On May 30, 2013, USCIS published a new EB-5 Policy Memorandum, implementing some policies from prior drafts but with meaningful changes. The key points of the memo are summarized below.
The most game-changing point is that regional centers no longer must be approved for a proposed enterprise’s project geographic area, industry (NAICS code), business method (loan, equity, or combination), or economic methodology before investors in the enterprise can file Forms I-526 to show EB-5 eligibility. The I-526 petitions must qualify in each respect.
Suddenly, the range of action of existing regional centers, and therefore their value, just went up. They can sponsor any project that meets USCIS policy without prior USCIS approval. That is, with USCIS-compliant business plan and offering documents, the participating developer/issuer can immediately subscribe investors who can immediately file Forms I-526 to start their immigration process, and if escrow is forgone the funds can immediately be put to work in job creating activity. That means that in many areas developers seeking EB-5 capital can tap it much more quickly than before using existing regional centers.
But there are risks, particularly if the project is located in an area not clearly adjacent to the currently approved regional center area. While USCIS used to approve relatively sprawling regional center areas including even multiple states, recently it has narrowed approvals to smaller areas tied to demonstrated commuting and supply patterns. Without prior approval of the project, developers and regional centers might craft non-compliant documents and job projections or use projects that USCIS might find to be too far from the existing regional
center approved boundaries (under policies not published by USCIS). Project-based I-526 denials have potentially devastating effect for all investors in the project, who might be able to re-file after cure but would lose their place in the queue for visa numbers and whose children turning 21 in the meantime “age out” of derivative green card eligibility. Thus, seeking prior project approval (and regional center expansion) has its attraction, diminished greatly by the year-plus period USCIS currently takes to process it.
The other major change is to allow a way out for investors whose investment enterprise projects have materially changed since they immigrated as conditional residents. While deference to what was approved in the I-526 stage may be eroded by the change, at least the investors can gain I-
829 approval if they show that the funds were put to job creating use to meet the ultimate requirements. But material changes, fairly broadly defined, can trigger denial or revocation of a pending or approved I-526 before the investor is admitted as a conditional resident, which can be delayed by long USCIS adjudication times or by coming waits for visa numbers when the category becomes over-subscribed. That unfairly threatens investors with having to go to the back of the line and with having their children “age out” of derivative eligibility at age 21.
Here is a quick synopsis of what the memo has done:
- Requirements explained: The memo explains the purposes of EB-5, and how the main requirements relate to those purposes, and it emphasizes numerous times that the standard is the preponderance of the evidence: is it shown to be more likely than not.
- No distributions in kind to investors from NCE: if the NCE promises to distribute a particular asset such as a piece of real estate (condo, home, etc.) or personal property.
- Degree of Risk: “The law does not specify what the degree of risk must be; the entire amount of capital need only be at risk to some degree.” [This seems to support low risk investments, even investments in enterprises making loans backed by collateral or third party promises.]
- Foreign escrow accounts: at I-526 investor must show that the exchange rate and transfer fees will not reduce the amount delivered to the project below the minimum, and at I-829 that the minimum was in fact delivered.
- Portfolio investments: Allowed, as long as investment is in one enterprise, and for direct EB-5 it goes from there into 100% subsidiaries (more flexible for RC-affiliation, not clear any limits on how extended the arrangements could be). Jobs can be added among the projects for allocation to EB-5 investors (by regulation, per any agreement they have). [No clarity on extent to which each project must be planned for proportionate job creation.]
- TEA “principally doing business”: Most significantly related to the job creation. (No discussion of projects spanning more than one TEA).
- Examples of restructuring (for meeting “new” with business established before Nov. 1990): Restaurant converted to nightclub, or crop production into livestock farm.
- Standards for RC geography: Conceivably USCIS management is urging a more generous approach when it states, “The question is a fact-specific one and the law does not require any particular form of evidentiary showing, such as a county-by-county analysis.” But then it acknowledges that the area normally “is contributing significantly to the supply chain, as well as the labor pool, of the proposed projects.” That seems to support the current narrow approach.
- Exemplar, actual, and hypothetical projects for I-924: Exemplar gets review of organizational and transactional documents, as well as Matter of Ho compliance; actual gets review of Matter of Ho compliance; hypothetical ostensibly gets review of job creation ratio (which still can implicate “verifiable detail” for assumptions underlying economic analysis).
- Buying land: EB-5 funds can be used for this, even though economic analysis cannot base job creation predictions on such expenditure that is not inherently job-creating.
- Bridge financing: Bridge loan or equity can be replaced with EB-5 funds, best if planned before bridge is received but possible if other bridge replacement fell through.
- Short-term jobs: recognition of direct jobs that last for at least two years does not mention “and through the filing of the I-829” as mentioned in the December 11, 2009 memo. [So perhaps that extra requirement, not usually mentioned in RFEs either, is defunct]
- Indirect jobs outside RC area: They can be counted, but based on “reasonable methodologies.” [Economists may emphasize that setting the model to focus, for instance, on an MSA– as USCIS increasingly pushes them to do– does not foreclose assessing indirect job creation outside that area.]
- How to apply Matter of Ho: A business plan need not contain all the detailed elements of Matter of Ho; instead, the totality of circumstances should be reviewed, but the more elements shown, the more likely it qualifies.
- Double-counting: Different investors (i.e., through different projects counting direct or indirect effects) cannot claim credit for the same jobs.
- “Reasonable time” for job showing at I-829: One year more, unless extreme circumstances such as force majeure.
- RC Amendments: not required before I-526 filings for changes to industries, geography, business plans (structure), or economic methodologies. [But possible train wreck in I-526s if USCIS finds the change not appropriate. Particularly beware geographic expansion not closely contiguous to approved area.]
- Deference: Afforded to I-924 exemplar or I-526 approvals for same project. Ostensibly this means once the first I-526 in a project is approved, the rest should be OK as to project (vs. source of funds), and I-829 gets deference to what was approved in I-526 (consistent with Chang v. INS). Exceptions for material change, misrepresentation, or objective mistake of law or fact (ostensibly not just judgment calls).
- Material change defined: Changed circumstances that would have a natural tendency to influence or are predictably capable of affecting the decision, citing Kungys v. United States, 485 U.S. 759, 770-72 (1988). [This case often is cited for a fairly broad approach to what would constitute a “material” misrepresentation giving rise to an alien’s permanent inadmissibility, and it could be a problematically expansive standard in EB-5]
- Effects of material change: Pending I-526 through admission as CPR: file new I-526, with age- out of children who have turned 21 and with loss of “priority date” for visa number. Between admission as CPR and end of conditional residence (still not clear if I-829 due date or I-829 approval), show that changes meet investment and job creation requirements, possibly without deference to prior decision (maybe some deference if industries and analysis are the same).
- Liquidation of enterprise before end of CPR: Liquidation and reallocation to another job-creating enterprise “may not comply” with USCIS’ “sustain the investment” requirement. [Not clear if or how it “may comply.” Ostensibly, liquidation without reinvestment, such as holding proceeds in the investment enterprise or distributing to EB-5 investors, fails to comply.]
- Industry limitations on RCs eliminated: While NAICS codes are useful for assessing economic analysis and “verifiable detail,” RCs are not limited to NAICS codes for job creation in previously approved projects.
Many issues remain to be clarified by USCIS, but particularly in opening up the activities of a regional center beyond the scope of previously approved projects, USCIS has increased the usefulness of the program for real projects needing prompt use of funds.