in U.S. dollars, it can be converted to U.S. currency to determine whether the investor meets the income-based requirement by using either the exchange rate in effect on the last day of the year for which income is being determined, or by using the average exchange rate for that year. By analogy, if a potential investor’s net worth is not represented in U.S. currency, it too can be similarly converted to determine net worth accreditation.

The Division provided the following recommendations, in an effort to facilitate an issuer’s determination under the principles-based method of income-based verification: (1) that the issuer review the potential investor’s Internal Revenue Service (IRS) forms reporting income for the previous two years; and (2) that the issuer obtain written representations from the potential investor stating: (i) that the IRS forms for the recently completed year are not yet available; (ii) the amount of income received for the most recently completed year; (iii) that such income was sufficient to qualify as an accredited investor under the income test; and (iv) that the investor reasonably expects to reach the requisite level of income in the current year.

The Division further clarified that if the investor is not a U.S. taxpayer and thus is unable to provide an IRS tax form that reports his or her income, the issuer may be unable to rely upon comparable tax forms from a foreign jurisdiction in order to rely on the safe harbor income verification method provided in Rule 506(c)(2)(ii)(A). In making this clarification, the SEC reasoned that this safe harbor was provided in light of the “numerous penalties for falsely reporting information” to the IRS – a comfort that is not altogether guaranteed by similar forms in foreign jurisdictions. The Division has indicated, however, that an issuer could reasonably satisfy the principles-based income verification requirements by reviewing foreign-filed tax forms that report income where the foreign jurisdiction imposes comparable penalties for falsely reported information.

For the purposes of the net worth safe harbor, the Division provided guidance that an issuer may not use a consumer report prepared by a non-U.S. consumer reporting agency that performs similar functions, but could employ the principles-based method to verify investor net worth accreditation. Additionally, the Division stated that an issuer may not use a potential investor’s tax assessment to verify accreditation if the document is more than three months old. However, the issuer may be able to verify investor net worth accreditation under the principles-based method when the potential investor’s most recent tax assessment shows a value that (after deducting liabilities) demonstrates a net worth that substantially exceeds the $1 million threshold amount. For the purposes of this provision, under 26 U.S.C. § 6203, “[a tax] assessment is a bookkeeping entry ‘recording the liability of the taxpayer’ . . . made when a taxpayer ‘[s]elf-assesses,’ i.e., files a personal income tax return, or, when the IRS prepares a substitute for return.”

The AI Interpretations reinforce the importance of reviewing reliable documents, and provide some flexibility in determining which methods are available to satisfy verification requirements. As the burden remains on the issuer to demonstrate compliance with these provisions, the Division warns that where there is reason to question a potential investor’s accredited status, the issuer must take additional steps to verify the investor’s status in order to establish that the issuer has fulfilled all of its reasonable verification obligations.

Although the AI Interpretations relate more to Regulation D offerings than to the Regulation S offerings that are most often used in EB-5 financings, these clarifications are relevant in the context of concurrent domestic and foreign offerings and, in the case of large Regulation S offerings, may become relevant for purposes of determining whether an issuer is required to register under Section 12(g) of the Securities Exchange Act of 1934 if the issuer has 500 or more non-accredited investors.

To View PDF in Basecamp, Click Here.