China EB-5 quotas

In its March visa bulletin, the Department of State (DOS) has revised a previous estimate that China would exhaust its quota and create a backlog in 2013. Here is what the DOS now says:

Currently there is no reason to believe that it will be necessary to establish a China Employment Fifth preference category cut-off date during FY-2013 [ends 10-1-13], since demand over first six months of FY-2013 has now averaged out to a manageable level.

Therefore, at this time the DOS does not anticipate any backlog of  EB-5 visas for Chinese investors.

New draft of USCIS comprehensive EB-5 policy memo

On February 14, 2013, the USCIS gave us a valentine in the form of a third draft of its EB-5 Adjudications Policy Memo. This memo reiterates previously stated EB-5 policies in its 25 pages and is intended to eventually supplant all prior memoranda. It also contains a few important new policies worth discussing:

• A new commercial enterprise can take in EB-5 funds and distribute them across a number of job-creating companies (this model has been known as the “venture capital,” “mutual fund,” and “fund of funds” model). This model has been previously discussed in executive summaries of stakeholders’ meetings that were issued by the USCIS. Here, USCIS confirms the jobs may be created in just one or more of the companies. However, there remain unresolved issues for this investment model.
• If the investor is guaranteed the right to eventual ownership or use of a particular asset such as a home or other real estate interest, then the value of the ownership or use of such asset will be subtracted from the total amount of the investor’s capital contribution.
• For the benefits of a TEA, the commercial enterprise must not only principally do business within the TEA, but must also create a majority of the required jobs in the TEA. If the new commercial enterprise provides goods or services in more than one location, it is “principally doing business” in the location that is most significantly related to the job creation.
• USCIS can itself determine whether an MSA or county is a TEA based on unemployment data provided by the petitioner. Or, a state government can certify another geographic or political subdivision based on high unemployment. In stakeholder calls the USCIS has said that a census tract is a political subdivision for a TEA, but the USCIS did not directly address this issue in this new memo.
• What makes a commercial enterprise “new” when reorganized or restructured? For the first time, USCIS provides positive examples that appear to hinge on changing the type of business itself:  the conversion of a restaurant into a nightclub, or the addition of substantial crop production to an existing livestock farm.
• The strongest showing as to the reasonableness of a proposed regional center geographic area is that the proposed area is contributing significantly not just to the labor pool, but also to the supply chain of the proposed projects.
• Jobs that are created within a year of the two-year anniversary of the approved Form I-526 will ordinarily be deemed created within a reasonable period of time. Note:  this time period starts from I-526 approval, not from admission or adjustment. Therefore, as described below, it will probably overlap with the conditional residence period.

1. The addition of the “reasonable time” period gives the investor three years from approval of the I-526 for job creation. One year of this three-year period will elapse if the investor takes a year to enter the United States. In such case the year of “reasonable time” will have already been used up by the end of the conditional residence period. This seems to give with one hand while taking away with the other.
2. Jobs projected to be created beyond that time (that is, more than three years after the USCIS approved the petitioner’s Form I-526) will not be deemed created within a reasonable time unless there are extreme circumstances.

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• USCIS will defer to the same project facts and methodology in subsequent 526s that were approved in the initial 526. We will see if USCIS actually does so, since this has not always been the case in the past.
• USCIS has finally offered a definition of “material change.” A change is material if the changed circumstances would have a natural tendency to influence or are predictably capable of affecting the decision. For example, a change in the job-creating entity from one industry group to another is “material.”

1. For investors who have not obtained conditional LPR status:  the investor must file a new I-526 if there are material changes to the Form I-526 after filing but before approval.
2. For investors who have obtained conditional LPR status:  an individual investor can proceed with his or her Form I-829 petition to remove conditions despite a material change to the project. The investor must demonstrate that the changed project still satisfies the requirements for the removal of conditions, i.e., created the jobs. Where EB-5 capital is moved from one job-creating entity to another, it must be made fully available to the original job-creating entity, then “expeditiously redirected” to the new project. In the regional center context, the final capital investment project must still fall within I-924 approved industries.

The memo still lacks any clarification of certain job-creating methodologies and the terms required for interim financing.

SEC seizes a regional center’s assets

The SEC has filed a fraud complaint against the Intercontinental Regional Center Trust of Chicago (IRCTC), an approved regional center, and its owner, Mr. Anshoo Sethi. The SEC has also seized IRCTC’s assets. IRCTC had received $145 million in investments and $11 million in fees. This has generated numerous press articles in the U.S. and China.

The USCIS, SEC and FINRA will focus even more on detecting fraud in the EB-5 program and, I believe, will require the EB-5 regional center community to change some of its marketing.

I will write separately about this case and its impact on the EB-5 program.

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I hope this information is helpful. Please let me know if there are topics you would like me to address in my newsletter and blog.

Martin