- The April 23, 2014 USCIS’s stakeholders listening session
- FINRA’s recent notices and how to spot key trends in EB-5 regulation
- Recent subpoenas issued by the SEC and what these enforcement efforts may mean for you
- Brokerage issues and Investment Advisor registration requirements
- Senator Coburn’s requests to regional centers for EB-5 program data.]
EB-5 Program Chief, Nicholas Colucci, flanked by representatives of the Offices of Policy, Chief Counsel and Public Engagement, and by Dr. Winslow Sargent, Chief Counsel to the SBA's Office of Advocacy, explained that the session is a prelude to the promulgation of new EB-5 regulations. These new rules, he noted, would enhance program predictability and consistency by better defining substantive eligibility requirements and establishing consistent filing requirements. He added that the new regulations are but one step in transforming the EB-5 program, noting that the agency concurred in the December 2013 recommendations of the DHS Office of Inspector General that USCIS take additional measures, which he did not describe, to address EB-5 fraud and national security concerns.
The Listening Session -- which Mr. Colucci noted was held in deference to Executive Order 13563 ("Improving Regulation and Regulatory Review") -- covered a wide array of suggestions including proposals for new legal rights and interpretations, greater access to accurate program data and improvements in investor protection, the impact of immigrant visa quota backlogs and the need for greater speed and predictability of adjudications.
Legal Rights and Interpretations
Private attorneys and others on the call made a number of suggestions:
- Allow each party with a material stake in the outcome of an EB-5 adjudication -- an I-924 request for designation as a regional center or amendment; an I-526 immigrant investor petition to be found classifiable as a qualifying EB-5 investor; and an I-petition to remove conditions on permanent residence -- to have a right to be heard before the agency and to be represented by separate counsel (at present only a regional center is represented in an I-924 proceeding, and only the immigrant investor is represented in I-526 and I-829 petition).
- Allow investors who are members of limited liability companies (LLCs) to be treated on par with limited partners in establishing that "the petitioner is or will be engaged in the management of the new commercial enterprise" under 8 CFR § 204.6(j)(5)(iii).
- Interpret the corporate restructuring or reorganization provision of 8 CFR § 204.6(h), which holds that a new commercial enterprise may consist of the "purchase of an existing business and simultaneous or subsequent restructuring or reorganization such that a new commercial enterprise results," consistently with traditional notions of corporate law allowing the formation and recognition of a new legal entity that acquires a predecessor's assets, and thus overrule contrary interpretations found in Matter of Soffici, 22 I&N 158 (Assoc. Comm'r, Examinations 1998) [the caller mistakenly referred to Matter of Izummi, a different precedent decision] and the May 30, 2013 USCIS EB-5 policy memorandum. In other words, as another attorney later noted, asset acquisitions should be treated as new commercial enterprises.
- Given the delays of adjudication and the need for careful due diligence on potential investments, allow prospective EB-5 investors to enter as B-1 business visitors and provide them with work and travel-abroad permission while they evaluate and make a suitable employment-creation investment.
- Allow an investor to cure a perceived problem with the investment subscription documents, say, a prohibited redemption right that would deny the "at risk" nature of the investment, by permitting amendments to these documents rather than denying the case entirely, or, requiring a refiling and payment of a duplicate filing fee.
- Take into account and adjust for the foreseeable impact of immigrant visa quota backlogs that artificially change the measuring period in which the jobs per EB-5 investor must be created and prolong project liquidation and ultimate distributions to EB-5 investors beyond the prevalent five year holding period. The caller also suggested that the measuring periods for the I-526 approval (2-1/2 years) and the I-829 approval (up to 3 years) need to be reconciled.
- Revise the current Targeted Employment Area (TEA) concept involving discrete areas within counties as determined by state officials into a regional TEA principle based on the recognition that "where jobs are created [is] not necessarily where people live." Also, extend TEA designation authority to all U.S. territories and to federally recognized Indian nations.
- The validity of a TEA determination should also be extended beyond the one-year period currently permitted.
- Reconsider the Tenant Occupancy concept so that retained jobs are considered acceptable.
- Make clear that the EB-5 program as provided by statute is only concerned with the fact that jobs are created and not with the duration of jobs once they have been created.
- Allow investors to port an approved project to a different regional center in case an existing regional center loses its designation.
- Create an administrative presumption that the infusion of investment funds would create a presumed number of jobs or use more flexibility in accepting job-creation methodology.
- Change the definition of how net losses are determined for a troubled business by moving away from Generally Accepted Accounting Principles (GAAP) which are prohibitively expensive to document for small businesses because GAAP will be phased out in favor of international financial reporting standards.
- Clarify that investors in a direct EB-5 project who receive a salary are not necessarily receiving a redemption or return of their investment.
- Allow investors whose I-824 petition for removal of conditions USCIS has denied to file motions to reconsider and/or reopen (MTRs) with the regional service center and appeal to the USCIS Administrative Appeals Office (AAO) rather than require immediate referral to an immigration judge at a removal hearing. The caller noted that the immigration courts are backlogged for months or years, thus leaving the conditional permanent resident in a legal limbo for an inordinate period. The caller could have also noted that the regional service centers and the AAO presumably would have more time and greater expertise in EB-5 issues than the Immigration and Customs Enforcement Trial Attorneys and the Immigration Judges who deal with a plethora of other immigration factual and legal issues in removal proceedings. The caller could also have observed that, since the issues at the I-824 stage often involve a regional center, the center should likewise have the right to file an MTR or an AAO appeal.
Investor Protections and Anti-Fraud Measures
Various callers expressed concern about the need to stem fraud and enhance the protection of EB-5 investors, urging the adoption of specific regulations:
- Hold regional centers liable for misrepresentations by overseas brokers and require the centers to maintain and monitor marketing materials.
- Monitor changes and amendments to governing subscription and operating documents and allow investors to object in writing to USCIS.
- Extend the same benefit of counting indirectly created jobs accorded regional centers to direct EB-5 investors.
- Require USCIS to mount an investor education initiative through U.S. embassies and consular posts and to release more regional center performance data and approval/denial outcomes. One caller, however, expressed concern that release of such data would likely be misleading because of the widespread "rent-a-regional-center" practice, and because some approvals have led to projects that failed. Investors should be encouraged to investigate the project rather than the regional center. Regional center metrics would not address that issue. The caller also worried that new and more innovative regional centers would likely lose out in investor attention to long-established centers.
- Verify source of funds documentation by the issuing bank or other authority rather than accepting such documentation at face value.
- Provide a remedy for investors who are victims of fraud in cases where the I-526 is approved and the investor has become a conditional permanent resident (assuming that the invested funds have been lost or depleted and investors lack the financial ability to invest in another regional center).
- Instructions to EB-5 forms should outline the most common types of requests for additional evidence to help investors and the regional centers submit information likely to lead to approval and project success. The forms, another caller noted, should not request burdensome and irrelevant information.
Processing times, Rulemaking Process and Adjudication Procedures
Many callers expressed process concerns:
- Allow the use of the Premium Processing Service to speed all adjudications and create sufficient funds to ensure and enhance program integrity. Faster adjudications winnow out weak projects and facilitate the success of projects with solid prospects by leading to the speedier release of escrowed funds.
- Charge a substantial annual regional center recertification fee to weed out inactive centers and help investors more readily identify successful centers and projects.
- Institutionalize the informal process of email clarification of specific issues of concern in lieu of issuing long and burdensome requests for additional evidence.
- Give priority adjudication processing to investors in the U.S. on work visas.
- Once a set number of approvals of I-526s have been issued, e.g., three approvals, expedite the adjudication of all similar cases for investors in the same project.
- Maintain the integrity of USCIS published processing times by publishing actual rather than targeted processing times.
- Expedite I-924 adjudications for regional centers seeking to expand into contiguous areas to enhance investor confidence that a new project in an adjoining area will be approved.