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.