DATE: November 10, 2017
FROM: David Hirson & Partners, LLP
SUBJECT: Summary & Analysis from USCIS IPO EB-5 Stakeholders Meeting – November 7, 2017
*NOTE: The following is not intended to be legal advice. Please consult with your counsel for advice specific to your situation and needs.
The U.S. Citizenship and Immigration Services’ (“USCIS”) Immigrant Investor Program Office (“IPO”) hosted an EB-5 Stakeholders meeting in New York on November 7, 2017. IPO representatives provided some valuable guidance into issues while leaving many questions yet to be answered. Please see below for a summary/analysis of pertinent points:
- Processing Order for I-526 Petitions – No “FIFO;” Project First, I-526 Petitions Second
IPO went as far as to admit that they do not adjudicate I-526 petitions on a strict “First In, First out” (“FIFO”) basis. Rather, IPO organizes adjudication of EB-5 petitions by individual projects and each adjudication team is assigned certain projects which are adjudicated after coming in and the team has capacity to move on to adjudicating that project.
The main takeaway is that project review always comes first, followed by the associated I-526 petitions on a FIFO basis. Thus, there are two scenarios that illustrate when the FIFO “clock” for the investors actually begins:
- Projects with Exemplar
In this situation, IPO will review project documents first and then adjudicate all associated I-526 petitions afterwards.
- Projects without Exemplar – Project Review begins after Two I-526 Petitions are Received
If an exemplar has not been filed, IPO will generally wait to receive at least two (2) I-526 petitions for a project before reviewing the project documents. If the project is EB-5 compliant, IPO will then adjudicate the remaining I-526 petitions.
Thus, it may become a practical necessity for Regional Centers/Projects to file exemplars, whenever feasible, if the goal is to speed up I-526 adjudication. It is already becoming a standard expectation from the EB-5 market, so not much may change.
- Exemplar Filings – Include a List of Associated I-526 Petitions
IPO made it clear that when filing an I-924 Exemplar, it would make their life easier if a cover letter listing all I-526 petitions filed under that exemplar was included. Note that Regional Centers should already have this information on file and the list would be similar to the supplement that is filed with the I-526 petitions. On approval of an exemplar, it may be advisable to update the list of filed I-526 cases associated with the project.
- Filing of Form I-924A
For the annual I-924A report, IPO stressed that they want RCs to provide accurate accounting/estimates of job creation for all projects under sponsorship.
Specifically, IPO expects “live updates” on the number of jobs created for the Fiscal Year being reported on. Regional Centers should calculate job creation by using (1) the same economic methodology that’s contained in their project’s economic report and (2) updating the corresponding job creating inputs for the past Fiscal Year.
In plain English, projects need to take the budget (or other input used in the economic report) they submitted with their business plan and update what progress they have made that fiscal year. Essentially, it is a yearly update one usually prepares for the Form I-829 petition’s job creation analysis.
Note that the information must be based on the past Fiscal Year to be credible and it’s no longer acceptable to merely count jobs based on the number of approved I-829 petitions.
Finally, the I-924A must be filed at the California Service Center (not the IPO office) by December 29, 2017.
- Material Change & Switching Projects/RCs after I-526 is Filed
This was the longest discussion during the call. All roads lead back to Matter of Izummi and Chapters 4 & 5 of the Policy Manual, but even then, it is unclear if IPO is understanding the questions being asked. This will probably be revisited in a future stakeholder engagement.
One major issue that was discussed was when can an investor safely transfer to a second project if there’s a problem with the Regional Center or project. Part of the answer here depends on if the contemplated switch is to occur before or after the investor receives Conditional Permanent Residence (CPR). However, not much clarity has been provided after that.
- Before CPR (I-526 Pending Adjudication)
Unfortunately, there are not many options for the investor here. IPO stated that the following scenarios will be considered a material change if it occurs before an investor attains CPR and consequently will result in grounds to deny an I-526 petition: RC termination/loss of designation (even if another RC takes over the project), switching NCEs, and switching projects/JCEs.
It appears that IPO is taking the stance that if a project is under investigation and a receiver is appointed to take over the NCE/project, then this is not necessarily a material change. It appears that the rationale is that if the underlying purpose of the NCE remains the same, the project remains the same, and that the project will otherwise be completed, then a mere change in management of the NCE will not necessarily negatively impact the investors. However, whether this is true is unclear.
On the other hand, IPO appears to be taking a hardline stance that if the RC is terminated or loses its designation, then that is an automatic material change and consequently a denial. This was a controversial point and was met with immediate resistance.
- Between CPR and Filing of I-829
If the investor has obtained CPR, then he has a few more options. IPO appeared to allow an investor to switch projects, but was unclear what procedures or steps must be taken. It appeared that IPO was stating that it would only be acceptable if the funds are returned to NCE1, which will then invest into NCE2 and the second project. It appears that IPO is also requiring NCE1 to remain operational during this entire process.
- Reinvestment of EB-5 Funds into a Second Project (Scenarios)
The following are the scenarios that were also discussed and ones that are likely to be encountered in situations involving a failed/troubled investment:
- If a project has failed, but the EB-5 funds were not spent (i.e. money held in escrow), then can the funds be reinvested to another project where 10 jobs have been created? Likely answer is yes, but must be aware of timing so that the reinvestment is not considered a material change.
- If the funds have been spent, and the project fails so that the investment has been completely lost, can the investor become a member of a new NCE with no further investment and no jobs created or insufficient jobs created by the first JCE? – Likely answer is no.
- If funds have been spent, only 5 jobs have been created, can remaining funds be redeployed to another project to create 5 more jobs to meet the required 10? May have to deal with both a timing issue (for material change) and a nexus issue (would some of the EB-5 funds have to be invested in Project 1 and Project 2 to establish nexus?).
- Completed Project – Redeployment of Funds
- If funds have been spent, 10 jobs have been created, however, I-829 is pending (e.g. China backlog), so funds must be redeployed to another project to ensure funds are “at risk.” If 10 jobs have already been created by the first project, is the investor required to create another 10 jobs from the second project? – EB-5 eligibility is already locked in. (this is true even if RC is terminated at this stage).
- Bridge Financing
There is apparently some controversy about how IPO is deciding what is acceptable bridge financing for EB-5 projects, but without specific facts, it’s unclear if this is a widespread policy change or a problem with an individual case/rogue adjudicator. One issue that IPO was adamant about was that when EB-5 funds are being used to repay bridge financing, the EB-5 funds must flow from the NCE to the JCE, who can then pay the bridge facility. The NCE cannot pay the bridge facility directly (because the EB-5 funds would not be made “fully available” to the JCE).
Typically, when discussing bridge financing, the focus is generally on 3 factors: (1) temporal (when must it be contemplated), (2) procedural (do you need a MOU or agreement), and (3) nature/purpose of financing being repaid. Of the three, the last one is arguably the most important.
Implicitly, for bridge financing to be acceptable the “short-term” financing that is being repaid with EB-5 funds must have been spent on costs related or necessary to the project (in other words, a project-related nexus). On one end of the spectrum, a short-term loan to pay for construction costs in advance of the EB-5 loan closing is uncontroversial. On the other hand, IPO has specifically rejected (including during this call) the use of EB-5 funds to buyout developer/owner equity or to pay down permanent financing. This makes sense if we look at it from an economic policy standpoint. The first situation has a direct nexus to the project’s development and thus creates economic benefits to the surrounding community. The second situation provides no economic benefit (or jobs) to the community because EB-5 is being used to facilitate a paper transfer of wealth or to refinance and help lower the cost of capital for a project.
Our firm will share our thoughts on this issue in a separate article, but we expect this topic to be revisited again in a later engagement.
- Miscellaneous Points:
- I-485 interviews will become a standard requirement for all petitions, including EB-5 petitions.
- A number of practitioners (including our office) have reported that they never received physical copies of RFEs/NOIDs despite receiving online case updates that they have been mailed out and requesting them from CIS Customer Service. Thankfully, IPO said they are aware of the issue and that it should be resolved now.
- IPO reiterated that the only way for a RC to expand its geographic designation is through a Form I-924 filing.
- IPO again confirmed that the “sustainment/at-risk period” ends once the two-year CPR period is over.
Contact our expert EB-5 team at David Hirson & Partners, LLP for more information about you specific EB-5 situation and needs.
 For reference, a material change is one that affects an investor’s decision-making at the time of filing the I-526 petition. Under Matter of Izummi, a petitioner must establish eligibility at the time of filing and that a petition cannot be approved if, after filing, the petitioner becomes eligible under a new set of facts or circumstances.