USCIS Q&A reveals serious problems

On December 14, 2009, coming hard on the heels of an EB-5 Program memo issued by U.S. Citizenship and Immigration Services (USCIS), the agency issued responses to questions posed by the American Immigration Lawyers Association EB-5 Investors Committee and the Invest in the USA Association.
There was good news and bad news concerning these opinions issued by USCIS.
USCIS confirmed, for the first time, that an EB-5 alien investor may use funds unrelated to his or her EB-5 investment to purchase insurance from a third-party insurer which would be paid to the investor if the EB-5 enterprise fails to repay the investor. Surprisingly, USCIS said the investor could purchase an indemnity policy as long as the investor's capital is "at risk" and the indemnity policy does not constitute a redemption agreement or a guaranteed buy-back arrangement for the
alien investor's investment in the EB-5 enterprise.
A response concerning Targeted Employment Areas (TEA's), which are 150 percent of the national unemployment rate and are designated by a state agency, confirms what appeared in a December 11 USCIS memo concerning the EB-5 Program. USCIS stated that it could not confirm that "gerrymandering" -- a finding of an area of high unemployment by a designated state agency by cobbling together census tracts or political subdivisions -- "is an acceptable business practice for EB-5 purposes." This response is troubling. Designated state agencies are not "frustrating congressional intent," as the USCIS response states. There are huge areas of geography in the United States which, today, during this ugly recession, cannot qualify under the 150 percent of the national unemployment rate because the national rate is near or at 10 percent. This means that in an area not qualified as a TEA, the investor must invest the minimum $1 million, and most -- if not all -- investors
would rather invest the minimum $500,000 in a TEA. USCIS will not allow rural areas within Metropolitan Statistical Areas, designated by these state agencies, to qualify for the lower minimum investment amount of $500,000 either, thus frustrating congressional intent.
USCIS confirmed that there was nothing in the law or regulations to preclude a guarantee from a third party to repay the borrower "as long as the alien investor's capital is still 'at risk', and the arrangement does not constitute a redemption
agreement or a guaranteed buy-back arrangement ...."
Most troubling was the USCIS response on the creation of indirect and induced jobs, which can be used by regional centers to help investors reach the 10 jobs created per investor, a requirement of the EB-5 Program. USCIS has misinterpreted a bad 1998 precedent decision called Matter of Izummi, which recognized, as a factual premise, that direct jobs were being created outside the boundaries of the regional center. Not once did the decision mention "indirect" or "induced" jobs. However, USCIS has issued its opinion, relying upon Izummi, that indirect and induced jobs created outside the geographic boundaries of a regional center do not count for EB-5 purposes. This is outrageous!
"While the regulation at 8 CFR 204.6(m)(3) provides that each reagional center must describe 'how the regional center focuses on a geographical region of the United States,' " the response stated, "USCIS interprets the statutory and regulatory prescribed focus to mean that the economic analysis methodology used by regional centers should also be focused on job creation within the bounds of the regional center. [See also Matter of Izummi.] As a result, a regional center should file an amended proposal seeking an expansion of the geographic area of the regional center if it wishes to include job creation within its economic models in areas outside of the bounds of the regional center."
If this opinion is allowed to stand, it has the potential to kill this job-creation program.
But see the December 11 USCIS memo at page 9, where it states that "Regional Center Proposals must demonstrate the following EB-5 eligibility requirements in order to be approved: ... (iii) A detailed prediction of the proposed regional center's predicted impact regionally or nationally on household earnings, greater demand for business services, utilities, maintenance and repair, and construction both within and outside the geographic area of the proposed Regional Center." 8 CFR section 204.6(m)(3)(iv).
Those are the words, right out of the Code of Federal Regulations, which USCIS is bound by.

USCIS memo on EB-5 Program: Problems and Challenges

On December 11, 2009, U.S. Citizenship and Immigration Services published a memo whose subject was "Adjudication of EB-5 Regional Center Proposals and Affiliated Form I-526 and Form I-829 Petitions; Adjudicators Field Manual (AFM) Update to Chapters 22.4 and 25.2 (AD09-38". Whew!
The memo requires the filing of a new (or amended) I-526 petition if there is a change in the capital investment and job creation scheme. If the new I-526 petition is approved, the memo requires the immigrant investor to file a new I-485, application to adjust status, if in the United States. Current immigration law does not require the filing of an I-485 requesting re-adjustment of status.
The memo does set out a "pre-approval process" for regional center investment projects that is very welcome. Pre-approval, based upon a USCIS determinaton that the project is EB-5 compliant, will give investors putting their capital at risk some comfort. It will also have the effect of streamlining adjudication of individual I-526 petitions related to the pre-approved EB-5 investment project.
The memo interprets "direct construction jobs" to count as permanent jobs if they are created by the investment project and "are expected to last at least two years, inclusive of when the petitioner's Form I-829 is filed." The "two-year rule" is an arbitrary one lifted from the "marriage fraud amendments" and has no relationship to business, investment, or construction. Further, the construction industry relies upon "man-hours," not "jobs" or "positions."
The memo's description of Targeted Employment Areas (TEA's) -- areas of high unemployment -- is tortuous. That is why reform legislation needs to designate federally recognized Areas of Substantial Unemployment, currently pegged at 6.5 percent unemployment.

Why USCIS is hostile to the EB-5 Program

First, U.S. Citizenship and Immigration Services has no economic development mission. USCIS has no economist with experience in working with the EB-5 Program and the job-creation / economic impact methodologies typically used by U.S. economists.
Second, when USCIS issues an official memo concerning the EB-5 Program, we in the EB-5 world know that we are going to get whacked over the head by a two by four. USCIS has no job-creation mission, even though it is the will of Congress that EB-5 be a job-creation program.
So it was no surprise to read the latest memo on the EB-5 Program to emanate from USCIS. The result of its orders to adjudicators in California will put brakes on the program, restrict job creation, and frustrate the intent of Congress once again, in a time of great economic crisis and loss of millions upon millions of jobs across the United States. It's a shame.