On February 26, 2014, USCIS staged a long overdue meeting with EB-5 stakeholders by telephone only. The discussion of data and a range of issues gives me an excuse to prepare this assessment of the EB-5 program at present. I place my own editorial comments in [brackets] to distinguish from my summary of what the USCIS leaders said (as I heard it).

USCIS Leadership. The new chief of the USCIS EB-5 Program Office is Nichols Colucci, who moved over to USCIS from the Department of Treasury, where he was a director in the FinCEN program (http://www.fincen.gov/) that investigates, regulates and prosecutes money laundering and before that held leadership roles in the Bureau of Alcohol, Tobacco and Firearms (http://www.atf.gov/) -- law enforcement agencies. He was described on the call as someone who has managed people well in working together with other federal agencies. On the call, he articulated goals not only about integrity (enforcement) but also efficiency, transparency, customer service, and even predictability. [Those are good words, and from someone with an MBA. His selection seems to reflect an Administration preference at this point for serious accountability toward program integrity, avoiding use of the program by money launderers, and coordination with other agencies that enforce laws associated with money laundering, securities, etc. Stakeholders should appreciate the program's leadership by someone who understands enforcement and particularly money laundering, which can help diffuse recently rampant innuendo that the program is fraught with investments by terrorists and money launderers.]

The Deputy Chief of the EB-5 Program Office is Robert Cox, who moved to that role from the Office of Chief Counsel (which I once oversaw). [By all accounts and from personal interaction, Mr. Cox is very bright, and from his discussion of the more substantive legal policy issues he conveys a meaningful awareness of the most important issues, even if he sidestepped some aspects of the trickiest pressing questions for which the agency probably has not made policy decisions.]

Dan Renaud is the Deputy Associate Director of Field Operations for USCIS and is the boss of Mr. Colucci. [Mr. Renaud previously was the interim Chief of the EB-5 program and the spearhead (with former Director Mayorkas) for the May 30, 2013 policy memo that began to address longstanding issues and made some very sensible policy changes and clarifications. (For my assessment of that memo, go to http://iiusablog.org/government-affairs/key-points-uscis-eb5-policy-memo-published-30-2013-robert-divine-iiusa-vp/.) Mr. Renaud is as business savvy as well as any government official I know, and stakeholders should take comfort that the EB-5 program has landed under his care.]

Personnel and Processing. In February 2014 USCIS completed the transfer of all pending I-526 filings to the new Washington, D.C. area EB-5 adjudication team, which now employs 53 people, including 20 economists and 25 adjudicators, with plans for continued growth to 75 by September 2014 and 100 by several months later.

USCIS took I-526 cases away from 35 trained adjudicators who remain in California. I-526 petitions grew from 5,000 in October 2012 to 7,131 in October 2013. [It is staggering to think that USCIS consciously took away so many adjudicators who could be whacking away at the backlog.] California adjudicators continue to work on I-829 filings, whose backlog reduced from 1,300 to just over 1,000 during this same period. The average I-526 processing times are about 11 months [a figure that must really annoy investors and their developers with petitions pending over two years with no action at all]. Average I-829 processing times are about the same: 11 months. Average I-924 regional center applications are taking 12 months on average.Mr. Colucci promised to correct the posted processing times reports as to EB-5 filings. He said I-526 processing times probably will get worse before they get better. [We have heard this many times before, but for years they have only gotten worse. Once USCIS does make meaningful progress on the I-526 backlog, unless there is a high denial rate the approvals will use up the available visa numbers and trigger a "retrogression" in cutoff dates from the "current" designation we have always known in this category. With their family members, about 3,500 investors would use up a year's 10,000 numbers.]

The USCIS leaders stated that they are "taking steps" to implement more consistently a "first in-first out" approach to I-526 adjudication [perhaps a nod to the pending allegations that USCIS gave favor to politically connected regional centers and projects], but they stated they intend to keep "balancing" this goal with the efficiency that can be gained, for instance, with a practice of adjudicating together the petitions of investors in a particular project. They also expressed their sense of "urgency" about long-pending petitions but provided no specific steps being taken in that regard.

Electronic Filing. Mr. Colucci announced that USCIS had implemented the use of the online case filing system, ELIS, for the intake of I-526 petitions. [No one I know had heard of this before Mr. Colucci stated this. I looked at www.uscis.gov/i-526, and indeed the option to "File Online" was present, with no explanation about whether the voluminous documents for an I-526 can be filed electronically in the process and how they will be organized in doing so. Mr. Colucci announced that some other accomplishment has been made to allow the filing of project documents that I-526 petitioners can share, but he did not explain any details, and the page at www.uscis.gov/I-924 contains no reference to this. Yet when one seeks to "Create an Account" on the ELIS system at https://elis.uscis.dhs.gov/cislogin/login, the option is available to create a third type of account (in addition to Applicant or Legal Representative) as a "Regional Center or New Commercial Enterprise Document Manager" who then can create an account for the RC or NCE entity and then load "Deal Packages" that an online filer of I-526 can link to in order to avoid separately loading the same project documents.] 

Mr. Colucci stated that further details will come in some further stakeholder interaction, with no dates or details. [About a year ago, Dan Renaud (then interim EB-5 Chief) and the people running the USCIS Transformation Program (which Renaud previously directed) met with stakeholders about the parameters for online filing. That meeting contained very encouraging discussions about the prospect of filing project documents once and having I-526 petitioners link to such repository in a way that reflected that they had read and agreed to the exact same documents, thus eliminating the need for each investor to file the project documents. The idea makes complete sense for efficiency and ecology, but the mechanics are maddeningly challenging, and implementation will inject important new dynamics into the relationships between investors, agents, new commercial enterprises, and regional centers.]
 

Mr. Colucci hinted that those who try the electronic filing might receive faster adjudication during the experimental stage that seems to have begun without fanfare. [So far, very few immigration lawyers have used the ELIS online system, because it was only available for a very small array of case types in which few lawyers file volumes of applications. EB-5 lawyers now will be scrambling to establish their ELIS online accounts and scouring the system, seeing what RC/NCE and I-526 clients want to try it.]

Substantitive Issues

Mr. Cox addressed a significant number of questions, most of which were posed by IIUSA and written by yours truly. USCIS had received volumes of questions and had chosen some of the more frequently asked questions. [Some of the most important aspects of a few issues seemed consciously avoided, as discussed below.]

Hypothetical Detail. Mr. Cox stated that a regional center application always needs to include a project with an economic analysis predicting indirect job creation supported by "verifiable detail" but for a hypothetical project the range of assumptions can be broader for hypotheticals, and while the application must verify how the jobs will be created, there can be less verification and less detail than for an "exemplar" project that will receive deference in future I-526 petitions. Mr. Cox did not describe how or how much the verifiable detail can be relaxed. [Thus, applicants seeking the "low bar" for regional center applications still will have to find it by the "trial and error" method.]

Sale of Regional Centers. Mr. Cox confirmed that sale of the entity operating an approved regional center is not prohibited. [This seems consistent with previous stakeholder meeting statements that a regional center designation is not an asset that can be sold separate from the entity that received approval and with statements inserted into recent regional center approvals that the designation is "not transferable."] Mr. Cox said that after a transfer of ownership, a regional center entity must notify USCIS within 30 days by email in keeping with the following statement on page 4 of the I-924 instructions:

Designated Regional Centers must notify USCIS within 30 days of a change of address, contact information, regional center principal(s), contracting agents or similar changes in the operation or administration of the Regional Center. Notification can be made by sending an e-mail to the EB-5 Program mailbox at: USCIS.ImmigrantInvestorProgram@dhs.gov.

Mr. Cox said that in response to the email, USCIS may require an I-924A. [See www.uscis.gov/i-924a. 8 CFR 204.6(m)(6) requires regional centers to "provide USCIS with updated information …" and provides that "such information must be submitted to USCIS on an annual basis, on a cumulative basis, and/or as otherwise requested by USCIS, using a form designated for this purpose." Ostensibly, the I-924A is now deemed the form for this purpose, but the form does not seem well-suited for it.]

Mr. Cox stated that, also in keeping with the instructions to Form I-924 (see www.uscis.gov/i-924, page 1, item 2.A.2.), a regional center may also file I-924 reflecting the transfer, but importantly, he did not state that USCIS can or will require such filing. [There is a huge difference between filing I-924A, which is a reporting mechanism, and I-924, which is an application seeking USCIS approval. In the past some regional centers whose ownership has changed have reported it to USCIS by email with varying responses. Some responses have stated to the effect: "Thanks, we will put this in the file," and others have responded to the effect: "Thanks. You need to file an I-924 (not I-924A)." With hope, USCIS leadership has provided guidance to those manning the USCIS EB-5 email inbox with the same guidance Mr. Cox gave stakeholders.] Mr. Cox gave no indication of any standard by which USCIS might reject a change of ownership or even the considerations. [New owners might be well-advised to tell USCIS about themselves and their plans for using the regional center to grow the regional economy when they give the email notice in order to avoid requirements to file more and in order to receive some response that sounds like acceptance.]

Targeted Employment Areas. Mr. Cox addressed several questions about this critical topic.

Collections of TEAs. Mr. Cox confirmed that an investor can use the $500,000 level if the new commercial enterprise is principally doing business in a collection of TEAs, and not necessarily just one TEA. This means that the job creating enterprises receiving the EB-5 funds must be principally located in and creating jobs in the collection of targeted employment areas. It means that there may be locations and existing or new jobs outside of the TEAs, and there does not need to be one TEA in which the predominant location and most of the jobs are created. Given that the regulations refer to "a targeted employment area" in the singular, this is a very helpful policy clarification, and it needs to be the subject of a USCIS writing.

High Unemployment TEAs. Mr. Cox fielded a question frequently asked for a long time: whether a high unemployment area that is not a county or MSA as a whole, but instead is some collection of census tracts or other type of area can be presented with current data using proper DOL/BLS methodology without official designation by a state. Mr. Cox referred to the regulations [8 CFR 204.6(j)(6)(ii)] and the May 30, 2013 policy memo [page 8] to confirm that such a designation must be established by a letter from an agency of a state to which such authority is designated by the governor. [This throws into question some projects that may have used "private" designations (typically a letter from an economist with supporting data). Investors in such projects will need to think about whether and how a corrective action or interfiling can be made before a debacle at the I-829 stage. Some states are becoming a little more self-conscious with their designations, and developers will need to advocate their TEA requests carefully.]

TEA Timing. Mr. Cox fielded a few questions from the floor about the point at which TEAs are assessed. He acknowledged that USCIS might adjudicate a TEA claim in an I-924 exemplar project filing, but he confirmed that the individual investor still needs to establish TEA qualification as of the time of the investment (or, if escrow is used, the time of I-526 filing). [USCIS has been issuing RFEs to investors whose TEA designation letter was based on data that was not the most current at the time the I-526 was filed. It is not clear whether USCIS will accept a responsive filing of a TEA designation using more recent data but issued after the I-526 was filed.]

RC Geography Standard. The biggest game changer in the May 30, 2013 policy memo was USCIS' recognition that regional centers can sponsor projects beyond the industry and geography for which they already have been approved. This gave rise to two related questions: how far away from the approved area can a new project be, and what is the standard upon which a request for expansion will be adjudicated? Mr. Cox stated that the standard is the same for initial RC applications for expansion: the areas sought must be contiguous (and thus a new area must be contiguous to the approved area), and the "proposed economic activity" must be shown to promote economic growth in the proposed area. As stated in the May 30, 2013 policy memo [page 14], this does not require a county-by-county analysis, and the focus tends to be on the supply chain and labor pool associated with proposed projects. Mr. Cox declined to provide further clarifying detail, but he did say that a California regional center cannot sponsor a New York project. [Especially given some recent regional center designations of multi-state areas based on proposed sets of projects that do not seem likely to have predicted impact to every corner of all the states, the exact standard appears unclear.] Mr. Cox stated that predictability can be obtained by filing and waiting for an approval on a I-924 to expand a regional center's territory, and he repeated the USCIS goal to continue improving those processing times.

Public Works Projects. Mr. Cox confirmed that as long as the EB-5 investors make an investment in a "new commercial enterprise" for profit, using regional center sponsorship, the NCE may invest or loan the money to a separate job creating enterprise which may be not-for-profit and could include a public works project if it meets the job creation parameters for the EB-5 investors. [Holding in my hand my client's long-approved exemplar designations of such projects, I resumed breathing.]

Redemption/Call Options. Mr. Cox was less than clear about the nagging question whether or not it is a prohibited "redemption" if a new commercial enterprise agreement gives the enterprise the option to buy back the investor's interests after the end of conditional residence. The question Mr. Cox addressed posed an option to pay a set price. [We might have hoped that the question had included the alternative of an option to pay what would be deemed at the time (ostensibly by some objective means) a fair market value for the EB-5 investor's interest.] Mr. Cox stated that the arrangement would be scrutinized not only for whether there was a promise to buy the investor's interest (clearly prohibited) but also whether the investor had a risk of loss and a chance for gain. [USCIS' theory for denial may be that by having the option to buy out the EB-5 investor at or near his investment price in the event that the company does well, the enterprise has the contractual opportunity to eliminate the investor's chance for gain. That theory, carried to extremes, could wreak havoc in the industry.]

Bridge Financing. Mr. Cox read only a small part of an important question that was posed about any temporal requirements that may be associated with the opportunity to use EB-5 funds to replace bridge financing. Mr. Cox simply repeated that the plan to replace the bridge financing with EB-5 capital must be shown to have existed before the original financing was injected, and that EB-5 funds cannot be used to refinance longer term debt that was not really contemplated to be used temporarily. [He avoided two questions that had been posed: First, can be bridge financing be advanced well before any I-924 or I-526 is filed? Ostensibly, the answer is yes, but the longer the period that the bridge financing lasted before any immigration filing may effect USCIS' assessment of temporariness. Second, can an I-526 be filed even after a project has been completed using bridge financing? It seems clear enough that it should be acceptable for an I-526 to be approved, and thus funds held in approval to be released for repayment of bridge financing, even after the project was completed, because USCIS adjudication times have been exceeding the period of some projects, and a stricter rule would eviscerate the whole idea of bridge financing. But it is a different situation for investors to file their I-526 (and ostensibly to have made the investment) after the project was completed. We have seen in the market projects being openly advertised to EB-5 investors stating that they are safe from developmental risks because they are already completed. USCIS has stated in its response to the recent report of the DHS Office of Inspector General that "USCIS has denied and will continue to deny cases where a project is already completed and circumstances do not warrant attribution of jobs to a proposed late-stage investment." Such a temporal limitation was not stated in the May 30, 2013 policy memo, and I was surprised to see Mr. Cox avoid articulating some temporal backstop consistent with USCIS' statement to the OIG.]

Guest Expenditures. Mr. Cox stated that EB-5 investors could possibly count the jobs created by the expenditures of guests in a hotel built with EB-5 funds if a market study and economic analysis demonstrated one or more of three things he articulated: (1) unmet aggregate demand (high occupancy rate -- he did not say how high); (2) differentiated product for a market segment (no comparable facility exists); or (3) response to the demand generated by another establishment such as a sports arena. [We know of a few projects that have been credited with jobs from guest expenditures after USCIS began attacking such arrangements in 2012, but the bar seems fairly high.]

Job Creation Evidence at I-829. Mr. Cox confirmed that investors, whose I-526 predicted direct jobs or predicted indirect jobs based on the number of direct jobs, must demonstrate at I-829 stage the actual employment of full time workers through payroll, tax, I-9 and other documents. Importantly, however, he stated that if jobs had been predicted based on operational revenues or on the amount of space to be occupied by certain industries, then investors at I-829 stage may show the jobs by presenting evidence of the revenues or the requisite occupancy. [This seemed to validate the modern practice of economists in using operational revenues or occupancy square footage to derive not only indirect and induced jobs but also what an economist would consider direct jobs in relation to the project. (Remember, in a technical immigration sense, a direct job is only an employee of the new commercial enterprise or its 100% subsidiary.) This seems to reflect a USCIS strategic decision to allow everyone to avoid the drudgery of submitting job-by-job evidence in larger projects, even when parties associated with the new commercial enterprise may have some level of control over the operation of the job creating enterprise. This all sounded good, particularly for developers and investors who wonder whether the direct jobs that could be shown with real people in a job creating enterprise would amount to as many jobs as the "direct" jobs predicted from revenues or square footage based on a model, but parties should be cautious. The May 30, 2013 policy memo at page 7, after accepting the practice of predicting "indirect jobs" through economic models without regard to whether they are full time or permanent, added "USCIS may, however, request additional evidence to verify that the direct jobs will be or are full-time and permanent, which may include a review of W-2s or similar evidence at the form I-829 stage." Mr. Cox did not state in the stakeholder meeting that he was refuting any aspect of the May 30, 2013 memo.

Sustaining Investment. Mr. Cox explicitly withheld any policy pronouncement about the critical question of what it means to "maintain" or "sustain" the investment as required for removal of conditions on permanent residence at the I-829 stage. [The problem is that projects may be successfully developed with the requisite job creation but then sold or refinanced before the end of conditional residence. Does an investor fail to "maintain the investment" if the job creating enterprise repays the loan or returns capital to a new commercial enterprise before the end of conditional residence even if the jobs were created? Is it enough if the new commercial enterprise holds the money in a bank account without distributing to investors before the end of their conditional residence? Would it be enough if the NCE received the payout from the JCE and reinvested it in another kind of project, and if so would there be specific job creation, TEA/RC area, or other requirements associated with that re-deployment of capital? All of these questions are exacerbated by the time it takes USCIS to adjudicate I-526 petitions, as mentioned in the question posed to Mr. Cox.] Mr. Cox demonstrated his awareness of the issue when he brought up on his own the further problematic implications of the visa retrogression we can expect as soon as USCIS starts working off the I-526 backlog. So he said USCIS is thinking about this question. [A great deal rides on it.]

Conclusion. USCIS does not consider itself bound by these oral stakeholder meetings or even the "Executive Summaries" it tends to write up months afterwards, but we are encouraged.
 

 

By Robert C. Divine of Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C.