Marketing and Compliance: Additional Services for Our EB-5 Clients

September 11th, 2014 by H. Ronald Klasko

The two core elements of our law firm’s EB-5 practice are well known to our clients and our readership. This includes our EB-5 regional center and project team, which works with regional centers and project developers in structuring EB-5 projects and preparing regional center designation applications, exemplar petitions and templates for EB-5 projects. In doing so, we serve as the quarterback of a team that includes an EB-5 economist, EB-5 business plan writer, and EB-5 corporate and securities lawyer, as well as an escrow agent and often a market study firm.

Our EB-5 team also includes an investor group, which works with investors in preparing lawful source of funds and path of funds documentation, preparing and filing I-526 petitions and assisting with the conditional immigrant visa process.

Less well known are two other aspects of our full service EB-5 practice. Our EB-5 compliance group works with regional centers and project developers “from cradle to grave” in all aspects of EB-5 compliance. This aspect of our practice is critical to regional centers and project developers, as well as to investors, since it relates to the ability of the regional center to remain in compliance with USCIS laws and policies and the ability of project developers to be in a position to meet the needs of investors in the critical condition removal process. A group of lawyers, paralegals and auditors works with our clients to develop the necessary databases relating to investors and projects; obtain access to software or otherwise develop systems to track the flow of investment funds from escrow to the new commercial enterprise and from the new commercial enterprise to the project. We also develop systems to monitor and audit all of the necessary inputs to prove job creation at the I-829 stage, including direct jobs, construction expenditures, revenues, and other inputs included in the economic report. In doing so, we train in house staff and review documentation, often on a monthly basis, with the goal of having all documentation necessary by the time of each investor’s condition removal filing. This ongoing compliance enables us to prepare the condition removal template on a timely basis and without dealing with unanticipated or emergent issues. If the project is not on track or has materially changed from the original business plan, we know of the issues at an early stage and are able to develop alternative legal strategies to maximize the chances of condition removal without problems.

An important part of our EB-5 compliance practice is working with regional centers and project developers to adopt “industry best practices” in areas such as investor relations, staffing, budgeting, project review and monitoring, tracking condition removal dates, record keeping, insurance, conflicts and dealing with agents, among others. We also work with regional centers on preparation for and filing of the annual I-924A compliance report.

Another critical part of the EB-5 process for our regional center and developer clients involves the process of finding agents overseas to market to investors. We made a decision that, while services in this regard are critical to our clients, they are not really legal services. As such, we decided to provide these marketing services through a separate entity of which I am a principal. EB-5 Market Connect is the marketing service available to our clients. It is in the business of matching EB-5 projects with migration agents overseas. Our full-time employee creates an ongoing database of agents based on categories such as preferred size of project; preferred industries; geographical areas preferred; compensation structure; capital stack requirements; types of acceptable escrows; job cushion requirements; timelines for acquiring investors; and other categories. The company prepares a marketing strategy for the project, introduces the project to targeted agents, and negotiates the terms of a contractual arrangement between the client and the agent. More recently, EB-5 Market Connect has expanded its product line to include matching projects with regional centers.

These are two examples of how our law firm’s EB-5 practice has expanded to meet the needs of our clients for full service, life cycle representation. Because of the increasing demand for these services, we will be hosting a seminar focusing on marketing and compliance in the near future. Stay tuned for details.

Share

The Impact of EB-5 Quota Backlogs on Chinese Families

September 8th, 2014 by H. Ronald Klasko

In recent times, we have published two blogs and one Client Alert on the impending EB-5 quota backlogs for investors born in mainland China. If anyone reading this blog has not read those analyses, they can be found at www.eb5immigration.com.

The purpose of this blog is to highlight what this means to families with children and to discuss the likelihood that the EB-5 quota backlog problem will be resolved by the U.S. Congress.

In order to understand the impact of an EB-5 quota backlog for a Chinese family, it is necessary to make reference to the Child Status Protection Act. The Child Status Protection Act was passed by the U.S. Congress to prevent a child from turning 21 (and therefore becoming ineligible to immigrate with his or her parent) because of processing delays by U.S. Citizenship and Immigration Services. The law “freezes” a child’s age as of the filing date of the I-526 petition during the entire time that the petition is being processed by USCIS. Assuming the quota is current when the EB-5 petition is approved (which means that a visa number is immediately available), the child’s age remains frozen as long as the child takes action to obtain his immigrant visa (green card) within one year.

Since the Child Status Protection Act was not meant to protect against quota backlogs, once the I-526 petition is approved, if a visa number is not available because of the quota backlog, the child’s age is “unfrozen”. This means that during every day of quota unavailability, the child’s age increases by one day beyond the age that the child was when the I-526 petition was filed. For example, if the child was 20 years and 6 months old when the I-526 petition was filed, and if the I-526 petition was pending for one year before it was approved, and if the quota is backlogged upon approval, the day after the approval, the child’s age for immigration purposes would be 20 years 6 months and 1 day.

For quite some time, we have been advising that “18 is the new 21”. This means that we have been advising our Chinese clients to file I-526 petitions before their children turn age 18. Although no one knows for sure how long the waiting list will be, we are hopeful that the waiting list will be less than 3 years long. However, the best advice is to file as soon as possible before the child turns 21.

A curiosity of the Child Status Protection Act is that, in the event of a quota backlog, it is in the investor’s interest for the I-526 petition to be pending as long as possible if the investor has a child. The reason for this is that the child’s age remains frozen for a longer period of time. For the same reason, expediting the approval of an I-526 petition is not only not helpful (because the investor’s place in line is determined by the filing date and not the approval date), but can actually be counterproductive because the child commences the immigration aging process sooner than he otherwise would.

We are frequently asked to assess the chances that the U.S. Congress will take action to increase EB-5 numbers so as to avoid the quota backlog. The chances of this happening in the near future can only be described as unlikely. There are quota backlogs in many categories of family and employment-based immigration, and Congress has taken no action to deal with them. Unless and until the U.S. House of Representatives decides to act on immigration legislation more broadly, it is very unlikely that it will deal with EB-5 quota numbers as a separate legislative action. Although there is some hope that Congress could take this action at the same time as it extends the regional center program in September 2015, the chance of action on the quota is considered very slim in the opinions of most Washington insiders.

So can anything be done? There is one possibility. President Obama is presently considering executive actions that he can take consistent with the present law to alleviate problems in the immigration system. One such action that he is considering is an interpretation of the existing law to exclude the family members from the quota count. In the EB-5 context, this would mean that the 10,000 numbers would go to 10,000 investors rather than to 3,000 to 4,000 investors, with the remainder of the numbers going to family members. Many, including this author, believe that the Immigration and Nationality Act has been interpreted incorrectly for many years in that family members should never have been counted against the worldwide immigration quota. If President Obama takes this executive action, the threat of EB-5 quota backlogs for China would immediately disappear.

Anyone concerned about this issue should contact the White House directly using the following web contact form: http://m.whitehouse.gov/contact/submit-questions-and-comments. In addition, you may contact your Senator or Congressman and request that he or she advocate this action to the White House directly.

Share

Correcting Another Misguided EB-5 Article

August 4th, 2014 by H. Ronald Klasko

Add Fortune Magazine to the list of publications publishing one-sided tirades against the EB-5 program. I would have expected better of Fortune.

Barely paying lip service to the hundreds of successful EB-5 projects creating tens of thousands of jobs, the article focuses on the thankfully aberrational example of the fraudulent Chicago Convention Center case. Focusing more than 80% of the article on a single fraudulent project that was stopped by the SEC 18 months ago is the epitome of old news – trying to make broad generalizations based on one fraudulent operator whose scheme was successfully thwarted by government oversight.

The purpose of this blog is not to defend the EB-5 program, which I have done on many occasions. Rather, the purpose is to correct the incorrect statements in the article, of which there are many.

To state that “the EB-5 industry is virtually unregulated” is a gross inaccuracy. It may have been true some years ago; it is certainly not true today. USCIS now has a vast array of immigration adjudicators, securities lawyers, economists, and other professionals adjudicating the legal qualifications of investment projects and investors’ lawful source of funds. In addition, USCIS has made it clear that it has been cooperating with the SEC for more than two years, and anecdotal evidence has shown that this partnership is more than merely pretextual.

The article states that “deal documents receive no SEC scrutiny and face little due diligence.” In fact, the deal documents are scrutinized by the SEC and face an exceptional level of due diligence by the USCIS and other agencies. USCIS vetting of projects generally goes beyond evaluation of the evidence provided by applicants, and frequently involves examination of the public record.

The article states that regional centers “usually charge a developer about 2% annual interest for at least five years.” I have been involved in many deals between developers and regional centers. While I cannot state that there has never been a regional center that has charged a developer 2% annual interest on all of the immigrant capital, I can state that, in my experience, many regional centers’ fees are significantly lower than that amount.

The article states that a regional center “doesn’t have to report publicly on its performance, identify its principals, or disclose any financial, legal or regulatory problems they have encountered.” This is only partially correct. A regional center does have to file an annual compliance report, which is subject to public disclosure, with USCIS. This report does identify the principals of the regional center, as well as various aspects of its performance. Any changes in ownership must be reported within 30 days. Unfortunately, USCIS has not chosen to make this information easily accessible to the public, requiring instead the filing of a Freedom of Information Act request.

The article states that “Chinese agents typically conduct little due diligence.” Again, while the article may have been correct at some point in the past, it is not at all correct today. In my experience, most Chinese agents now conduct substantial due diligence on projects, often retaining firms like ours to perform the due diligence before they agree to take on the project.

Finally the title references the “Visa-for-Sale Program.” It might be stated correctly that many of the other countries in the world that compete for foreign investment dollars have a visas-for-sale program. Fortunately or unfortunately, the U.S. does not. The U.S. program requires at-risk investments that produce jobs for U.S. workers. This is very different than buying a visa. Rather, it is a classic example of a successful government program that attracts foreign investment dollars in a program that creates employment. One could certainly argue that there is at least as much or more benefit to the U.S. from an immigrant who invests money in the U.S. and creates jobs for U.S. workers as compared to an immigrant who takes a single job offered by a U.S. employer.

There are many aspects of the EB-5 program that could be improved. Unfortunately, Fortune Magazine chose not to address them.

Share

Preparing for the I-829 Before It’s Too Late

July 22nd, 2014 by H. Ronald Klasko

I recently participated in a national webinar sponsored by NES, the largest EB-5 escrow administrator. The webinar focused on I-829s, and my presentation was entitled “Preparing for the I-829 Bubble”.

I stated at the time, and I will restate now, that the readiness of regional centers and project developers for the I-829 process is one of my most serious concerns for the future of the EB-5 program. It is the reason that our law firm has developed a compliance group within the EB-5 team. But more on that later.

Until very recently, the I-829 process was the province of direct EB-5s and a small number of regional centers which had investors in projects as far back as 2008 or 2009. The group of active regional centers at that time was extremely small and tended to be larger regional centers with in-house staff prepared for the onerous task of auditing and preparing the documentation necessary for the condition removal process.

As more and more regional centers were approved, including smaller and less well-staffed regional centers, the number of projects and investors attached to regional centers that have never gone through the I-829 process have increased. One can only hope that these regional centers and project developers are prepared for the major task that is the condition removal process.

Regional centers have to decide no later than when their first investors are approved how they want to handle this process. Do they want to do everything in-house? Do they want to outsource? Do they want their law firm to handle it? Do they want to hire an audit firm? The time of condition removal is way too late to make these decisions.

It is best if the audit process for the I-829 starts long before any investors are approved. The process of monitoring and documenting the investors’ flow of funds should commence when the investors invest. The process of monitoring construction expenditures should commence whenever the construction commences.

There are two main aspects to the condition removal petition. One is documenting that each investor made the investment and sustained the investment in the new commercial enterprise. Regional centers must have a system to trace the money from the investor to the escrow account to the new commercial enterprise and ultimately to the project. Regional centers and project developers need to either develop their own software to track this information or else buy the software or outsource the process.

Usually the biggest issue is documenting job creation. In most regional center projects, especially loan model projects, there are no direct jobs. Documenting indirect and induced jobs is a matter of documenting inputs to the economic report. For construction jobs, this means documenting construction costs, certain soft construction costs and furniture, fixtures and equipment. For operations jobs, this may mean documenting revenues, occupancy, direct employees or other inputs that the economic report utilized.

If all of the inputs were met or exceeded, there is no need for an additional economic report. However, if any of the inputs were not met, a new economic report may be necessary to determine how many indirect and induced jobs were created given the actual expenditures, revenues, etc. It is not necessary to prove that the jobs were created exactly as planned or that all of the inputs to the economic model were achieved. It is only necessary to prove that the necessary number of jobs were created, even if that is proven on a completely different basis.

We have seen in our practice interesting issues relating to construction timeline. There can be problems if construction is longer or shorter than planned. If the construction was projected to last more than 2 years, which resulted in the ability to count direct construction jobs, and the construction actually lasted less than 2 years, direct construction jobs cannot be counted at the I-829 stage. This can cause a big problem. On the other hand, if the construction timeline was projected to take less than 2 years, and it actually took more than 2 years, direct construction jobs can be counted, which can make up for a shortage of operations jobs. However, if the elongation of the time period was the result of extended periods of time during which little or no construction was taking place, questions might be raised.

I mentioned above that our firm has developed a compliance group to deal with these issues. In some cases, this group provides ongoing support to regional centers and project developers who are performing these functions in house. Other clients choose to outsource this function either to an auditing firm or to our law firm. In either event, our firm stays actively involved because the burden falls on us to actually prepare the I-829 template for all of the investors in the project. It is highly inadvisable for a regional center or a project developer to expect our firm or any other firm to be able to take raw, unreviewed and unmonitored data and turn it into an I-829 template on short notice.

Finally, regional centers and project developers have to understand that the I-829 process is a sequential process, meaning that the 21 to 24 month window opens for each investor on a different date. Investors and their attorneys are very eager to have their I-829 petitions filed as close to the beginning of the 3 month window as possible. The staggered filing dates can actually come in handy in situations where all of the necessary expenditures or revenues or direct jobs have not been created at the time that the first investor must file. However, when that is the case, the data must be monitored investor-by-investor to show which investors got credit for which jobs.

Thorough documentation, advance preparation, and providing regular updates to the law firm and to investors are key components of a plan to ensure that the I-829 bubble does not burst.

Share

A Creative Solution for Avoiding China EB-5 Quota Backlogs

May 30th, 2014 by H. Ronald Klasko

Two of my recent blogs have focused on the possibility or likelihood that the EB-5 quota for China will be reached and that Chinese EB-5 investors will have a lengthy wait for a visa number that will allow them to enter the U.S. as conditional immigrants. This blog will focus on what can be done about that.

The most obvious answer is that Congress, which created the quota, can change the quota. This could be done by increasing the EB-5 quota above 10,000 numbers; by removing spouses and children from the quota; or by eliminating the per country limits. Unfortunately, today in Washington, none of these legislative options has any realistic chance of success outside of passage by Congress of comprehensive immigration reform. If you have at all followed the immigration debate in Washington, the chances of comprehensive immigration reform passing both Houses of Congress in the near future are exceedingly slim.

If Congress officially pronounces comprehensive immigration reform dead, there is then a possibility of piecemeal immigration legislation, including EB-5. If that were to happen, the issue of the EB-5 quota would be front and center. However, many members of Congress in key positions are unlikely to vote to increase EB-5 numbers unless at the same time voting to decrease numbers in other immigration categories. Any other category to be reduced likely has a constituency advocating for an increase in numbers and certainly fighting hard to make sure that no numbers are taken away.

In short, the legislative solution is not promising for the near or mid-term.

So what other option exists? The Administration, including USCIS or the Department of State, does not have authority to increase EB-5 numbers above 10,000. However, what if there were a way for the Administration to increase the number of investors while acting completely consistent with Congress’ 10,000 limitation? There is a way (and I give credit to my colleague Tammy Fox-Isicoff for suggesting this solution to me).

The answer lies in a review of the Immigration and Nationality Act. I suggest that a review of the statute reveals that Congress intended the 10,000 number to mean 10,000 investors. Logically, Congress decided on a number of investors who should be allowed to immigrate to the U.S. each year, which number should not be dependent on whether the average investor has one child or five children. But logic is not determinative – the language of the statute is.

Happily, the language of the statute is consistent with logic.

Section 203(b)(5) sets the worldwide quota for “qualified immigrants” seeking to enter the U.S. to invest in a new commercial enterprise. Spouses and children are not seeking to invest and, I suggest, should not be included in the 10,000 count. The relevant section of the law relating to spouses and children is Section 203(d). This is the section that is often cited to provide support for allocating most of the 10,000 numbers to spouses and children. However, that is not what it states. It states that spouses and children are entitled to the same “status” and “order of consideration” as the principal investor. The “status” referred to is the status of permanent resident. The “order of consideration” means that spouses and children should be able to immigrate at the same time as the principal. However, nothing in this language states or implies that separate visa numbers must be made available to the spouses and children.

In fact, the present system violates the statutory requirement of Section 203(d). Spouses and children do not necessarily have the same “order of consideration” as the principal investor. For example, if the principal investor obtains conditional permanent resident status when a quota number is available, the spouse or child who wants to immigrate subsequently is unable to join the principal investor if the quota has subsequently retrogressed. This is contrary to both the language and the intent of the law.

So what are the chances that this creative argument could prevail? There are two chances. One is that the Administration, which is looking for solutions to solve immigration problems that do not require legislative action, could implement this change unilaterally. Needless to say, that would take a lot of political courage. Efforts are presently underway to try to convince the Administration to take such action.

Absent administrative action, the other solution would be litigation. Although litigation is always difficult and the law could be interpreted differently, a purely legal issue such as this would be perfectly appropriate for a court’s review.

Impossible? I have always been a believer in creative solutions to complex problems. This is clearly a complex problem begging for a creative solution.

Share

Reflecting on the Past Year

April 10th, 2014 by H. Ronald Klasko

Sometimes you have to step back. I usually publish blogs with my interpretations of EB-5 legal issues, critiques of EB-5 policies and my perspectives on EB-5 practice. I don’t publish blogs on what our EB-5 Team does day in and day out. Today is an exception. Our EB-5 Team at the Klasko firm deserves some credit in print.

I just returned from an EB-5 summit in Shanghai where I was asked to deliver opening remarks providing my perspectives on the past year. Although I rarely have time to think about it, when I had to put together the remarks, I realized that it has truly been an extraordinary year for our EB 5 practice.

I started my remarks stating that I love what I do. I love it because I believe we are making a difference, and helping to achieve the purposes of the EB-5 program, which was intended to promote job creation and an improved economy in the U.S. Within the past year, our firm’s Investor Team filed almost 400 EB-5 petitions for investors and helped hundreds of investors and their families successfully complete their immigration to the U.S. Our EB-5 Project Team performed the EB-5 immigration legal services for our developer clients for projects that resulted in the infusion of almost $1 billion of EB-5 capital into the U.S. economy. These projects include, among other things, hotels, casinos, condominiums, entertainment complexes, office buildings, retail projects, residential projects, and even the development of an entire neighborhood. The projects that our EB-5 Team have been involved in over the past year have added tens of thousands of jobs to the U.S. economy, and resulted in more than 500 approved I-526 petitions.

In addition, we have obtained regional center approvals for over 20 new regional centers within the past year. These regional centers encompass territories covering more than fifteen states, and will be a source of new jobs, new capital infusion and new investor immigrants in the coming years. The regional centers include a public-private partnership, a regional center approved based on a tenant occupancy model and a regional center encompassing two entire states. The projects on which the regional center approvals were based included a raceway, a cargo container transport terminal, check cashing stores, education and child care facilities, as well as the more traditional hotels, restaurants, shopping malls, charter schools, condominiums, office buildings, mixed-use facilities and residential projects.

So while future blogs will again return to discussions of cutting-edge legal issues and new developments in EB-5 law and policy, I wanted to devote one blog to stepping back and reflecting on our day-to-day accomplishments for clients and the impact that they have had on so many development projects, on the U.S. economy and on investors and their families. There is a reason that I, and our firm’s EB-5 Team, love what we do.

Share

Unanswered Questions from the EB-5 Stakeholders Meeting

March 20th, 2014 by H. Ronald Klasko

In my last blog, I delineated my thoughts on the most important insights to be gleaned from the February 26 stakeholders meeting. This blog will focus on some of the most important issues that went unanswered.

For at least the third time during the period of the last two years, USCIS stated that it has not formulated its position on a critical issue that arises on many EB-5 projects. What if a developer wants to refinance after the completion of construction with the result being that the loan to the new commercial enterprise is repaid? What if the project is sold with the same result? Let’s assume that the NCE either uses the money to invest in another project or holds the money. In either event, no money is released from the NCE to the investors until they remove conditions. USCIS has again stated that it is “currently reviewing” this issue.

In my opinion, this event should not prejudice the EB-5 investors for reasons of both law and policy. From a legal perspective, the key issues for condition removal are whether the investment has been sustained and whether the jobs have been created. The investment that must be sustained is the investment in the new commercial enterprise. In these examples, the investment in the NCE is sustained. The jobs that must be created have presumably all been created (especially assuming the jobs in question are construction jobs). From a policy perspective, developers should not be precluded from making normal business decisions after all jobs have been created. USCIS should not be creating policies that result in the potential removal of investors who sustained their investments, especially where the investments have accomplished their job creation purposes.

Another issue that USCIS stopped just short of answering is the question of whether there is any temporal limitation on the use of EB-5 money to replace bridge financing or equity. USCIS restated its policy as articulated in the May 30, 2013 Policy Memorandum that EB-5 money can get credit for job creation if it is issued to replace debt or equity that is temporary in nature. At one point during the call, USCIS seemed to indicate that it does not matter how late the EB-5 money comes in to replace the bridge money, even if the construction is completed by that time. However, on a follow-up question, USCIS seemed to backtrack, indicating that USCIS will decide if additional clarification or guidance is needed to deal with a scenario where all of the jobs are created before any EB-5 money comes in. Especially with the increasingly lengthy processing time for I-526 petitions, it will be more and more frequent for EB-5 money to come into projects to replace bridge money after construction is completed. USCIS should state clearly and unequivocally that there is no time limitation as long as the EB-5 money is replacing temporary debt or equity.

USCIS responded to a question whether there is any violation of the “at risk” or “no guaranteed redemption” requirements if a developer or general partner – but not the investor – has the option to redeem the investment at a fixed amount. It appears to me that this question is appropriate for a direct answer – that this scenario creates no guaranteed redemption or at risk problem. Unfortunately, USCIS did not provide a direct answer to the question. USCIS stated that it would review the evidence to determine if there is a risk of loss and a chance for gain. This is certainly a true statement, but it does not answer the question.

Finally, USCIS confirmed that geographical expansion of a regional center must be to an area “contiguous” to the already-approved area. However, USCIS did not confirm how wide the geographical area expansion can be other than to state that it cannot extend from New York to California. USCIS should confirm that expansion can be to an area that may be a significant distance from the already approved area as long as the expansion includes all contiguous areas necessary to connect the new area with the original area.

Hopefully, USCIS will address these and other critical issues at the next stakeholders meeting scheduled to be held in late spring or early summer.

Share

EB-5 Stakeholders Call – What We Learned

March 14th, 2014 by H. Ronald Klasko

After a lapse of well more than one year, USCIS held an EB-5 stakeholders call on February 26. This blog will highlight new information that we have learned. Equally importantly, the next blog will discuss critical open issues that remain and were left either unanswered or answered in a way that leaves open questions.

What we learned:

  1. USCIS is recommitting to quarterly engagements, the next one being in person in late spring or early summer.
  2. As of February 2014, all I-924s and all I-526s will be adjudicated by the new unit in Washington, DC. The unit at the California Service Center will continue to adjudicate all I-829 petitions and all I-485 applications based on approved I-526 petitions. This will continue through September 30, 2014, after which CSC will no longer be involved in any way in EB-5 adjudications.
  3. After a long delay, USCIS has finally updated and published EB-5 processing times. The published processing times, which will be updated monthly, are 11 months for I-526 petitions, 12 months for I-924 petitions and 11 months for I-829 petitions. While it is helpful to have published processing times, there are three problems with the processing times. First, they are too long. Second, USCIS has indicated that the processing times will likely increase now that 35 adjudicators from the California Service Center who were working on these applications will no longer be doing so. This leaves 20 economists and 25 adjudicators in Washington, DC. Third, the I-526 processing time and the I-924 processing time are not particularly helpful. Realistically, there are vastly different processing times for four categories of I-526 petitions:
    • Direct I-526 petitions, for which the processing times are usually 3 to 6 months;
    • First investors in a regional center project, for which the processing times are generally well over 12 months;
    • Processing times for later investors once the project has been approved, for which the processing times are often well less than 11 months; and
    • Processing times for I-526 petitions for which there is an approved exemplar, for which USCIS has indicated that the processing times should be reduced.

    With respect to I-924 petitions, different petitions have vastly different processing times, with the longest processing time being for I-924 petitions with exemplar I-526s and the shortest processing time being for I-924 petitions with hypothetical projects or just geographical expansion.

  4. There are 7,131 I-526 petitions pending at USCIS as of September 30, 2013. Why is this number so significant? Given that the present 10,000 quota (including family members) leaves room for about 3,000 investors per year, the backlog represents about 2 1/2 years worth of investors under the quota. If all of these petitions were adjudicated relatively promptly, the impact on quota retrogression is obvious.
  5. USCIS clarified the deference given to actual projects. There was some clarity previously regarding the deference given to exemplar projects and the lack of deference given to hypothetical projects. The stakeholders call clarified that the business plan (assuming it is Matter of Ho-compliant) and the economic report would be given deference in the I-526 petition process for actual projects.
  6. There had been some lack of clarity regarding jobs created in multiple TEAs. USCIS clarified that jobs can be created in multiple TEAs as long as the principal place of business is in one of the TEAs within the regional center.
  7. USCIS clarified that an I-924 amendment is purely optional in the event of the sale of a regional center. USCIS does, however, want to be notified within 30 days.
  8. Perhaps the most surprising clarification during the stakeholders call was the detailed explanation of when guest expenditure jobs could be counted on construction projects. Following an earlier stakeholders meeting with USCIS economists, it appeared that USCIS virtually never accepted guest expenditure jobs. The economists had indicated that the standard was proving that guests would not have come to the city were it not for the building of the hotel or other structure. This was a clearly unrealistic and, in most cases unattainable standard.

    USCIS has now set forth three potentially attainable standards, any of one of which could lead to approval of the guest expenditure jobs:

    • Unmet aggregate demand. This requires a showing of unusually high occupancy rates with a detailed economic analysis of how the new hotel (or other structure) would serve unmet demand.
    • Providing a differentiated project to a special market segment. This presumably requires showing that the hotel is a different type of hotel than is presently available on the market. For example, if there is no extended stay hotel in the market and the developer is building an extended stay hotel, presumably that would be considered a differentiated product.
    • If the new hotel is built in response to new development in the community, guest expenditure jobs may be acceptable. For example, if a new sports arena or a new entertainment venue is being built in the area, a new hotel connected with or serving the sports arena or entertainment venue might be the basis for counting guest expenditure jobs.

    This is very significant because jobs based on guest expenditures can sometimes double or triple the job count.

The next blog will discuss major unanswered questions remaining from the February 26, 2014 stakeholders meeting.

Share

The problem with increasing processing times for I-829 adjudication: It’s illegal.

March 11th, 2014 by Matthew Galati

On February 26, 2014, USCIS held its first Stakeholder Engagement since the publishing of its comprehensive EB-5 adjudications memorandum last year (the “May 30 Memo,” which we discussed at length shortly after it was issued).  During this conference call, the Service took the opportunity to introduce the new head of USCIS’ Immigrant Investor Division, Nicholas Colucci. USCIS also provided updates as to its geographic transition of EB-5 adjudications from the California Service Center to a dedicated, centralized office in Washington, D.C.

Although the call provided much needed insight on a variety of topics for stakeholders, there was one key message that may have stung the community: processing times for all EB-5 Forms (I-924, I-526, and I-829) will be increasing as USCIS transitions to its new office. One can be sympathetic with the Service in this regard – it has hired a multitude of new staff members and the challenges of opening a new office on the other side of the country must be quite daunting.

However, this increase in processing times presents a problem for USCIS which already exists – the Service is violating the Congressional statute mandating that Form I-829 be adjudicated within 90 days of filing.

By way of background, removal of conditions for an immigrant investor is governed by INA § 216A(c), introduced into the Act following the Immigration Act of 1990. Under those statutory provisions, the government is required to conduct a personal interview with investors within 90 days of filing the I-829. The statute provides the government an option of waiving the interview “in such cases as may be appropriate.” Under the provisions of INA § 216A(c)(3)(A)(ii), Congress mandated Legacy INS to make a decision on the I-829 within 90 days of the filing or of the interview, whichever is later. Given the unambiguous statutory language, the Service would need to issue an interview notice within 90 days or decide the I-829 at that time. As USCIS pattern and practice shows, interviews are quite rare absent indications of fraud or a petitioner’s inadmissibility/removability.

In 1994, while the EB-5 program was still in its infancy, Legacy INS first published the regulations governing removal of conditions for investors, found at 8 C.F.R. § 216.6. When the regulations were promulgated by notice and comment rulemaking, two commenters criticized the proposed regulation for lacking any time limits for the Service to adjudicate the I-829.

In response to these concerns, legacy INS explained:

Section 216A(c)(3) of the Act provides that the Attorney General make a determination on a petition to remove conditions within 90 days of the date the petition is filed or within 90 days of the interview, whichever is later. Accordingly, 8 CFR 216.6(b)(1) of the proposed regulation states that the Service Center director must either waive the interview requirement and adjudicate the petition or arrange for an interview within 90 days of the date the alien entrepreneur filed the petition. This regulation is, of course, subject to the provisions of 8 CFR 103.2(b)(10)(i) [relating to suspension of timing of adjudication due to missing evidence or biometric data]. 8 CFR 216.6(c)(1) provides that a decision on a petition shall be made within 90 days of the date of filing or within 90 days of the date of interview, whichever is later. The above provisions in the proposed regulation adequately address the commenters’ concerns as well as meet the adjudication time line set forth in section 216A(c)(3) of the Act.

Accordingly, the relevant regulatory text found at 8 C.F.R. § 216.6(b)(1)  provides in pertinent part:

The director must either waive the requirement for an interview and adjudicate the petition or arrange for an interview within 90 days of the date on which the petition was properly filed.

Notwithstanding this regulation, USCIS is not meeting the temporal requirement that Congress and its own rulemaking process imposed upon it.  As of December 31, 2013, the California Service Center reported that it was deciding I-829s filed by investors as of May 16, 2012, a period of 594 days, or approximately 1 year, 7.5 months. While our own experience has elucidated that certain petitions may move faster than others (calling into question whether the process truly is first-in, first-out), even if these processing times are average they clearly are in violation of the INA and the regulatory temporal mandate.

Some may argue, “Why is this a problem?” After all, the regulations do provide that an investor’s conditional lawful permanent resident status is “extended automatically, if necessary, until such time as the director has adjudicated the petition” upon proper filing and acceptance of the I-829. This view, however, fails to consider the undue burden placed on immigrant investors and their families.

First, consider the logistics. An I-829 must be filed within 90 days of the expiry of the investor’s conditional Green Card. After filing, the investor receives a notice that evidences that his/her status is extended for one year, but as explained above, the extension is indefinite. The notice allows the investor to prove lawful status for the purposes of readmission to the U.S. after international travel, employment authorization, and non-federal benefits such as renewal of a driver’s license. If the receipt notice expires (i.e. the case is still pending a year after filing), the investor must make repeated trips to a Field Office through InfoPass to obtain temporary stamps further evidencing that status.  It is unfair to subject investors – who have supplied at least $500,000 in capital in an effort to spur U.S. job creation – to the burden of dealing with bureaucratic headaches to prove their ongoing status simply because USCIS cannot meet its mandated timeframes.

Second, and even more importantly, the regulations provide that an investor must have sustained his/her commercial enterprise, investment, and job creation at the time of I-829 adjudication (whenever that may be). The EB-5 program has never required one’s investment to be permanent or indefinite – on the contrary, any reasonable reading of the regulations cited above provide that the entire process should be completed within 27 months following admission as a conditional resident. By dragging out the adjudication process to almost two years after the filing of an I-829, investors cannot redeem their capital contributions and move on to other endeavors that may be worth their time and attention.

As restructuring continues, USCIS should recognize that its lengthy I-829 processing times are in violation of the INA, the applicable regulations, and of investors’ reasonable expectations for the program and act accordingly.

Share

Senate Committee on Homeland Security and Governmental Affairs Seeking Information from Approved Regional Centers

February 19th, 2014 by DanielLundy

In an unprecedented move, U.S. Senator Tom A. Coburn (Oklahoma), the Ranking Member of the Senate Committee on Homeland Security and Governmental Affairs, has issued letters to a number of approved regional centers seeking information about each one’s participation in the EB-5 program.  The letter indicates that a similar letter will be sent to all USCIS approved regional centers.  Our regional center clients have begun receiving this letter in the last few days.  The letter is requesting the following information:

  • Any approval from USCIS to participate in the EB-5 program regarding the regional center and its business plan, including any subsequent recertification;
  • The total annual amount of investment and the number of individuals by country of origin making investments through the regional center since it has been in operation;
  • The name, address, and a description of each business in which the regional center has made an investment of funds and the number of jobs created by each investment;
  • Any fees charged to EB-5 applicants or received by the regional center, including amount and description;
  • A list of any current or former corporate officers of the regional center, including title, position, and dates of employment, and
  • The name and address of any individual or entity- either foreign or domestic- that the regional center has an agreement with to provide legal, accounting, recruiting or consulting services, as well as a description of the service provided.

 

The letters request a response via email by March 7, 2014.

 

While some of the questions asked in the letter reflect the information required in the Form I-924A required to be filed each year by every regional center, some of the questions far exceed the scope of the normal reporting requirements.  It is unclear at this point why Senator Coburn is seeking this information.  While we would like to think that this is an opportunity to show the positive impacts of the program by revealing the large number of projects that have been successfully completed with EB-5 funding, recent Congressional interest in the EB-5 program has appeared to be both negative and politically motivated.  In light of this, we advise our regional center clients to contact us upon receipt of the letter to formulate an appropriate response.

Share
       
Copyright © 2014 Klasko, Rulon, Stock & Seltzer, LLP. All rights reserved. Review our disclaimer.
Disclosure: Law firm web sites such as this one are considered 'Attorney Advertising' by the State Bar of New York.