Summary and Partial Analysis of 12/5/2014 USCIS EB-5 Stakeholder Engagement by Robert C. Divine & Melanie C. Walker

On December 5, U.S. Citizenship and Immigration Services (USCIS) held its year-end EB-5 Stakeholder Engagement. Below is a summary from IIUSA Vice President Robert C. Divine. You can listen to a recording of the engagement here.

The December 5, 2014 U.S. Citizenship & Immigration Services (USCIS) EB-5 stakeholder engagement provided some useful data and a few pieces of guidance.

New Director. The meeting began with an encouraging set of comments by new USCIS Director Leon Rodriguez, who referenced his experience with and appreciation for economic development while serving as county attorney for Montgomery County, Maryland from 2007 to 2010. He stated that he wants USCIS to be not only manager but proponent of the EB-5 program while balancing national security and program integrity. Mr. Rodriguez left the meeting after his comments but said he would receive a debriefing later.

Filing and Adjudication Data. Most of the data mentioned was from the federal fiscal year that ended September 30, 2014 (“FY2014”). About 600 regional centers (RCs) are designated. USCIS terminated 7 RCs for failure to file I-924A and is still reviewing responses to 28 notices of intent to terminate regional centers it claimed no longer served to promote the economies of their areas. USCIS received over 11,000 I-526 petitions, around 2,500 I-829 petitions, and 270 I-924 applications for original or amended designation of a regional center. USCIS did not report in the meeting how many of these were processed during the same time, but it had meanwhile released performance data reflecting that its backlog of I-526 petitions grew in FY2014 from 7,131 to 12,453, and even in the 4th quarter USCIS only processed 1,173 I-526 petitions while it received 3,240– which does not look like an agency getting its processing backlogs under control. In the meeting USCIS mentioned “1,000 actions” last month, but it is not clear if this meant 1,000 I-526 petitions or all actions on all three types of filings. USCIS continually stated it intends and believes it will reduce the currently published processing times of 14.3 months for I-526, 6.8 months for I-829, and 8.5 months for I-924, but it is not at all clear how this can happen anytime soon.

Staffing. USCIS stated that it now has 40 EB-5 adjudicators, 17 nonsupervisory economists, and a total EB-5 staff projected to pass 100 by the end of the calendar year (which was the stated goal at the year’s beginning), but the arithmetic progression of USCIS staffing has not kept pace with the increase in filings.

Stakeholder Interactions. USCIS expressed positive goals about ongoing stakeholder interaction and policy guidance, stating it understands the importance of settled policy and deference to prior decisions. USCIS will plan quarterly engagements going forward. Investor Program Office (IPO) staff will be going to field to meet government partners and have local stakeholder engagements. USCIS mentioned “EB5 interactive,” which apparently will be a web site hub for EB-5 guidance including about what a complete EB-5 package requires. USCIS invited emails to Office of Public Engagement (OPE) about what topics should be covered. Forms I-924 and I-924A are currently open for public comment, which USCIS actively seeks for improvement. USCIS did not state anything specific about the status of efforts on new EB-5 regulations.

Program Integrity. Mr. Nicolas Colucci, IPO Chief, mentioned that USCIS intends to strengthen program integrity by collaborating with SEC and law enforcement (while retaining all adjudication power), including more data validation, and more providing adjudicators training on money laundering, fraud, etc. Mr. Colucci mentioned plans to conduct site visits both domestic and abroad, without mentioning details. (It would seem that domestic site visits would be of regional center offices and project facilities, while it is not at all clear what the agencies would visit abroad). He specifically encouraged stakeholders to report fraud through the EB-5 program mailbox. He mentioned an ongoing review – with an expected publishing date of summer 2015 – of the EB-5 program by the Government Accountability Office (GAO) at the request of Senators Grassley (IA), Coburn (OK), and Corker (TN), which will focus on fraud risks, economic/job-counting methodologies, and the ongoing study on the economic impact of the EB-5 program expected from the Department of Commerce by November 2015. Mr. Colucci did not mention any follow up to the interim report last year by the DHS Office of Inspector General. In response to a question about wasted monies, a suspicious death of a state official, and three bankruptcies involving EB-5 in South Dakota, Mr. Colucci seemed to confirm that there is an ongoing investigation of that situation by the FBI and ICE.

Processing Methods. In response to several questions about USCIS EB-5 processing methods, USCIS stated that it seeks to adhere generally to a “first in first out” (FIFO) approach, but petitions still are grouped by project and adjudicated in such groups to some extent to realize efficiencies in not re-adjudicating the same project documents. USCIS has received all files from the California Service Center unit that previously handled them, but it has not yet digesting all those files, which were not in good order, so USCIS predicts a noticeably improved adherence to FIFO in future. USCIS wondered why more I-924 exemplar petitions for project pre-approval are not filed, and comments clearly pointed to the processing time. USCIS confirmed that the filing of an I-924 for exemplar about a project tends to put on hold the adjudication of I-526 petitions for investors in that project but not for I-526 petitions of investors in other projects sponsored by that regional center. Without an I-924, USCIS treats the first I-526 as if it were an exemplar (ostensibly so that approval of the project in that context means USCIS defers to the project approval in adjudicating the I-526s submitting the same project documents, just as if it had approved an I-924 exemplar), but questions about the project must be sent in requests for evidence or notices of intent to deny to each investor. USCIS mentioned that a petitioner should disclose for the adjudicator when there have been project document changes since prior project approval.

Electronic Filing. USCIS provided some statistics about the use of the Electronic Immigration System (ELIS), which has been implemented by USCIS for the EB-5 program more than any other so far. USCIS expressed disappointment that only one regional center has loaded a “deal package,” and I-526 filings through ELIS were only 21 in FY2014 and only 14 so far in FY2015. (These numbers almost equal our own firm’s filings through ELIS, so it looks like we are virtually the “lone ranger” in the ELIS environment for FY2015). Mr. Colucci seemed interested in a stakeholder suggestion to provide a “test environment” in which a regional center could enter test I-526 petitions into ELIS in order to see exactly how investors experience the system (but I expect USCIS will instead publish clearer explanations of how it works without providing an actual test environment). USCIS seemed interested in suggestions to stage an “EB-5-only” ELIS training session. USCIS said it is considering a separate process flow for projects with I-924 exemplar in an ELIS “deal package.” USCIS tended to mention that the “deal package” function was for approved petitions, and USCIS failed to clarify this when stakeholders pointed out that the instructions at http://www.uscis.gov/uscis-elis/uscis-elis-document-library do not state that the project documents must be approved before such use.

Retrogression Guidance. USCIS is working on guidance, to be published for stakeholder comment, relating to the effects of anticipated visa number retrogression. It is looking at whether to change its I-526 policy requiring a showing that jobs will be created within 2.5 years from 526 adjudication in light of the likelihood of a mainland Chinese investor’s conditional residence period falling later in time than that. Also it is considering whether jobs can be considered “permanently” created even if they are gone by the time the investor files I-829, such as through the sale of a successful job creating enterprise. A questioner suggested review of the impact of retrogression on active “direct” investors who won’t be able to come to USA to operate the business for several years after I-526 filing. USCIS stated that it has no special expedite policy for persons affected by retrogression. A stakeholder later congratulated USCIS on “continuing its policy to expedite petitions for humanitarian reasons,” and USCIS speakers did not react to offer clarification. USCIS stated it has no plan to hold in abeyance (i.e., slow walk) I-526 petitions of investors who are natives of mainland China, and the USCIS speakers seemed unaware of the USCIS tendency to divert resources away from completing petitions in categories with severe visa number unavailability (3d and 4th preference family preferences). USCIS distinguished this from the normal USCIS practice of holding in abeyance I-485 adjustment of status applications (which cannot be filed unless a visa number is available at the time of filing) in the event of a retrogression of visa number availability, which has the effect of preserving the eligibility of a child whose “adjusted age” under the Child Status Protection Act was under 21 when the I-485 was filed.

Targeted Employment Areas (TEAs). USCIS reaffirmed that it may review methodology used by a state in designating a high unemployment targeted employment area. USCIS confirmed again that the I-526 petition of a $500,000 investor must show that a TEA was in effect at the “time of investment,” which is considered the time of I-526 filing if the funds are in escrow. But USCIS seems to have avoided answering the gnarly question of what happens if at the time of investment (or filing) a state TEA designation was issued within the past year but new data has become available.

Job Counting. Chief Economist Jan Lyons answered several questions about job counting. He said that investors cannot claim the jobs of U.S. workers who are sent abroad to perform their jobs; that multiple former part-time positions cannot be converted to full-time jobs and count as new direct full-time jobs; and that “you cannot combine a lot of part time jobs to count as full time jobs.” In response to questions about whether a troubled business must preserve not only full-time jobs but also part-time jobs that pre-existed the EB-5 investment, Mr. Lyons stated that investors in a troubled business are not required to preserve more than 10 jobs per investor. (Note: This is directly contrary to past stakeholder meeting guidance, which included that the literal language regulation requires preservation of all pre-investment jobs in order for any pre-existing jobs to count as “created,” and that a troubled business that eliminates part-time jobs without increasing full-time jobs would not be considered to have preserved all pre-investment jobs. Thus, stakeholders should be cautious about relying on this oral guidance.)

Source of Funds. USCIS stated that an I-526 must show the source(s) of collateral for loan. For instance, if EB-5 funds come from a loan collateralized by a house, the investor must show how he obtained the funds to buy the house. And if a loan comes from a company in which the investor is a shareholder based on the shares as collateral, the investor must show how he obtained the shares (and, ostensibly, how those shares became that valuable). An investor using a gift must show how the giver obtained the funds. One of the USCIS speakers made curious comments about USCIS wanting to see a five-year history on assets without clarifying that USCIS might want to see earlier history when the asset was obtained earlier than five years ago. USCIS openly acknowledged that it is acceptable to USCIS for a Chinese investor, for example, to use funds transmitted to the U.S. through other people (commonly called the “11 friends” approach in relation to the $50,000 limit China has tended to place on transfers out), but the investor needs to show how the funds were obtained by and originated with the investor before making such documented transfers.

Multiple regional centers per project. USCIS stated that more than one regional center may sponsor different investors in the same project but suggested that if an investor sponsored by one regional center in the I-526 filing later sought to change sponsorship to a different center that might be considered a material change requiring a re-filing.

Process of Investing. One caller suggested that USCIS May 30, 2013 policy memo’s apparent limitation of escrow conditions to the approval of I-526 petition, visa, or adjustment of status is contrary to the requirement in statute and regulations only that an investor be “in the process of investing.” (It seemed that the question arose from a desire for clarification that an I-526 may be filed based on funds still in escrow pending other conditions such as a minimum investment.) Other attendees representing IIUSA emphasized that IIUSA “Best Practices” include the investor placing the entire required investment into the NCE or at least in escrow and not holding funds back for further investment. USCIS confirmed that the law does recognize “in the process of investing” but this is tempered significantly by case law (see Matter of Hsuing, which held that a promissory note secured by assets owned by a petitioner can constitute EB-5 “capital” if the assets are specifically identified as the property of the investor and securing the note; the security interests in the note are perfected in the jurisdiction in which the assets are located; and the assets are fully amenable to seizure by a U.S. note holder).

Author’s conclusion. USCIS has been working hard to expand its staffing, but even the target for year-end does not create the capability to keep up the pace. USCIS needs to expand its EB-5 processing staff at least 50% more. The way to improve predictability and more efficient processing is to implement the long-ago proposed policy to truly expedite adjudication of I-924 exemplar petitions (to 2 or 3 months and not just the current 6 month goal) and I-526 petitions filed based on such approvals. The upcoming guidance on the impact of retrogression will show much about how ready and able USCIS is to accomplish program improvement through much needed policy clarification.