by Robert C. Divine (Vice President, IIUSA) and Melanie Walker of Baker, Donelson, Bearman, Caldwell, & Berkowitz, P.C.
To Listen To Full Teleconference (IIUSA Members Only) Click Here
The September 10, 2014 Stakeholder call was a mixed bag with good nuggets of yet un-written guidance, promises for improvements, and a lot of unanswered questions. The USCIS panel holding the meeting included Nicholas “Nick” Colucci, Chief of the Immigrant Investor Program, along with Karen Harrison and John Lyons, whose roles are mentioned below. The 90-minute session was divided into three parts. The following summary contains some editorial comment in brackets.
Part 1: Report from Nicholas Colucci
Nicholas “Nick” Colucci, Chief, Immigrant Investor Program, provided a lengthy list of statistics and program updates that he said will be circulated soon as part of the “Executive Summary” from the session:
- IPO Human Resources: As of today, the Immigrant Investor Program Office (IPO) has 83 employees on board, with the majority being adjudicators working on I-526 and I-829 petitions. The goal is to have 110 employees by the end of 2014.
- Deputy Chiefs of IPO: USCIS has installed a permanent Deputy Chief, Julia Harrison, and Three Division Chiefs: Karen Harrison and Lori Melton, who together will oversee Supervisory Officers, and John Lyons, Division Chief for Economists.
- California Service Center to IPO Case Transfer: Over the past ten months, USCIS has finalized the transfer of adjudications, including I-829s as of September 30, 2014, from the California Service Center to the IPO. Also IPO is moving from the 20 Massachusetts Avenue (D.C.) address to a facility about a half mile away, but the addresses will not change for filing petitions at this time.
- “Interagency Symposium”: An “Interagency Symposium” is to occur in the coming weeks where about a dozen federal agencies will gather to increase program awareness, learn from partners, and solicit ideas for potential regulatory changes. Invitees include delegates from: the Departments of Commerce, State, and Labor, the Securities and Exchange Commission (SEC), Federal Bureau of Investigation (FBI), and Immigration Customs & Enforcement (ICE).
- Economic Impact Report: The Department of Commerce is supposed to make available by next summer a study of the economic value of EB-5 program.
- USCIS Annual EB-5 Report: An Annual Report is anticipated by the end of the year with a macro-level view of the EB-5 Program to include full statistics, specific details regarding past and present processing times, and unspecified “Regional Center data.”
- 2013 I-924A filing results: 340 of the 369 Regional Centers approved as of September 30, 2013 submitted timely I-924As for that fiscal year; of the remaining 29, some filed late and some were issued a Notice of Intent to Terminate (NOIT) and some ultimately were terminated for failing to file (it is not clear how many might have been forgiven for failure to file on time). An additional 24 NOITs were issued and remain pending based on failure to fulfill job promotion obligations under 8 C.F.R. 204.6(m)(6), and the speakers acknowledged that a letter explaining steps taken to cultivate projects may carry sufficient weight to counterbalance a lack of projects and related filings.
- Processing Times: Improvement in I-924 processing (currently 7.1 months) and I-829 (currently 7.6 months), but not as much with I-526 (13.3 months) due to the 300% increase in filings from last year (8,000 I-526s filed in the first eight months of 2014). [Lesson: Visa retrogression is indeed on its way.]
- “EB-5 Interactive”: USCIS is creating something it calls “EB-5 Interactive,” a forum that will provide filing tips, clarify EB-5 issues, and incorporate input from stakeholders on relevant topics.
- EB-5 Program E-Mailbox: Designated Customer Service mailbox has been successful at addressing numerous EB-5 inquiries. Mr. Colucci discouraged emails for updated status inquiries on cases within standard processing times, but the panel acknowledged the need for implementing an escalation system whereby other inquiries may receive higher level response when the initial email response does not address the problem.
Part 2: China-mainland Visa Numbers and “Holdbacks”
The second part of the call was focused on two isolated topics, China-mainland visa unavailability and “Holdbacks.”
China-mainland Visa Unavailability. USCIS said the recent State Department notice about EB-5 unavailability for China-mainland only prevented USCIS from approving adjustment of status applications until October 1, but because the State Department did not actually amend the “current” cut-off date in the September Visa Bulletin adjustment applications may continue being filed.
As for the impending retrogression (expected to be imposed about May 2015), USCIS speakers said they have not been officially notified about any retrogression and had no plans for any specific action but would be studying and considering retrogression effects in the meantime. When asked specifically whether USCIS would consider expediting I-526 petitions of families with risk of age-outs in advance of expected retrogression, the speaker seemed not to understand the question and never answered it. They confirmed that visa unavailability never prevents I-526 adjudication. No one asked, but USCIS did not suggest that it might in the future intentionally slow down I-526 adjudications for families susceptible to age-outs in order to keep their ages frozen, which would cause an uproar from the developer community eager for speedy I-526 adjudication to release funds from escrow and avoid risk of promised refunds.
Holdback Escrow. In an admirable effort to share with all stakeholders the recent experience of a few in adjudications, USCIS discussed a confusing example of what we know has been a growing trend of arrangements to release 80% or 90% of each EB-5 investor’s capital from escrow while holding the remaining 10% or 20% to cover refunds of occasionally denied investors. After reportedly approving over 1,000 I-526s involving such holdback arrangements, USCIS recently challenged several I-924 exemplar petitions including them. After RFE response in one case USCIS approved the arrangement, and in the stakeholder meeting USCIS tried to explain at least the basics of the arrangement. USCIS cautioned that this is only one scenario where a hold-back was approved, but there is no one-size-fits-all approach in EB-5 (as we all know!), and these type of escrow arrangements will continue to be decided on a case-by-case basis.
The following is a near-verbatim transcript of what the speaker said about the I-924 exemplar holdback scenario that was approved:
The petitioner’s contribution of capital to the new commercial enterprise was split and held in two escrow accounts. Upon filing the Form I-526 Immigrant Petition by Immigrant Entrepreneur, the funds of the primary escrow account were released to the NCE and loaned to the JCE. The funds of the secondary (or “holdback”) escrow account were structured to either be refunded to the petitioner upon the denial of his or her 526 or released and contributed to the NCE upon the earlier of either the approval of the petitioner’s I-526 or denial of another petitioner’s I-526. When a petitioner’s funds from the holdback escrow are contributed to the NCE, the petitioner receives a capital credit in that amount such that upon petitioner approval each approved petitioner will have contributed the minimum required amount for EB-5 classification. So, that’s just one example of a holdback structure that USCIS received and was able to approve.
USCIS seems to have left out a crucial component of these arrangements: as the denied investor receives his 10% or 20% in the holdback escrow (if it is not already released to the NCE in the scheme for refund of another denied investor), the holdback amounts of another 9 or 4 investors are released to the NCE and the NCE separately makes a direct refund of the rest of the denied investor’s capital (ostensibly using the amounts just released from the other investors).
We believe USCIS’ objection to the arrangement in the RFE was the use of one ultimately to-be-granted investor’s capital to refund another’s capital rather than to fund the NCE. USCIS seems to have come to accept the result when it happens instead by release to the NCE and then refund by the NCE (where ostensibly all fungible money has missed).
While the sudden holdback scare might have subsided, stakeholders can take discomfort in the fact that USCIS found another much-approved practice to question in new cases. And NCEs that promise to try to find “replacement investors” may need to take care to have the replacement investors place their capital all the way into the NCE so that the NCE itself refunds the other investor, rather than taking in the new funds only to escrow and refunding from there.
Part 3: Q & A
The third part was the bulk of the engagement and led to some fairly clear guidance and a lot of puzzles to be solved later.
- ELIS processing time is no faster than regular paper filing. There is an expedite process, just like paper, but filers must satisfy at least one of the expedite criteria just like any other paper filing. (http://www.uscis.gov/forms/expedite-criteria)
- I-526s affiliated with a regional center will continue to be adjudicated without interruption while an I-924 amendment is pending if the I-526s are for a project or projects unrelated to the subject of the I-924 amendment.
- A non-profit JCE can borrow funds from and pay interest to a for-profit NCE.
- USCIS reiterated its policy allowing portfolio investments by the one NCE into which the EB-5 investor places his capital. USCIS refused to answer and said it would study two related questions: What level of business plan is needed for each entity, do they all need to be Matter of Ho-compliant and fully established at time of filing? How much flexibility in types, industries, capital requirements, geography is there? [So far USCIS has required that each investor whose funds and claim for job creation credit will be dispersed among multiple JCEs must present a full business plan for each JCE in his I-526, which makes EB-5 not useful for most venture capital funds that tend to arrange serial, not parallel, investments).]
- “Generally, when the period for requisite job creation for an approved I-526 is concurrent with the construction period and construction period has lasted for more than 2 years, USCIS has not in the past required the jobs to be in existence all the way through the I-829 filing.” [This reverses the December 11, 2009 memo still contained in the USCIS Adjudicator’s Field Manual, requiring that, to be counted, direct construction jobs “[a]re expected to last at least two years, inclusive of when the petitioner’s Form I-829 is filed.” The new policy seems consistent with RFEs for the last few years mentioning only the two year requirement, and USCIS speakers repeated the new policy more than once in the call, but still it is not in writing, and we look forward to written clarity. We ponder the meaning of the condition mentioned in the first clause of the quoted language above, and we think it might mean that the direct construction jobs can’t count if the construction was completed before the I-526 was filed, but we don’t know and need to clarify this important issue with USCIS.]
- The same officer or group of officers will be tasked with reviewing petitions for a specific project or regional center as much as possible.
- It is “fairly clear” from May 2013 memo that if a Regional Center is not approved for an “adjacent geographic area” when there is an I-526 petition filed for a new project and the project is approved, USCIS will consider the RC approved area to have been, but the additional areas DO need to be contiguous to the previously approved area. [This is not clear from the May 2013 memo, which did not mention any “contiguous” requirement, but USCIS said this same thing in the February 24 engagement. Also, it is not clear whether the newly “approved” area only through I-526 petition approvals can be used for future filings (i.e., if the “expanded” area of impact is large and the later project were small and only on the outskirts of the expanded area) or can be the basis for further expansion without an I-924 amendment being approved, and how the RC would show future investors the expanded area. An I-924 to expand the area seems advisable but the RC would need to try hard to clarify that the I-526s do not depend on the I-924 so they would not be held up pending its adjudication per the policy stated above.]
- No Premium Processing for I-924s is in the foreseeable future.
- The JCE can provide a guaranty on the investment, just not the NCE. In response to a question about such a guarantee, Mr. Lyons stated, “If there is insurance by the JCE, that should not be problematic. The risk is established when the investor invests in the NCE as long as that is the at-risk investment, that should be fine.” [We have seen a recent notice of intent to deny investors in a project where the developer offered as collateral for an NCE loan a different property than the one receiving EB-5-funded development, so we think more written clarity is needed.]
- If an aged out child wants to file a new I-526 petition to replace the parent, he or she will file a new I-526, show individual source of funds, and get a new priority date. [USCIS did not discuss whether the parent could gift the already-made investment to the child without first taking a refund (if available) and having the child invest.]
- If a direct-investment NCE has two office locations, one in a TEA and one not, USCIS will review four factors to determine where the NCE is “principally doing business”: location of jobs created, location of expenditure, day-to-day operations, and where assets maintained.
USCIS took the following questions under advisement, suggesting that they may provide further guidance in the future about them [but don’t hold your breath!]:
- Can a loan from the NCE be paid back by the JCE before the end of conditional residence, and would it help in this regard if the NCE re-invested the repaid funds in other job-creating activity? This hugely important question, which has been asked for years in stakeholder meetings and always punted, was asked and again deferred for a later date.
- Can an EB-5 investor make two separate EB-5 investments in two different NCEs and file two I-526 Petitions, with the idea that he/she will withdraw the second one after the first is approved? [This seems like the answer would be a straightforward YES, but the panel added this question to the list of “we’ll get back to you on this” items.]
- If the physical address for the JCE is intended ultimately to fall within a TEA, but the specific street address of JCE is not yet known because a specific parcel cannot be contracted until capital is released from escrow, is this a problem for I-526?
- What happens if a conditional resident files a new I-526 while an I-829 is pending? (How) can he file for adjustment after the second I-526 is approved, since he already is still a permanent resident unless and until the I-829 were denied?
- How does the job creation within 2.5 years work when a Chinese investor may not have even entered the US to begin conditional residency within 2.5 years of filing? Will this timeframe/clock be adjusted if there is a 24+ month retrogression for Chinese EB-5 applicants?
- Why can’t we split out the processing times into more useful data? Couldn’t we at least split Initial Designation of a Regional Center with Regional Center amendment? It seems like I-526 petitions filed as direct investment or with regional centers could also be a useful distinction. An average processing time can be misleading in the marketplace.
- Are the recent RFE challenges to the friends and family method of transferring funds out of China becoming a common practice or unique to the case stakeholder heard about? [There was a unique fact reference to certain friends’ funds being misclassified in some transfer-related documents as “for study,” which may have triggered the RFE at issue in the specific case mentioned, but there are occasional reports of similar challenges to this commonly used Chinese funds transfer method. The questioner was asked to submit an email to the Public Engagement team, and we can only hope USCIS will share with everyone any critical answer provided.]
In the weeks to come, we can expect the executive summary from the call, more news on the EB-5 Interactive, further guidance and clarification on categories of construction jobs (this was mentioned multiple times during the call), potential changes and additional regulations developed from the interagency EB-5 symposium, and hopefully more of a roadmap to face the rapidly approaching cut-off date for EB-5 applicants from China. The September 10 call started a lot of wheels turning, but this EB-5 train needs to get some serious momentum before the ground shifts again in 2015.
 Robert C. Divine is the Chairman of the Immigration Group of Baker, Donelson, Bearman, Caldwell, & Berkowitz, P.C., a law firm of over 650 lawyers and public policy advisors with offices in 20 cities in the U.S. including Washington, D.C. He has served in the past as Chief Counsel and Acting Director of U.S. Citizenship & Immigration Services (USCIS). He is the author of Immigration Practice, a 1,800 page practical treatise on all aspects of U.S. immigration law now in its Fifteenth Edition (see www.jurispub.com). He has served five years as Vice President of the Association to Invest in the USA (IIUSA), an association for EB-5 regional centers. Melanie Walker is an associate attorney at Baker Donelson and former law clerk with a federal district judge. Divine and Walker represent developers and regional centers in syndicating EB-5 offerings and represent investors in seeking EB-5 benefits.