The second EB-5 conference presented by the American Immigration Lawyers Association was another huge success. More than 425 people attended the August 27 conference, which is a 30 percent increase over the first conference in San Francisco last October 19.
The panel discussions were very good. It became apparent that the problems the EB-5 Program faces are in some part being created by the federal agency charged with overseeing it, USCIS, and in part by regional centers not playing by the rules.
In large measure, however, it is USCIS that is openly hostile to the EB-5 Program and is not interested in Congress's intent that the EB-5 Program become a job-creating engine. It still sputters, and for reasons that only USCIS knows.
Boston was a great setting for the conference and the Seaport Hotel was a fine facility for this size conference.
Wednesday, September 1, 2010
Thursday, August 12, 2010
EB-5 investors' FAQ
Q. When was the regional center approved by USCIS, and has it been audited by USCIS?
A. Regional centers that have more recently been approved may have little or no track record of successful immigrant petitions or of job creation. Some regional centers have become inactive, and some have not been audited. Some regional centers that have been audited have seen their approval revoked.
Q. Is the regional center affiliated with any government entity?
A. It can be, but you should look carefully. Does the government entity that has this affiliation have any track record in job creation or economic development? The government entity may have some or no experience in this regard.
Q. How many years of experience do the general partner or principal in the investment project have in working with immigrant investor programs?
A. Although some project developers may have experience with the EB-5 Program, most will not. Do not conflate the regional center with the investment project, if the two are separate and distinct. Such investors invest "through" the regional center and into the job-creating entity (the investment project). Some of the general partners or regional center creators have little or no experience with the EB-5 Program. Others have extensive experience both in the United States and with investor immigrant programs in other countries.
Q. Should I ask how many years of experience the principals involved in the regional center have in job creation?
A. Very good question, and you should ask it. The EB-5 Program is very young, but some of the regional center principals have been involved in job creation and economic development for a long time. Regional center principals who have such experience should be considered in your plan to invest.
Q. Does the regional center investment include direct job creation, indirect job creation, or both?
A. Most regional centers include direct and indirect and induced job creation. A safer alternative is an investment project that relies upon direct job creation only, with a plan to produce an economic impact study showing indirect and induced job creation if needed at the I-829 (removal of conditions) stage.
Q. Can I ask about the regional center's track record -- how many I-526 petitions approved/denied, how many I-829 petitions approved/denied?
A. You would be foolish not to ask these important questions. If the regional center will not provide this information, do not pursue an investment through that regional center. The safest regional centers at this point in time are those that have I-829 approvals, but there are very few of these.
Q. Do I have to deposit or pay a fee to get a copy of the securities offering?
A. Some regional centers charge a deposi, which is applied to the regional center's administrative services fee if you invest. Some regional centers charge a flat fee to receive a copy of the securities offering. Other regional centers charge no fee for the privilege.
Q. What amount do I have to pay to invest?
A. In most regional centers, the investment amount is $500,000. Regional centers generally charge an administrative services fee of from $25,000 to $60,000. America's Center for Foreign Investment typically charges the investor $30,000 for five years of EB-5 compliance services.
Q. Do I make a payment into an escrow account? Is the investment amount refunded if the I-526 is not approved?
A. Most regional centers use escrow accounts to deposit the investor's $500,000 and the regional center's administrative services fee. The provision of an escrow account with the money remaining in escrow until the I-526 petition is approved is a critical security feature for the investor.
Q. Can I redeem my investment following conditions removal?
A. We certainly hope so. With some regional centers, this is fairly certain; with others it is not. Although third-party indemnity insurance contracts are permitted by USCIS, there is that nagging doubt that such contracts may not meet the regulatory “at risk” requirement.
Q. What provisions are made regarding the security of the investment?
A. The federal law governing the EB-5 Program states that your investment is "at risk". You should perform due diligence regarding the likely security of your investment. Professional financial advisors can help you.
Q. What use is made of the investor’s funds? What is the type or types of projects?
A. Regional center investments may involve commercial building projects, condominiums, hotels, film studios, heavy and light manufacturers, warehouses, real estate, and other types of projects.
Q. What form of investment should I invest in? Are there different business models out there?
A. Yes. The most common investment vehicle is a limited partnership that loans money to a job-creating entity. Other forms of investment structure include limited liability companies that may be a partnership, equity investments, venture capital funds, and real estate investment trusts (REITs). These types of projects vary from regional center to regional center.
Q. What has been the rate of return to investors historically?
A. It varies. Usually 2 to 5 percent. Regional centers promising outrageously high returns -- such as 15 to 30 percent -- are probably investments that are too good to be true. Then again, an investment project offering a 2 percent return might be a much safer and more secure investment. Investors may need to balance the importance of immigration track record, security of the investment and rate of return on the investment project's structure For example, a project may have more than a few ways to take you out (i.e., return your $500,000), thus increasing the likelihood that you will get your money back.
Q. Does the regional center provide regular reporting of the status of the investment to the investors, and at what intervals?
A. Yes, the best ones do. You should expect regular reports with an update on the investment project, job creation and new investment opportunities, at least quarterly.
Q. Once I have invested my money, how do I monitor job creation? What steps are taken if the requisite job creation has not occurred?
A. The investor should look for an investment project with detailed job reporting on a regular basis and with a provision that failure to create the required jobs establishes a basis for reinvestment of the proceeds in another project, so as to keep the investor’s immigration and investment process on schedule.
Q. Do you have a lawyer I have to use?
A. Some regional centers require the investor to use the regional center’s lawyer to file the investor petition, and others do not. The regional center’s immigration attorney may provide review and counseling to an investor’s lawyer. A general counsel of a regional center, such as myself, will work closely with the investor's lawyer to insure EB-5 compliance. A few regional centers do this.
Q. Does the regional center’s attorney contact the foreign national directly, or can the referring attorney maintain all contact with the foreign national?
A. With some regional centers, the lawyer deals directly with the investors. With others, even if the regional center’s lawyer handles the investor petition, the lawyer may deal only with the referring lawyer at the referring lawyer's request.
A. Regional centers that have more recently been approved may have little or no track record of successful immigrant petitions or of job creation. Some regional centers have become inactive, and some have not been audited. Some regional centers that have been audited have seen their approval revoked.
Q. Is the regional center affiliated with any government entity?
A. It can be, but you should look carefully. Does the government entity that has this affiliation have any track record in job creation or economic development? The government entity may have some or no experience in this regard.
Q. How many years of experience do the general partner or principal in the investment project have in working with immigrant investor programs?
A. Although some project developers may have experience with the EB-5 Program, most will not. Do not conflate the regional center with the investment project, if the two are separate and distinct. Such investors invest "through" the regional center and into the job-creating entity (the investment project). Some of the general partners or regional center creators have little or no experience with the EB-5 Program. Others have extensive experience both in the United States and with investor immigrant programs in other countries.
Q. Should I ask how many years of experience the principals involved in the regional center have in job creation?
A. Very good question, and you should ask it. The EB-5 Program is very young, but some of the regional center principals have been involved in job creation and economic development for a long time. Regional center principals who have such experience should be considered in your plan to invest.
Q. Does the regional center investment include direct job creation, indirect job creation, or both?
A. Most regional centers include direct and indirect and induced job creation. A safer alternative is an investment project that relies upon direct job creation only, with a plan to produce an economic impact study showing indirect and induced job creation if needed at the I-829 (removal of conditions) stage.
Q. Can I ask about the regional center's track record -- how many I-526 petitions approved/denied, how many I-829 petitions approved/denied?
A. You would be foolish not to ask these important questions. If the regional center will not provide this information, do not pursue an investment through that regional center. The safest regional centers at this point in time are those that have I-829 approvals, but there are very few of these.
Q. Do I have to deposit or pay a fee to get a copy of the securities offering?
A. Some regional centers charge a deposi, which is applied to the regional center's administrative services fee if you invest. Some regional centers charge a flat fee to receive a copy of the securities offering. Other regional centers charge no fee for the privilege.
Q. What amount do I have to pay to invest?
A. In most regional centers, the investment amount is $500,000. Regional centers generally charge an administrative services fee of from $25,000 to $60,000. America's Center for Foreign Investment typically charges the investor $30,000 for five years of EB-5 compliance services.
Q. Do I make a payment into an escrow account? Is the investment amount refunded if the I-526 is not approved?
A. Most regional centers use escrow accounts to deposit the investor's $500,000 and the regional center's administrative services fee. The provision of an escrow account with the money remaining in escrow until the I-526 petition is approved is a critical security feature for the investor.
Q. Can I redeem my investment following conditions removal?
A. We certainly hope so. With some regional centers, this is fairly certain; with others it is not. Although third-party indemnity insurance contracts are permitted by USCIS, there is that nagging doubt that such contracts may not meet the regulatory “at risk” requirement.
Q. What provisions are made regarding the security of the investment?
A. The federal law governing the EB-5 Program states that your investment is "at risk". You should perform due diligence regarding the likely security of your investment. Professional financial advisors can help you.
Q. What use is made of the investor’s funds? What is the type or types of projects?
A. Regional center investments may involve commercial building projects, condominiums, hotels, film studios, heavy and light manufacturers, warehouses, real estate, and other types of projects.
Q. What form of investment should I invest in? Are there different business models out there?
A. Yes. The most common investment vehicle is a limited partnership that loans money to a job-creating entity. Other forms of investment structure include limited liability companies that may be a partnership, equity investments, venture capital funds, and real estate investment trusts (REITs). These types of projects vary from regional center to regional center.
Q. What has been the rate of return to investors historically?
A. It varies. Usually 2 to 5 percent. Regional centers promising outrageously high returns -- such as 15 to 30 percent -- are probably investments that are too good to be true. Then again, an investment project offering a 2 percent return might be a much safer and more secure investment. Investors may need to balance the importance of immigration track record, security of the investment and rate of return on the investment project's structure For example, a project may have more than a few ways to take you out (i.e., return your $500,000), thus increasing the likelihood that you will get your money back.
Q. Does the regional center provide regular reporting of the status of the investment to the investors, and at what intervals?
A. Yes, the best ones do. You should expect regular reports with an update on the investment project, job creation and new investment opportunities, at least quarterly.
Q. Once I have invested my money, how do I monitor job creation? What steps are taken if the requisite job creation has not occurred?
A. The investor should look for an investment project with detailed job reporting on a regular basis and with a provision that failure to create the required jobs establishes a basis for reinvestment of the proceeds in another project, so as to keep the investor’s immigration and investment process on schedule.
Q. Do you have a lawyer I have to use?
A. Some regional centers require the investor to use the regional center’s lawyer to file the investor petition, and others do not. The regional center’s immigration attorney may provide review and counseling to an investor’s lawyer. A general counsel of a regional center, such as myself, will work closely with the investor's lawyer to insure EB-5 compliance. A few regional centers do this.
Q. Does the regional center’s attorney contact the foreign national directly, or can the referring attorney maintain all contact with the foreign national?
A. With some regional centers, the lawyer deals directly with the investors. With others, even if the regional center’s lawyer handles the investor petition, the lawyer may deal only with the referring lawyer at the referring lawyer's request.
Tuesday, August 10, 2010
Regional Center applicant calling
I guess I've heard them all.
Q. "I've practiced immigration law for awhile. How do I do an application for a regional center?"
A. How much time and money have you got?
Q. "Do you have a regional center application I could study?"
A. No.
Q. "Would you please mail a copy of your regional center application to me?"
A. No.
Q. "There's nothing about how to do this anywhere is there?"
A. Not much.
Q. "When I put my regional center application together, where do I send it?"
A. California Service Center, U.S. Citizenship and Immigration Services, Laguna Niguel, CA
Q. "How long does it take to get a regional center application approved?"
A. Plan on six months. With proper exercise of local and state support, maybe four or five.
Q. "Do you have a regional center application I could take a look at?"
A. No.
Q. "Well, that's a bit more than I wanted to spend. Are you sure it's that expensive to do a regional center application?"
A. Yes.
Q. "Why do I have to hire an economist?"
A. Tell me you didn't just ask that question.
Q. "Why do I need a lawyer. Can't I do this myself?"
A. Yes.
Q. "We want to set up a regional center for our condo project. Do you do that?"
A. Yes, but not for condo projects. Call me in three years.
Q. "What kind of regional center do I want to set up?"
A. There are several business models: (1) REIT; (2) loan investment vehicle, usually a limited partnership; (3) equity investment vehicle, a limited partnership, limited liability company, or corporation; (4) venture capital fund; (5) EB-5 compliance consulting service company.
Q. "Where do I find investors?"
A. You will have to spend a considerable amount of your time and money to find investors. You might look in China, South Korea, and India.
Q. "Do I need to do a background check on investors?"
A. No, but it might be prudent to do so. Once source for this is ChoicePoint.
Q. "I've practiced immigration law for awhile. How do I do an application for a regional center?"
A. How much time and money have you got?
Q. "Do you have a regional center application I could study?"
A. No.
Q. "Would you please mail a copy of your regional center application to me?"
A. No.
Q. "There's nothing about how to do this anywhere is there?"
A. Not much.
Q. "When I put my regional center application together, where do I send it?"
A. California Service Center, U.S. Citizenship and Immigration Services, Laguna Niguel, CA
Q. "How long does it take to get a regional center application approved?"
A. Plan on six months. With proper exercise of local and state support, maybe four or five.
Q. "Do you have a regional center application I could take a look at?"
A. No.
Q. "Well, that's a bit more than I wanted to spend. Are you sure it's that expensive to do a regional center application?"
A. Yes.
Q. "Why do I have to hire an economist?"
A. Tell me you didn't just ask that question.
Q. "Why do I need a lawyer. Can't I do this myself?"
A. Yes.
Q. "We want to set up a regional center for our condo project. Do you do that?"
A. Yes, but not for condo projects. Call me in three years.
Q. "What kind of regional center do I want to set up?"
A. There are several business models: (1) REIT; (2) loan investment vehicle, usually a limited partnership; (3) equity investment vehicle, a limited partnership, limited liability company, or corporation; (4) venture capital fund; (5) EB-5 compliance consulting service company.
Q. "Where do I find investors?"
A. You will have to spend a considerable amount of your time and money to find investors. You might look in China, South Korea, and India.
Q. "Do I need to do a background check on investors?"
A. No, but it might be prudent to do so. Once source for this is ChoicePoint.
Thursday, July 15, 2010
SEC nixes finders' fees
What was, essentially, a blow to EB-5 project marketing efforts -- in the United States and overseas -- was issued by the Securities and Exchange Commission (SEC) in the form of denial of a request for a "no-action" letter.
Brumberg Mackey & Wall, PLC, (BMW) sought to assist a client in raising money for its business interests, and asked whether it could take a percentage of funds raised without registering with the SEC as a broker or deal.
The SEC said no. "[T]he Staff believes that the receipt of compensation directly tied to successful investments in [the client's] securities by investors introduced to [the client] by BMW (i.e., transaction-based compensation) would give BMW a "salesman's stake" in the proposed transactions and would create heightened incentive for BMW to engage in sales efforts. Accordingly, the Staff believes that your proposed activities would require broker-dealer registration."
Brumberg Mackey & Wall, PLC, (BMW) sought to assist a client in raising money for its business interests, and asked whether it could take a percentage of funds raised without registering with the SEC as a broker or deal.
The SEC said no. "[T]he Staff believes that the receipt of compensation directly tied to successful investments in [the client's] securities by investors introduced to [the client] by BMW (i.e., transaction-based compensation) would give BMW a "salesman's stake" in the proposed transactions and would create heightened incentive for BMW to engage in sales efforts. Accordingly, the Staff believes that your proposed activities would require broker-dealer registration."
Monday, July 12, 2010
Speaker's notes
Here are my notes from the EB-5 panel discussion on July 3 at the annual conference of the American Immigration Lawyers Association in National Harbor, Maryland.
Choosing a regional center
Client Issues
I get a call. Caller says, "Boyd, I have a client who is not truly a high-wealth individual, but he tells me he can qualify as an accredited investor, and he has almost gathered all of the $500,000 he will need to invest in a TEA (that is, a targeted employment area) or a rural area? What have you got?"
Wait a second now, I say. Hold on. First you've got to help your client decide whether he wants to be in the regular EB-5 Program, which doesn't involve a regional center or indirect job creation. In that case your client would invest the $500,000 in a "new commercial enterprise," which means established after November 29, 1990, or a troubled business, or expansion of an existing business, or reorganization of an existing business so that a new entity results. And he would have to create or preserve 10 direct jobs within two years of being admitted to the United States as a conditional resident or adjusting status. He would also have to prove that he was involved in the day-to-day operations of the business. And he would have to invest in a TEA.
If your client wants to select an investment project through a regional center, she needs to understand that the main feature is the indirect and induced job creation. This feature, through the use of computer-based economic impact methodologies such as RIMSII, IMPLAN, REMI and ReDyne, allows the regional center to show the creation of indirect and induced jobs. Because of Congress's specific endorsement of limited partnerships, most active regional centers use them as the investment vehicle. As long as your client discharges his duties, responsibilities, and obligations (which are not many) under the Uniform Limited Partnership Act, he's fine.
Attorney's Role
The attorney's role is to do due diligence and represent his or her client zealously. This means it's not the lawyer's job to steer the client to a particular investment or to a particular regional center. There are a number of good regional centers out there committed to due diligence themselves, transparency, and conservative adherence to time-tested approaches to EB-5 investment projects. If they are out there, you will find them and grill them about these issues. There are good stockbrokers and financial analysts who should be consulted about these securities. There are also a few regional center experts who have made it their business to learn as much as possible about active regional centers around the nation.
Regional Centers
Regional Center Approval vs. Project Approval
Some regional center applicants use the approach of filing real business plans and real securities offerings and are essentially investment project -centric. Other applicants use exemplar investment projects or "hypothetical" investment projects in order to show what the regional center would do if approved by USCIS. Recently I have seen a number of puzzling RFEs that request alarming amounts of specific information about both real and exemplar investment projects, indicating that certain USCIS officers are conflating "project" and "regional center". And questions about indirect and induced job creation are stated in such a way that the California Service Center officers are scaring me.
They do not appear to know how this is done, which mirrors the most recent financial crisis on Wall Street, when few knew what collateralized debt obligations or credit default swaps were.
From the 21st Century Department of Justice Appropriations Authorization Act, dated Nov. 2, 2002
"A regional center shall have jurisdiction over a limited geographic area, which shall be described in the proposal and consistent with the purpose of concentrating pooled investment in defined economic zones. The establishment of a regional center may be based on general predictions, contained in the proposal, concerning the kinds of commercial enterprises that will receive capital from aliens, the jobs that will be created directly or indirectly as a result of such capital investments, and the other positive economic effects such capital investments will have."
With the release of the December 11, 2009, Neufeld memo addressing a number of controversies surrounding the EB-5 Program and the Service's apparent hostitility toward it, we learned that there was finally a mechanism for pre-approval of EB-5 investment projects, but it will be -- at least for the time being -- limited to regional center projects.
Different Business Models
Loan or debt, equity, venture capital fund, real estate investment trust, and what was a new model in 2007 that has since been replicated, an EB-5 compliance consulting services company. Some regional centers are project-centric, meaning that all they're doing is a resort hotel, or warehouses, or a six-block area in Chinatown.
Loan or Debt
This seems to be the preferred model of regional centers because it can be more easily structured to meet the needs of the investors and the requirements of the EB-5 Program. When paired with a limited partnership business form -- which was specifically authorized by Congress in the 2002 amendments to the EB-5 Program -- I think this structure is an unbeatable combination. As long as the investors discharge their duties, responsibilities and obligations under the Uniform Limited Partnership Act, USCIS may not challenge this model as a "passive" investment.
Equity
Which is to take nothing away from the equity model. Certainly, if so structured, an investor could take an equity interest in a regional center investment project, including stock, preferred or common, or another type of equity interest, and receive dividends or other distributions over the life of the equity investment. I am concerned whether discharging one's duties as a shareholder, however, is sufficiently active to remove this type of investment from the "passive" category.
Venture Capital Fund
Several prominent regional centers are structured as venture capital funds. The fund will typically invest in one or more -- typically more -- projects. A limited partnership can produce documents for investors showing where the money came from, where the money went, and how many jobs were created in the job-creating enterprise. I think the way a venture capital fund does that -- particularly if it spreads investors' capital among a number of projects -- builds complexity into an already complicated process that will probably give USCIS fits at the I-829 petition stage.
Real Estate Investment Trust
A REIT is another model that can work. A major concern is how to defeat or challenge a USCIS argument that a REIT is a purely passive investment. I can imagine that a creative REIT might create steering and investment advisory committees and keep careful minutes of meetings and votes to build some activity into this model.
EB-5 Compliance Consulting Services Company
USCIS had not seen this innovation in a regional center application before I submitted it in late 2006. At that time, because I wanted a statewide regional center, it didn't make sense to limit the regional center to one investment project or one industry or economic sector. This model contemplates a variety of investment projects and project developers through one regional center. It serves as a facilitator between project developers on one hand and investors' and their representatives on the other.
Structuring the Investment
The investor may encounter a problem if she accepts a return on the investment during the two-year conditional residence period. USCIS may challenge the "fully invested" criterion unless your investor has really good accounting information to turn back the challenge. It's probably best for the investor not to take a return on her investment for the two-year conditional period, unless you have good accounting.
Legal issues in conditonal removal petition
When we skip over to 8 CFR 216.6, we see words such as "good faith" and "substantial compliance" and "actively in the process of investing".
The secret to successful prosecution of I-829 petitions? GAAP. Generally Accepted Accounting Principles. And a name-brand accounting firm if you can afford one. The best regional centers use them. Accountants can be relied upon to help your client on both critical points: proof of investment and proof of job creation.
Sustaining investment
8 CFR 216.6(4)(iii) states that the alien investor must present "[e]vidence that the alien sustained the actions described in paragraph (a)(4)(i) (evidence that a commercial enterprise was established by the alien) and (a)(4)(ii) (evidence that the alien inevested or was actively in the process of investing the requisite capital) of this section throughout the period of the alien's residence in the United States. The alien will be considered to have sustained the actions required for removal of conditions if he or she has, in good faith, substantially met the capital investment requirement of the statute and continuously maintained his or her capital investment over the two years of conditional residence. Such evidence may include, but is not limited to, bank statements, invoices, receipts, contracts, business licenses, Federal or State income tax returns, and Federal or State quarterly tax statements.
Creating employment
Focus on the specific requirements stated in 8 CFR 216.6 and analyze what each requirement entails, and if USCIS imposes any additional requirement on top of these specific requirements, that is unlawful and should be challenged in federal court. I would also point out "good faith" and "substantial compliance" now have legal meanings, as well as the apparent requirement that the alien investor invest in the new commercial enterprise entity.
When have some questions that still have no answers:
How long does the investment capital have to stay in the new commercial enterprise entity?
According to the 8 CFR 216.6, the alien investor's capital investment must have been maintained in the new commercial enterprise for two years (the conditional residence period).
Do newly-created jobs have to be in both a TEA and within the geographic boundaries of a regional center area? This controversy was actually created by USCIS during an EB-5 stakeholders' conference call. The USCIS HQ representative opined that even indirect and induced job creation must take place within the geographic boundaries of the regional center. You could hear the collective expletives around the nation, even though no one but USCIS employees and possiibly a non-employee moderator can be heard. On another matter of great concern out there among practitioners is the Neufeld memos issued by USCIS during the past year or so. One colleague who is very knowledgeable concerning the EB-5 Program says the memos are unlawful attempts to create new EB-5 law which is ultra vires to EB-5 statutes and in violation of the existing regulations.
(4) Documentation. The petition for removal of conditions must be accompanied by the following evidence:
(i) Evidence that a commercial enterprise was established by the alien. Such evidence may include, but is not limited to, Federal income tax returns;
(ii) Evidence that the alien invested or was actively in the process of investing the requisite capital. Such evidence may include, but is not limited to, an audited financial statement or other probative evidence;
and
(iii) Evidence that the alien sustained the actions described in paragraph (a)(4)(i) and (a)(4)(ii) of this section throughout the period of the alien's residence in the United States. The alien will be considered to have sustained the actions required for removal of conditions if he or she has, in good faith, substantially met the capital investment requirement of the statute and continuously maintained his or her capital investment over the two years of conditional residence. Such evidence may include, but is not limited to, bank statements, invoices, receipts, contracts, business licenses, Federal or State income tax returns, and Federal or State quarterly tax statements.
Matters concerning what happens if a W-2 submitted on behalf of your investor is that of an alien unauthorized for employment are beyond the scope of this discussion, but you should be aware of it.
Choosing a regional center
Client Issues
I get a call. Caller says, "Boyd, I have a client who is not truly a high-wealth individual, but he tells me he can qualify as an accredited investor, and he has almost gathered all of the $500,000 he will need to invest in a TEA (that is, a targeted employment area) or a rural area? What have you got?"
Wait a second now, I say. Hold on. First you've got to help your client decide whether he wants to be in the regular EB-5 Program, which doesn't involve a regional center or indirect job creation. In that case your client would invest the $500,000 in a "new commercial enterprise," which means established after November 29, 1990, or a troubled business, or expansion of an existing business, or reorganization of an existing business so that a new entity results. And he would have to create or preserve 10 direct jobs within two years of being admitted to the United States as a conditional resident or adjusting status. He would also have to prove that he was involved in the day-to-day operations of the business. And he would have to invest in a TEA.
If your client wants to select an investment project through a regional center, she needs to understand that the main feature is the indirect and induced job creation. This feature, through the use of computer-based economic impact methodologies such as RIMSII, IMPLAN, REMI and ReDyne, allows the regional center to show the creation of indirect and induced jobs. Because of Congress's specific endorsement of limited partnerships, most active regional centers use them as the investment vehicle. As long as your client discharges his duties, responsibilities, and obligations (which are not many) under the Uniform Limited Partnership Act, he's fine.
Attorney's Role
The attorney's role is to do due diligence and represent his or her client zealously. This means it's not the lawyer's job to steer the client to a particular investment or to a particular regional center. There are a number of good regional centers out there committed to due diligence themselves, transparency, and conservative adherence to time-tested approaches to EB-5 investment projects. If they are out there, you will find them and grill them about these issues. There are good stockbrokers and financial analysts who should be consulted about these securities. There are also a few regional center experts who have made it their business to learn as much as possible about active regional centers around the nation.
Regional Centers
Regional Center Approval vs. Project Approval
Some regional center applicants use the approach of filing real business plans and real securities offerings and are essentially investment project -centric. Other applicants use exemplar investment projects or "hypothetical" investment projects in order to show what the regional center would do if approved by USCIS. Recently I have seen a number of puzzling RFEs that request alarming amounts of specific information about both real and exemplar investment projects, indicating that certain USCIS officers are conflating "project" and "regional center". And questions about indirect and induced job creation are stated in such a way that the California Service Center officers are scaring me.
They do not appear to know how this is done, which mirrors the most recent financial crisis on Wall Street, when few knew what collateralized debt obligations or credit default swaps were.
From the 21st Century Department of Justice Appropriations Authorization Act, dated Nov. 2, 2002
"A regional center shall have jurisdiction over a limited geographic area, which shall be described in the proposal and consistent with the purpose of concentrating pooled investment in defined economic zones. The establishment of a regional center may be based on general predictions, contained in the proposal, concerning the kinds of commercial enterprises that will receive capital from aliens, the jobs that will be created directly or indirectly as a result of such capital investments, and the other positive economic effects such capital investments will have."
With the release of the December 11, 2009, Neufeld memo addressing a number of controversies surrounding the EB-5 Program and the Service's apparent hostitility toward it, we learned that there was finally a mechanism for pre-approval of EB-5 investment projects, but it will be -- at least for the time being -- limited to regional center projects.
Different Business Models
Loan or debt, equity, venture capital fund, real estate investment trust, and what was a new model in 2007 that has since been replicated, an EB-5 compliance consulting services company. Some regional centers are project-centric, meaning that all they're doing is a resort hotel, or warehouses, or a six-block area in Chinatown.
Loan or Debt
This seems to be the preferred model of regional centers because it can be more easily structured to meet the needs of the investors and the requirements of the EB-5 Program. When paired with a limited partnership business form -- which was specifically authorized by Congress in the 2002 amendments to the EB-5 Program -- I think this structure is an unbeatable combination. As long as the investors discharge their duties, responsibilities and obligations under the Uniform Limited Partnership Act, USCIS may not challenge this model as a "passive" investment.
Equity
Which is to take nothing away from the equity model. Certainly, if so structured, an investor could take an equity interest in a regional center investment project, including stock, preferred or common, or another type of equity interest, and receive dividends or other distributions over the life of the equity investment. I am concerned whether discharging one's duties as a shareholder, however, is sufficiently active to remove this type of investment from the "passive" category.
Venture Capital Fund
Several prominent regional centers are structured as venture capital funds. The fund will typically invest in one or more -- typically more -- projects. A limited partnership can produce documents for investors showing where the money came from, where the money went, and how many jobs were created in the job-creating enterprise. I think the way a venture capital fund does that -- particularly if it spreads investors' capital among a number of projects -- builds complexity into an already complicated process that will probably give USCIS fits at the I-829 petition stage.
Real Estate Investment Trust
A REIT is another model that can work. A major concern is how to defeat or challenge a USCIS argument that a REIT is a purely passive investment. I can imagine that a creative REIT might create steering and investment advisory committees and keep careful minutes of meetings and votes to build some activity into this model.
EB-5 Compliance Consulting Services Company
USCIS had not seen this innovation in a regional center application before I submitted it in late 2006. At that time, because I wanted a statewide regional center, it didn't make sense to limit the regional center to one investment project or one industry or economic sector. This model contemplates a variety of investment projects and project developers through one regional center. It serves as a facilitator between project developers on one hand and investors' and their representatives on the other.
Structuring the Investment
The investor may encounter a problem if she accepts a return on the investment during the two-year conditional residence period. USCIS may challenge the "fully invested" criterion unless your investor has really good accounting information to turn back the challenge. It's probably best for the investor not to take a return on her investment for the two-year conditional period, unless you have good accounting.
Legal issues in conditonal removal petition
When we skip over to 8 CFR 216.6, we see words such as "good faith" and "substantial compliance" and "actively in the process of investing".
The secret to successful prosecution of I-829 petitions? GAAP. Generally Accepted Accounting Principles. And a name-brand accounting firm if you can afford one. The best regional centers use them. Accountants can be relied upon to help your client on both critical points: proof of investment and proof of job creation.
Sustaining investment
8 CFR 216.6(4)(iii) states that the alien investor must present "[e]vidence that the alien sustained the actions described in paragraph (a)(4)(i) (evidence that a commercial enterprise was established by the alien) and (a)(4)(ii) (evidence that the alien inevested or was actively in the process of investing the requisite capital) of this section throughout the period of the alien's residence in the United States. The alien will be considered to have sustained the actions required for removal of conditions if he or she has, in good faith, substantially met the capital investment requirement of the statute and continuously maintained his or her capital investment over the two years of conditional residence. Such evidence may include, but is not limited to, bank statements, invoices, receipts, contracts, business licenses, Federal or State income tax returns, and Federal or State quarterly tax statements.
Creating employment
Focus on the specific requirements stated in 8 CFR 216.6 and analyze what each requirement entails, and if USCIS imposes any additional requirement on top of these specific requirements, that is unlawful and should be challenged in federal court. I would also point out "good faith" and "substantial compliance" now have legal meanings, as well as the apparent requirement that the alien investor invest in the new commercial enterprise entity.
When have some questions that still have no answers:
How long does the investment capital have to stay in the new commercial enterprise entity?
According to the 8 CFR 216.6, the alien investor's capital investment must have been maintained in the new commercial enterprise for two years (the conditional residence period).
Do newly-created jobs have to be in both a TEA and within the geographic boundaries of a regional center area? This controversy was actually created by USCIS during an EB-5 stakeholders' conference call. The USCIS HQ representative opined that even indirect and induced job creation must take place within the geographic boundaries of the regional center. You could hear the collective expletives around the nation, even though no one but USCIS employees and possiibly a non-employee moderator can be heard. On another matter of great concern out there among practitioners is the Neufeld memos issued by USCIS during the past year or so. One colleague who is very knowledgeable concerning the EB-5 Program says the memos are unlawful attempts to create new EB-5 law which is ultra vires to EB-5 statutes and in violation of the existing regulations.
(4) Documentation. The petition for removal of conditions must be accompanied by the following evidence:
(i) Evidence that a commercial enterprise was established by the alien. Such evidence may include, but is not limited to, Federal income tax returns;
(ii) Evidence that the alien invested or was actively in the process of investing the requisite capital. Such evidence may include, but is not limited to, an audited financial statement or other probative evidence;
and
(iii) Evidence that the alien sustained the actions described in paragraph (a)(4)(i) and (a)(4)(ii) of this section throughout the period of the alien's residence in the United States. The alien will be considered to have sustained the actions required for removal of conditions if he or she has, in good faith, substantially met the capital investment requirement of the statute and continuously maintained his or her capital investment over the two years of conditional residence. Such evidence may include, but is not limited to, bank statements, invoices, receipts, contracts, business licenses, Federal or State income tax returns, and Federal or State quarterly tax statements.
Matters concerning what happens if a W-2 submitted on behalf of your investor is that of an alien unauthorized for employment are beyond the scope of this discussion, but you should be aware of it.
Saturday, July 3, 2010
AILA EB-5 panel in National Harbor Maryland
It was my privilege to address a packed ballroom of immigration lawyers Saturday who were eager to hear the latest news about the EB-5 Program and the proliferation of regional centers, which is probably 100 today and destined to grow to 120 or more in coming months.
I was joined by moderator Ron Klasko and panelist Carolyn Lee as we navigated the EB-5 Program from fundamentals to truly arcane. This being the only EB-5 panel during the annual conference of the American Immigration Lawyers Association (AILA).
At the conclusion of the program, I thought the questinos from attendees were very good. Several questions addressed E-2 and L-1 conversions to EB-5 (see my post below), and I suggested that lawyers with clients who wish to pursue this be careful.
I will do this again on August 27 during the AILA EB-5 Investors Conference in Boston. You can register at www.aila.org. Click on "Conferences".
I was joined by moderator Ron Klasko and panelist Carolyn Lee as we navigated the EB-5 Program from fundamentals to truly arcane. This being the only EB-5 panel during the annual conference of the American Immigration Lawyers Association (AILA).
At the conclusion of the program, I thought the questinos from attendees were very good. Several questions addressed E-2 and L-1 conversions to EB-5 (see my post below), and I suggested that lawyers with clients who wish to pursue this be careful.
I will do this again on August 27 during the AILA EB-5 Investors Conference in Boston. You can register at www.aila.org. Click on "Conferences".
Tuesday, June 22, 2010
E-2 (nonimmigrant investor) conversions to EB-5
It came in the form of a direct question from an experienced immigration lawyer. May his client, who has an E-2 (treaty investor) nonimmigrant visa, take money invested in the United States and re-invest it in a regional center investment project?
The answer? Yes, indeed! There is nothing in federal law or regulations regarding the EB-5 Program to prohibit it.
As a matter of fact, I am discussing E-2 conversions to EB-5 with immigration lawyers representing several clients who came here from Iran and India. The investors still have to come up with the minimum investment amount of $500,000. And regional centers typically charge investors from $30,000 to $50,000 for five years of EB-5-related services to help the investors get the permanent green card.
Conversion also makes sense for investors in Canada's similar immigrant investor program who want to put a couple of hundred thousand dollars with their returns from the Canadian program and invest the money in the EB-5 Program in the United States.
These two sources of immigrant investors are generally untapped resources to help create badly needed jobs in the United States.
Having said the above, you should be mindful that this E-2 money is frozen out of the EB-5 Program if a direct investment of even E-2 revenues is used. So you must be very careful to develop new capital and have a good accountant at the ready.
In response to the question: May an E-2 investor grow his business and eventually qualify
as an EB-5, as the business increases in value enough to
meet the EB-5 Investment Threshold?
USCIS responded to the EB-5 stakeholder's question in this manner:
"8 CFR 204.6(e) defines 'capital'.
"Legislative History: S. Rep. 55, 101st Cong., 1st Sess. 5, 21 (1989) twice refers to EB-5 investments as “new capital” that will promote job growth.
"The reinvestment of a commercial enterprise’s revenues cannot be considered part of a qualifying investment. See generally De Jong v. INS, Case No. 6:94 CV 850 (E.D. Texas January 17, 1997); Kenkhuis v. INS, No. 3:Ol-CV-2224-N (N.D. Tex. Mar.
7,2003)."
If USCIS could find more ways to strangle the EB-5 Program, it would. This federal agency demonstrates its hostility toward the EB-5 Program over and over again.
The answer? Yes, indeed! There is nothing in federal law or regulations regarding the EB-5 Program to prohibit it.
As a matter of fact, I am discussing E-2 conversions to EB-5 with immigration lawyers representing several clients who came here from Iran and India. The investors still have to come up with the minimum investment amount of $500,000. And regional centers typically charge investors from $30,000 to $50,000 for five years of EB-5-related services to help the investors get the permanent green card.
Conversion also makes sense for investors in Canada's similar immigrant investor program who want to put a couple of hundred thousand dollars with their returns from the Canadian program and invest the money in the EB-5 Program in the United States.
These two sources of immigrant investors are generally untapped resources to help create badly needed jobs in the United States.
Having said the above, you should be mindful that this E-2 money is frozen out of the EB-5 Program if a direct investment of even E-2 revenues is used. So you must be very careful to develop new capital and have a good accountant at the ready.
In response to the question: May an E-2 investor grow his business and eventually qualify
as an EB-5, as the business increases in value enough to
meet the EB-5 Investment Threshold?
USCIS responded to the EB-5 stakeholder's question in this manner:
"8 CFR 204.6(e) defines 'capital'.
"Legislative History: S. Rep. 55, 101st Cong., 1st Sess. 5, 21 (1989) twice refers to EB-5 investments as “new capital” that will promote job growth.
"The reinvestment of a commercial enterprise’s revenues cannot be considered part of a qualifying investment. See generally De Jong v. INS, Case No. 6:94 CV 850 (E.D. Texas January 17, 1997); Kenkhuis v. INS, No. 3:Ol-CV-2224-N (N.D. Tex. Mar.
7,2003)."
If USCIS could find more ways to strangle the EB-5 Program, it would. This federal agency demonstrates its hostility toward the EB-5 Program over and over again.
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