USCIS releases draft EB-5 adjudication guidance

     I was tempted to fire off some comments quickly on the new EB-5 draft policy guidance to show I am out there in front of EB-5 issues.  I'm not, so I waited, and I'm glad I did.
     This new draft policy guidance recognizes some basic facts about the EB-5 Program, which is a good thing.
     Read it here.
     I find some language I can agree with, but I still have some disagreements with the draft guidance,
and that is troubling, because I am an end-user and have to explain this program to lawyers, investor recruiters, and investors.  This draft guidance shows me that I am not even close to doing this competently.  This guidance and other guidance and memoranda issued by USCIS have always been uniformly bad for the EB-5 Program.  Where USCIS makes pronouncements about EB-5, it always reveals its misunderstanding of how the EB-5 Program is supposed to operate and what standards, requirements, guidance and procedures should apply.
     USCIS is great at quoting law and regulations in its guidance, memoranda, requests for additional
evidence, and administrative appeals office decisions, but it is lousy at applying them or even understanding them.  So many of USCIS "impressions" about how the EB-5 Program should work are blatantly confused between the regular (sometimes referred to as the "standalone") EB-5 Program and the regional center statutory version.  They are very different.  Often USCIS doesn't recognize this or even appreciate it.
     This situation is not hopeless, but it's not good.  I come at this with an acknowledged agenda.  I think the EB-5 Program should be managed well and properly, by a federal agency with an economic
development mission, for the benefit of the people of the United States.  Not what we have now.  Not
even close.
     I was doing well during my first review of the draft policy guidance, which stated law and regulations (as USCIS normally does in the early going in an attempt to prove they know how to copy stuff), until I got to the bottom of page 18 and the top of page 19 (of 25).
     "For an immigrant investor who is investing in a new commercial enterprise that is part of a regional center:
     "o The entity seeking designation as a regional center will file a Form I-924 that, together with the
supporting evidence, demonstrates by a preponderance of the evidence that the requirements for a regional center have been met. The individuals who establish the regional center can be, but need not be, the immigrant investors themselves; and,
     "o Once USCIS designates the entity as a regional center, each immigrant investor will file a Form I-526 that, together with the supporting evidence, demonstrates by a preponderance of the evidence that the immigrant investor has invested, or is actively in the process of investing, lawfully obtained capital in a new commercial enterprise in the United States that will create directly or indirectly full-time positions for not fewer than ten qualifying employees."
     The predicate is just wrong, and USCIS mixes up administrative procedures.  This is not at all helpful to an understanding of the process.
     Regulations permit investors to prove that they have created 10 jobs -- direct, indirect, or induced -- if the new commercial enterprise in which they invested is within the geographic boundaries of a regional center and has been adopted as a regional center investment project.  8 C.F.R. § 216.6(a)(4)(iii-iv). 
     Although USCIS seems to recognize this, I have seen few statements that it does.
     There is a very troubling paragraph on page 20 concerning creation of jobs "within a reasonable time".
     "The regulations require that the business plan submitted with Form I-526 establish a likelihood of job creation 'within the next two years.' 8 C.F.R. § 204.6(j)(4)(i)(B), demonstrating an expectation that EB-5 projects will generally create jobs within such a timeframe."
     Every EB-5 lawyer knows that the so-called "two-year rule", which USCIS in this paragraph incorrectly identifies as a "law", was literally lifted from the "marriage fraud amendments" wherein an alien who marries a U.S. citizen obtains "conditional residence", which is converted to lawful permanent residence if the alien can demonstrate that a bona fide marriage has existed for two years.  But it gets worse.
     USCIS wrote in that same paragraph:  "Jobs projected to be created beyond that time horizon (that is, more than three years after USCIS approved the petitioner’s Form I-526) will usually not be considered to be created within a reasonable time, unless extreme circumstances, such as force majeure, are presented."
    Strict adherence to this "two-year rule", which bears no relationship to any principles in the business world, sound business practices, or the painfully slow-growing economy, and the corollary "within a reasonable time" rule is neither logical nor helpful.
     Although still very "project-centric" when discussing regional centers, there is one little phrase at the top of page 21 that seems to recognize my regional center's project hosting business model:  " ... [A]n affiliated commercial enterprises's organizational structure."
     USCIS seems to have taken a more reasonable view of "material change".  I write "seems" because it's not clear.  We'll see when some new adjudications start coming out of the California Service Center bunker in the near future.  The agency pulled a definition of "material change" from a denaturalization case.  It has adopted the following:  "A change in fact is material if the changed circumstances would have a natural tendency to influence or are predictably capable of affecting the decision," citing Kungys v. United States.
     The recognition that changed circumstances may not be the fault of the EB-5 project developer(s) on page 21 is a watershed moment in EB-5 history.  Also, for the first time, USCIS has recognized that the law does not require a direct connection between the business plan and job creation in accordance with the business plan.
     "While that position [the business plan and job creation] is a permissible construction of the governing statue, USCIS also notes that the statute does not require that direct connection."  And there is this:
     "Pursuant to this policy, USCIS will no longer deny petitions to remove conditions solely based on failure to adhere to the plan contained in the Form I-526 ...."
     While acknowledging its "deference" policy and recognizing "the fluidity of the business world" and material changes to the business plan after the alien obtained conditional resident status, USCIS states that alien investors who avail themselves of this new flexibility decreases the degree of predictability they would enjoy if they (or project developers) adhered to the business plan.
     I am rarely able to praise USCIS for doing or not doing something, so I take this opportunity to
congratulate USCIS for some tweaks that could actually benefit the EB-5 Program and the national EB-5 community.

EB-5 project developers embrace ‘EB-5 Lite’

     I am a principal in a regional center in the southeastern United States and represent a number of regional centers around the nation. Several years ago, I had just hung up on my umpteenth conference call with project developers interested in the EB-5 Program and using foreign investors’ capital when I had an epiphany. Why did project developers simply disappear after I told them about the costs of participating in the EB-5 Program? Simple. They called me to get money, not to spend money.
     That’s why I developed what I call "EB-5 Lite". The basic approach is to persuade EB-5 economists, business plan writers and translators to cut their normal fees in half to keep the costs of "EB-5 Lite" to less than $10,000. For example, the EB-5 economist, for a project in a regional center, will run the direct jobs or capital investment through a "reasonable methodology", such as RIMSII or IMPLAN, and issue a letter guessing at the indirect and induced job creation. The EB-5 business plan writer will write a 15- to 20-page document, not a 40-page plan.
     Project developers create an attractive brochure with some factual information about the project but heavily relying on photographs. Once completed, I turn this brochure over to translators to translate into Mandarin and Hangul for the Chinese and South Korean markets. I work with project developers on a termsheet that sets out the terms of the deal, including the capital raise from EB-5 investors, the ROI and takeout strategies for the investors.
     Then I package the whole thing up in a merged portable document file and send it to registered investor recruiters I know in China and South Korea. It is the best way I have found to get valuable feedback from the investor recruiters in the marketplace.
     I have been fortunate to be associated with some great EB-5 economists, business plan writers and translators. The greatest benefit of "EB-5 Lite", of course, accrues to the EB-5 project developers, who tell me they love this approach. It doesn’t cost a lot of money and they get something valuable for their money.
     Basically investor recruiters will come back to us with "no, I can’t sell it" to "yes, it looks great", to "if you changed this term and bumped up the ROI, I think I can sell it." They know what sells in the marketplace. Chief among these are big real estate projects. Unfortunately the Chinese and Koreans do not know that the U.S. real estate market — both commercial and residential — will probably not fully recover for three or four more years. Some of these big real estate projects are too big to succeed, in my opinion.
     I focus on small projects — $5 to $20 million, 10 to 40 investors — which produce a product or provide a service that is an absolute necessity in the U.S. marketplace and in today’s slowly recovering economy. Chief among these are assisted living facilities and the dairy industry. The former benefits from today’s demographics, i.e., the baby boomers are retiring and will soon need assisted living care if they don’t already. The latter benefits from a robust return of this industry as well as dairy contamination scares in China.
     Today’s EB-5 world is all about the investors. There are lots of EB-5 investment projects out there. Some are good; some are bad, and it is hard for EB-5 investors and their legal counsel to divine the difference. Due diligence is key. To my colleagues, I say please consult a qualified financial services advisor or broker/dealer to examine the securities offering and business plan for your investors. It is the best money you can spend. I wouldn’t buy a house without paying a few hundred for a home inspection. You shouldn’t put your client into a project without first having it professionally evaluated. Everything from the regional center, to the regional center principals, to the project developer, to the project itself should be scrutinized.
     With "EB-5 Lite" now a new tool in the toolbox, EB-5 project developers who call me no longer complain about the high cost of participating in the EB-5 Program. They now have a way to kick the tires or test the waters, if you will, and find out if their project is going to sell in the Chinese and South Korean marketplaces.

     Note about the author: Boyd Campbell has practiced immigration and nationality law in Montgomery, Alabama, since 1988. He served on AILA's EB-5 Investors Committee for four years, one year as vice-chair and one year as the EB-5 Committee liaison to the California Service Center. He has served as an AILA mentor for many years and is a frequent speaker at AILA national and chapter conferences and seminars. He represents regional centers and is general counsel and director of America's Center for Foreign Investment, the largest regional center in the nation. He is included in The Best Lawyers in America in the field of immigration law, and his law firm is listed in Best Lawyers / U.S. News & World Report Best Law Firms. His website, the Immigration Law Center on the Internet — visaus.com — which provides information about immigration and U.S. visas, has been on the World Wide Web since 1994.

SEC halts $150 Million scheme, charges it duped foreign investors, exploited visa program

Read the SEC complaint

     Washington, D.C., Feb. 8, 2013 — The Securities and Exchange Commission (SEC) has announced charges and an asset freeze against an Illinois man and two companies behind an investment scheme it alleges defrauded foreign investors seeking profitable returns and a legal path to U.S. residence through a federal visa program.
     The SEC alleges that Anshoo R. Sethi created A Chicago Convention Center (ACCC) and
Intercontinental Regional Center Trust of Chicago (IRCTC) and fraudulently sold more than $145 million in securities and collected $11 million in administrative fees from more than 250 investors primarily from China. The SEC alleges that Sethi and his companies duped investors into believing that by purchasing interests in ACCC, they would be financing construction of the World's first "Zero Carbon Emission Zero Platinum LEED certified" hotel and conference center near Chicago’s O’Hare Airport.
     The SEC alleges that foreign investors were misled to believe their investments were simultaneously enhancing their prospects for U.S. citizenship through the EB-5 Immigrant Investor Pilot Program (aka, the EB-5 Program for regional centers), which provides foreign investors an avenue to U.S. residency by investing in domestic projects that will create or preserve a minimum number of 10 jobs per investor for U.S. workers.
     The SEC alleges that Sethi and his companies falsely boasted to investors that they had acquired all the necessary building permits and that several major hotel chains had signed onto the project.  They also provided falsified documents to U.S. Citizenship and Immigration Services (USCIS) — the federal agency that administers the EB-5 program — in an attempt to secure the agency’s preliminary approval of the project and investors’ provisional visas. Meanwhile, Sethi and his companies have spent more than 90 percent of the administrative fees collected from investors despite their promise to return this money to investors if their visa applications are denied. More than $2.5 million of these funds were directed to Sethi’s personal bank account in Hong Kong.
     Swift coordination between the SEC and USCIS has brought the scheme to a halt in its application stage at USCIS. The SEC filed its complaint under seal earlier this week and obtained an emergency court order to protect the remaining $145 million in investor assets that were at risk of being similarly
misappropriated by Sethi and his companies.
     “Sethi orchestrated an elaborate scheme and exploited these investors’ dream of earning legal U.S.
residence along with a positive return on their investment in a project that was not nearly the done deal that he portrayed,” said Stephen L. Cohen, Associate Director in the SEC’s Division of Enforcement.  “The good news is that working closely with USCIS, we intervened early and stopped him from getting very far, and the asset freeze preserves nearly all of the money invested.”
     The EB-5 program enables foreign investors to possibly qualify for a green card if they invest $1 million (or $500,000 in a “Targeted Employment Area” with a high unemployment rate) in a project that creates or preserves at least 10 jobs for U.S. workers, excluding the investor and his or her immediate family.
     The SEC alleges that Sethi and his companies used the lure of a pathway to U.S. citizenship to convince investors to wire a minimum of $500,000 apiece plus a $41,500 “administrative fee” to U.S. bank accounts. These administrative fees are separate from the investment capital that the EB-5 program requires to be deployed into a job-creating enterprise. More than $11 million in administrative fees were collected with the claim that they were fully refundable to investors if their visa applications are rejected. Sethi and his companies have instead been spending those funds.
     The SEC alleges that Sethi submitted false claims about the project to USCIS. Among the phony
documentation that he provided to the agency in seeking preliminary approval for the project under the EB-5 program were a comfort letter from Hyatt Hotels and a backup financing letter from the Qatar Investment Authority.
     The SEC alleges that Sethi and his companies made a number of misrepresentations about the project to dupe investors. Offering materials stated that investors’ funds would help build “a convention center and hotel complex, including convention and meeting space, five upscale hotels, and amenities including restaurants, lounges, bars, and entertainment facilities.” Sethi and his companies prominently featured in their marketing materials the purported participation of three major hotel chains in the project: Hyatt, Intercontinental Hotel Group, and Starwood Hotels. However, none of these hotel chains executed franchise agreements to include a brand hotel in the project as represented to investors in offering materials. Two of the chains actually terminated prior deals with other Sethi-related entities more than two years before offering materials were circulated to investors.
      The SEC further alleges that offering materials falsely stated that construction would begin in summer 2012 and occupancy of the first tower would occur in early spring 2014. A search of the Chicago building permits database for the project address shows that the only recent permits are for a tent for a purported groundbreaking ceremony held in November 2012, a demolition permit, construction of a fence, and a minor electrical wiring permit.
     According to the SEC’s complaint, Sethi, 29, misrepresented to investors in offering materials that he has “over fifteen years of experience in real estate development and management, specifically in the lodging area.” Offering materials also misleadingly state that the project’s developer Upgrowth LLC has “more than 35 years of experience.” Illinois corporate records show that Upgrowth was organized in 2010.
     The SEC alleges that Sethi, ACCC, and IRCTC violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In addition to the temporary restraining order and asset freeze granted by the court, the SEC’s complaint seeks permanent injunctions and other monetary relief.
     The SEC acknowledges the substantial assistance of USCIS.

Uncertainty reigns because USCIS takes wrong turns

That's how it happens too often in the bunker that is U.S. Citizenship and Immigration Services. The "customers" are the enemy. The permanent party (USCIS employees) are the oracles of all truth and light. In their bureaucratic world, there can be no bright line tests. "We handle these issues on a 'case-by-case basis'."
Where do they learn to talk like that?
If their actions and decisions were inconsequential, I wouldn't care, and neither would anyone else, but they're not. Sometimes their actions and decisions have devastating consequences for law-abiding U.S. citizens, foreign nationals, their families and their businesses. In the EB-5 arena, their actions and decisions can cost businesses owned by U.S. citizens millions of dollars and cause the layoffs of hundreds of U.S. workers.
During the past three or four years, USCIS has rarely made a decision or pronouncement that led to an improvement in its mismanagement of the EB-5 Program. In most cases, the opposite was true.
That's why it is so vitally important that the USCIS director hire someone to run the EB-5 Program who has high intelligence, vision, strong leadership skills and the communication skills to explain to immigration service officer occupying the bunker to draw some bright lines for the regional centers, immigration lawyers and various economists and consultants active in the EB-5 Program.
We also need someone who will listen and try to understand why we have so little confidence in USCIS. Most deputy directors I have seen in Washington conference meeting rooms look like they just want to get our of there, which is probably true.
Personnel is policy. Remember "Brownie, you're doing a heckuva job"?
The wrong person in the wrong job can get lots of people killed or cause chaos in a little-known immigrant visa program that could create 100,000 or more direct, indirect and induced jobs for U.S. workers every fiscal year!
I caution, however, that this person needs to be appointed to a position that is co-equal with the position of deputy director so he or she cannot be so easily canned. They did it in 2008 and they will do it again.  If that is not done, the person will have zero clout and get nowhere. The permanent party deputy directors within USCIS will marginalize the person otherwise. They have never liked the EB-5 Program -- largely because they don't understand it and because problems (and misinterpretations of regulations and guidance) pop up from time to time -- and they would like to see it go away.
The way to bring this chaos to near normal is to hire a strong leader for the EB-5 Program who understands commerce, the U.S. economy, economic development, job-creation, business realities, banking, and finance.
We've heard a lot of talk out of USCIS in Washington, but very little action other than taking good meetings. Nothing is accomplished by "taking good meetings." It's like the TSA show at the airport: security theater.
More on this subject in part two, when we get down to the nitty-gritty of three hot buttons: bridge loans, tenant occupancy and "nexus."

Increased use of EB-5 clear in new USCIS report

In a report dated October 26, 2012, USCIS reported greater usage of the EB-5 Program.
For the federal fiscal year ending September 30, 2012, USCIS reported that there were 6,041 I-526 petitions filed for the temporary EB-5 visa.  Of those, 3,667 I-526 petitions were approved and 957 were denied.
For the same period, USCIS reported there were 712 I-829 petitions filed for the permanent green card.  Of the total I-829 petitions then pending, USCIS approved 736, and denied 60.
Contrast this with federal fiscal year 2011, when 3,805 I-526 petitions were filed, 1,571 approved, and 372 denied.  I-829s that year?  2,345 filed, 1,067 approved, and 46 denied.
The agency is not close to the 10,000 visa cap yet, but the Department of State has warned that it may have to allow Chinese applicants to "retrogress", causing delays (not long, but delays) in visa issuance.  Please see the entry below for more about that.

Visa Bulletin contains cap advisory for China

The Department of State's Visa Bulletin for November, 2012, contains the following advisory:

"The following advisory is based strictly on the current demand situation.  Since demand patterns can (& sometimes do) change over time, this should be considered a worst case scenario at this point.

"It appears likely that a cut-off date will need to be established for the China Employment Fifth preference category at some point during second half of fiscal year 2013.  Such action would be delayed as long as possible, since while number use may be excessive over a 1 to 5 month period, it could average out to an acceptable level over a longer (e.g., 4 to 9 month) period.  This would be the first time a cut-off date has been established in this category, which is why readers are being provided with maximum amount of advance notice on the possibility.

"The above projections for the Family and Employment categories are for what could happen during each of the next few months based on current applicant demand patterns.  The determination of the actual monthly cut-off dates is subject to fluctuations in applicant demand and a number of other variables which can change at any time.  Those categories with a “Current” projection will remain so for the foreseeable future, with the possible exception of the China Employment Fifth preference category mentioned above."

Immigrant visas for China may retrogress

Visa office predicts possible retrogression of EB-5 visas for China in second half of FY 2012

Charles Oppenheim, Chief, Visa Control and Reporting at the Department of State's Visa Office, spoke at the Invest in the USA (IIUSA) EB-5 conference held on October 15-16, 2012, in Washington, DC. Among other things, he noted that 7,641 EB-5 visas were issued in fiscal year 2012, a record high. Of that total, 80 percent went to EB-5 investors from China. EB-5 visa numbers may be just as high in FY 2013, he said, adding that EB-5 numbers for China in the second half of FY 2012 may need to be retrogressed because of country cap limits.