Some EB-5 Facts That Have Been Forgotten
Very few "players" thoroughly understand the "rules" for EB-5 Regional Center "game". Some have learned enough to convince USCIS to let them try; and have aided more than one "entity" in achieving Regional Center Designation. However, these attempts have brought highly variable results after designation. Some Regional Centers can easily fulfill their "obligations and duties" to their EB-5 investor partners while others have a more difficult time doing so. Much of that "difficulty" comes from the general lack of a clearly defined "role" for the Regional Center to play in concert with their EB-5 partners.
Points of Confusion
The following is an attempt to identify some of the prevalent concepts where deeper discussion and study might help clear a few cobwebs and shine a sorely needed light.
The Regional Center is supposed to do the hard work of project planning and coordination in order to provide EB-5 compliant pooled investment opportunities for their EB-5 investors. It is the individual EB-5 investor who will self-petition for him/herself and qualifying spouse and unmarried minor children on USCIS Form I-526. The Form I-526 is a "preference visa petition" and as such must be "approvable when filed" by an alien who is "eligible at time of filing" for the visa classification sought via that petition. The filing date becomes the priority date for later visa issuance purposes. Although this has been the case since 1990, it has yet to become a real consideration. That situation may change within a year or two.
The Regional Center may include non-EB-5 investors who may be domestic, foreign, and/or non-natural entities (institutional investors). Each EB-5 investor must show the lawful source of his or her own funds AND for the entire project! It is therefore incumbent on the Regional Center to source all project funds through documentary evidence which it must supply to the I-526 petitioners (or USCIS may soon allow a "bulk submission" on behalf of a "project").
The Regional Center sponsored and coordinated "project" has to make good business sense. The "business decisions" must come first! There must be a need for that project, in that place, at that time, and it must create numerous jobs. This is so because the EB-5 visa requires the creation (or preservation) of ten (10) jobs for each EB-5 investor. Certain projects might be great money-making opportunities but lack sufficient job creation for EB-5 purposes. The above ONLY speaks to the initial responsibilities and obligations of the Regional Center towards its EB-5 investors. There is more to it than that which will be discussed further along in this essay.
The I-924 applicant may eventually be designated as a USCIS sanctioned or authorized Regional Center and given express permission to advertise to, and seek to attract, EB-5 investors into certain types of projects in a defined geographic area. Who defines that "scope"? Primarily the Regional Center defines its own scope subject to confirmation by, and approval from, USCIS. The individual who files the the I-924 application seeking designation as a Regional Center is an individual acting as, or on behalf of, the sponsor, principal, or applicant entity.
That "entity" must actually exist at time of filing and be authorized in accordance with law. That is, the entity, as applicable, must be incorporated, have filed a DBA (doing-business-as) form, has filed for registration and/or recognition, obtained a permit or license, or is otherwise authorized by some legal mechanism to act in the name used on the Form I-924. People sometimes forget that a non-existent entity has no legal basis to file anything. It is similar to the plight of the undocumented person in any country in the world and undocumented aliens in the United States.
The Approval Notice that is issued by USCIS will specify the the type of application that the Notice addresses such as: an initial request for designation; or an amendment to their operating parameters or scope of the Regional Center (geography/industries/ reasonable methodologies/investment structure and/or instruments, etc...); or a project-specific I-526 Exemplar (submitted as an I-924 amendment). For the more in-depth requests, especially for older Regional Centers with a longer history, some very specific (and sometimes complicated and/or convoluted) procedural history is presented. The "reasonable methodologies" proffered as to the attributable "positive economic benefits" and especially the "indirect job creation" will be specifically identified in the Approval Notice.
When USCIS issues an Approval Notice to a Regional Center, it is in essence licensing that entity, or in the beginning it may be more helpful to think of it as a learner's permit subject to a "road test". That entity might easily pass the "road test" and find the rest to be smooth sailing forever, or as sometimes happens, violations may occur, or skills diminish over time. When that happens to a driver, they might be "pulled over", cited, and either made to take remedial action (driving school, get a pair of glasses, whatever) or their license may be revoked. If over the course of time, USCIS sees problems with a Regional Center it may issue a Notice of Intent to Terminate. At that point, the Regional Center may submit a response in an effort to take corrective action or to correct a misconception on the part of USCIS. What might USCIS see that causes it to issue such a notice? Read on.
Indirect jobs start out with the presumption of being tenuously connected to the investor. See Izummi, at 179. This presumption must be rebutted, or at least attenuated, through the establishment, demonstration, and explanation of a sufficient nexus between the EB-5 funds and the newly created jobs. The extent of the acceptable level of that connection is highly variable to the individual project. Think of EB-5 nexus as a rubber band. Ask yourself how far you can stretch it before it snaps and breaks, or at which point the connectivity is no longer palpable. Is the connection between the EB-5 money and the new job easily perceptible to the reasonable mind?
The root causes of the concept of the "impermissible material change" in Matter of Izummi, 22 I&N Dec. 169 (AAO 1998), had to do with:
(1.) misdirection and improper use of the money; and (2.) acting outside of the parameters or "beyond the scope" of the Regional Center approval; and (3.) grossly disregarding the overarching parameters of the Pilot Program itself, i.e. accepting TEA level investment outside of TEAs which were themselves outside the approved geographic area of the Regional Center.
Any financial transaction documentation that is submitted up-front for examination by USCIS for EB-5 compliance and is found acceptable may not be "materially changed" afterwards without resubmitting it for a new examination. Some unscrupulous Regional Center sponsors have been caught in the act of "bait and switch" in regard to these complex financial transaction documents. Others have made inadvertent errors. The results have been the same for the EB-5 investors: Bad News!
The EB-5 investors file I-526 petitions. They are separate and apart from the Regional Center Designation process. The Regional Center applicant files USCIS Form I-924 in order to obtain recognition and designation or to "amend" its scope. The Form I-924 may also be used for the purpose of an advance vetting for a particular project prior to the EB-5 investors filing their "actual" I-526 petitions. The Regional Center may not usurp an individual alien's I-526 (or I-829) process in order to push through an untimely amendment to the operational parameters or "scope" of the Regional Center.
One of the more popular concepts in Regional Center Proposals has been the "mixed-use" development. I am afraid that some Regional Center sponsors have lost sight of certain key underlying facts related to "mixed-use" developments in the EB-5 Regional Center context. They are limited to the "kinds of commercial enterprises" supported by the Regional Center (RC) Proposal. "Mixed-use" does not grant one some free-for-all ability to throw together EB-5 Marketing Plans that stray beyond those types of businesses, industries, or NAICS codes for which approval has been sought and obtained.
For example, if the RC submitted an exemplar/hypothetical proposal for a "mixed-use" project that included: (1) retail space; (2) medical professional office space; (3) restaurant space; and (4) hotel suites, and supported that "mixed-use" development with an acceptable methodology for determining the number of jobs created then that is the limit of the scope of its "mixed-use" concept approval.
That particular sample mix contains four elements. When a "real" project comes along and contains all four elements or any subset of them, then it is covered or "within the scope" of the Regional Center approved operational parameters.
However, keep in mind this proviso; that the precise mix of businesses in their exact proportions within the "actual" project will need a basic review for acceptability as to their job counts. That basic review could be accomplished through submitting an I-526 exemplar as an I-924 amendment or by submitting one real I-526 for an actual EB-5 investor acting as a "guinea pig" or "test subject". The difference in cost between these two options is so trivial to a multi-million dollar project that it should never even be a passing consideration. An "actual" I-526 is a real visa petition which MUST be "approvable when filed" for a petitioner who is "eligible at time of filing". The I-924 application is not a visa petition and MAY be perfected after filing. The real consideration speaks to the level of confidence the RC has in its project and especially the supporting evidence, i.e. the updated economic analysis for the "actual" project.
Another major consideration that folks don't realize is that if a "mixed-use" project comes along containing an element that was not already included in the Original Proposal or a subsequent Amendment, then that is outside the scope of the approval. This situation demands an amendment to the RC parameters. The "guinea pig" approach is not acceptable. The RC involved in Izummi  sought to usurp the investor's petition as a means to amend its scope and that approach was flatly rejected in the mid 1990s. Each form involves different statutes and has specific parameters for adjudication!
Someone whose opinion I respect  observed in an e-mail to me on 6-21-2012, that:
"[T]he term "mixed use" has taken on a definition of its own in the EB-5 context. Real estate professionals normally use the ...[term]... to refer to a mix of residential and commercial uses, not to a mix of commercial tenants in different industries as EB-5 people use the ...[term]..."
Some Regional Center applicants are genuinely confused while others are deliberately misleading prospective EB-5 investors as to the minimum required amount for a qualifying investment. There are additional unrecognized, unofficial players in the Regional Center game. Recruiters and Agents working either independently or in cooperation with U.S. based entities including some Regional Centers may be either genuinely confused or deliberately misleading prospective EB-5 investors abroad with impunity. (China is trying to protect its citizens.)
The basic minimum investment amount is one-million dollars. Only in those instances when the project is located in a qualifying targeted employment area (TEA), may the minimum investment amount be cut in half. The mere association with a Regional Center does not qualify any project at the reduced investment level. It is evident that even some would-be Regional Center applicants are confused on this point.
The parameters for TEA designation are statutory and NOT at the whim of USCIS.
TEA designation is determined at a particular point in time for the individual investor, not the entire project. (USCIS is apparently looking at this issue.)
Acting within the scope of its authority, USCIS has determined that the reduced investment amount may be secured by the individual investor at either one of two distinct and discrete points in the EB-5 process as follows.
One of the statutory requirements for I-526 approval is showing that the alien has invested or is actively in the process of investing the required amount. Generally, this can be proven by the production of contracts, various written agreements, bank statements, cancelled checks, etc.., which show that the money has been handed over to the project developer or put to use. Another popular alternative is showing that the full amount has been placed in escrow and is to be released upon I-526 approval (or some other acceptable trigger). Escrow  is not legally required and can be detrimental to the success of a project. Need for release of fund from escrow will not support expedited processing requests. The FULL minimum investment amount must be a placed "at risk" in the approved project. The costs of obtaining Regional Center designation and continuing operation of the Regional Center cannot be "skimmed" off the top of the minimum investment amount. Separate "administrative fees", "subscription fees", or "whatever fees" have become the industry standard. In due course of administering the EB-5 Program, USCIS has an interest in examining and evaluating the fees charged versus the services provided in exchange for them. USCIS is the licensing authority and is empowered by statute to oversee the entire program in all respects.
The Regional Center is also obligated to do all it can to assist its EB-5 investors towards the end of their immigration process. At a set point in the process, the EB-5 investor must petition for removal of conditions from status. The USCIS Form I-829 must be filed within the 90-day period before the expiration of the EB-5 investor's conditional permanent resident status. Therefore, the Regional Center needs to work with its EB-5 investors so that they file their individual petitions and obtain their conditional status at the best estimated time such that the required jobs will be created at the necessary future time to ensure approval of their Form I-829.
Lastly, the Regional Center is in the best position to gather information on behalf of all its EB-5 investors for use as evidence to support their Forms I-829. The I-829 submitted by a Regional Center affiliated investor will need evidence to support findings-of-fact by USCIS that the conditions precedent as predicted in the economic analysis submitted up-front have been fulfilled or are on the cusp of being achieved within a reasonable period of time. This evidence is highly variable and specific to the assumptions presented in the economic analysis. If the economic analysis stated that the project would develop a specific amount, of a certain type of space, which would support a certain level of employment in the specified "kind of commercial enterprise", then those assumptions transform into the conditions precedent required to prove the predicted "indirect job" creation.
For example, suppose that the anchor tenant in a brand new "mixed-use" development will be an upscale supper club. The developers are bending over backwards to "build to suit" a particular celebrity chef who is sure to draw plenty of traffic to the entire complex. Suppose that the industry standard for an upscale full-service restaurant with a live floor show tells us that X square feet in such an establishment will support one full-time position. The economic analysis supported this figure through verifiable detail from a reputable and reliable source (perhaps BLS or the U.S. Chamber of Commerce or an industry organization). The economic analysis also drew from the business plan that this particular project would create Y square feet, which would therefore result in Z full-time positions for qualifying employees.
At the I-829 stage, the Regional Center needs to supply some type of documentary evidence to its EB-5 investors to submit with their I-829s in order to prove these points. What documents will it need to submit? Will contracts and leases suffice as to the type of space created for commercial use? Will written reports from the local building inspectors confirm the construction of the space as predicted? Would the demand for production of I-9s from the restaurateur be overkill and ultra vires? Neither the Regional Center applicant nor USCIS should fail to consider the answers up-front to the questions pertinent to the back-end burden of proof!
Failing to plan equals planning to fail! The EB-5 "Pilot Immigration Program" remains to be clearly defined. USCIS and EB-5 stakeholders need to work together to come to a clearer understanding of the program. That's my two-cents, for now.
1 Immigration and Nationality Act of 1952, as amended, is referred to as the INA or the Act.
3Immigration and Naturalization Service (INS) was the agency under the Attorney General that handled the bulk of INA matter prior to the creation of the Department of Homeland Security (DHS) and the standing up new agencies as of March 1, 2003. U.S. Citizenship and Immigration Services (USCIS) now administers this program.
6Matter of Izummi, 22 I&N Dec. 169 (AAO 1998).
7 Someone who wishes to remain anonymous.
Joseph P. Whalen is not an attorney. He is a former government employee who is familiar with the INA. His education is in Anthroplogy with a concentration in Archaeology and has both a BA (from SUNY Buffalo) and an MA (from San Francisco State University) in Anthroplogogy. He previously worked as an Archaeologist for the U.S. Forest Service before becoming an Adjudicator with INS which became USCIS.
The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.