The trip to Washington, D.C., to meet with USCIS Director Alejandro Mayorkas was fine. What wasn't was the resistance I still see and hear to establishing some nurturing management of the EB-5 Program. This is a job-creation program established by Congress in 1990 that has been mismanaged by U.S. Citizenship and Immigration Services for more than 20 years.
If USCIS were a big corporation instead of just a big, bloated government bureaucracy, there would have been a shareholder revolt and the EB-5 Program "management team" would have been fired many years ago. But federal government employees can't be fired. They can, however, be reassigned. Come to think of it, that's not a bad idea at all.
There was an advocate for the EB-5 Program years ago, on the inside, in the same building where I met with Director Mayorkas, working every day to gin up positive activity in the EB-5 Program, but he was bureaucratically assassinated and has retired. The EB-5 community -- those of us out here trying to work this foreign investor immigrant visa program -- didn't know it at the time, but those were the "good old days."
To his credit, Mayorkas seems to know the EB-5 Program is in trouble, but he does not seem to know how to rescue it.
Part -- just part -- of the problem is that the USCIS employees (called immigration service officers, ISOs) "adjudicating" EB-5 visa cases in Laguna Niguel, California, treat every applicant like a terrorist or drug dealer and their money is considered dirty until proven clean, much like guilty until proven innocent. That's just part of the problem, but it's a really big part. ISOs are "adjudicating" these investor visa petitions using the wrong evidentiary standard.
Statute law, case law, and federal regulations agree: These cases are supposed to be examined using the "preponderance of the evidence" standard, which basically means "more likely than not". Instead requests for additional evidence I have seen clearly show that ISOs are using the "beyond a reasonable doubt" evidentiary standard.
Mayorkas has proposed accelerated and premium processing of "shovel ready" cases. Notice he used the word "cases", not "job-creation projects". I think that's telling.
He has proposed specialized intake teams for I-924 applications with direct customer access. This sets the table for another layer of bureaucracy that is unlikely to be helpful.
He has proposed an "enhanced decision process" for I-924 applications with an option for in-person or telephonic interview. This sounds nice until you realize that the ISOs don't want it. They treasure their anonymity, huddled in their bunker, lobbing shells at the customers in the form of whacky decisions and the ubiquitous "No, you can't have that visa."
I told Mayorkas that regional centers don't want letters approving "amendments" to their designation letters when they submit an EB-5 investment project for "pre-approval". I said we want a Form I-797 approval notice.
"Can we do that?" Myorkas asked the assembled staff. A high-level employee said probably not because the CLAIMS system, which stands for Computer-Linked Application Information Management, can't spit out the form. Garbage in, garbage out, I guess. You see my points?
Showing posts with label regional center. Show all posts
Showing posts with label regional center. Show all posts
Tuesday, September 27, 2011
Sunday, June 26, 2011
Please come to Boston
On July 29 I will join my colleagues in Boston for the 2011 EB-5 Investment Summit: Dealmakers Conference. I will deliver information about how to run a regional center. The program indicates all of the bases are covered, so please come to Boston.
For information and to register, go here: http://www.eb5bostonsummit.org/
For information and to register, go here: http://www.eb5bostonsummit.org/
Sunday, February 20, 2011
U.S. government giving foreign investors the shaft
I've been doing a lot of thinking about EB-5 investors lately.
What happens when they get to the I-829 petition stage (removal of conditions) and there is insufficient information from the investment project that the investor's money was "fully invested" as required by federal regulations?
What happens to the investor if there is insufficient information from the investment project that it created at least 10 U.S. worker jobs as required by federal regulations?
What happens to the investor if the investment project fails? What happens to the investor if a regional center fails?
What happens if the investor is approved for removal of conditions but the investment project goes bankrupt?
Apparently neither Congress nor U.S. Citizenship and Immigration Services (USCIS) gave much thought to this because it wasn't happening when the law was passed and the regulations were written. It's happening now. As everyone knows, the worst recession in our lifetimes delivered a roundhouse punch to the U.S. economy, and the recovery -- which is occurring in some parts of the United States -- is extremely slow.
It is in this economic environment that EB-5 investment projects are not doing well or failing. Insufficient jobs are being created to cover EB-5 investment project investors (minimum of 10 U.S. worker jobs each). EB-5 investors' money is being lost. And the consequences for the foreign investors -- who, in good faith, put their hard-earned money down and in many cases sent their families to the United States and their children to enroll in school -- are brutal and patently unfair and unjust.
When the investors have insufficient information and documentation to deliver to USCIS along with their I-829 petitions, the petitions are denied and the investor and family members -- if in the United States -- are put in deportation (removal) proceedings.
One can argue about the unfairness and injustice of this for quite awhile, but what we (immigration lawyers, Congress, USCIS, regional centers) need to focus on is how to protect the investors. These problems are not their fault and they should not be denied immigration benefits if their money is lost and/or an insuffucient number of U.S. worker jobs is created through no fault of their own.
It is my understanding, although records are incomplete, that USCIS is denying about one-third of the I-829 petitions filed with the California Service Center. This situation is not sustainable if the EB-5 Program is to survive.
News travels fast, and bad news travels faster. If I have a one in three chance of not obtaining a permanent "green card" if I invest through the EB-5 Program, my money is staying home.
There is a precedent in U.S. visa programs for situations where there are failures of eligibility requirements. On October 28, 2009, Congress passed the Department of Homeland Security Appropriations Act for FY2010. Thanks to Brent Renison's organizational skills and relentless lobbying, it contained help for family immigration beneficiaries.
"The Act contains two measures to address survivors’ issues: (1) self-petitioning rights for all widow(er)s of American citizens and their children contained in section 568(c) of the Act; and (2) certain survivors’ rights for family based, employment based, and other immigrants contained in section 568(d)," Renison wrote.
"The 'widow penalty', whereby spouses of U.S. citizens and their children faced automatic denial of a visa petition if the death of the spouse occurred prior to adjudication and prior to two years of marriage, effectively ended upon the passage of § 568(c). That section removes the two-year marriage requirement from the current law that permits widows and widowers ('widow(er)s') of U.S. citizens to file a self-petition for themselves and their children.
"By removing the two-year precondition to a current statutory program, Congress retained the widow(er) self-petition procedure including the requirement to show a good faith marriage. The law does not alter the rights of widow(er)s who were married two years or more, who have been able to self-petition since 1990.
"The deletion of the two-year marriage requirement will allow a widow(er) who was married less than two years at the time of the citizen spouse’s death to file a Form I-360 self-petition within two years of the law’s passage, or within two years of the spouse’s death, whichever is later."
Do you see any parallels by applying the above to the troubled EB-5 Program? First, when it was writing regulations for the EB-5 Program, USCIS plucked the "two-year rule" from the marriage fraud amendments without any consideration of its impact in the business world. That is the two-year conditional period during which the EB-5
investor must "fully invest" his or her money and create 10 U.S. worker jobs.
I am, of course, using the analogy of a deceased U.S. citizen spouse for my proposition that failed EB-5 investment projects or regional centers are akin to the death of a petitioning spouse.
If an EB-5 investment project fails and I, as a foreign investor, have fully invested my money in good faith, should I be able to self-petition for removal of conditions at the I-829 petition phase? I think it's only fair that I be allowed to do so.
What do you think? Should the federal government give these foreign investors the shaft when they cannot (through no fault of their own) meet all of the requirements for removal of conditions (to the permanent "green card"), or should there be a means to self-petition if an EB-5 investment project or regional center fails?
What happens when they get to the I-829 petition stage (removal of conditions) and there is insufficient information from the investment project that the investor's money was "fully invested" as required by federal regulations?
What happens to the investor if there is insufficient information from the investment project that it created at least 10 U.S. worker jobs as required by federal regulations?
What happens to the investor if the investment project fails? What happens to the investor if a regional center fails?
What happens if the investor is approved for removal of conditions but the investment project goes bankrupt?
Apparently neither Congress nor U.S. Citizenship and Immigration Services (USCIS) gave much thought to this because it wasn't happening when the law was passed and the regulations were written. It's happening now. As everyone knows, the worst recession in our lifetimes delivered a roundhouse punch to the U.S. economy, and the recovery -- which is occurring in some parts of the United States -- is extremely slow.
It is in this economic environment that EB-5 investment projects are not doing well or failing. Insufficient jobs are being created to cover EB-5 investment project investors (minimum of 10 U.S. worker jobs each). EB-5 investors' money is being lost. And the consequences for the foreign investors -- who, in good faith, put their hard-earned money down and in many cases sent their families to the United States and their children to enroll in school -- are brutal and patently unfair and unjust.
When the investors have insufficient information and documentation to deliver to USCIS along with their I-829 petitions, the petitions are denied and the investor and family members -- if in the United States -- are put in deportation (removal) proceedings.
One can argue about the unfairness and injustice of this for quite awhile, but what we (immigration lawyers, Congress, USCIS, regional centers) need to focus on is how to protect the investors. These problems are not their fault and they should not be denied immigration benefits if their money is lost and/or an insuffucient number of U.S. worker jobs is created through no fault of their own.
It is my understanding, although records are incomplete, that USCIS is denying about one-third of the I-829 petitions filed with the California Service Center. This situation is not sustainable if the EB-5 Program is to survive.
News travels fast, and bad news travels faster. If I have a one in three chance of not obtaining a permanent "green card" if I invest through the EB-5 Program, my money is staying home.
There is a precedent in U.S. visa programs for situations where there are failures of eligibility requirements. On October 28, 2009, Congress passed the Department of Homeland Security Appropriations Act for FY2010. Thanks to Brent Renison's organizational skills and relentless lobbying, it contained help for family immigration beneficiaries.
"The Act contains two measures to address survivors’ issues: (1) self-petitioning rights for all widow(er)s of American citizens and their children contained in section 568(c) of the Act; and (2) certain survivors’ rights for family based, employment based, and other immigrants contained in section 568(d)," Renison wrote.
"The 'widow penalty', whereby spouses of U.S. citizens and their children faced automatic denial of a visa petition if the death of the spouse occurred prior to adjudication and prior to two years of marriage, effectively ended upon the passage of § 568(c). That section removes the two-year marriage requirement from the current law that permits widows and widowers ('widow(er)s') of U.S. citizens to file a self-petition for themselves and their children.
"By removing the two-year precondition to a current statutory program, Congress retained the widow(er) self-petition procedure including the requirement to show a good faith marriage. The law does not alter the rights of widow(er)s who were married two years or more, who have been able to self-petition since 1990.
"The deletion of the two-year marriage requirement will allow a widow(er) who was married less than two years at the time of the citizen spouse’s death to file a Form I-360 self-petition within two years of the law’s passage, or within two years of the spouse’s death, whichever is later."
Do you see any parallels by applying the above to the troubled EB-5 Program? First, when it was writing regulations for the EB-5 Program, USCIS plucked the "two-year rule" from the marriage fraud amendments without any consideration of its impact in the business world. That is the two-year conditional period during which the EB-5
investor must "fully invest" his or her money and create 10 U.S. worker jobs.
I am, of course, using the analogy of a deceased U.S. citizen spouse for my proposition that failed EB-5 investment projects or regional centers are akin to the death of a petitioning spouse.
If an EB-5 investment project fails and I, as a foreign investor, have fully invested my money in good faith, should I be able to self-petition for removal of conditions at the I-829 petition phase? I think it's only fair that I be allowed to do so.
What do you think? Should the federal government give these foreign investors the shaft when they cannot (through no fault of their own) meet all of the requirements for removal of conditions (to the permanent "green card"), or should there be a means to self-petition if an EB-5 investment project or regional center fails?
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.
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.
Subscribe to:
Posts (Atom)
Posts
