The Certainty of Change and Risk in Investment Immigration
Immigrant investors who satisfy requirements of the EB5 category obtain permanent residence on a conditional basis. The investor's permanent residence is equivalent to permanent residence in any other sense of the status, with exception of the conditions.
Whether the investor meets the conditions on permanent residence determines the duration of the investor's residence; the residence will be long term and unconditional if the conditions are satisfied, and short-lived if the conditions are not satisfied. The conditions can be divided into three groups - the maintenance of status conditions, the petition filing conditions, and the petition adjudication conditions. The latter group of conditions - as specified in statute and regulations -- controls the USCIS adjudication of the petition for removal of conditions, determining whether the investor will enjoy permanent residence without conditions.
The EB5 category was made law in order to attract foreign capital investment. Congress devised a legal regime with the intent of requiring foreign investors to assume investment risk. Generally, where investment risk is coupled with a reasonable business plan to create sufficient employment in the United States, the investor satisfies the requirements of the EB5 category and should be entitled to permanent residence with conditions. The conditions are imposed in order to deter fraud. Again, generally, where the investment has been genuinely put at commercial risk and sustained, the conditions should be removed by USCIS. Congress established this general scheme of EB5 eligibility and compliance when it wrote the EB5 statutes and specifically prescribed a limited set of petition adjudication conditions. The general statutory scheme, with just a few petition adjudication conditions, has provided until recently some semblance of predictability about removal of conditions.
From Predictability to Immigration Risk
In what amounts to a sharp turn in a regrettable direction, USCIS recently has caused tremendous uncertainty about immigration outcomes. By way of various USCIS memoranda and public releases, USCIS has created significant doubts about the removal of conditions in ordinary, unremarkable EB5 cases. The uncertainty stems from the USCIS statements that amount to (a) a change in the purpose of the conditions on permanent residence, and (b) imposing additional conditions on permanent residence. Brief further background is set forth below.
Section 204 in the proposed 1989 immigration reform bill was entitled "Deterring Immigration-Related Entrepreneur Fraud"; it required a two-year conditional permanent residence status, and authorized termination of such status on proof that the business was established solely as a means of evading the immigration laws. The fraud-deterrent provision was adopted in the Immigration Act of 1990 as a foundation of EB5 law.
At the end of the two-year conditional period, the investor must file the I-829 petition to remove the conditions. The statutory scheme furthers the goal of fraud deterrence by requiring proof in support of the I-829 petition that the investment in the new commercial enterprise is real and has been "sustained" as opposed to being a mere immigration artifice. The statute on removal of conditions is crafted narrowly. Specifically, INA 216A(c)(3)(A) provides that the adjudicator must determine "whether the facts and information described in subsection (d)(1) and alleged in the petition are true with respect to the qualifying commercial enterprise." Subsection (d)(1) of INA 216A requires evidence that the petitioner invested and has sustained the investment in the new commercial enterprise. Congress required nothing else, specifically, of the investor.
Congress did not establish the conditional timeframe as a two-year deadline for reaching certain business milestones or creating ten jobs in the U.S. economy. Nor did Congress stipulate that a commercial enterprise must adhere rigidly to its original business plan during the conditional period. This is clear from the language of the statute. The statute, for example, authorizes an investor who is filing the I-829 petition to be "in the process of investing;" and the statute does not require the I-829 petition to include proof of fully realized job creation.
The limited scope of the petition adjudication conditions - requiring only that the petitioner invested capital and sustained the investment -- makes considerable sense as Congress envisioned the EB5 category as an attractor of foreign capital. Burdening the process for removal of conditions with further unintended requirements that are difficult to comprehend or meet amounts to injecting "immigration risk" in the adjudication process. It is risk that was not intended, and moreover, it is risk that is likely to make the EB5 category unappealing to foreign investors.
Imposing the Condition of Fully Realized Job Creation
USCIS articulated its position on job creation and adjudication of the I-829 petition in the Neufeld Memorandum of June 17, 2009 ("June 2009 Memo"). The June 2009 Memo, adding new language to the Adjudicators Field Manual ("AFM"), states that the primary purpose of the I-829 adjudication is to determine the petitioner "has invested the requisite capital and created the requisite jobs through investment." (italics added) Along this line of reasoning, USCIS imposed a requirement that all ten employment positions must be realized by the time the I-829 petition is adjudicated.
Suffice to say, this more onerous standard for I-829 petition adjudication was never intended by Congress. When questioned before the Senate Judiciary Committee in July 2009 about the limited fraud-deterrent objectives of the conditional residence period, and how USCIS's self-appointed task of counting jobs at the I-829 stage seemed to transform the original intent of the law and unduly burden the process, USCIS countered that it interprets the law in a way that it must demand all required job creation occur within the two-year conditional period.
Thus, USCIS views the removal of conditions process as a time-compressed period for measuring job creation. As interpreted by USCIS, the conditional residence period is not a mechanism for deterring fraud - as intended by Congress - but instead it exists for purposes of measuring the job creation performance by the investor and the commercial enterprise. In effect USCIS has added a substantive requirement to the standards for removal of conditions - it has augmented the petition adjudication conditions -- without the statutory authority to do so.
The June 2009 Memo is drafted to suggest the new standard is compelled by existing law, but closer scrutiny reveals that this is not true. The June 2009 Memo memorializes an amendment to the AFM to require that all I-526 petitions include a business plan providing for job creation within two years. The amendment cites to 8 CFR 204.6(j)(4)(i)(B), stating that the time requirement "is intended to ensure that aliens seeking to enter the United States on EB-5 visas have a legitimate and feasible plan to create jobs as required by the statute within that period of conditional residence." (See June 2009 Memo, page 3, italics added) But, to what statute does this refer? There is no statute that requires job creation within two years or within the period of conditional permanent residence.
Under the heading of "Relevant Laws" the June 2009 Memo states (at page 2):
In order to have the conditions removed, EB-5 visa holders must file a Form I-829 that demonstrates that the petitioner is, among other requirements, "conforming to the requirements of INA §203(b)(5)." INA §216A(d)(1)(B)
In this quoted language, USCIS breezes through the actual petition adjudication conditions as provided in the statute - i.e., the petitioner invested the capital, and is sustaining the investment -- with the passing reference to them as "among other requirements"; and it instead highlights the general catch-all provision of "conforming to the requirements of INA 203(b)(5)" as if the latter language is indeed the essence of the adjudication standard for the petition for removal of conditions. Insofar as USCIS reads into the general provision some silent authority for imposing a requirement of fully-realized job creation within two years, it obliterates the specific statutory language that requires only that the petitioner invested the capital, and is sustaining the investment. The general language should not be interpreted to support the outcome USCIS reaches. The catch-all provision the June 2009 Memo relies on, 216A(d)(1)(B) (i.e., the petitioner must be "conforming to the requirements of section 203(b)(5)"), cannot be interpreted to mean that Congress intended all requisite job creation to occur within the initial two-year conditional residence period.
USCIS may base its position on the regulation at 8 CFR 216.6(c)(1)(iv), which requires evidence that the petitioner "created or can be expected to create within a reasonable period of time ten full-time jobs for qualifying employees." But this regulation clearly does not establish an absolute two-year requirement.
The June 2009 Memo amends the AFM at 25.2(e)(4)(D) as follows:
"In making the 'reasonable time' determination, officers should consider the evidence submitted along with the petition that demonstrates when the jobs are expected to be created, the reasons that the jobs were not created as predicted in form I-526, the nature of the industry or industries in which the jobs are to be created, and any other evidence submitted by the petitioner."
With reference to only the temporal aspect of this regulation, objections to the two-year standard would be little, if any, so long as a two-year requirement for fully realized job creation is not the starting place for measuring reasonableness. Such a provision cannot be culled from statutory authority. Especially in these economic times, when business ramp up and construction delays are a near certainty, it should be no surprise that the best of plans and intentions for job creation have not been realized.
If this new two-year standard remains - thereby casting the two-year period as the deadline and therefore the "reasonable" expectation - then significant immigrant risk will plague the EB5 program. There remains the strong likelihood that the "reasonable time" provision of the regulation will not be reasonably interpreted.
The June 2009 Memo should be amended to clarify that for purposes of adjudication of the petition for removal of conditions (i) ten employment positions need not be realized as of the time the petition is filed, (ii) the petition may be approved based on evidence indicating that ten positions may be created within a reasonable period of time following favorable adjudication of the petition, and (iii) reasonableness is to be determined in light of both the circumstances impacting the commercial enterprise and the overall circumstances in the economy.
Imposing the Condition of Continuity of Business Plan without Material Change
According to one of the petition adjudication conditions, the petitioner must demonstrate he has sustained the investment. Typically, to satisfy the requirement that the investor sustained the investment in the commercial enterprise, the petition would be supported by documentation to indicate the investor has not withdrawn capital from the commercial enterprise or at least has maintained the minimum threshold investment in the commercial enterprise.
However, this petition adjudication condition has been transformed by recent USCIS actions. Briefly stated, USCIS has imposed a new condition that forbids any "material change" in the underlying investment or business during the conditional residence period. The material change concept is evident in at least three different USCIS iterations - the December 11, 2009 Memorandum that directs revisions to the AFM; a decision by the Administrative Appeals Office ("AAO") issued April 23, 2010; and pronouncements made in a USCIS Stakeholder Meeting held on June 16, 2010. These three iterations will be summarized in turn.
In the December 2009 Memo, USCIS announced for the first time that a petition for removal of conditions is not approvable if following the approval of the I-526 petition there has been material change of any of the following:
"capital investment structure",
If there is material change, then an investor must begin the process anew by filing a fresh I-526 petition, abandoning permanent residence, and if successful with the new I-526 petition, commence another period of conditional permanent residence. The same December 2009 Memo states that a new I-526 petition is required where there has been material change in:
"business plan", or.
None of the above five terms has been defined by USCIS.
Following issuance of the December 2009 Memo, and in response to questions from interested parties and stakeholders, USCIS indicated that the material change concept would likely receive further clarification in an upcoming decision of the AAO. Then, as part of the June 16, 2010 stakeholder meeting conducted by USCIS, it circulated the AAO decision of April 23, 2010 as an instructive decision, although USCIS cautioned that the AAO decision is not a precedent decision.
In the AAO decision, which does not use the language of material change, the AAO instead indicated that the I-829 petition cannot be approved unless there is continuity of the "capital investment project." In that case, consequently, the AAO upheld the decision to deny the I-829 petition where the petitioner had invested in a commercial enterprise that had terminated its loan to one company and extended a loan to a second company during the conditional residence period.
During the USCIS stakeholder meeting on June 16, 2010, it distributed materials including the AAO decision and a power point presentation. A series of slides concerned the subject matter of material change. One slide pronounces that the "capital investment project" must be the same in both the I-526 petition and I-829 petitions. When asked to clarify, the USCIS stated that the "capital investment project" is that layer of the business activity that is relevant to the jobs and economic analysis. Another USCIS slide proclaims that the "business plan" cannot be materially changed.
Finally, as to what is a material change, a USCIS slide indicates that a change is material when the evidence to be presented in support of the I-829 petition is "significantly different than" the evidence that was presented in support of the I-526 petition.
In summary of these pronouncements, USCIS has imposed a petition adjudication condition that requires continuity of at least five separate factors:
"capital investment structure"
If any of these factors has changed-in the sense that the I-829 petition documentation would be "significantly different than" the I-526 petition documentation-then the I-829 petition cannot be approved and the investor must abandon permanent residence and start the EB5 process from the beginning. Note that abandonment of permanent residence may be an especially harsh outcome given that the "readjustment procedure" provide by USCIS would not benefit aged out children.
The material change concept, as articulated by USCIS, is mind boggling when one considers the breadth of activities in the life of the commercial enterprise that could potentially fall within the scope of at least one of the five factors. Ordinary changes in the timing or allocation of expenditures by the commercial enterprise might constitute prohibited changes in the "capital investment structure"; adding an unplanned location to a chain of restaurant franchises might amount to a prohibited change in the "capital investment project"; using a different construction company not identified in the plan to construct a building could be a material "business plan" change; actual expenditures or actual "direct" jobs could be different (and are likely to be different) from what was estimated, raising the question of whether "job creation methodologies" have been materially changed; and the investor's management role in the commercial enterprise may have been slightly modified during the conditional residence period, leaving some doubt whether previously approved "eligibility requirements" have been materially changed. We could go on and on with examples of ordinary changes in business that could derail the adjudication of the I-829 petition and require abandonment of residence status.
The demands of existing in a competitive business environment frequently involve change, adaptation to business circumstances. In turn, insofar as EB5 investors are expected to be investors in commercial enterprises that involve real commercial risks, the one certainty of the conditional residence period would appear to be change. Business survival - preserving investment capital -- requires change. And yet, USCIS has articulated a material change concept that appears to be at odds with commercial realities. The material change concept threatens predictability in removal of conditions and imposes substantial immigration risk in the EB5 process.
USCIS has developed the material change concept in a manner that appears to fly in the face of existing law and clear contrary intent. The existing regulation states that the sustained requirement is satisfied if, in good faith, the investor substantially met the capital requirement, and continuously maintained the investment in the commercial enterprise. Where is the legal authority for imposing the material change concept?
Moreover, the Comment to the regulations indicates that the sustained requirement is to be viewed with "maximum flexibility" and should be accorded a "liberal interpretation." Contrast the guiding spirit of the December 2009 Memo, which is based on the notion that "[t]he structure of the EB5 program is inflexible" and thus a rigid interpretation is necessary. What is the legal source for drawing the conclusion that the EB5 laws require the rigidity espoused by USCIS?
When is change considered material? The notion that a material change exists whenever there is "significantly different" evidence is a position that is not consistent with adjudication standards that control changed circumstances in other areas of immigration law. For example, with nonimmigrant visa extensions, deference is accorded a prior approval unless there is a change that affects visa eligibility. For E2 visa status holders, USCIS approval of a change is needed if there is a "substantive change" which is considered a change that affects E2 eligibility; no additional filing is required if there is no substantive, or fundamental, change in the terms or conditions of employment which would affect E2 eligibility. These provisions are founded on the determination that only fundamental changes directly affecting eligibility for the visa status matter; the multitude of ordinary changes that inevitably occur in the life of a real business do not matter.
A listing of changes that might cause the evidence to be "significantly different" in appearance when comparing the I-526 and I-829 petition is probably endless. But in light of the two specific petition adjudication conditions - proof of investment and sustaining that investment -- a listing of changes that might affect eligibility for removal of conditions on the residence status of the EB5 investor is a much shorter list. The "significantly different" evidence standard advanced by USCIS would seem to embrace change of nearly every kind and variety, and thus is undoubtedly inappropriate as a standard that should be grounded in flexibility.
The December 2009 Memo imposes at least five new petition adjudication conditions that are ultra vires, and that unduly burden the EB5 process with substantial immigration risk. The December 2009 Memo should be revised to clarify that for purposes of adjudication of the I-829 petition for removal of conditions, (i) the petition may be approved based on evidence indicating that the petitioner has sustained the investment in the commercial enterprise, and (ii) where the commercial enterprise has engaged in business activity that was not contemplated by the original I-526 petition and accompanying business plan, the petition may be approved if the change in plan was in good faith and if ten employment positions will be realized within a reasonable period of time following approval of the petition.
In closing, the EB5 law invites foreign investors to invest with commercial risk in a U.S. business that will create jobs. The conditional nature of residence is intended to deter fraud. But USCIS nonetheless has transformed the nature of conditional residence by imposing numerous additional, burdensome conditions that it expects investors to satisfy. In light of the certainty of change in the circumstances of a business, these added conditions amount to substantial immigration risk in the EB5 process and consequently appear to be misguided. Until USCIS alters its present course, or Congress steps in, to correct the latest USCIS directives, the only certainty is the immigration risk in the EB5 adjudication process.
3For a thorough treatment of removal of conditions, see L. Stone, Conditional Residence and Immigration Risk for Immigrant Investors, Immigration Options for Investors & Entrepreneurs (AILA 2d ed. 2010).
10Investors are "admitted as conditional permanent residents as a means to deter immigration-related entrepreneurship fraud." Commentary to Final Rule, 59 Fed. Reg. 26588 (May 23, 1994), quoting S. Rep. No. 101-55, 101st Cong., 1st Sess. 22 (1989).
18In a release dated September 8, 2010, the USCIS Office of Public Engagement issued an Executive Summary of the stakeholder meeting held on June 16, 2010. It states that the AAO decision was provided to help stakeholders gain some insight on the USCIS perspective of what constitutes a "material change."
23Memorandum of Associate Director for Operations, William Yates, "The Significance of a Prior CIS Approval of a Nonimmigrant Petition in the Context of a Subsequent Determination Regarding Eligibility for Extension of Petition Validity" (2004).
24214.2(e)(8)(iii) and (iv). See also 214.2(h)(2)(i)(E), amended petition for H visa holders for material changes in the terms and conditions of employment or training or the employee's eligibility. See 214.2(o)(2)(iv)(D), and 214.2(p)(2)(iv)(D), providing that additional performances or engagements do not necessarily require amended petition for O and P visa holders.
Lincoln Stone practices immigration law in Los Angeles with Stone & Grzegorek LLP. Mr. Stone is recognized by the State Bar of California Board of Legal Specialization as a Certified Specialist in Immigration and Nationality Law. He is renowned internationally as an expert in the complex area of immigration law concerning investors and entrepreneurs. Mr. Stone counsels U.S. employers on compliance issues and maintaining an employment-eligible workforce. He also guides employers through the complex regulatory maze in obtaining residence status and nonimmigrant worker visas for their employees. Both AILA and the Esperanza Immigrant Rights Project of Catholic Charities have recognized Mr. Stone with awards for his commitment to delivery of pro bono legal services to the indigent.
The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.