Visa options for individual investors: E and L ...€¦ · Investor’s Due Diligence Regarding...
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U.S. INVESTMENT VISAS AND GREEN CARDS FOR FOREIGN NATIONALS: SESSION 1 Visa options for individual investors: E and L nonimmigrant visas; EB-5 green cards through direct investments or regional centers
Transcript of Visa options for individual investors: E and L ...€¦ · Investor’s Due Diligence Regarding...
U.S. INVESTMENT VISAS AND GREEN CARDS FOR FOREIGN NATIONALS: SESSION 1 Visa options for individual investors:
E and L nonimmigrant visas; EB-5 green cards through direct investments or regional centers
TABLE OF CONTENTS
ABIL Investor Webinar Session 1: PowerPoint Presentation .......................................... 3
ABIL EB-5 Investor News April 2011............................................................................. 45
The 9 Best Immigration Practices for U.S.: Inbound Businesses, Entrepreneurs & Investors by Angelo Paparelli ....................................................................................................... 50
E Visas: Promoting International Trade & Commerce Through Investing and Trading by Cliff Rosenthal & Bernard Wolfsdorf ......................................................................... 55
Investing in the United States Through the E-2 and EB-5 Visa Categories by Angelo Paparelli, Stephen Yale-Loehr & Ted Chiappari........................................... 63
EB-5 Immigrant Investors Stephen Yale-Loehr, Carolyn Lee, Nicolai Hinrichsen & Lindsay Schoonmaker........... 70
Born in the USA by Mark Ivener .............................................................................................................. 88
Fast Track Green Cards Through Investment by Mark Ivener .............................................................................................................. 90
EB-5 Immigrant Investor Program: A Changing Landscape by Bernard Wolfsdorf, Naveen Bhora & Tien-Li Loke Walsh......................................... 92
EB-5 Regional Centers: For Many Immigrants, The Key to Unlock the Closed Door by H. Ronald Klasko.................................................................................................... 104
Regional Centers EB-5s: Gold Mine or Fools Gold by H. Ronald Klasko & Tammy Fox-Isicoff .................................................................. 117
Due Diligence for Regional Centers (from “Regional Centers EB-5s: Gold Mine or Fools Gold”) by H. Ronald Klasko & Tammy Fox-Isicoff .................................................................. 122
Strategies for Documenting Lawful Source of EB-5 Invested Funds by H. Ronald Klasko.................................................................................................... 124
Immigration to the U.S. Tax Planning and Fast Track Permanent Residency by Mark Ivener & Stephen Malley ............................................................................... 129
The Relevance of U.S. Securities Laws to Immigrant Investors, EB-5 Regional Centers & Their Advisors Jennifer Mercier Moseley, Angelo Paparelli, Ladd Mark & Carolyn Lee...................... 133
Copyright © April 2011 Alliance of Business Immigration Lawyers. All rights reserved.
ABIL Investors Webinar 1: Temporary and Permanent Options for
Investors
April 13, 2011
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ABIL Presenters
MODERATOR
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PANEL
BERNARD WOLFSDORF
Immediate Past AILA President
KEHRELA HODKINSON
Member, AILA Department of State Liaison Committee
MARK IVENEREB-5 Regional Center Immigration Consultant
STEPHEN YALE-LOEHR
Past AILA EB-5 Committee Chair;
Founder of Invest in the USA
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Webinar Overview
Comparing Options for the Wealthy Client
Nonimmigrant Options for Investors and Entrepreneurs
Foreign Nationals Who Should Consider EB-5
EB-5 101: The Basics
Individual vs. Regional Center Investments
Timing Flow Chart
Clients for whom Regional Center EB-5 may be best option
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Webinar Overview
Advantages of Regional Center EB-5s
Investor Due Diligence
I-526 Petitions Based on Individual Investments
I-526 Petitions Through Regional Center
Job Creation Issues
Source and Path of Funds Issues
I-829 Process and Issues
Q & A
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Comparing Options for the Wealthy Client
E-2 L-1 Regional Center EB-5
Individual EB-5
Amount of investment
Any amt., but usually over $100,000
N/A Usually $500,000 $500,000 or $1,000,000
Amount of jobs
Can be small Can be small Pre-approved; can be indirect
10 direct jobs
Employment Mgr. or essential skills, unless investor
Mgr. or Spec. Knowledge
Work anywhere or nowhere
Policy making
Timing 1-2 mos. or more c/b < 15 business days w/premium processing
2-8 + adjustment / consul
> 6+ adjustment
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Comparing Options for the Wealthy Client
E-2 L-1 Regional Center EB-5
Individual EB-5
Procedure Can go direct to consul
CIS 1st, unless blanket
CIS, then consul or I485
CIS, then consul or I485
Spouse employment
Yes Yes 3 mos. after I485 3 mos. after I485
P.R. c/b EB-1 after 1 year
c/b EB-1 after 1 year
Start now Start now
School Yes Yes In-state tuition sooner
In-state tuition sooner
Employment authorization
Immediate Immediate > 5 mos. Usually > 9 mos.
(Cont’d)
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Comparing Options for the Wealthy Client
E-2 L-1 Regional Center EB-5
Individual EB-5
Source of funds Mostly N/A N/A Important Important
Gifts c/b problem N/A OK OK
Loans Enterprise cannot be collateral
N/A Enterprise cannot be collateral
Enterprise cannot be collateral
Expedite Depends on consul or premium process
Premium Process
Yes? No
Relevance of country
Treaty country Problem w/ Russia, China, etc.
Source of funds issue
Source of funds issue
(cont’ d)
(Cont’d)
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Comparing Options for the Wealthy Client
E-2 L-1 Regional Center EB-5
Individual EB-5
Necessity of overseas company
N/A Yes N/A N/A
Buying existing company
OK OK N/A Reorg. or 40% expansion
Geographical area
N/A N/A TEA or $1,000,000 TEA or $1,000,000
Employment overseas
N/A 1 year N/A N/A
(Cont’d)
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Comparing Options for the Wealthy Client
E-2 L-1 Regional Center EB-5
Individual EB- 5
Length of visa Up to 5 years 1 year start-up 2 year CPR 2 year CPR
Maximum period
Unlimited 5 or 7 years Permanent Permanent
Viability of business
Relevant Relevant Must create jobs to remove conditions?
Must create jobs to remove conditions
(Cont’d)
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1. Retirees
2. Potential H-1B shut out by quota
3. H-1B nearing six year limit
4. Investors from non-treaty countries and E-2 investors who don’t qualify for regular EB-5 or age out child.
5. Individual owner of a business outside of the U.S. who doesn’t qualify for an L-1
Foreign Nationals Who Should Consider EB-5
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6. Entrepreneurs who want to set up a new business in the U.S. that will not create 10 jobs
7. Potential L-1 applicants who are nationals of China or Russia
8. F-1 student who wants to start a business
9. Spouse of permanent resident
Foreign Nationals Who Should Consider EB-5
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10. Doctor who has not passed USMLE 1, 2 and 3
11. Foreign nationals in a multiple-year immigrant quota waiting list
12. CEO/manager of a company who is not an L-1A transferee
13. Parent who wants the children to go to school in the U.S.
Foreign Nationals Who Should Consider EB-5
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14. Foreign national employed by employer who cannot or will not pay legal fees and advertising costs for a labor certification
15. Graduate who cannot find a job and who has money or rich parents
16. National who needs/wants to get out of country with problems
17. Any foreign national with an urgent need or desire to become a permanent resident
Foreign Nationals Who Should Consider EB-5
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EB-5 101: The Basics
Congress created EB-5 category in 1990
10,000 green cards available each year in this preference
Two types of EB-5 cases: Individual and regional centers (RCs)
90-95% of EB-5 petitions now through RCs
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EB-5 101: The Basics
Current annual usage: About 2,000, but growing
Conclusion: underused so far
I-829s: filed 21-24 months after investor gets conditional resident status
I-829 procedure generally
Legislative status of EB-5 program
(Cont’d)
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EB-5 Basic Requirements
New commercial enterprise (created after November 29, 1990)
Must “benefit the U.S. economy”
Must create at least 10 full-time jobs
Must invest $1 million, or $500,000 if targeted employment area (TEA) (rural or high unemployment)
Procedure: File I-526 (invest/actively in the process of investing), then I-485/CP for CPR. Within 90 days of 2 yr anniversary, file I-829.
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EB-5 Timing Flow Chart
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Individual vs. Regional Center (RC) Investments
Main difference: Job creation – direct vs. indirect
Business plan requirement for individual EB-5 investors
RC does not automatically mean $500,000– RC project has to be in TEA to accept $500,000
investments
Main issue for investor: source and tracing of funds (more later)
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Individual vs. Regional Center (RC) Investments
125 RCs approved so far
90-95% of EB-5 investors get green cards through RCs
(Cont’d)
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Clients for Whom Individual EB-5 May Be Best Option
Actually wants to start/manage business
Will create 10 jobs for U.S. workers up front
Investment is driving force
Wants to control investment
Wants to maximize profit
Understands there may be many complex legal issues
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Clients for Whom Regional Center EB-5 May Be Best Option
Retirees
Does not want to start/manage business
Will not create sufficient employment
Wants to be geographically mobile
Wants/needs to do something quickly instead of PERM labor certification
Immigration is driving force
Does not want to deal with complex legal issues
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Advantages of Regional Center EB-5s
Indirect employment allowed
Project may be pre-approved
Can live anywhere
Can work anywhere, or not work
Can start business, or not
Avoid complexities of individual EB-5
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I-526 Petition Based on Individual Investments
Investment of Capital– $500,000 or $1,000,000
– Proving TEA
– Actively in the process of investing
Comprehensive business plan
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I-526 Petition Based on Individual Investments
Proof of job creation– Full-time direct employees only; must be US
workers and authorized to work
– Must create jobs within 2 years
– Maintaining jobs if troubled business
“Engaged in” the business
(Cont’d)
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I-526 Petition Based on Individual Investments
Purchasing existing business– Business established after 11-29-90
– Restructuring or reorganizing
– Expansion
– Need 10 additional employees
Source of funds (more later)
Path of funds (more later)
(Cont’d)
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I-526 Petition Based on Individual Investments
Adjudication of I-526– Processing times
– What if approved?
– What if denied?
(Cont’d)
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Investor Due Diligence
1. Investor’s Due Diligence Regarding EB-5 Project
a. What is the projected return on investment? (in prospectus)
b. Obtain documentation of returns on past EB-5 investment projects.
c. How many projects has EB-5 company completed?
d. May EB-5 applicant need to invest additional money over and above $500,000 at a later date?
e. Does EB-5 project have U.S. investors as well as immigrant investors?
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Investor Due Diligence
f. Does applicant get interest on money until it is spent on EB-5 project?
g. When is the return paid? Monthly, yearly, end of project.
h. How is the return determined?
i. In subscription agreement or purchase contract, is there a provision for return of money if I-526 denied? How much is refunded?
j. Does the investor have to make any deposit or pay any fee for the offering materials?
(Cont’d)
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Investor Due Diligence
k. What is the amount required to be paid by the investor?
l. Does the Regional Center provide regular reporting of the status of the investment to the investors? At what intervals?
m. Does a referring attorney get finder’s fee from the Regional Center? How much?
n. Has any Regional Center project lost money? Been in default? Investors lost money? Any law suit?
(Cont’d)
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Investor Due Diligence
2. Investor’s Immigration Due Diligence
a. How many I-526 filed?
b. How many I-526 approvals?
c. How many I-526 denials? Reasons?
d. How many I-829 Removal of Conditions filed?
e. How many I-829 Removal of Conditions approvals?
f. How many I-829 Removal of Conditions denials? Reasons?
(Cont’d)
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Investor Due Diligence
3. Investor’s Due Diligence of Regional Center. Will Regional Center company and principals be in business in the future for removal of conditions?
a. Obtain bank reference of EB-5 general partner and/or principals
b. Obtain Dunn and Bradstreet on general partners and/or principals.
c. Any past lawsuits? (Regional Center, general partners or principals)
d. Any past criminal convictions? (general partners or principals)
e. When was Regional Center established?
f. How long has EB-5 company been doing business? Any previous business?
(Cont’d)
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Investor Due Diligence
g. When can the investment be sold? When can client get money ($500,000) back? How many investors have received return of investment money?
h. How is the amount determined?
i. How many years of experience does the general partner or principal in the investment project have in working with EB-5 immigrant investor programs?
j. What precautions are taken to monitor job creation? What steps are taken if the requisite job creation has not occurred?
(Cont’d)
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Regional Center Option
Two Parts– Regional center/project information
– Investor information
Choosing a regional center– Due diligence list
– Distinguishing characteristics
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Regional Center Option
Project pre-approval– New procedure
– Compare with regional center designation
Distinguishing characteristics– Private or governmental
– Debt or equity
– I-526/I-829 approvals
(Cont’d)
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Regional Center Option
– Money in escrow?
– Exit strategy
– Financial security/rate of return
(Cont’d)
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Regional Center Option
Investor information– Source of funds (more later)
– Path of funds (more later)
Adjudication of I-526– Processing times
– What if approval?
– What if denial?
(Cont’d)
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Job Creation Generally
10 full-time jobs for US workers
RC can use direct, indirect and induced jobs
Tracking issues for I-829
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Source and Path of Funds Issues
Earned income – generally straightforward, but document how earned, tax returns
Investment/divestiture
Gift – issue: documenting giftor’s lawful obtainment of funds; taxes paid on gift
Old money – issue: documenting history of funds
Investor vs. investor’s company – issue: documenting flow from company to investor to EB-5 investment; no retained earnings
Document how money flowed to US
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Source of Funds: Examples
Earned income: French academic with 20 years of public sector service, tax-exempt. Documents: tax returns, accountant’s letter, income receipts
Gift: Korean father gifts to mother who gifts to investor. Giftor’s documents: consolidated income tax returns, separate gift tax returns, accountant’s letter confirming no tax consequences to giftor; gift letter; specific transaction documents
Loans: Must follow normal commercial requirements
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I-829 Process and Issues
I-829 process generally
I-829 issues common to both individual and regional center investors
I-829 issues specific to regional centers, such as job creation and proof
What to do if all the jobs haven’t been created yet?
What happens if I-829 is delayed or denied?
What happens after I-829 is approved?
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For More Info:
Kehrela Hodkinson
44 207 493-1595
www.usvisalg.com
Stephen Yale-Loehr
Miller Mayer, LLP
(607) 273-4200 x. 318
http://www.millermayer.com/Immigration /EB5Investors/tabid/126/Default.asp
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Mark Ivener
(310) 477-3000
Mark.ivener@abilcom
www.usworkvisa.com
Bernie Wolfsdorf
(310) 570-4088
www.wolfsdorf.com
ABIL Contact
(404) 949-8150 [email protected]
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From the Alliance of Business Immigration Lawyers Vol. 1, No. 2 ▪ April 2011
Headlines:
1. USCIS Releases Data at Stakeholders Meeting: EB-5 Visa Usage, RC Filings High - USCIS is on track to approve a record number of EB-5 visas; Regional Center filings in the first quarter of FY 2011 have already exceeded those for all of FY 2010.
2. USCIS Releases Executive Summary of December 2010 EB-5 Investor Quarterly Engagement - In addition to providing various updates on statistics, processing times, and the recently instituted EB-5-related forms, USCIS responded to public input.
3. ABIL Webinar Series Starts April 13: U.S. Investment Visas and Green Cards for Foreign Nationals - This three-part series will examine the advantages, disadvantages, and limits of the visa options for foreign investors.
NOTE: Investor news related to non-EB-5 topics is not included in this issue, but will be included as updates become available.
Also in this issue:
Member News
EB-5 Government Agency Links
Details...
1. USCIS Releases Data at Stakeholders Meeting: EB-5 Visa Usage, RC Filings High
U.S. Citizenship and Immigration Services (UCSIS) released its latest data on EB-5 filings and Regional Centers (RCs) at its March 17, 2011, EB-5 Stakeholders Meeting held at the California Service Center. USCIS figures show a steep increase in the number of RC filings and EB-5 visa approvals in the first quarter of fiscal year (FY) 2011, which ran from October 1, 2010, to December 31, 2010.
The agency reported 116 initial RC proposal filings in the first quarter of FY 2011, compared to 110 initial filings in all of FY 2010. The number of amended RC proposal filings also increased in the first quarter to 24, an amount equal to 57 percent of the 42 filings received for all of FY 2010.
The agency also reported that it has issued a higher percentage of approvals of RC filings. In the first quarter of FY 2011, the agency approved 13 initial RC proposals and denied 4, an approval rate of 76 percent. This was a big increase from FY 2010, when USCIS approved 36 and denied 30, an approval rate of 55 percent. The approval rate of amended RC proposals in
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the first quarter also rose to 78 percent, with 7 approvals and 2 denials. By comparison, in FY 2010 USCIS approved 42 amended RC proposals and denied 11, an approval rate of 71 percent. However, at its current rate USCIS would only make a total of 36 final decisions on amended RC filings in FY 2011, while in FY 2010 it made 53 final decisions on amended filings. The rate of USCIS decisions on initial RC filings was essentially unchanged.
USCIS reported that the total number of approved Regional Centers (RCs) is now 125, located in 36 states, the District of Columbia, and Guam.
USCIS also reported significant increases in individual I-526s (Immigrant Petition by Alien Entrepreneur) and I-829s (Petition by Entrepreneur to Remove Conditions). In the first quarter of FY 2011, USCIS received 701 I-526 petitions and is on pace to receive about 2,800 in FY 2011, compared to 1,955 for FY 2010. The increase in the number of I-829 petitions was even more dramatic, with 531 received in the first quarter, a rate that should exceed 2,100 for FY 2011. By comparison, USCIS received 768 I-829 petitions in FY 2010.
However, USCIS also reported decreases in the percentage of approvals. In the first quarter of FY 2011, the agency approved 190 I-526 petitions and denied 56, an approval rate of 77 percent, while its approval rate for FY 2010 was 83 percent. Likewise, USCIS approved 75 percent of I-829 petitions in the first quarter (39 approvals and 13 denials), compared to an approval rate of 83 percent for FY 2010.
The total number of adjudications also declined. USCIS issued a total of 246 decisions on I-526 petitions in the first quarter of FY 2011, compared to 1,534 in FY 2010. The agency also issued only 52 decisions on I-829 petitions in the first quarter, down from 330 for all of FY 2010. USCIS said the decreases in the number of decisions may be attributed to the agency's recent focus on training additional adjudicators, which "kept many adjudicators from actually deciding cases" during the first quarter.
USCIS also reported that processing times currently exceed their targets for RC filings and I-526 filings. The target processing time for I-526 petitions is 5 months; USCIS reports that actual processing times are reaching 6 months, but some in the field say it is closer to 7 months. USCIS's target processing time for both initial and amended RC proposals is 4 months, but the agency reported current processing times of 7 months for initial RC filings and 5 months for amended filings. For I-829 filings, the agency reports that it is meeting its target processing time of 6 months.
USCIS also announced that it is on track to approve a record number of EB-5 visas. Its preliminary estimate is that 1,421 EB-5 visas were issued in the first quarter of 2011. At that rate the number of EB-5 visas would approach 6,000 for FY 2011, compared to 1,885 in FY 2010. The previous record was 4,218 EB-5 visas issued in FY 2009.
At the March 17 Stakeholders Meeting, USCIS also said that based on comments it has received, it is reviewing the "Material Change" concept raised in the December 11, 2009, Neufeld memo (http://www.uscis.gov/USCIS/Laws/Memoranda/Static%20Files%20Memoranda/Adjudicating%20of%20EB-5_121109.pdf). The agency did not say when it would decide on any changes to the memo or whether any changes would be made.
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USCIS noted that it is acceptable for an RC to pool investments for multiple investment vehicles within certain limits. However, the businesses to be financed must be identified at the time of filing the I-526 petition and the prospective job creation must be documented at that time.
A PowerPoint presentation and other information from the March 17 Stakeholders Meeting are available at http://www.uscis.gov/portal/site/uscis/menuitem.5af9bb95919f35e66f614176543f6d1a/?vgnextoid=68da76be729ce210VgnVCM100000082ca60aRCRD&vgnextchannel=994f81c52aa38210VgnVCM100000082ca60aRCRD.
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2. USCIS Releases Executive Summary of December 2010 EB-5 Investor Quarterly Engagement
The U.S. Citizenship and Immigration Services (USCIS) Service Center Operations (SCOPS) Directorate and the Office of Public Engagement (OPE) recently released an executive summary of their December 16, 2010, EB-5 Investor Quarterly Engagement. In addition to providing various updates on statistics, processing times, and the recently instituted EB-5-related forms, USCIS responded to input received from the public before the engagement.
The executive summary is available at http://www.uscis.gov/portal/site/uscis/menuitem.5af9bb95919f35e66f614176543f6d1a/?vgnextoid=4c68d1f2465ae210VgnVCM100000082ca60aRCRD&vgnextchannel=994f81c52aa38210VgnVCM100000082ca60aRCRD. The PowerPoint presentation and other related information and links are available at http://www.uscis.gov/portal/site/uscis/menuitem.5af9bb95919f35e66f614176543f6d1a/?vgnextoid=858206489ec6a210VgnVCM100000082ca60aRCRD&vgnextchannel=e0b081c52aa38210VgnVCM100000082ca60aRCRD.
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3. ABIL Webinar Series Starts April 13: U.S. Investment Visas and Green Cards for Foreign Nationals
Many foreign entrepreneurs want to start businesses or invest in the United States. Other wealthy individuals want green cards to live in the United States, but may be hesitant because of real or perceived immigration obstacles. Real estate developers and companies seeking capital for development projects are increasingly looking for EB-5 capital from foreign investors. Several visa options exist, but each has advantages, disadvantages, and limits.
This timely three-part Webinar series, presented by the Alliance of Business Immigration Lawyers (ABIL) and co-sponsored by Invest In the USA, the association of EB-5 Regional Centers, will help guide individual investors and others, as well as U.S. companies that want to attract foreign investors and wealthy individuals. The intended audience includes individual investors; potential and actual EB-5 Regional Centers; attorneys and advisors; real estate developers; and companies seeking capital for development projects. Each 90-minute webinar in the series will explain immigration options and offer practical real-world strategies:
Session 1: Visa options for individual investors: E and L nonimmigrant visas; EB-5 green cards through direct investments or Regional Centers, to be held April 13 at 12 noon
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(ET). Moderated by Bernard P. Wolfsdorf. Presenters: Kehrela Hodkinson, Mark Ivener, and Stephen Yale-Loehr.
Session 2: EB-5 Regional Center applications and project pre-approval petitions, to be held July 6 at 3 pm (ET). Moderated by Laura Danielson. Presenters: Bryan Funai, H. Ronald Klasko, and Steve Trow.
Session 3: How to successfully navigate the back end of the EB-5 process for both individual investors and Regional Centers, to be held August 16 at 3 pm (ET). Moderated by Steve Clark. Presenters: H. Ronald Klasko, Robert Loughran, and Stephen Yale-Loehr.
The cost is $89 for an individual session or $249 for all three sessions. To register, go to the ABIL Webinars sign-up page at https://securec9.ezhostingserver.com/abil-com/abil_webinar_signup.cfm. For more information, contact Lauren Anderson at [email protected] or visit http://abil.com.
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Member News
Several ABIL members spoke at an EB-5 immigrant investor conference sponsored by the American Immigration Lawyers Association in Las Vegas, Nevada, on March 14, 2011. Bernard Wolfsdorf (bio: http://www.abil.com/lawyers/lawyers-wolfsdorf.cfm?c=US) moderated a panel on determining when and whether the EB-5 category is the best choice for potential investors. Stephen Yale-Loehr (bio: http://www.abil.com/lawyers/lawyers-loehr.cfm?c=US) spoke on a panel about potential pitfalls in removing conditions for EB-5 investors.
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EB-5 Government Agency Links
USCIS Web Page on EB-5 Immigrant Investors: http://www.uscis.gov/portal/site/uscis/menuitem.eb1d4c2a3e5b9ac89243c6a7543f6d1a/?vgnextchannel=facb83453d4a3210VgnVCM100000b92ca60aRCRD&vgnextoid=facb83453d4a3210VgnVCM100000b92ca60aRCRD
USCIS Policy and Procedural Memoranda on EB-5 Investors: http://www.uscis.gov/portal/site/uscis/menuitem.eb1d4c2a3e5b9ac89243c6a7543f6d1a/?vgnextchannel=f1f051b4b1af3110VgnVCM1000004718190aRCRD&vgnextoid=f1f051b4b1af3110VgnVCM1000004718190aRCRD
Immigrant Investor Regional Centers List: http://www.uscis.gov/eb-5centers
Form I-526, Immigrant Petition by Alien Entrepreneur: http://www.uscis.gov/portal/site/uscis/menuitem.5af9bb95919f35e66f614176543f6d1a/?vgnextoid=79a7105b5904d010VgnVCM10000048f3d6a1RCRD&vgnextchannel=7d316c0b4c3bf110VgnVCM1000004718190aRCRD
Form I-829, Petition by Entrepreneur to Remove Conditions: http://www.uscis.gov/portal/site/uscis/menuitem.5af9bb95919f35e66f614176543f6d1a/?vgnextoi
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d=d4f63591ec04d010VgnVCM10000048f3d6a1RCRD&vgnextchannel=7d316c0b4c3bf110VgnVCM1000004718190aRCRD
Form I-924, Application for Regional Center Under the Immigrant Investor Pilot Program: http://www.uscis.gov/portal/site/uscis/menuitem.5af9bb95919f35e66f614176543f6d1a/?vgnextoid=7387e6b2fc57c210VgnVCM100000082ca60aRCRD&vgnextchannel=7d316c0b4c3bf110VgnVCM1000004718190aRCRD
Form I-924A, Supplement to Form I-924: http://www.uscis.gov/portal/site/uscis/menuitem.5af9bb95919f35e66f614176543f6d1a/?vgnextoid=256866fcd667c210VgnVCM100000082ca60aRCRD&vgnextchannel=7d316c0b4c3bf110VgnVCM1000004718190aRCRD
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The Alliance of Business Immigration Lawyers (ABIL) is comprised of top U.S. business immigration lawyers and their respective firms, as well as affiliates around the world. Regional Centers, investors, corporate counsel, human resource professionals, in-house immigration managers and other corporate decision-makers turn to ABIL attorneys for outstanding legal skills and services. Foreign investment in the U.S. has increased rapidly over the past few years, as the U.S. government has incentivized programs (such as EB-5 Regional Centers) that promote job creation. There are both short- and long-term immigration solutions for investors, but devising a workable strategy involves a critical level of understanding and experience in this complex area of immigration law. Many of the nation's top investment immigration lawyers are in ABIL, and ABIL members represent clients on all levels of EB-5 transactions -- advising project developers on how to use EB-5 financing, negotiating agreements between project developers and Regional Centers, preparing Regional Center applications and amendments, reviewing offering documents and sales practices, preparing visa petition templates for Regional Centers, and preparing visa petitions and applications for individual investors. ABIL attorneys have filed applications for or participated in the establishment of dozens of EB-5 Regional Centers and submitted hundreds of petitions for EB-5 investors.
The Alliance of Business Immigration Lawyers' Web site is: http://www.abil.com/.
Disclaimer/Reminder
This e-mail does not constitute direct legal advice and is for informational purposes only. The information provided should never replace informed counsel when specific immigration-related guidance is needed.
Copyright © 2011 Alliance of Business Immigration Lawyers. All rights reserved.
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The Nine Best Immigration Practices for U.S.-Inbound Businesses, Entrepreneurs and Investors
By Angelo Paparelli
January 31, 2011
http://blogs.ilw.com/angelopaparelli/2011/01/the-9-best-immigration-practices-for-us-inbound-businesses-entrepreneurs-and-investors.html
Over more than the last 30 years, I’ve advised countless foreign businesses and investors seeking to establish operations in the United States. Many thrived, but some, regrettably, failed to survive. Often, the founders’ inattentiveness to the requirements of U.S. immigration law has been a primary cause of rough beginnings or failures to launch. This blog post will offer best immigration practices and identify traps to avoid when a foreign firm or individual plans to start a business in America.
1. Respect the Law – It’s Not a Game. The U.S. is no doubt the world leader when it comes to the complexity of immigration laws. Too often, foreign owners and corporate executives assume that just getting past the consular officer and the border inspector are the only hurdles in the path of pursuing their U.S. business objectives. Many entrepreneurs and company founders have yielded to the temptation of claiming to be a visitor seeking entry for business reasons when in fact their purpose is to start an enterprise and begin working in the U.S. These “stealth visitors” also tend to jump the gun by issuing a press release announcing their appointment to head the U.S. subsidiary before they even have a proper work visa in hand. Cutting corners on immigration compliance is no way to launch a U.S. business but an excellent way to face stiff fines and penalties, be deported or end up in jail. The Obama Administration, with enthusiastic goading by Congress, has dramatically ramped up immigration enforcement at all levels. Lesson 1: Understand that playing by the immigration rules is the only prudent way to start and operate a new business in the U.S.
2. Develop a Viable Short- and Long-Term Immigration Strategy from the Outset. At the start of every new business, passions and enthusiasm are high. Foreign executives and entrepreneurs often want to obtain the quickest and most easily attained work visa possible. They shop for an immigration lawyer with a low fee who will provide the minimum service need to obtain that visa. Little thought is given to the statements made to the government in the process. Descriptions of the applicant’s prior career often are sketchy.
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Regrettably, in too many cases, long term strategies and initial statements presented to the government in supporting documents provided in order to get the “easy/quick” first visa may be given short shrift. These types of short-sighted thinking often will narrow future options available to obtain a long term visa or a green card (permanent residence). Lesson 2: Take the time to find an experienced immigration lawyer who will outline all options over time and guide the enterprise strategically for the long haul.
3. Consider Tax and Employment Law Consequences. No worthwhile immigration strategy is devised in isolation. Other U.S. laws, especially those relating to taxation and employment, must be considered and harmonized with the long-term immigration plan. After considering all applicable laws, a wealthy foreign citizen may decide that obtaining a green card, and thereby becoming subject to U.S. taxation on worldwide income, is not quite so desirable as first perceived. An E-2 investor visa, allowing easy entry and exit as well as a long-term, perpetually renewable U.S. visa and the right to work (including work permission for the spouse) may be just as functional as a green card and still offer the possibility of less costly non-resident tax status in the U.S. Similarly, employment laws, especially in heavily regulated and litigious states such as California, may warrant the use of professional employer organizations (“PEOs”), temporary employment agencies or vendors rather than direct hiring – strategies that may affect the immigration plan. Lesson 3: Choose a solid, inter-disciplinary team of tax advisors and immigration and employment lawyers, preferably – for the sake of efficiency and convenience – in a single firm.
4. Prepare a Solid Business Plan. Increasingly, U.S. consular officers and immigration agencies are demanding a sophisticated set of supporting documents to assure the government that the proposed business will be viable and likely to result in the hiring of U.S. workers and/or the generation of healthy profits. U.S. immigration officials want to be confident that every work or investor visa issued is in full compliance with law. Officials are alert to a variety of frauds perpetrated by visa applicants who may merely wish to frolic in the U.S. or engage in subversive or criminal activities rather than work. The centerpiece to any employment-based visa application and work-visa petition is a detailed business plan. Here is what the immigration authorities want to see in a “credible” business plan:
• A description of the U.S. business, as well as its products or services, and the firm’s business objectives, strategies and goals.
• A market analysis identifying the target market, prospective customer demographics, and the relative strengths and weaknesses of competing businesses.
• A side-by-side comparison of competitors’ products or services and pricing. • A listing of required permits and licenses obtained. • A process map depicting in words or images the enterprise’s manufacturing,
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production or service-delivery processes, required materials, and suppliers.
• The particulars of any executed contracts for supplies, vendor services and distribution channels. The firm’s intended business-development, marketing and sales strategies, including pricing, advertising, customer service and quality assurance.
• A description of the business’s organizational and ownership structure and the relevant education and experience of its board of directors and key officers and management.
• An explanation of anticipated staffing levels, a timetable for hiring, and job descriptions for all significant positions.
• Financial projections outlining anticipated sales, costs, income projections and underlying economic assumptions.
• A description of the source of funds used for capital investment, together with proof that the funds were lawfully obtained, deposited with the U.S. business and properly applied for legitimate start-up purposes (e.g., acquisition of premises, equipment, insurance, staff, professional services, etc.)
An immigration-related business plan is not necessarily drafted in the same way as a plan intended for submission to angel investors, hedge funds, venture capital firms or financial institutions. The plan is not “pitching” for financing or investment funding; rather, an immigration-related business plan seeks to persuade the government official reading it that the visa applicant and petitioning entity are serious and bona fide. Lesson 4: Make sure to submit a credible, fully-documented business plan.
5. Gather Foreign-Source Documents and Information Ahead of Time. At the outset of every work-visa application, immigration counsel should provide a detailed list requesting all documents and information needed. The business entities and individuals receiving the list should take pains, before departing for the U.S., to obtain all items and arrange for full word-for-word translations. (The translations need not be officially certified by a government or formal translation bureau, but may be supported by the translator’s certificate attesting that the translator is fluent in the particular foreign language and English and that the translation is an accurate word-for-word rendering from the foreign to the English language.) Lesson 5: Think ahead and gather all required papers and data when readily accessible in the home country.
6. Be Prepared for the U.S. Visa Interview and Border Inspection. The first step in preparation is making sure that all information entered into the very difficult online nonimmigrant visa application form, the DS-160, is complete and accurate, and that a digital copy is preserved before uploading (electronically submitting) the form to the consular post or embassy. The visa applicant should review with immigration counsel the likely questions to be posed by the consular official at the visa interview or border inspector at the port of entry as well as the applicant’s proposed answers. The applicant should
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be rested, well dressed and groomed, in business attire, with a minimum of jewelry, makeup or cologne. Any papers carried to the interview or border inspection should be well organized and easily accessed for presentation to the officer. Particulars of the proposed business and job duties, salary, investment amount, etc., should be accurately described, if questions are posed. Applicants should maintain a confident and relaxed attitude but remember at all times that he or she is speaking to a government official with police powers. All statements made must be truthful and complete. Information not asked should not be volunteered. Lesson 6: Treat the consular interview and border interrogation as oral examinations for which preparation is essential and the passing grade is the grant of the requested visa and work-authorized status in the U.S.
7. Pay Heed to Expiration Dates. At the U.S. port of entry, the inspecting officer will confer on firm deputees allowed admission to the U.S. a nonimmigrant work-visa “status” on an entry card known as a Form I-94 (arrival/departure record). The I-94 “departure” portion of the card will note the visa category and the period of authorized status, either a date certain or for some visa categories, a notation (“D/S”), meaning the entrant may remain in the U.S. for the “duration of [lawfully maintained] status.” Make sure at the airport or land border that the proper period of authorized admission for the particular visa category is granted and that an improperly shorter period is not noted. Request a correction at that point. One should never allow a passport, visa stamp or I-94 form to expire without first having obtained a renewal or extension. Otherwise, the individual may face serious, adverse consequences such as removal (deportation), detention, and a bar to reentry for up to ten years. Lesson 7: Obtain the right length of status authorization at the port of entry and develop a calendaring/tickler system to renew or extend status long before it expires.
8. Maintain Required Immigration Paperwork and Be Ready for a Government Audit. Employers are required to complete and maintain a variety of immigration paperwork and to present it upon request to the government, and if employing H-1B specialty occupation workers, to any member of the public who asks to see the documentation. The papers (or electronic records) required to be maintained will include the Form I-9 (Employment Eligibility Verification) confirming that each and every U.S. and foreign worker hired has confirmed eligibility to work under an authorized status and has presented documents of identity and work permission for inspection to the employer. The employer in turn must certify on Form I-9 that the documents chosen for presentation by the employee appear genuine and relate to the individual. In the case of an H-1B employer, the business must also maintain a public access folder and relevant payroll and tax records. Lesson 8: Be ready for an immigration-related government audit by preparing and retaining the required business records, and periodically engaging a competent immigration lawyer to audit the firm’s immigration compliance practices.
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9. Achieve Your Vision of the American Dream but Stay Vigilant about Immigration Compliance. Every new business has big dreams. America encourages entrepreneurial dreamers to pursue their goals within the bounds of the law. Initial business plans, however, may change over time. Companies reorganize, merge, are spun off, sold or dissolved. Job duties may “morph” into new assignments and materially different responsibilities. Foreign employees of the initially sponsoring U.S. firm may desire or need to be transferred to the payroll of an affiliated or wholly unrelated business. Foreign owners, investors and officials of new U.S.-based businesses should realize that employment-based work visas are tethered to the original visa petitioner or sponsor and that material changes in employing entity, job duties, job location and other eligibility criteria may require prior notice and approval of the federal government before the chance is allowed to occur. Lesson 9: Stay in touch with your immigration lawyer and let the lawyer know in advance when changes to the terms and conditions of the initial visa petition and application are likely to arise. Your lawyer can then guide you on required immigration-compliance action items.
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With the U.S. still the largest economy in the world, foreign businesses and individuals still yearn to get a “piece of the pie.” As this post has shown, close attention to U.S. immigration laws will make it more likely that the pie will be tasty and satisfying. Welcome to America!
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July 15, 2010
15-14 Bender's Immigr. Bull. 2 (2010) SECTION: Vol. 15; No. 14 LENGTH: 3142 words HEADLINE: Investing in the United States Through the E-2 and EB-5 Visa Categories AUTHORS: by Angelo A. Paparelli, Stephen Yale-Loehr & Ted Chiappari Angelo A. Paparelli is a partner in Seyfarth Shaw in New York and Los Angeles. Stephen Yale-Loehr is an adjunct profes-sor of immigration law at Cornell Law School and Of Counsel at Miller Mayer in Ithaca, NY. He is a member of the BIB's editorial board and co-author of Immigration Law and Procedure. Ted J. Chiappari is a partner at Satterlee Stephens Burke & Burke in New York City. This article originally appeared in the June 22, 2010 issue of the New York Law Journal. (copyright © 2010 New York Law Publishing Company) and in 15 Bender’s Immigration Bulletin 999 (July 15, 2010). The authors thank the Journal and Bender's Immigration Journal for permission to re-print this article. © 2010 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, [email protected] or visit www.almreprints.com. BODY: For the affluent and the entrepreneurial, the United States remains one of the world's premier immi-gration destinations. This article outlines two strategies--the E-2 ''Treaty Investor'' visan1 and the EB-5 ''Employment Creation'' green card--that foreign investors may pursue to obtain a variety of privileges in the United States. Investment in a U.S. enterprise may afford noncitizens the right to spend prolonged periods here or immigrate with their immediate families; the right to work; for the E-2 nonimmigrant, the freedom to choose to be taxed as a U.S. resident or nonresident; and, for the EB-5 immigrant, the freedom to retire on a full- or part-time basis and the ability to qualify for U.S. naturalization. Both the E-2 and the EB-5 categories, however, are studded with complex rules and intricate inter-pretations, and administered by government officials of varying temperament, talent, and expertise. Moreover, there may be more appropriate paths to achieve comparable immigration benefits based on the individual's particular background, education, career history, accomplishments, business ac-tivities, or family relationships.
E-2 Visas: The Basics
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The authority to issue nonimmigrant E-2 treaty-investor visas derives from treaties of friendship, commerce and navigation or bilateral investment that the United States has entered into with over seventy countries of the worldn2 and from implementing legisla-tion found at Immigration and Nationality Act (INA) ß 101(a)(15)(E)(ii), 8 U.S.C. ß 1101(a)(15)(E)(ii). The INA allows a citizen of an E-2 treaty country to enter the United States with his or her spouse and minor children (under age twenty-one) for up to two years at a time if he or she is coming ''solely to develop and direct the operations of an enterprise in which [the individual] has invested, or of an enterprise in which [he or she] is actively in the process of investing, a substantial amount of capital.''
Only a citizen of a treaty country (including dual nationals who are not U.S. citizens) can qualify as the E-2 investor or ''principal,'' but the spouse and children of the princi-pal may hold a different nationality. If other requirements are satisfied, two citizens of different treaty countries may qualify for separate E-2 visas as long as they each hold an equal (50%) share of the U.S. treaty investment enterprise.
The State Department succinctly describes the basic E-2 visa requirementsn3 [with the authors' comments in the bracketed and italicized text]:
The applicant must be a national of a treaty country [although the U.S. investment
may be a legal entity distinct from the individual].
The investment must be substantial. [Substantiality depends on the nature of the business; a consulting business will require less of an investment than a manufacturing plant.] It must be sufficient to ensure the successful operation of the enterprise. The percentage of investment for a low-cost business enterprise must be higher than the percentage of investment in a high-cost enterprise. [The E-2 investor must hold at least 50% of the investment, and possibly a higher percentage in a smaller business.]
The investment must be a real operating enterprise. Speculative or idle investment [e.g., undeveloped land purchased solely for the purpose of enjoying potential future appreciation in value] does not qualify. Uncommitted funds in a bank account or simi-lar security are not considered an investment.
The investment may not be marginal. It must generate significantly more income than just to provide a living to the investor and family, or it must have a significant economic impact in the United States. [Economic impact is shown through submission of a detailed business plan offering extensive market analysis and metrics, and substan-tiating the reasons why the entity projects to hire U.S. employees, or generate substan-tial profits, usually within five years.]
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The investor must have control of the funds, and the investment must be at risk in the commercial sense. [A contingency clause in the purchase agreement dependent on issuance of the E-2 visa is permitted.] Loans secured with the assets of the investment enterprise are not allowed. [Funds derived from an equity line or mortgage on the in-vestor's home or unencumbered funds are permissible sources of the investment.]
The investor must be coming to develop and direct the enterprise. [This often is in-terpreted to mean that the investor, beyond controlling the U.S. entity through 50% or greater stock ownership, must have some relevant education or experience in the pro-posed business activity or a track record of entrepreneurial success.] If the applicant is not the principal investor, he or she must be employed in a supervisory, executive, or highly specialized skill capacity. Ordinary skilled and unskilled workers do not qualify. [Typically, the investor will also hold one or more executive posts in the U.S. enter-prise.]
E-2 visas may be issued for up to five years and may be renewed as long as the U.S. en-terprise is maintained, it does not become marginal, and the immigration status of the E-2 entrant has not expired or otherwise been violated. Moreover, unlike other nonim-migrant visas, the E-2 visa is not subject to an annual numerical quota or maximum ag-gregate period of physical presence in the United States.
The E-2 category g thus offers benefits that resemble in many ways the coveted ''green card'' (lawful permanent resident or LPR) status and even offers advantages over LPR status, except for the benefits that inhere with green-card status, namely, the right to: remain permanently; engage in open-market employment (i.e., work distinct from the U.S. treaty-investment enterprise); retire or cease employment (and still be allowed to remain in the United States); and qualify for U.S. naturalization. The spouses of E-2 visa holders can obtain open-market employment authorization.
E-2 Visas: Best Practices
Know the sources of legal authority. Beyond the regulations,n4 study the detailed guidance in the State Department's Foreign Affairs Manual.n5
Partner with experts. In addition to an immigration lawyer, the E-2 professional-services team should typically include a business plan writer, a financial advisor, a business broker (if buying an existing business), a corporate lawyer, and a tax practitio-ner with expertise in U.S. and the treaty country's tax laws, tax treaties, and totalization agreements.
Guide the investor on the optimal structure for both the investment and the U.S. le-gal entity. The U.S. investment cannot be in the form of an irrevocable trust or a Sub-chapter S corporation (unless the investor is already a U.S. resident for federal tax pur-
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poses), but may be a C corporation, a limited liability company, or a partnership. Tiers of intervening foreign entities may be incorporated outside of treaty countries as long as the ultimate owner at the top tier is a treaty national.
Consider whether the prospective investor should apply for a B-1 intending E-2 visa rather than entering as a WB (waiver business) ninety-day entrant under the visa waiver program. It may take more than three months for the investor to identify the best in-vestment opportunity.
Ascertain local requirements. U.S. consular posts often apply varying interpreta-tions of E-2 and B-1 intending E-2 visa eligibility.
EB-5 Green Cards: The Basics
Congress created the fifth employment-based preference (EB-5) immigrant-visa cate-gory in 1990 for immigrants seeking to enter to engage in a commercial enterprise that will benefit the U.S. economy and create or save at least ten full-time jobs.n6 The basic amount required to invest is $1 million, although that amount is reduced to $500,000 if the investment is made in a ''targeted employment area,'' defined as a rural area or an area with unemployment of 150% of the national average.n7
The EB-5 category contains rigorous and complicated requirements that United States Citizenship and Immigration Services (USCIS) adjudicators have had difficulty admin-istering in a consistent, efficient, and predictable fashion. Partly for this reason, the an-nual limit of 10,000 EB-5 green cards has never been reached. Even though relatively few people have used the EB-5 category, EB-5 participants have invested over $1 bil-lion in a variety of U.S. businesses.n8
In 1992, to stimulate interest in the EB-5 program, Congress enacted the EB-5 regional-center pilot program. The pilot program allows public and private entities to apply to USCIS for regional-center designation to develop qualifying investments for foreign investors. Immigrant investors can qualify under the EB-5 program by making a quali-fying investment in a project sponsored by an approved regional center. Approximately 100 regional centers exist.n9
One advantage regional centers have over the regular EB-5 program is that they can count both direct and indirect jobs. By contrast, people who invest in their own compa-nies can count only the direct jobs they create. Partly for that reason, and partly because many potential investors don't want to run their own companies, over 90% of all EB-5 petitions are filed through regional centers.
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Whether a person invests in his or her own company or through a regional center, he or she first files a petition with USCIS. The petition must show that the person invested $500,000 or $1 million in a qualifying company. EB-5 investors must prove that they earned their money legally.n10 Investors must also submit a detailed business plan showing how they will create ten direct jobs within two years.n11 Finally, EB-5 inves-tors must place their money ''at risk'' in the company; it cannot sit idly in a corporate bank account.
Upon approval of the petition, the investor then applies for the green card through ei-ther an immigrant-visa application overseas or an application to adjust status in the United States. An investor first receives a conditional green card, valid for two years. At the end of the two years the investor must file another petition with USCIS proving that the jobs really were created and that the money really was at risk.n12 Once that pe-tition is approved, the investor receives a permanent green card.
EB-5 Green Cards: Best Practices
It can be hard to determine whether a potential EB-5 investment will create enough
jobs in two years. The investor should engage competent investment advisors to per-form due diligence on the proposed regional-center project and the job-creation esti-mates.
In addition to financial due diligence, arrange for an immigration due diligence on any regional-center project. Various websites offer immigration due-diligence check-lists.n13
Qualifying a person for EB-5 status is one of the most complicated subspecialties in immigration law. A sophisticated team with knowledge of immigration, corporate, and tax law is required. Be sure that an investor deals with experienced EB-5 program advi-sors and that the regional center provides investor protections and disclosures under state and federal securities law.n14
EB-5 Green Cards v. E-2 Visas: Pros and Cons
E-2 visa holders can take steps to qualify as nonresidents of the United States for
federal income tax purposes. By contrast, EB-5 green card holders are considered U.S. residents for tax purposes and must pay taxes on their worldwide income. Moreover, people who have had green-card status for eight of the last fifteen tax years are subject to a mark-to-market income tax if they surrender their green cards, even if the individ-ual's property holdings have not been sold or transferred.
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E-2 visa holders can invest whatever amount of money is needed for their invest-ments. Usually it is over $100,000. EB-5 investors must invest $500,000 or $1 million.
E-2 visa holders must prove that their continued investments are not ''marginal,'' meaning that they have other income to live on. By contrast, EB-5 holders have no such requirement.
E-2 visa holders need not create a set number of jobs (although job creation is help-ful to show that the E-2 investment is not marginal). EB-5 investors must create or save at least ten jobs.
An E-2 visa holder must either invest in the company or be an executive or supervi-sor or have essential skills. An EB-5 investor can be a limited partner, with only limited duties involving corporate policy or management.
Children of E-2 visa holders can be in the United States, but may stay in E-2 status only until age twenty-one and may have to pay out-of-state tuition to go to college. Children of EB-5 investors are considered U.S. residents and therefore may qualify for in-state tuition more easily.
Conclusion
Scaling the investor visa provisions of U.S. immigration law can be rough. Whether through investment or another strategy, the prudent emigre or long-term nonimmigrant to the United States will enlist a qualified Sherpa--in this case, an experienced immi-gration lawyer--to help avoid or minimize legal impediments, bureaucratic underbrush, and other dangers. As prior adventurers have learned, the prize can be well worth the journey.
FOOTNOTES: (n1)Footnote 1. The discussion of the E-2 visa in this article focuses solely on the benefits to afflu-ent individuals and families who are able and willing to invest capital in a U.S. business enterprise. It does not cover the benefits and obligations applicable to large multi-national enterprises (MNEs) and their employees who may also qualify under the E-2 visa category--a separate topic worthy of a different article. The U.S. Department of State (DOS or State) does not report statistics on the issu-ance of E-2 visas to MNE employees separately from the statistics on E-2s issued to individual in-vestors. Instead, data on these distinct subcategories of E-2 visa are lumped together. Total E-2 vi-sas issued to E-2 principal beneficiaries, spouses, and children have remained constant, however, over the last four fiscal years, ranging between roughly 28,000 and 29,000 visas annually. See U.S. Dep't of State, Report of the Visa Office 2009, Nonimmigrant Visas Issued by Classification (In-cluding Crewlist Visas and Border Crossing Cards): Fiscal Years 2005-2009, http://www.travel.state.gov/pdf/FY08-AR-TableXVI(B).pdf. (All hyperlinks in this article are cur-rent as of June 12, 2010.)
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(n2)Footnote 2. The list of treaty countries is accessible at http://travel.state.gov/visa/fees/fees_3726.html.
(n3)Footnote 3. U.S. Dep't of State, Treaty Traders and Treaty Investors, http://travel.state.gov/visa/temp/types/types_1273.html.
(n4)Footnote 4. 8 C.F.R. ß 214.2(e)(2). (n5)Footnote 5. U.S. Dep't of State, 9 Foreign Affairs Manual ß 41.51.
(n6)Footnote 6. INA ß 203(b)(5), 8 U.S.C. ß 1153(b)(5). For a detailed treatment of the EB-5 immigrant investor category, see 3 Charles Gordon, Stanley Mailman, & Stephen Yale-Loehr, Im-migration Law and Procedure ß 39.07.
(n7)Footnote 7. INA ß 203(b)(5)(C)(ii), 8 U.S.C. ß 1153(b)(5)(C)(ii).
(n8)Footnote 8. U.S. Government Accountability Office, No. GAO-05-256, Immigrant Inves-tors: Small Number of Participants Attributed to Pending Regulations and Other Factors (Apr. 2005), http://www.gao.gov/new.items/d05256.pdf.
(n9)Footnote 9. http://www.uscis.gov/eb-5centers.
(n10)Footnote 10. See, e.g., Stephen Yale-Loehr & Christopher Repole, Show Me the Money: Proving Lawful Source of Funds for EB- 5 Immigrant Investors, 11 Bender's Immigr. Bull .628 (June 15, 2006); Stephen Yale-Loehr & Christopher Repole, Proving Lawful Source of Funds, http://www.millermayer.com/Immigration/EB5Investors/SourceofFunds/tabid/159/Default.aspx.
(n11)Footnote 11. Matter of Ho, 22 I. & N. Dec. 206 (Assoc. Comm'r, 1998). (n12)Footnote 12. See, e.g., Kristal Ozmun & Stephen Yale-Loehr, I-829 EB- 5 Petitions: Evi-
dence of Job Creation in the Regional Center Context, 15 Bender's Immigr. Bull. 869 (June 15, 2010).
(n13)Footnote 13. See, e.g., Miller Mayer, Due Diligence Questions for Regional Centers, http://tinyurl.com/2dm37h4.
(n14)Footnote 14. See generally Jennifer Mercier Moseley, Angelo A. Paparelli, Ladd W. Mark & Carolyn Lee, The Relevance of U.S. Securities Laws to Immigrant Investors, EB- 5 Regional Cen-ters and Their Advisors, 14 Bender's Immigr. Bull. 938 (Aug. 1, 2009).
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EB-5 IMMIGRANT INVESTORS By Stephen Yale-Loehr, Carolyn S. Lee, Nicolai Hinrichsen & Lindsay Schoonmaker*
OVERVIEW Congress created the fifth employment-based
preference (EB-5) immigrant visa category in 1990 for immigrants seeking to enter to engage in a com-mercial enterprise that will benefit the U.S. economy and create at least 10 full-time jobs.1 The basic amount required to invest is $1 million, although that amount may be $500,000 if the investment is made in a “targeted employment area.”2 Of the ap-proximately 10,000 numbers available for this pref-erence each year, 3,000 are reserved for entrepre-neurs who invest in targeted employment areas.3 A separate allocation of 3,000 visas is set aside for en-
* Updated from an article published at Immigration & Na-tionality Law Handbook 63 (2008–09 ed.). Copyright © 2009 Stephen Yale-Loehr. All rights reserved.
Stephen Yale-Loehr ([email protected]) is co-author of Immigration Law and Procedure, the leading immigration law treatise, published by LexisNexis/Matthew Bender. He also teaches immigration law and asylum law at Cornell Law School, and is of counsel at Miller Mayer LLP (www.millermayer.com) in Ithaca, N.Y. Mr. Yale-Loehr chairs AILA’s Investor Committee and is a member of AILA's AAO Committee. He graduated from Cornell Law School in 1981 cum laude, where he was editor-in-chief of the Cornell International Law Journal.
Carolyn S. Lee ([email protected]) is a partner at Miller Mayer LLP. She graduated cum laude from Williams College in 1993 and received her J.D. from Cornell Law School in 1999, where she graduated with a specialization in International Legal Affairs.
Nicolai Hinrichsen ([email protected]) is an associate attorney at Miller Mayer LLP. He received his J.D. from Boston University School of Law in 1998. Before joining Miller Mayer he practiced international corporate law in Paris for a U.S. Fortune 500 company and then corporate and securities law in San Francisco for a large U.S.-based law firm.
Lindsay Schoonmaker ([email protected]) is a re-search assistant at Miller Mayer, LLP. She graduated from Cornell University in 2006. 1 INA §203(b)(5), 8 USC §1153(b)(5). For a detailed treat-ment of the EB-5 immigrant investor category, see 3 C. Gordon, S. Mailman, & S. Yale-Loehr, Immigration Law and Procedure §39.07 (rev. ed. 2009). 2 INA §203(b)(5)(C)(ii), 8 USC §1153(b)(5)(C)(ii). 3 INA §203(b)(5)(B)(i), 8 USC §1153(b)(5)(B)(i).
trepreneurs who immigrate through a regional center pilot program discussed below.
The statutory requirements of the EB-5 visa cate-gory are onerous. At most only about 1,000 people a year have immigrated in this category, just one-tenth of the visas available.4 In FY 2005, only 346 people, including derivatives, immigrated in this category.5 In FY 2006 the number increased to 749 and in FY 2007 increased again to 806.6
The former Immigration and Naturalization Ser-vice (INS) (now U.S. Citizenship and Immigration Services (USCIS)) made it even harder to qualify in this category by issuing four precedent decisions in 1998 that significantly restricted eligibility for EB-5 status.7 Since then, the Administrative Appeals Office (AAO) has issued numerous nonprecedent decisions.8
4 Office of Immigration Statistics, U.S. Dep’t of Homeland Security, 2007 Yearbook of Immigration Statistics 20 (2008) (Table 6), at http://www.dhs.gov/xlibrary/assets/statistics/yearbook/2007/ois_2007_yearbook.pdf (last visited Feb. 25, 2009) [hereinaf-ter 2007 Yearbook of Immigration Statistics]. 5 Id. 6 Id. 7 Matter of Soffici, 22 I&N Dec. 158, 19 Immigr. Rep. B2-25 (Assoc. Comm’r, Examinations 1998); Matter of Izummi, 22 I&N Dec. 169, 19 Immigr. Rep. B2-32 (Assoc. Comm’r, Examinations 1998); Matter of Hsiung, 22 I&N Dec. 201, 19 Immigr. Rep. B2-106 (Assoc. Comm’r, Examinations 1998); Matter of Ho, 22 I&N Dec. 206, 19 Immigr. Rep. B2-99 (Assoc. Comm’r, Examinations 1998). 8 See generally H. Joe, R. Oh, S. Smalley, & S. Yale-Loehr, “More AAO EB-5 Decisions,” 7 Bender’s Immigration Bulletin 251 (Mar. 1, 2002); 6 Bender’s Immigration Bulletin 945 (Sept. 15, 2001) (summaries of four AAO EB-5 decisions); L. Stone, W. Mason, B. Stern Wasser, & S. Yale-Loehr, “Immigrant In-vestors Strike Out Again at AAO,” 6 Bender’s Immigration Bulletin 709 (July 15, 2001); S. Park & S. Yale-Loehr, “More Bad News from the AAO for Immigrant Investors,” 6 Bender’s Immigration Bulletin 309 (Mar. 15, 2001); L. Stone, R. Oh, & S. Yale-Loehr, “Recent AAO Decisions Continue Trend of Limit-ing Immigrant Investor Visas,” 5 Bender’s Immigration Bulletin 1031 (Dec. 15, 2000); B. Palmer, “Recent EB-5 Denials,” 4 Bender’s Immigration Bulletin 1139 (Dec. 1, 1999); 4 Bender’s Immigration Bulletin 810 (Aug. 15, 1999) (summaries of four AAO EB-5 denials). Some AAO EB-5 decisions are available at www.uscis.gov/uscis-ext-templating/uscis/jspoverride/ errFrameset.jsp (last visited Feb. 25, 2009) (category B7).
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In 2002, Congress enacted a law designed to help certain stranded immigrant investors hurt by the 1998 decisions.9 Those provisions are discussed in detail below. As of the end of March 2009, regula-tions to implement the 2002 law have not been pub-lished.10
In 2003, Congress asked the U.S. Government Accountability Office (GAO) to study the EB-5 pro-gram.11 The GAO report concluded that the program has been under-used for a variety of reasons, includ-ing the rigorous application process and the failure to issue regulations implementing the 2002 law.12 The report found that even though few people have used the EB-5 category, EB-5 participants have in-vested an estimated $1 billion in a variety of U.S. businesses.13
STATUTORY REQUIREMENTS
The Regular Program Immigration and Nationality Act (INA)
§203(b)(5)14 provides a yearly maximum of ap-proximately 10,000 visas for applicants to invest in a new commercial enterprise employing at least 10 full-time U.S. workers. To qualify under the EB-5 category, the new enterprise must: (1) be one in which the person has invested (or is in the process of investing) at least $1 million (or at least $500,000 if investing in a “targeted employment area,” discussed below) after November 29, 1990;
9 21st Century Department of Justice Appropriations Au-thorization Act, Pub. L. No. 107-273, 116 Stat. 1758 (2002). The immigrant investor provisions are in §§11031–37. The conference committee report is H.R. Conf. Rep. No. 107-685 (2002). 10 USCIS has published interim field guidance pending pub-lication of the regulations. Memorandum from William R. Yates, BCIS Acting Assoc. Dir. for Operations, to all BCIS offices, “Amendments Affecting Adjudication of Petitions for Alien Entrepreneur (EB-5),” File No. HQ40/6.1.3 (June 10, 2003), reprinted in 8 Bender’s Immigration Bulletin 1179 (July 1, 2003), published on AILA InfoNet at Doc. No. 03061744 (posted June 17, 2003) [hereinafter Yates Memo]. 11 Basic Pilot Program Extension and Expansion Act of 2003, Pub. L. No. 108-156, §5, 117 Stat. 1944. 12 U.S. Government Accountability Office, No. GAO-05-256, “Immigrant Investors: Small Number of Participants Attributed to Pending Regulations and Other Factors” (Apr. 2005), available at www.gao.gov/new.items/d05256.pdf (last visited Feb. 25, 2009). 13 Id. at 1. 14 8 USC §1153(b)(5).
(2) benefit the U.S. economy; and (3) create full-time employment for at least 10 U.S. workers. Moreover, the investor must have at least a policy-making role in the enterprise.
The Pilot Program To encourage immigration through the EB-5 cate-
gory, Congress created a temporary pilot program in 1993.15 The Immigrant Investor Pilot Program (“pilot program”) directs the Attorney General and Secretary of State to set aside 3,000 visas each year for people who invest in “designated regional centers.” The pilot program has been renewed several times, and is cur-rently due to expire September 30, 2009.16 Efforts are underway in Congress to extend the pilot program beyond this date. The USCIS has issued instructions on what will happen with pending cases if Congress fails to renew the pilot program.17
The pilot program does not require that the im-migrant investor’s enterprise itself employ 10 U.S. workers. Instead, it is enough if 10 or more jobs will be created directly or indirectly as a result of the in-vestment.18 This program also differs from the regu-lar EB-5 provisions in that it permits private and governmental agencies to be certified as regional centers if they meet certain criteria.19
See further discussion of the pilot program in “Regional Centers,” infra.
Qualified Immigrants Outside of the investment and employment req-
uisites, the statute does not specifically address who may be a qualified applicant. USCIS appears to pre-clude corporate or other nonindividual investors from this category. However, two or more individu-als may join to make an EB-5 investment. A single
15 Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act of 1993, Pub. L. No. 102-395, §610, 106 Stat. 1828; S. Rep. No. 102-918 (1992). 16 Div. J of Omnibus Appropriations Act, 2009, Pub. L. No. 111-8, § 101, 123 Stat. 524. 17 USCIS, Sunset Date to Affect Regional Center Proposals Under the Immigrant Investor Program (Feb. 19, 2009), published on AILA InfoNet at Doc. No. 09022072 (posted Feb. 20, 2009). 18 21st Century Department of Justice Appropriations Au-thorization Act, supra note 9, §11037(a)(3). 19 8 CFR §204.6(m)(3). See http://www.millermayer.com/LinkClick.aspx?fileticket=JYnsmgwj6hM%3d&tabid=126&mid=863 for a list of approved EB-5 regional centers.
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new commercial enterprise may be used for inves-tor/employment-creation classification by more than one investor, provided that: (1) each petitioning in-vestor has invested (or is actively in the process of investing) the required amount; and (2) the creation of at least 10 qualifying full-time jobs may be attrib-utable to each investor.20 In fact, a new commercial enterprise may be used for investor/employment-creation classification even though there are several owners of the enterprise, including persons not seek-ing classification, if: (1) the source(s) of all capital invested is (are) identified; and (2) all invested capi-tal has been derived by lawful means.21 The lawful source of funds issue is discussed in more detail in “Legal Acquisition of Capital,” infra.
The New Commercial Enterprise There are two basic requirements for showing a
new commercial enterprise. First, the enterprise must be “new,” i.e., formed after November 29, 1990.22 However, an enterprise formed before this date may qualify if an investor “restructures”23 or “expands”24 an existing business. Second, it must be a “commer-cial” enterprise. Any for-profit entity formed for the ongoing conduct of lawful business may serve as a commercial enterprise. This includes sole proprietor-ships, partnerships (whether limited or general),25 holding companies, joint ventures, corporations, busi-ness trusts, or other entities publicly or privately owned.26 This definition would even include a hold-ing company and its wholly owned subsidiaries, if each such subsidiary is engaged in a for-profit activity formed for the ongoing conduct of a lawful business. However, the term “new commercial enterprise” does not include noncommercial activity, such as owning
20 8 CFR §204.6(g)(1). 21 Id. 22 See, e.g., Matter of [name not provided], EAC-91-184-50136, 12 Immigr. Rep. B2-51 (AAU Aug. 12, 1993) (de-nying petition as investment made before Nov. 29, 1990; investor’s documentation of “expanded business” deemed insufficient). See also Yates Memo, supra note 10, at ¶2. 23 8 CFR §204.6(h)(2). 24 8 CFR §204.6(h)(3). 25 The 21st Century Department of Justice Appropriations Authorization Act, supra note 9, clarifies that a “commercial enterprise” may include a limited partnership. Id. §11036(b)(3). 26 8 CFR §204.6(e) (definition of commercial enterprise).
and operating a personal residence or nonprofit enter-prise.27 Creating an Original Business—According to a 1998 precedent decision, an EB-5 petitioner had to have a hand in the creation of the enterprise and must be present at the enterprise’s inception.28 This posed particular problems for people investing in partnerships. The partnership will usually be created and then the general partner will seek individuals to invest as limited partners. Under the legacy INS’s interpretation, such investors could not qualify for EB-5 classification because they were not partners at the establishment of the original partnership. In 2002, Congress eliminated the “establishment” re-quirement for EB-5 investors.29 Instead of proving that they have “established” a commercial enterprise themselves, investors now need only show that they have “invested” in a commercial enterprise. Restructuring an Existing Business—By reorganiz-ing or restructuring an existing business, an investor may create a “new commercial enterprise” and therefore qualify for a visa. The statute and regula-tions provide little insight into what degree of re-structuring or reorganization must be done to estab-lish a new enterprise. The AAO has held that simply changing the legal form of the enterprise does not satisfy this requirement.30 There is only one known case where the AAO agreed the business was suffi-ciently restructured or reorganized.31
Regardless of the forms used to create a new en-terprise, the focus of the law is on the creation of at least 10 new employment opportunities. Investments creating a new enterprise but failing to create 10 new jobs will also fail to qualify for EB-5 classification.
27 Id. 28 Matter of Izummi, 22 I&N Dec. 169, 198, 19 Immigr. Rep. B2-32 (Assoc. Comm’r, Examinations 1998). 29 21st Century Department of Justice Appropriations Au-thorization Act, supra note 9, §11036(a)(2). See also Yates Memo, supra note 10, at ¶1. 30 Matter of Soffici, 22 I&N Dec. 158, 166, 19 Immigr. Rep. B2-25 (Assoc. Comm’r, Examinations 1998) (“A few cos-metic changes to the decor and a new marketing strategy for success do not constitute the kind of restructuring contem-plated by the regulations, nor does a simple change in own-ership.”). 31 Matter of [name redacted] (AAO July 11, 2001) (ap-proved case involved the “restructuring” of a horse breeding business into a new business for horse breeding and train-ing).
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Expanding an Existing Business—An investor also can create a new enterprise by expanding an existing business. Only an expansion resulting in an increase of at least 40 percent in the net worth of the business or in the number of employees of the business will satisfy the visa requirements.32 This could require the investor to create more than 10 new jobs to qual-ify for a visa if the pre-expansion number of em-ployees was more than 25. The larger the business that the investor expands, the more onerous his or her burden to qualify for a visa under this standard. However, an investor need not show that his or her investment alone caused the 40 percent increase.33 The AAO has insisted that proof of expansion of the company requires audited financial statements con-cerning the company’s former net worth at the time of investment.34 Pooling Arrangements—The regulations specifi-cally allow immigrant investors to pool their in-vestments with others seeking EB-5 status.35 Each investor must invest the applicable statutory amount. All of the new jobs created by the new commercial enterprise will be allocated among those within the pool seeking permanent investor visas.36
The AAO has injected a restriction on pooling investments by requiring the petitioner to show that every investor in the partnership identify the source of their funds and prove that they were derived by lawful means.37
32 8 CFR §204.6(h)(3). See also Yates Memo, supra note 10, at ¶2. 33 Memorandum from T. Alexander Aleinikoff, INS General Counsel, to Louis D. Crochetti, Jr., Acting Assoc. Comm’r for Examinations, “Whether a Pool of Alien Immigrant Investors Can Create a New Commercial Enterprise by Expanding an Existing Business by at Least 40%,” HQ 204.27-C (Jan. 31, 1995), reprinted in 73 Interpreter Releases 1625 (Nov. 18, 1996). 34 Matter of [name not provided], WAC-99-010-50117 (AAO Dec. 15, 2000). 35 8 CFR §204.6(g). 36 See generally 8 CFR §204.6(g); H.R. Klasko, “Pooled In-vestment Arrangements: Unraveling the Controversy,” 2 Im-migration & Nationality Law Handbook 107 (1998–99 ed.) [hereinafter Klasko]; A.J. Vasquez-Aspiri, “The Role of Commercial Organizations in the EB-5 Employment Process,” 2 Bender’s Immigration Bulletin 813 (Oct. 15, 1997). 37 See, e.g., Matter of [name not provided], WAC-98-106-51072, slip op. at 20 (AAO July 6, 2000); Matter of [name not provided], WAC-98-106-51583, slip. op. at 22 (AAO Sept. 11, 2000). This requirement is discussed further infra.
“Engaging” in a New Commercial Enterprise The statute requires an EB-5 applicant to enter
the United States to engage in a new commercial enterprise.38 To qualify, an investor must maintain more than a purely passive role in the new enterprise upon which the petition is based. The regulations require an EB-5 immigrant to be involved in the management of the new commercial enterprise.39 The petitioner must either be involved in the day-to-day managerial control of the commercial enterprise or manage it through policy formulation. The regula-tions state that if the EB-5 petitioner is a corporate officer or board member, or, in the case of a limited partnership, is a limited partner under the provisions of the Uniform Limited Partnership Act (ULPA), he or she satisfies the requirement of engaging in the management of the new commercial enterprise.40 The AAO, however, has found that merely calling the investor a limited partner pursuant to the ULPA in a partnership agreement does not automatically mean that the person is involved in the management of the new commercial enterprise.41
“Investing” or “Actively in the Process of Investing” “Capital”
The statute requires an EB-5 petitioner to have invested or be in the process of investing. Although the statute explicitly states that an EB-5 petitioner may be “in the process” of investing the required capital,42 USCIS effectively requires the entire capi-tal amount to be already invested and at risk in the commercial enterprise at the time the I-526 petition is filed. This interpretation appears to contravene the
38 INA §203(b)(5)(A), 8 USC §1153(b)(5)(A). 39 8 CFR §204.6(j)(5). 40 Id. See also 73 Interpreter Releases 48, 55 (Jan. 10, 1996). 41 See, e.g., Matter of [name not provided], WAC-98-111-53508, slip op. at 23 (AAO Mar. 20, 2000) (“Despite the superficial language in the limited partnership agreement referring to the ULPA and to 8 CFR §204.6(j)(5)(iii), it is clear that the petitioner here does not in fact have the rights normally granted to limited partners under the ULPA.”). 42 INA §203(b)(5)(A)(i), 8 USC §1153(b)(5)(A)(i). See also 8 CFR §204.6(j)(2) (allowing an investor to be “actively in the process of investing the required amount of capital”). Indeed, even the regulations governing removal of an EB-5 investor’s conditional resident status two years later ac-knowledge that an investor may not have invested all of his or her money by then. The regulations simply require an investor to provide evidence that the alien “invested or was actively in the process of investing the requisite capital.” 8 CFR §216.6(a)(4)(ii).
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statute, but shows USCIS’s desire to have the full amount committed and immediately available for use in job-creation.
The term “invest” means to contribute capital. A contribution of capital in exchange for a note, bond, convertible debt, obligation, or any other debt ar-rangement between the entrepreneur and the new commercial enterprise does not constitute a contri-bution of capital and will not constitute an invest-ment.43
The regulations define “capital” as cash and cash equivalents, equipment, inventory, and other tangi-ble property.44 According to USCIS, retained earn-ings cannot count as “capital.”45
Capital does not include loans by the petitioner or other parties.46 Indebtedness secured by assets owned by the entrepreneur may be considered capi-tal, provided the investor is personally and primarily liable for the debts and the assets of the enterprise upon which the petition is based are not used to se-cure any of the indebtedness.47
Indebtedness typically consists of a promissory note signed by the petitioner that specifies a pay-ment schedule to the new commercial enterprise. Absent fraud, a signed promissory note that is se-cured by the petitioner’s personal assets constitutes a contribution of capital by the petitioner.48 The issuer of the promissory note, i.e., the investor, is consid-ered to be “at risk” if the petitioner is clearly obli-gated to make all the required payments on the note and there are no “escape” clauses. The investor can-not receive any bond, note, or other debt arrange-ment from the enterprise for the capital contributed to it. This includes any stock redeemable at the
43 See 8 CFR §204.6(e) (definition of “invest”). 44 Id. (definition of “capital”). 45 Letter from Efren Hernandez, Chief, USCIS Business and Trade Branch, to Stephen Yale-Loehr, File No. HOOPRD 70/6.2.8 (June 4, 2004), available at www.usa-immigration.com/litigation.htm (last visited Feb. 25, 2009). See also Kenkhuis v. INS, No. 3:01-CV-2224-N, 2003 U.S. Dist. LEXIS 3334, at *6 (N.D. Tex. Mar. 6, 2003) (“[t]he definition of ‘invest’ . . . requires an infusion of new capital, not merely a retention of profits of the enterprise”); De Jong v. INS, No. 6:94 CV 850 (E.D. Tex. Jan. 17, 1997). 46 Matter of Soffici, 22 I&N Dec. 158, 19 Immigr. Rep. B2-25 (Assoc. Comm’r, Examinations 1998). 47 8 CFR §204.6(e) (definition of “capital”). 48 Matter of Hsiung, 22 I&N Dec. 201, 19 Immigr. Rep. B2-106 (Assoc. Comm’r, Examinations 1998).
holder’s request, a form of a put option. All capital is valued at fair market value in U.S. dollars at the time it is given.49
Debt arrangements are extremely complicated. A prudent practitioner must do careful research and analysis to determine current USCIS positions and policies on this issue.50
Benefiting the U.S. Economy The statute requires that investments “benefit the
U.S. economy” to qualify the investor for an EB-5 visa or status.51 The statute provides no guidance on which investments benefit the economy. This silence means USCIS adjudicators are left to their subjec-tive interpretations of the investment and its relative benefits when reviewing the petition. Arguably, the petitioner has benefited the economy by merely meeting the employment and investment require-ments of the visa classification. However, because the statute specifically identifies the “benefit” element as distinct from other components of the visa, it ap-pears that the applicant must independently show that the enterprise, in the conduct of its business, will benefit the U.S. economy. Therefore, a consulting firm exclusively serving customers abroad with no return benefit to the U.S. economy (other than em-ploying the requisite number of workers) might not support an EB-5 petition. In contrast, showing that the new enterprise provides goods or services to U.S. markets should satisfy this requirement.
Federal regulation of foreign investments is ex-tensive. Some regulations restrict foreign invest-ments in aviation, banking, shipping, communica-tions, land use, energy resources, and government contracting. Additionally, Congress has imposed several disclosure and data requirements on foreign investments.52 An investment may not be deemed
continued
49 Matter of Izummi, 22 I&N Dec. 169, 192–93, 19 Immigr. Rep. B2-32 (Assoc. Comm’r, Examinations 1998) (finding that investor failed to show how bank accounts in Japan were in trust or otherwise secured the note, as required by 8 CFR §204.6(e), and that the note was not readily enforceable and was in any event not now worth its face value payable over six years). 50 See generally W. Cook, “Somewhere, Over the Rain-bow . . . Lies the EB-5 Pot of Gold,” 3 Bender’s Immigration Bulletin 1205 (Dec. 1, 1998); Klasko, supra note 36. 51 INA §203(b)(5)(A)(ii), 8 USC §1153(b)(5)(A)(ii). 52 For a comprehensive summary of the regulations, see Ma-rans, Williams, Griffin, & Pattison, Manual of Foreign In-vestment in the United States (3d ed. 2004); United States
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beneficial to the U.S. economy if it runs afoul of any statutory limitation on foreign investment.
Creating or Saving Jobs To qualify for EB-5 status, an investment nor-
mally must create full-time employment for at least 10 U.S. citizens, lawful permanent residents, or other immigrants lawfully authorized to be em-ployed in the United States.53 Neither the investor nor the investor’s spouse and children count toward the 10-employee minimum.54 Nonimmigrants are also excluded from the count. The “other immi-grants” provision means that conditional residents, temporary residents, asylees, refugees, and recipi-ents of suspension of deportation or cancellation of removal may all be considered employees for EB-5 purposes.
The regulations define an “employee” for EB-5 purposes as an individual who (1) provides services or labor for the new commercial enterprise and (2) receives wages or other remuneration directly from the new commercial enterprise.55 This definition excludes independent contractors.56
The EB-5 pilot program does not require the in-vestment to directly create 10 U.S. jobs. Instead, pilot program investments only require an indirect creation of jobs.57 The Types of Jobs—The jobs created must be full-time. This means employment of a qualified em-ployee in a position that requires a minimum of 35 working hours per week, regardless of who fills the position.58 Job-sharing arrangements, where two or more qualifying employees share a full-time posi-tion, will also serve as full-time employment if the hourly requirement per week is met.59 Job-sharing does not include combinations of part-time positions
Law of Trade and Investment (B. Kozolchyk & J. Molloy eds., 2000). 53 INA §203(b)(5)(A)(ii), 8 USC §1153(b)(5)(A)(ii). 54 Id. 55 8 CFR §204.6(e) (definition of “ qualifying employee”). 56 Id. 57 See 8 CFR §204.6(m)(7)(ii). 58 21st Century Department of Justice Appropriations Au-thorization Act, supra note 9, §11031(f). See also Yates Memo, supra note 10, at ¶ 4. 59 8 CFR §204.6(e) (definition of “full-time employment”).
even if when combined such positions meet the hourly requirement per week.60 When the Jobs Must Exist—The law is unclear about when new jobs must exist. The statutory lan-guage is prospective and therefore does not require jobs to exist at the time of initial investment or be-fore the I-526 petition is filed. USCIS does not re-quire retention of employees until a reasonable time after conditional visa issuance. In fact, a petitioner may support a petition with a comprehensive busi-ness plan demonstrating a need for at least 10 em-ployees within the next two years. The business plan need only indicate the approximate dates during the following two years when the employees will be hired.61 The temporary vacancy of a position during the two-year conditional period does not disqualify an investor, as long as good-faith attempts to re-staff the position are made. Note that arguably different standards apply in the Pilot Program context. There, the regulations do not appear to call for any specific time period, but rather require “reasonable methodologies” to show that not fewer than 10 full-time jobs will be created either directly or indirectly.62 Where the Jobs Must be Located—When enacting the EB-5 program, Congress took an affirmative step toward creating jobs in the geographic areas that need them most. The statute sets aside 3,000 of the approximately 10,000 EB-5 visas available annually for foreign citizens who invest in “targeted employ-ment areas.”63 The statute defines a “targeted em-ployment area” as a rural area or an area that has experienced high unemployment of at least 150 per-cent of the national average.64 An area not within a metropolitan statistical area (as designated by the Office of Management and Budget) or the outer boundary of any city or town having a population of 20,000 or more is considered a rural area.65 Each state notifies USCIS which state agency will apply
60 Id. 61 Matter of Ho, 22 I&N Dec. 206, 19 Immigr. Rep. B2-99 (Assoc. Comm’r, Examinations 1998). 62 See 8 CFR §204.6(j)(4)(iii). 63 INA §203(b)(5)(B), 8 USC §1153(b)(5)(B). 64 INA §203(b)(5)(B)(ii), 8 USC §1153(b)(5)(B)(ii). 65 INA §203(b)(5)(B)(iii), 8 USC §1153(b)(5)(B)(iii).
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these guidelines, and determines targeted employ-ment areas for that state.66 Troubled Businesses—Special rules govern invest-ments in “troubled” businesses. A troubled business is one that has been in existence for at least two years, has incurred a net loss for accounting pur-poses during the 12- or 24-month period before the petition was filed, and the loss for such period is at least equal to 20 percent of the business’s net worth before the loss.67 To establish an investment in a troubled business, the petitioner must show that the number of existing employees will be maintained at no less than the pre-investment level for at least two years. Thus, this provision includes a significant in-centive in that it does not require the creation of 10 new jobs. Instead, it requires only that the business maintain the number of existing employees during the conditional status period.68 However, 10 jobs must be saved for every EB-5 investor.69 As a ca-veat, if the troubled business does not remain afloat for two years after the investment, the investor might lose his or her conditional residency status.
EB-5 PROCEDURES: INITIAL EVIDENCE The regular EB-5 program and the pilot program
have similar requirements to begin the process. The distinction between the two processes is that the former requires the petitioner to submit all of the described evidence; the latter requires the designated regional center to certify that the investor has met its criteria.
In either case the investor files for EB-5 classifi-cation using Form I-526. The petition must be signed by the investor, not someone acting on his or her behalf. All EB-5 related petitions are filed with the California Service Center.70
66 Several states have websites that can help determine whether a particular area in the state qualifies as a “targeted employment area” for EB-5 purposes. See, e.g., www.labor.ca.gov/ calBIS/cbfederalvisaprog.pdf (last updated May 2008) (last visited Feb. 25, 2009). 67 8 CFR §204.6(e) (definition of “troubled business”). 68 8 CFR §§204.6(h)(3), 204.6(j)(4)(ii). 69 Summary of December 4, 2008 USCIS Stakeholders Con-ference with Invest In the USA and American Immigration Lawyers Association (Dec. 12, 2008), published on AILA InfoNet at Doc. No. 08121567 (posted Dec. 15, 2008) (Q and A no. 9). 70 See 74 Fed. Reg. 912 (Jan. 9, 2009).
Initial Evidence for the Regular EB-5 Program The following paragraphs detail the evidence that
should be submitted with an I-526 petition for EB-5 classification under the regular program. The New Commercial Enterprise—To qualify for EB-5 classification an investor must show that an investment has been made in a qualified commercial enterprise. The applicant should include: An organizational document for the new enter-
prise, including articles of incorporation, certifi-cates of merger and consolidation, or partnership agreements;
A business license or authorization to transact business in a state or city, if applicable; and
For investments in an existing business, proof that the required amount of capital was trans-ferred to the business after November 29, 1990, and that the investment has increased the net worth or number of employees by 40 percent or more.71
Capitalization—To show that the petitioner has in-vested (or is actively in the process of investing) the required amount of capital, the petition must be ac-companied by evidence that the petitioner has placed the required amount of capital “at risk.” A mere in-tention to invest will not demonstrate that the peti-tioner is actively in the process of investing. The investor must show actual commitment of the re-quired amount of capital. Such evidence may in-clude: Bank statements showing deposits in the U.S.
account of the enterprise; Evidence of assets purchased for use in the en-
terprise; Evidence of property transferred from abroad; Evidence of funds invested in the enterprise in
exchange for stock, except for stock redeemable at the holder’s request; or
Evidence of debts secured by the investor’s as-sets and for which the investor is personally and primarily liable.72 The AAO has held that merely putting cash into
the corporate account of a business does not show that the capital is “at risk” for the purpose of gener-
71 8 CFR §204.6(j)(1). 72 8 CFR §204.6(j)(2).
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ating a return.73 The AAO has also held that the full amount of the required capital must be expended by the enterprise directly toward job creation; otherwise that capital is not at risk of loss.74 Based on these statements, it is difficult to know what a petitioner must do to show that the money is truly at risk. Legal Acquisition of Capital75—The regulations require filing the following types of documentation to establish that capital used in the new enterprise was acquired by legitimate means: Foreign business registration records; Personal and business tax returns, or other tax
returns of any kind filed anywhere in the world within the previous five years;
Documents identifying any other source of money; or
Certified copies of all pending governmental civil or criminal actions and proceedings, or any private civil actions involving money judgments against the investor within the past 15 years.76 Although the regulations list these requirements
in the disjunctive, meaning that submission of any one type of document should suffice, the AAO re-quires investors to submit tax returns for the previ-ous five years.77 This interpretation makes it harder for investors to qualify for EB-5 status, and appears to violate the regulations.
73 See Matter of [name not provided], file no. redacted (AAO July 7, 2000). 74 See, e.g., Matter of [name redacted], WAC-98-194-50913 (AAO Aug. 16, 2002). For a good discussion of the immigra-tion agency’s overly restrictive interpretation of the “at risk” requirement, see L. Stone, “Immigrant Investment in Local Clusters: Part II,” 80 Interpreter Releases 937, 941–45 (July 14, 2003) [hereinafter Stone]. 75 For an in-depth discussion of the requirement that an in-vestor’s capital be from a lawful source, see Stone, supra note 74, at 946–50; S. Yale-Loehr & Christopher Repole, “Show Me the Money: Proving Lawful Source of Funds for EB-5 Immigrant Investors,” at http://www.millermayer.com/Immigration/EB5Investors/SourceofFunds/tabid/159/Default.aspx (last visited Feb. 25, 2009); L. Stone & S. Yale-Loehr, “Evidence of Source of Capital in Immigrant Investor Cases,” 6 Bender’s Immigra-tion Bulletin 972 (Oct. 1, 2001).
76 8 CFR §204.6(j)(3). 77 See, e.g., Matter of [name not provided], file no. redacted, slip op. at 12 (AAO July 7, 2000) (“In addition, the peti-tioner has not submitted his corporate and personal tax re-cords for at least the five years preceding filing the petition as required by 8 CFR §204.6(j)(3).”).
The regulations further define “capital” as only those assets acquired through lawful means.78 The AAO has held that money earned or assets acquired while in the United States in an unlawful status are not considered lawful means to acquire capital.79 This interpretation goes far beyond Congress’ origi-nal concern to prevent drug smugglers or other criminals to use their ill-gotten gains to be able to obtain permanent residents status in the United States through the EB-5 category.
Earned income is generally the most straightfor-ward source of funds, but it is necessary to docu-ment exactly how the money was earned and to pro-vide tax returns documenting that all due taxes were paid in full. As an example, our office handled a successful EB-5 case for a French academic with 20 years of tax-exempt public sector service. To prove his lengthy and complicated income stream the cli-ent provided tax returns, an accountant’s letter ex-plaining the tax-exempt income, and income receipts accounting for five years of earned income.
Gift money usually requires more complex documentation of source of funds, as the donor must document lawful obtainment of funds, as well as providing tax returns. Additionally, the donor and/or investor must pay any gift taxes due from the trans-action.
“Old money” also present challenges in docu-menting how funds obtained by inheritance, were lawfully obtained.80
The importance of tracing funds is present in all of the above scenarios. The sticky issues involving gifting, disposition of a trust, inheritance, and other complex fact patterns must be accompanied by full documentation of the history of the funds and objec-tive confirmation that all taxes have been paid on the acquisition and disposition of the funds. Creating Employment—To show that a new com-mercial enterprise will create at least 10 full-time
78 See 8 CFR §204.6(e) (definition of “capital). 79 See, e.g., Matter of [name not provided], file no. redacted, slip. op. at 12 (AAO July 7, 2000); Matter of [name not pro-vided], file no. redacted, slip. op. at 12 (AAO July 11, 2000); Matter of [name not provided], WAC-98-106-51583, slip. op. at 22 (AAO Sept. 11, 2000). 80 See, e.g., Matter of [name not provided], file no. WAC-00-070-52366, slip. op. at 3-6 (AAO Apr. 21, 2005) (petitioner failed to adequately document transfer of money from family trust to her).
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positions for qualified employees, the petition must be accompanied by: Photocopies of relevant tax records, Forms I-9, or
similar documents for 10 qualifying employees; or
A comprehensive business plan showing the need for at least 10 qualifying employees, and when the employees will be hired.81 The plan should include a description of the business; the busi-ness’ objectives; a market analysis including names of competing businesses and their relative strengths and weaknesses; a comparison of the competition’s products and pricing structures; a description of the target market and prospective customers; a description of any manufacturing or production processes, materials required and supply sources; details of any contracts executed; marketing strategy including pricing, advertising, and servicing; organizational structure; and sales, cost and income projections and details of the bases therefore. In addition, specifically with re-spect to employment, the business plan must set forth the company’s personnel experience, staff-ing requirements, job descriptions for all posi-tions, and a timetable for hiring.82
Troubled Business—To show that a new enterprise, established through capital investment in a troubled business, meets the statutory requirement, the peti-tion must show that the number of existing employ-ees will be maintained at no less than the pre-investment level for a period of at least two years. The applicant should include photocopies of the I-9 forms, tax records or payroll documents, and a com-prehensive business plan.83 Managerial Capacity of the Investor—An EB-5 immigrant must be involved in the management of a new commercial enterprise to qualify for a visa. The petitioner must either be involved in the day-to-day managerial control of the enterprise, or manage it through policy formulation. These requirements may be evidenced by: A comprehensive job description for the position
occupied by the investor. The petitioner’s title should also be indicated;
81 8 CFR §204.6(j)(4)(i). 82 Matter of Ho, 22 I&N Dec. 206, 19 Immigr. Rep. B2-99 (Assoc. Comm’r, Examinations 1998). 83 8 CFR §204.6(j)(4)(ii).
Evidence that the petitioner is a corporate officer or on the board of directors; or
Evidence that the petitioner is involved in direct management activities or policymaking activities of a general or limited partnership. A limited partner must also show that he has rights, powers and duties commensurate with those normally granted under the Uniform Limited Partnership Act (ULPA).84 The AAO, however, has found that merely calling the investor a limited partner pursuant to the ULPA in a partnership agreement does not automatically mean that the person is involved in the management of the new commer-cial enterprise.85
Designation of a High Unemployment Area—The state government may designate a particular geo-graphic or political subdivision as an area of high unemployment (at least 150 percent of the national average rate). Evidence of such designation may be provided with Form I-526. Such evidence should include: Boundaries of the subdivision; The date of the designation; and The methods by which the statistics were gath-
ered.86 Creation of Employment in a Targeted Employ-ment Area—To show that the new commercial en-terprise has created, or will create, employment in a targeted employment area, the petition must be ac-companied by: For a rural area, evidence that the new commer-
cial enterprise is not located within any standard metropolitan statistical area, or within any city or town having a population of 20,000 or more; or
For a high unemployment area, evidence that the metropolitan statistical area, or the county in which a city or town with a population of 20,000 or more is located, in which the new commercial enterprise is principally doing business has ex-perienced an average unemployment rate of 150
84 8 CFR §204.6(j)(5). 85 See 8 CFR §204.6(j)(5); Matter of [name not provided], WAC-98-111-53508, slip op. at 23 (AAO Mar. 20, 2000) (“Despite the superficial language in the limited partnership agreement referring to the ULPA and to 8 C.F.R. §204.6(j)(5)(iii), it is clear that the petitioner here does not in fact have the rights normally granted to limited partners un-der the ULPA.”). 86 8 CFR §204.6(i).
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percent of the national average rate; or a letter from the state in which the new commercial en-terprise is located which certifies that the area has been designated as a high unemployment area.87
Regional Centers An investment under the EB-5 pilot program must
be made in a commercial enterprise located within a “regional center,” which is defined as “any economic unit, public or private, which is involved with the promotion of economic growth, including increased export sales, improved regional productivity, job creation, or increased domestic capital investment.”88
A center seeking USCIS approval must submit a proposal showing how it plans to focus on a geo-graphical region within the United States and to achieve the required growth by the means specified.89 The proposal is filed with the California Service Cen-ter.90
The proposal must show “in verifiable detail how jobs will be created indirectly through in-creased exports,” as well as the amount and source of capital committed and the promotional efforts made and planned.91 A list of designated regional centers can be found at http://www.millermayer.com/LinkClick.aspx?fileticket=JYnsmgwj6hM%3d&tabid=126&mid=863. Another dozen or more applications for regional center designation are pending.
The USCIS is backlogged in reviewing applica-tions for regional center designation under the pilot program. In 2000, the INS issued five decisions on regional center applications, denying or remanding all of them.92 The decisions set forth restrictive new requirements to qualify as a regional center.93
To counteract this trend, in 2002 Congress amended the EB-5 regional center designation provi-
87 8 CFR §204.6(j)(6). 88 21st Century Department of Justice Appropriations Au-thorization Act, supra note 9, §11037(a)(2); 8 CFR §204.6(e) (definition of “regional center”). 89 8 CFR §204.6(m)(3). 90 74 Fed. Reg. 912 (Jan. 9, 2009). 91 Id. 92 See generally L. Stone, “INS Decisions Cloud Future of Investor Pilot Program,” 6 Bender’s Immigration Bulletin 233 (Mar. 1, 2001). 93 Id.
sions.94 Under the 2002 law, USCIS should approve applications for EB-5 regional center status as long as the applications are based on a general prediction concerning: (1) the kinds of commercial enterprises that will receive capital from investor; (2) the jobs that will be created directly or indirectly as a result of the investment of capital; and (3) the other positive economic impacts that will result from the investment of capital.95
USCIS is currently stepping up its review of new regional center applications and increasing oversight of existing regional centers to ensure that the EB-5 program grows in a responsible way.96 For example, in June 2007, Maurice Berez, then-Program Manager for the USCIS Foreign Trader, Investor & Regional Center Program, sent an advisory letter to the Metro-politan Milwaukee Association of Commerce (MMAC), a regional center in Wisconsin.97 The letter outlines 17 types of information that approved re-gional centers must track to keep their regional center designation.
The reporting requirements set forth in the MMAC letter mirror recent regional center decisions, which are growing ever longer and more detailed. In essence the USCIS is exercising greater oversight of regional centers in all aspects of the EB-5 process: (1) in granting or denying regional center status; (2) in maintaining regional center status; and (3) in monitor-ing compliance through immigrant investors’ I-526 and I-829 petitions filed through regional centers.
Assuming a regional center application has been approved, an applicant seeking EB-5 status under the pilot program must make the qualifying investment
94 21st Century Department of Justice Appropriations Au-thorization Act, supra note 9, §11037. 95 Id. §11037(a)(3). For a good analysis of the kinds of eco-nomic benefits EB-5 regional centers could potentially cre-ate, see L. Stone, “Immigrant Investment in Local Clusters: Part I,” 80 Interpreter Releases 837 (June 16, 2003). 96 See Stephen Yale-Loehr & Lindsay Schoonmaker, “USCIS Increases Oversight of EB-5 Regional Centers,” 12 Bender’s Immigration Bulletin 1713 (Dec. 1, 2007), reprinted at http://www.millermayer.com/Immigration/EB5Investors/USCISIncreasesOversighto-fEB5RegionalCenters/tabid/157/Default.aspx (last visited Feb. 25, 2009). 97 See letter from Maurice R. Berez, Program Manager, USCIS Foreign Trader, Investor & Regional Center Pro-gram, to Metropolitan Milwaukee Association of Commerce (June 12, 2007), published on AILA InfoNet at Doc. No. 07061360) (posted June 13, 2007).
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(i.e., the amount required under the regular program) within an approved regional center. However, the requirement of creating at least 10 new jobs is met by a showing that as a result of the new enterprise, such jobs will be created directly or indirectly.98 The USCIS will not count construction jobs as direct jobs, but will count the indirect and induced jobs created from construction jobs.99
To file an I-526 form under the pilot program, at-tach a copy of the INS or USCIS letter designating the regional center. The petitioner’s new commercial enterprise must be within the area specified in that letter. If the commercial enterprise is involved di-rectly or indirectly in lending money to job-creating businesses, it may only lend money to businesses located within targeted employment areas to take advantage of the lesser capital requirement ($500,000).100 The businesses receiving the loans must be within the geographic limits of the regional center if the enterprise is to qualify under the pilot program. Otherwise the enterprise is not promoting economic growth through “improved regional activ-ity” as required by the regulations.101
In 2003 Congress gave USCIS discretion to “give priority” to EB-5 petitions filed through a regional center.102 USCIS exercises this authority judiciously, and specific criteria must be met before USCIS will expedite an I-526 petition filed through a regional center.
EB-5 PROCEDURES: REMOVING THE CONDITIONS
Assuming USCIS approves an investor’s I-526 petition under either the regular or pilot program, he or she becomes a conditional resident for two years following the approval of an adjustment application
98 8 CFR §§204.6(j)(4)(iii), 204.6(m)(7). 99 Summary of December 4, 2008 USCIS Stakeholders Con-ference with Invest In the USA and American Immigration Lawyers Association (Dec. 12, 2008), published on AILA InfoNet at Doc. No. 08121567) (posted Dec. 15, 2008) (Q and A no. 3). NB: USCIS confirmed in the recent February 27, 209 USCIS Stakeholders Conference that it plans to issue a further policy memorandum clarifying its standards for the EB-5 program. USCIS has declined to specify a timeframe for release. 100 Matter of Izummi, 22 I&N Dec. 169, 19 Immigr. Rep. B2-32 (Assoc. Comm’r, Examinations 1998). 101 Id. 102 Basic Pilot Program Extension and Expansion Act of 2003, supra note 11, §4(a)(2).
or admission under an immigrant visa.103 The proce-dure to remove the conditions is analogous to that followed by people who obtain conditional residence through marriage to a U.S. citizen or lawful perma-nent resident.104 An immigrant investor’s petition to remove the conditions should be filed on Form I-829 with the California Service Center.105 It must be ac-companied by evidence that the individual invested or was in the process of investing the required capi-tal, and that the investment created or will create 10 full-time jobs. These jobs may be filled by eligible U.S. workers with payroll records, relevant tax documentation, and Forms I-9.106 The individual also must show that he or she “sustained the actions” required for removal of conditions during the per-son’s residence in the United States. An entrepre-neur will have met this requirement if he or she has “substantially met” the capital investment require-ment and has continuously maintained this invest-ment during the conditional period.107
Failure to File Form I-829 An immigrant investor in conditional resident status
must submit Form I-829 to the appropriate service cen-ter within the 90-day period immediately preceding the second anniversary of his or her admission to the United States as a conditional permanent resident.108 Failure to do so will result in automatic termination of the conditional resident’s status and initiation of re-moval proceedings.109
Working with a Regional Center to Prepare Form I-829
If an immigrant investor has an approved I-526 petition by investing in a regional center, it is impor-
103 See INA §216A, 8 USC §1186b; 8 CFR §216.6. 104 See INA §216, 8 USC §1186a. 105 8 CFR §§216.6, 1216.6; See also 74 Fed. Reg. 912 (Jan. 9, 2009) 106 See 8 CFR §216.6(a)(4)(iv). 107 8 CFR §§216.6(a)(4), 1216.6(a)(4). 108 8 CFR §§216.6(a)(1), 1216.6(a)(1). 109 8 CFR §§216.6(a)(5), 1216.6(a)(5); Memorandum from Michael A. Pearson, INS Executive Associate Comm’r, to all INS field offices, “EB-5 Field Memorandum No. 9: Form I-829 Processing” (Mar. 3, 2000), published on AILA InfoNet at Doc. No. 00060702 (posted June 7, 2000) (amending INS Adjudicators Field Manual §25.2) [hereinafter I-829 Memo]. See also L. Stone, “Removal of the Conditions on Permanent Residence for Immigrant Investors,” in AILA 2005–06 Im-migration & Nationality Law Handbook 329 (Stephanie L. Browning et al. eds., 2005).
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tant to work with the regional center well in advance to prepare the I-829 documentation. The regional center should provide each immigrant investor with verification of employment for the employees hired because of the immigrant investor’s investment, as well as documentary proof of the immigrant inves-tor’s complete deposit of funds.
Adjudication of Form I-829 by a Service Center Initial Review of Form I-829—An immigration ser-vice center may (1) approve an I-829 petition with-out review, (2) issue a request for further evidence, or (3) refer it for adjudication (with or without the interview) by a district office.110 Approval of Form I-829 by the USCIS Service Cen-ter—A service center may approve an I-829 petition if the petition establishes the requirements for re-moving the conditions outlined above. If approved, the service center director will remove the condi-tions on the conditional resident’s status as of the second anniversary of his or her admission as a con-ditional resident.111 The service center will then mail the new permanent residence card directly to the applicant. Request for Further Evidence—A service center may also issue a request for further evidence (RFE). An RFE must be based on a determination by the service center director that the conditional resident must provide further documentation or answer cer-tain questions in writing.112 If the questions cannot be answered in writing, the petition must be referred for an interview. An RFE will not be issued if the petition is clearly deniable on grounds other than those for which the RFE might be issued. The RFE will specify the deadline for responding.113 Upon receipt of the RFE, the service center director must either approve or refer the Form I-829 petition to the district office.114 An RFE may be issued for many reasons. One issue that sometimes arises in I-829 adjudications is whether the proper number of jobs has been created. The regulations state that an investor must submit evidence that he or she created or can be expected to
110 Id. 111 8 CFR §§216.6(d)(1), 1216.6(d)(1). 112 Id. 113 8 CFR §103.2(b)(8). 114 I-829 Memo, supra note 109.
create 10 jobs "within a reasonable time."115 Asked to define that phrase, USCIS responded:
"USCIS cannot articulate a bright line rule to de-fine what constitutes a “reasonable period of time” as such period will depend on the factors of each individual case. USCIS will consider all appropri-ate evidence that would (a) clearly justify not hav-ing completed the job creation by the end of the two years of conditional residence (e.g., the nature of the investment, the industry involved, etc.) and (b) show that the full number of requisite new jobs will be created within a clear, defined and credible period of time."116
Determination that Referral to District Office is Appropriate—A service center will refer the petition to a district director if the initial review of the peti-tion or the response to a request for additional evi-dence reveals that (1) the requirements for removal of conditions have not been met and the case should be denied without an interview, or (2) an interview is necessary to approve or deny the petition.117
Adjudication of Form I-829 by the District Office Approval of Form I-829 by the District Director—A district office may approve an I-829 petition if it is satisfied that the petition satisfies the requirements for removing the condition outlined above.118 Denial of Form I-829 by the District Director—A district director must deny an I-829 petition if the petition does not establish the requirements for re-moving the condition. There is no appeal from this decision. The conditional resident may seek review of the district director’s decision in removal pro-ceedings.119
Status of Conditional Residents While I-829 is Pending
Immigrant investors remain in valid status while their I-829 petition is pending. Their status is sup-posed to be extended automatically in one-year in-crements until USCIS acts on the petition. During
115 8 CFR §216.6(a)(4)(iv). 116 AILA-USCIS liaison meeting minutes (Apr. 2, 2008), at 10, published on AILA InfoNet at Doc. No. 08040235 (posted Apr. 2, 2008). 117 I-829 Memo, supra note 109. 118 Id. 119 8 CFR §§216.6(d)(2), 1216.6(d)(2); I-829 Memo, supra note 109.
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that time they are authorized to travel.120 Practitio-ners have complained, however, that many offices are unaware of this procedure. Extending condi-tional resident status, obtaining re-entry permits, and proving authorization to travel can be particularly difficult for spouses and children of EB-5 investors.
USCIS issued a memo in January 2005 intended to help conditional residents with pending or denied I-829 petitions that might benefit from the 2002 law discussed below.121 The memo instructs USCIS ad-judicators to extend conditional resident status for affected EB-5 petitioners. The memo also instructs agency officials to assist pending I-829 petitioners with travel and parole requests.122
Conditional permanent residents with pending I-829 petitions should travel with an attorney “pocket letter” describing their status with a copy of the January 2005 memo validating their claims.
TERMINATION OF EB-5 STATUS The statute provides three separate grounds for
terminating an EB-5 investor’s status during the two-year conditional period.123 Immigrant status will be terminated if USCIS determines that: The investment in the new commercial enterprise
was to evade the immigration laws of the United States.124 This provision requires termination only if the investment of the enterprise was “solely” to evade immigration laws. This sug-gests that if the investment was made with le-gitimate intentions, in addition to an intention to fraudulently procure permanent resident status, termination would not be proper under this ground;
The investor failed to invest (or was not in the process of investing) the requisite capital, or
120 I-829 Memo, supra note 109. 121 Memorandum from William R. Yates, USCIS Assoc. Director for Operations, to all USCIS offices, “Extension of Status for Conditional Residents with Pending or Denied Form I-829 Petitions Subject to Public Law 107-273 (Jan. 18, 2005), published on AILA InfoNet at Doc. No. 05012167 (posted Jan. 21, 2005), reprinted in 10 Bender’s Immigration Bulletin 236 (Feb. 15, 2005). 122 Id. 123 INA §216A(b), 8 USC §1186b(b). 124 INA §216A(b)(1)(A), 8 USC §1186b(b)(1)(A).
failed to sustain the investments during the two-year conditional period;125 or
The individual was otherwise not conforming to the requirements of the employment-creation status provisions of INA §203(b)(5).126 This catch-all provision is dangerous because it does not define the conduct giving rise to termination of status. USCIS could potentially apply this provision broadly to terminate the investor status of an applicant for any infraction of the section. Fortunately, however, it does not appear that USCIS has ever invoked this provision to termi-nate the status of an immigrant investor. An EB-5 investor admitted under the pilot pro-
gram is also subject to the same conditions and restrictions.
DETERRING FRAUDULENT INVESTMENTS
In enacting the EB-5 program, Congress ex-pressed concern about the possibility of fraudulent investments. To deter such fraud, establishing a commercial enterprise for the purpose of “evading any provision of the immigration laws” is a felony punishable by up to five years imprisonment.127 One reason Congress provided for two-year conditional permanent residency status for EB-5 investors is to aid in this deterrence. This two-year continuum for business activity and investment requires a signifi-cant investment and is a strong deterrent to fraud. Nonetheless, should USCIS discover fraud before the two-year conditional period ends, it will termi-nate the investor’s status.128 So far it appears that USCIS has not prosecuted any EB-5 investors for fraud.129
125 INA §216A(b)(1)(B), 8 USC §1186b(b)(1)(B). 126 INA §216A(b)(1)(C), 8 USC §1186b(b)(1)(C). 127 INA §275(d), 8 USC §1325(d). 128 INA §216A(b)(1), 8 USC §1186b(b)(1). 129 For an interesting case, rife with intrigue, fraud, and shady dealings surrounding two EB-5 promoters, see United States v. O’Connor, 158 F. Supp. 2d 697 (E.D. Va. 2001). Individual EB-5 investors appear to have been victims, not perpetrators, of the fraud. See also Serova v. Teplen, No. 05 CIV.6748 (HB), 2006 U.S. Dist. LEXIS 5781 (S.D.N.Y. Feb. 16, 2006) (EB-5 investor claims her attorney failed to represent her adequately, in part by failing to disclose that he also represented the company in which she invested).
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EB-5 PETITIONS: THEORY vs. REALITY The statutory and regulatory provisions discussed
above are onerous.130 For this reason, immigration through the EB-5 category has never approached the maximum of about 10,000 a year. Yet the legacy INS radically restricted the EB-5 program even fur-ther in 1998 by issuing four precedent AAO deci-sions that made it even harder to obtain EB-5 status.131
A complete discussion of the four precedent de-cisions is beyond the scope of this article. Below is a summary of the changes created by the four deci-sions.132 The post-1998 requirements are listed first; prior law or policy is listed in italics.133 Post-1998: Promissory note valued at fair market
value. Pre-1998: Promissory note valued at face value.
Post-1998: Promissory note must generally be paid after two years.
Pre-1998: No limit on term of promissory note.
Post-1998: Security for promissory note needs to be perfected under the UCC.
Pre-1998: Security does not need to meet UCC perfected security interest requirements.
130 For current information on litigation and other develop-ments surrounding EB-5 provisions, see the EB-5 Litigation Document Web page at www.usa-immigration.com/ litigation.htm (last visited Feb. 25, 2009). 131 Matter of Soffici, 22 I&N Dec. 158, 19 Immigr. Rep. B2-25 (Assoc. Comm’r, Examinations 1998); Matter of Izummi, 22 I&N Dec. 169, 19 Immigr. Rep. B2-32 (Assoc. Comm’r, Ex-aminations 1998); Matter of Hsiung, 22 I&N Dec. 201, 19 Immigr. Rep. B2-106 (Assoc. Comm’r, Examinations 1998); Matter of Ho, 22 I&N Dec. 206, 19 Immigr. Rep. B2-99 (Assoc. Comm’r, Examinations 1998). See generally W. Cook, “Somewhere, Over the Rainbow…Lies the EB-5 Pot of Gold,” 3 Bender’s Immigration Bulletin 1205 (Dec. 1, 1998). 132 Note that the requirements established by these cases may be applied retroactively, even if they contravene practices established by earlier unpublished decisions or other guid-ance. See Golden Rainbow Freedom Fund v. Ashcroft, 24 Fed. Appx. 698, 2001 U.S. App. LEXIS 25482 (9th Cir. Nov. 26, 2001). See also R.L. Inv. Ltd. Partners v. INS, 86 F. Supp. 2d 1014 (D. Haw. 2000), aff’d, 273 F.3d 874 (9th Cir. 2001). But see Chang v. United States, 327 F.3d 911 (9th Cir. 2003) (ruling that retroactive application of the newly established requirements is impermissible if the applicant was granted conditional residency before the new require-ments came into effect); Sang Geun An v. United States, No. C03-3184P (W.D. Wash. Feb. 16, 2005) (following Chang). 133 Thanks to H. Ronald Klasko, who drafted the original version of this list and allowed them to be reprinted here.
Post-1998: Bank accounts cannot be used as secu-rity.
Pre-1998: Bank accounts can be used as security.
Post-1998: Reduce the fair market value of promis-sory note by “considerable expense and effort” to execute on foreign assets.
Pre-1998: Promissory note valued at face value.
Post-1998: No redemption provisions can be agreed to before end of conditional residence and before conclusion of payments on promissory note.
Pre-1998: Redemption provisions can be agreed to so long as redemption does not occur until after promissory note has been paid in full.
Post-1998: Third party guarantees to investor pro-hibited.
Pre-1998: Third party guarantee allowed unless backed by government obligation.
Post-1998: Amounts attributable to expenses to start new commercial enterprise must be deducted from capital contribution.
Pre-1998: Start-up costs and expenses included in amount of capital contribution.
Post-1998: New ownership and new corporation are not sufficient to establish new commer-cial enterprise.
Pre-1998: Restructuring or reorganization suffi-cient to establish new commercial en-terprise.
Post-1998: All of the activities must benefit the tar-geted geographical area to count indirect employment.
Pre-1998: The qualifying investment must be within the approved regional center; there is no separate requirement to prove benefit solely to the regional cen-ter.
Below is a summary of additional restrictive in-terpretations created by the AAO in nonprecedent decisions: Post-1998: Money earned or assets acquired while
in the United States in an unlawful status are not considered lawful means to acquire capital.
Pre-1998: Drug smugglers or other criminals can-not use their ill-gotten gains to obtain permanent resident status in the United States through the EB-5 category; noth-
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ing specified about others illegally in the United States.
Post-1998: All investors in the partnership must identify the source of their funds to prove that they were derived by lawful means.
Pre-1998: Only the petitioning investor must iden-tify the source of his or her funds in the partnership to prove that they were de-rived by lawful means.
Post-1998: Merely injecting cash into the corporate account of a business does not show that the capital is “at risk” for the purpose of generating a return.
Pre-1998: Injecting cash into a corporate account could show that the capital is “at risk” for the purpose of generating a return.
2002 AMENDMENTS Investors who were hurt by the changes the im-
migration agency made in 1998 lobbied Congress for relief. Eventually, in 2002 Congress enacted changes to the EB-5 program as part of a Justice Department authorization bill.134 To qualify under the new law, an investor must have filed a petition for EB-5 classification (Form I-526) and had it ap-proved between January 1, 1995 and August 31, 1998.135 The law took effect November 2, 2002.
Section 11031(c) of the 2002 law sets forth pro-cedures to determine whether investors can have their conditions removed. The government must de-cide three things: whether (1) the I-829 petition con-tains any material misrepresentations; (2) the in-vestment created or saved 10 jobs; and (3) the inves-tor has substantially complied with the investment requirement ($1 million or $500,000).136 Invest-ments in regional centers or in troubled businesses count.137 The law gives investors a choice of three
uirements.
134 21st Century Department of Justice Appropriations Au-thorization Act, supra note 9, §§11031–37. See generally S. Yale-Loehr, “Congress Helps Stranded Immigrant Inves-tors,” 7 Bender’s Immigration Bulletin 1306 (Nov. 1, 2002), and at http://www.millermayer.com/Immigration/EB5Investors/CongressHelpsStrandedImmigrantInves-tors/tabid/162/Default.aspx (last visited Feb. 25, 2009). 135 21st Century Department of Justice Appropriations Au-thorization Act, supra note 9, §§11031(b)(1), 11032(b). 136 Id. §11031(c)(1)(A). 137 Id. §11031(c)(1)(B), (C).
dates by which to measure their compliance: (1) the date the I-829 petition was filed; (2) six months after the I-829 petition was filed; or (3) the date the gov-ernment makes its determination under the new law.138
If the investor meets the jobs and investment re-quirements and has not made a material misrepre-sentation, the government will remove the condi-tional resident status and the investor and family members will become permanent residents as of the second anniversary of the date they became condi-tional residents.139 If the government finds against an investor on any of the three grounds, the govern-ment must notify the investor, and provide the inves-tor with an opportunity to submit evidence to rebut the adverse determination.140 If the investor loses on the jobs or investment requirement, the government will continue the investor’s conditional resident status for additional two years.141 During that time the investor can try to meet those req
If the government finds that the investor made a material misrepresentation, the government will ter-minate the investor’s conditional resident status.142 The investor can appeal to the Board of Immigration Appeals and then seek judicial review.143 During administrative or judicial review proceedings the investor and his or her family members remain in conditional resident status.144
Most investors are unlikely to persuade the gov-ernment that they fully met the capital investment and jobs creation requirement. The new law gives them an additional two years to make another in-vestment. During that time they can combine in-vestments made earlier with new investments to show that altogether they invested the total amount required.145 This includes investments in limited partnerships.146
An investor must file another I-829 during the 90 days preceding the new two-year anniversary.147 Fail-
138 Id. §11031(c)(1)(D). 139 Id. §11031(c)(1)(E). 140 Id. §11031(c)(1)(F)(i). 141 Id. §11031(c)(1)(F)(ii). 142 Id. §11031(c)(1)(F)(iii). 143 Id. §11031(c)(1)(F)(iv). 144 Id. 145 Id. §11031(c)(2)(A). 146 Id. 147 Id. §11031(c)(2)(C)(i).
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ure to file will normally terminate a conditional resi-dent’s status.148 There is a good cause exception.149
Assuming an investor files another I-829 petition, the government has 90 days to decide three things: whether (1) the I-829 petition has any material mis-representations; (2) the investment created or saved 10 jobs; and (3) the investor has substantially com-plied with the investment requirement ($1 million or $500,000).150 The investor can aggregate money invested before and jobs created or saved from the initial investment.151 Investments in regional centers or in troubled businesses count.152
If the investor meets the job creation and invest-ment requirements and has not made a material mis-representation, the government will remove the con-ditional resident status of the investor and family members. They will become permanent residents as of the second anniversary of the date their condi-tional resident status was continued.153 If the gov-ernment finds against an investor on any of the three grounds, the government must notify the investor, who may attempt to rebut the adverse facts.154 If the investor loses, the government will terminate the investor’s conditional resident status.155
Section 11032 of the 2002 law provides similar procedures for EB-5 investors whose I-526 petitions were approved, but who never became conditional residents because the INS never acted on their ad-justment of status applications or because they re-mained overseas. This section defines an eligible individual as an investor who filed an I-526 petition that was approved between January 1, 1995, and August 31, 1998, and who then timely filed an ad-justment of status application or applied for an im-migrant visa overseas. Investors are not eligible if they are inadmissible or deportable on any ground.156
If INS revoked the I-526 petition on the ground that the investor failed to meet the capital investment
148 Id. §11031(c)(2)(D). 149 Id. §11031(c)(2)(C)(ii). 150 Id. §11031(c)(2)(E). 151 Id. 152 Id. 153 Id. §11031(c)(2)(F). 154 Id. §11031(c)(2)(G)(i). 155 Id. §11031(c)(2)(G)(ii). 156 Id. §11032(b).
requirement, that revocation is to be disregarded.157 If the adjustment of status application or immigrant visa application overseas was not pending on No-vember 2, 2002, the date of enactment, it is to be treated as reopened if: (i) it is not pending because the government claims the investor never complied with the capital investment requirement; or (ii) the investor left the United States without advance pa-role.158 If an investor applied for adjustment of status in the United States but is now overseas, the government will establish a process to let them re-turn to the United States if necessary to obtain ad-justment.159
The government was supposed to approve ad-justment of status applications for eligible investors by May 1, 2003, 180 days after enactment.160 How-ever, that has not happened yet, because USCIS has not yet published regulations to implement the 2002 law. The investors will eventually be in conditional resident status. Such investors must file an I-829 petition within two years of becoming a conditional resident.161 The determinations and process are simi-lar for both §11031 and §11032 investors. For ex-ample, the government must credit the investor with funds invested and jobs created or saved both before and after November 2, 2002, the date of enact-ment.162 This section gives investors a choice of two dates by which to measure their compliance: (1) the date they filed their adjustment of status application; or (2) the date the government decides the I-829 pe-tition.163
Finally, the new law states that a noncitizen who was admitted on a conditional basis by virtue of be-ing the child of an EB-5 investor shall still be con-sidered a child for purposes of the new law, even if they turn 21 or marry.164
157 Id. §11032(c)(1). 158 Id. §11032(c)(2)(A). 159 Id. §11032(c)(2)(B). 160 Id. §11032(a). 161 Id. §11032(e). 162 Id. §11032(e)(2). 163 Id. §11032(e)(3). 164 Id. §§11031(e), 11032(f).
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ETHICAL CONSIDERATIONS165 It is important for an attorney to consider the
ethical considerations before beginning to represent a client in the complex EB-5 category. The Ameri-can Bar Association’s (ABA's) Model Rules of Pro-fessional Conduct's first rule states: “A lawyer shall provide competent representation to a client. Com-petent representation requires the legal knowledge, skill, thoroughness and preparation reasonably nec-essary for the representation.”166 Therefore, repre-senting an immigrant investor client without a good base of EB-5 knowledge could be considered a breach of ethical rules.
If an attorney feels inadequate to represent a cli-ent in an EB-5 matter, she may comply with compe-tence rules by consulting with an EB-5 expert or by bifurcating representation between EB-5 and non-EB-5 related counsel, such as adjustment. In a joint counsel scenario, most jurisdictions require that the client be made aware of any joint representation and that the fees be split to reflect the proportional amount of work that each law firm is providing.
Finally, there is an ethical consideration concern-ing the referral fees that many regional centers offer to someone who recommends an investor to the re-gional center. Accepting such fees may involve a conflict of interest, since an attorney’s representa-tion of a client may be materially impaired by the prospect of a pecuniary gain from a regional center. An attorney has a duty of undivided loyalty to a cli-ent, and would be best advised to consult the rele-vant state’s ethics rules before both accepting refer-ral fees from a third party and representing the client in his or her EB-5 petition filing.
CONCLUSION Qualifying a person for EB-5 status is one of the
most complicated subspecialties in immigration law. A sophisticated knowledge of corporate, tax, in-
165 See C. Lee, “Ethical and Practical Considerations in EB-5 Representation,” at www.ilw.com/articles/2007,1120-lee.shtm, and at http://www.millermayer.com/Immigration/EB5Investors/EthicalAndPractical/tabid/158/Default.aspx, reprinted in 13 Bender’s Immigration Bulletin 332 (Mar. 15, 2008). 166 See generally Model Rules of Professional Conduct R. 1.1. The New York Disciplinary Rules of the Code of Pro-fessional Responsibility, the California Rules of Professional Conduct, and the Maine Code of Professional Responsibility are not based on the ABA Model Rules of Professional Con-duct.
vestment, and immigration law are all required. Moreover, the four 1998 precedent AAO decisions and subsequent nonprecedent decisions have made it even harder to obtain approvals of EB-5 petitions. Investors must discard normal investment opportuni-ties in favor of investments structured to meet the unrealistic requirements of the precedent decisions. Attorneys, in turn, must proceed at their peril in ad-vising clients. In many cases it may be more practi-cable for investors to come to the United States through other visa categories such as the E-2 inves-tor, L-1 intracompany transferee, or EB-1-3 multina-tional executive or manager routes.
Nevertheless, things may be looking up for the EB-5 category. In January 2005 USCIS established a new Investor and Regional Center Unit (IRCU) at USCIS headquarters. The IRCU, since renamed the Foreign Trader, Investor and Regional Center Pro-gram, provides oversight for EB-5 policy and regu-latory development, field guidance, and training. According to USCIS, establishing the IRCU will “strengthen and protect the integrity of the [EB-5] program while promoting the intent of Congress to encourage investment and increase employment within the United States.”167 Indeed, while only 129 individuals were admitted as EB-5 conditional resi-dents in FY 2004, 806 individuals obtained condi-tional resident status in FY 2007.168
These changes may mark a major leap forward in USCIS policy toward the EB-5 visa category.169 The changes hold the promise of making the EB-5 proc-ess more user-friendly in terms of processing times and responsiveness to investors’ concerns. USCIS officials now say that they want to meet the needs of the business community so that the EB-5 category can be more effectively used. Many issues are still
167 USCIS Memorandum, William R. Yates, USCIS Assoc. Dir. for Operations, to all USCIS offices, “Estab-lishment of an Investor and Regional Center Unit,” File No. HQPRD 70/6.2.8 (Jan. 19, 2005), published on AILA InfoNet at Doc. No. 05012663 (posted Jan. 26, 2005), reprinted in 10 Bender’s Immigration Bulletin 195 (Feb. 15, 2005). 168 See 2007 Yearbook of Immigration Statistics, supra note 4, at 20 (Table 6). 169 See generally S. Mailman & S. Yale-Loehr, “Immigrant Investor Green Cards: Rise of the Phoenix?,” N.Y.L.J., Apr. 25, 2005, at 3, reprinted in 10 Bender’s Immigration Bulletin 801 (May 15, 2005), and at http://www.millermayer.com/Immigration/EB5Investors/RiseofthePhoenix/tabid/160/Default.aspx (last visited Feb. 25, 2009).
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not resolved, however, and the sunset of the Pilot Program is quickly approaching. Hopefully, it will be renewed. Time will tell whether the EB-5 pro-gram continues with its current success.
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Born in the USAAuthor : Mark IvenerDate : April 2010
ABOUT THE AUTHOR: Mark Ivener TEP is a founding Partner of Ivener & Fullmer LLPThere are many immigration issues that intertwine with trust and estate planning because of global taxconcerns. Three important ones to consider are: (1) EB-5 Investor Green Cards, (2) Green Cards and the ExitTax and (3) Unplanned US Citizenship. Thus, the discussion will cover foreign nationals who want a GreenCard, those who want to give up a Green Card, and those who do not even know they are American citizens.
For foreign nationals who want a Green Card, the EB-5 Investor program is an attractive immigration optionfor retirees, entrepreneurs, investors and professionals who are able to make a substantial investment in theUS. The Immigration Act of 1990 established the EB-5 program to create US jobs by attracting foreign capitalto the United States. Every year 10,000 EB-5 Green Cards are available with no current quota waiting list. AnEB-5 investor can get a conditional Green Card in 10 to 18 months, as fast as one who marries a US citizen.Other relative petition Green Cards take 5-15 years; employment-based Green Cards take 3-20 years.
There are two types of EB-5 programs: the ‘Regular’ and the ‘Regional Center.’ An applicant qualifies for theRegular EB-5 program by his or her own investment generally in a new commercial enterprise that createsemployment for at least 10 full time US workers directly for the business. ‘Direct jobs’ are defined as legalW-2 employees of the company, which are receiving the investment funds. An investment amount of USD1million is usually the minimum, except if in a high unemployment or rural area, where only USD500,000 isrequired. The investment may consist of various forms of capital, such as cash (including a gift or loan),equipment, inventory, property and other tangible equivalents.
At least 3,000 out of the above mentioned 10,000 EB-5 Green Cards are set aside forimmigrants who make an investment in a Regional Center project
A Regional Center is a private enterprise or corporation or a regional governmental agency with a targetedinvestment programme within a specific, designated geographic area. Immigration (USCIS) has currentlydesignated over 80 Regional Centers located throughout the US for selection. Regional Center diverseopportunities range from investing in real estate projects to dairy farms. An applicant qualifies for the RegionalCenter EB-5 program by generally investing USD500,000 in a project located where the unemployment rateis at least 1.5 times higher than the national average, or in a rural area. The 10 jobs created from theinvestment can be indirect. ‘Indirect employment’ is demonstrated by various economic methodologies, whichmeasure employment creation using multiplier tables that show substantially increased employment numbersin comparison to direct employment. Thus, many more Green Card applicants can invest in a Regional Centerproject than in a similar Regular EB-5 investment.
Every year, at least 3,000 out of the above mentioned 10,000 EB-5 Green Cards are set aside for immigrantswho make an investment in a Regional Center project. According to Immigration statistics for 2009, more than91 per cent of Regional Center cases were approved versus 9 per cent for Regular EB-5 cases. The benefitsof the more popular Regional Center investments include: less up-front capital (generally USD500,000 versusUSD1 million); no day-to-day management requirement; jobs created from the investment can be indirect; theinvestor can live and work anywhere in the US and the investor can be retired. The EB-5 investor must provethe source of funds for the investment. After Immigration processing, a two year conditional Green Card isapproved. By the end of this two year period, the full investment must still be in place and 10 jobs created.Then, an application is filed with USCIS to remove the two year condition and grant permanent Green Cardstatus.
Next, for those who want to give up a Green Card, the Exit Tax presents numerous Immigration obstacles.While the Exit Tax is financially burdensome to say the least, there are three ways to successfully avoid itsencumbrances. First, an individual can choose to maintain permanent resident status by residing in the US orresiding abroad. Second, an individual can voluntarily surrender his or her Green Card before becoming aLong-term Resident (one who has had a Green Card in any eight out of 15 years). The third option to avoidthe Exit Tax before becoming a Long-Term Resident is to change Green Card status to a non-immigrantstatus.
Transition from Green Card status to a non-immigrant status can be difficult. Changing status within the USfrom a Green Card to a nonimmigrant status is not permitted. No nonimmigrant visa is needed for short term
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visits by Canadians or nationals from one of the 35 visa waiver countries, which includes all the countries ofEurope, Japan and South Korea. Nationals from all other countries, such as India or China for example, whowish to visit the US for business or pleasure, must obtain a B-1 or B-2 visa from a US Consulate or Embassy.Another usual way to come back to the US is on an E-2 investor visa for an applicant who wants tointermittently work in his or her own business in the US. The E-2 visa requires approval at a US Consulate orEmbassy.
US citizenship law is highly complex and involves a vast web of contingencies that demandmeticulous untangling
For certain applicants, background checks can delay visa issuance, sometimes for weeks or months. Somenon-immigrants are subject to the National Security Entry-Exit Registration System (NSEERS). SomePermanent Residents are not eligible for a non-immigrant visa due to an arrest for a crime or DUI (even if notconvicted) or unlawful presence prior to obtaining Green Card status.
Finally, US citizenship law is highly complex and involves a vast web of contingencies that demandmeticulous untangling. Many individuals do not even know that they are American citizens. Therefore, toensure the appropriate standard of care, it is imperative that an analysis of a family’s citizenship andresidence is carried out to determine if an individual is in fact a US citizen. There are four ways by which anindividual can be a US citizen: birth in the US, birth abroad to a US citizen parent, derivative naturalisationand retroactive presumption against loss of US citizenship.
Any child who is born in the US is a US citizen unless the parents have diplomatic immunity. The citizenshipand immigration status of the parents is not at issue, and there is no residence requirement for the parents orchild before or after birth. However, in the following cases, factors such as date and place of birth of the child,and whether one or both parents are US citizens, are facts that must be considered. An individual is a UScitizen based on birth abroad to two US citizen parents, so long as one of them resided in the US prior to thechild’s birth. Under current law, a child is also a US citizen if he or she was born to only one US citizen parentwho was physically present in the US for a total of five years prior to the birth of the child, and if the child isover 14 years of age, for two of the five years. The law changed numerous times before the current law.Therefore it is important to check what regulation was in effect at the time of the child’s birth. For olderapplicants, the law that was in effect at the time of birth applies.
Under current law, derivative naturalisation applies to the automatic US citizenship of a child born abroad whomeets the following criteria: he or she is under 18 years of age; is or becomes a permanent resident; isresiding in the US in the legal and physical custody of the US citizen parent; and at least one parent is orbecomes a US citizen.
Yet another twist applies to US citizens who, prior to 1990, moved abroad and obtained another citizenshipand now question whether or not they are still US citizens. The fact is that unless an individual takes action toconfirm that he or she intended to lose US citizenship, it remains in tact. Moreover, US citizenship may alsoapply to their children and grandchildren through the abovementioned birth abroad to a parent who is notaware of his or her US citizenship. In 1990, the US State Department adopted a presumption of intent toretain US citizenship. Since then, there has been retroactive presumption against loss of US citizenship.
Because of the above stated intricacies in Immigration law, it is beneficial to trust and estate practitioners tobe informed about the current requirements and changes in immigration, citizenship and naturalisation law tobe able to inform their clients of these issues.
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The employment-based fifth preference (EB-5) Immigrant Investor Program is one of the most con-troversial and challenging provisions in the Immi-
*© Copyright © 2010 Bernard P. Wolfsdorf, A Professional Law Corporation/Wolfsdorf Immigration Law Group (all rights reserved).
Bernard P. Wolfsdorf is the national president of the American Immigration Lawyers Association (AILA). He is a California State Bar-Certified Specialist in Immigration and Nationality Law and has been managing partner of Wolfsdorf Immigration Law Group since 1986. Chambers USA 2009 lists Mr. Wolfsdorf as the highest ranked immi-gration lawyer in Southern California, with “star” designa-tion. He was recently named one of the “Top 10 Immigration Attorneys in the U.S.” by the Human Resource Executive magazine. He is also listed in the Best Lawyers in America 2010, Martindale Hubbell’s Pre-eminent Specialist Direc-tory, Southern California Super Lawyers 2010, Chambers USA 2010, and the Chambers Global World’s Leading Law-yers for Business 2010. Mr. Wolfsdorf can be reached at [email protected].
Naveen R. Bhora is a senior attorney in the firm’s New York Office. She represents a wide range of clients in U.S. immigration matters, from individuals and small and emerg-ing businesses to major hospitals and universities. Ms. Bhora has developed a particular expertise in extraordi-nary/exceptional ability and outstanding researcher/professor matters, and represents physicians, registered nurses and allied health care workers, among others. She is the former treasurer of the AILA Southern California Chapter and is currently serving her second term on AILA’s Vermont Ser-vice Center (VSC) Liaison Committee. Ms. Bhora has writ-ten extensively on various advanced immigration law topics and continues to present to local and national audiences. Ms. Bhora can be contacted at [email protected].
Tien-Li Loke Walsh practices exclusively in the area of immigration and nationality law with the firm. She previ-ously served as vice-chair of AILA’s Department of State (DOS) Liaison Committee, as well as the AILA/California Service Center (CSC) Liaison Committee. Ms. Loke Walsh is listed in the current edition of Best Lawyers in America, International and California editions of Who’s Who of Cor-porate Immigration Lawyers, and the Southern California Super Lawyers, Rising Stars edition. She can be contacted at [email protected].
The authors wish to graciously acknowledge attorney Lincoln Stone for his excellent article from the previous edition of this book, which is incorporated extensively herein. See L. Stone, “A Comparison of the EB-5 Category with Alternative Immigration Strategies,” Immigration Options for Investors and Entrepre-neurs (AILA 2006).
gration Act of 1990 (IMMACT90).1 The program’s instability, the changing economic environment, and friendlier immigrant investor programs offered by other nations have all led to its underutilization. Of the 130,000 visas allocated between 1992 and 2004, only 6,024 visas were issued to immigrant investors and their dependent family members. Of this group, only 643 investors were successful in removing the conditional requirement and receiving full perma-nent resident status.2 However, due to some positive developments in recent years, we now have seen a surge in EB-5 investor petitions and U.S. Citizen-ship and Immigration Services (USCIS) approval rates. This article aims to review the program’s his-tory and recent developments, and show that the program now provides an excellent path to perma-nent residence for foreign investors and entrepre-neurs, and is sure to boost the economy.
THE STATUTORY FRAMEWORK IMMACT90 was enacted during a different
era—one that reflected a relatively prosperous, pro-immigrant period in U.S. immigration history. Con-gress recognized that “it is unlikely that enough U.S. workers will be trained quickly enough to meet le-gitimate employment needs, and . . . immigration can and should be incorporated into an overall strat-egy that promotes the creation of the type of work-force needed in an increasingly global economy.”3
IMMACT90 allocated 140,000 visas annually to employment-based immigrants, almost tripling the number allocated in prior years.4 The EB-5 program,
1 Immigration Act of 1990 (IMMACT90), Pub. L. No. 101-649, 104 Stat. 4978. INA §203(b)(5). 2 U.S. Government Accountability Office (GAO) Report to Congressional Committees, “Immigrant Investors: Small Number of Participants Attributed to Pending Regulations and Other Factors,” GAO-05-256 (Apr. 2005), published on AILA InfoNet at Doc. No. 05040475 (posted Apr. 4, 2005) (GAO Report). Highlights of the GAO Report are repro-duced in Appendix E. 3 H.R. Rep. No. 723, 101st Cong., 2d Sess., pt. 1, at 41 (1990). 4 L.C. Lee, “The ‘Immigrant Entrepreneur’ Provision of the Immigration Act of 1990: Is a Single Entrepreneur Category Sufficient?,” 12 J.L. & Com. 147, 149 (1992).
EB-5 IMMIGRANT INVESTOR PROGRAM—A CHANGING LANDSCAPE by Bernard P. Wolfsdorf, Naveen R. Bhora, Tien-Li Loke Walsh*
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80 IMMIGRATION OPTIONS FOR INVESTORS AND ENTREPRENEURS, 2ND ED.
created for immigrant investors, is the category for the new Employment Creation Pilot Program, aimed at “creat[ing] new employment for U.S. workers and to infuse new capital into the country.”5 To achieve this, Congress allocated approximately 10,000 visas each year for immigrant investors who invest at least $1 million in a business and generate a minimum of 10 new jobs for U.S. workers.6
Of the 10,000 visas available annually for immi-grant investors, 3,000 visas are reserved for invest-ment in targeted employment areas. Another 3,000 are set aside for investment through the Regional Center Pilot Program.7 The Pilot Program allows in-vestors to meet the criteria of the 10-minimum job creation by allowing for indirect employment by in-dividuals who invest their capital in a “designated” regional center that promotes economic growth or creates jobs. A regional center is “any economic unit, public or private, which is involved with the promo-tion of economic growth, including increased export sales, improved regional productivity, job creation, and increased domestic capital investment.”8
Furthermore, if the regional center or individual commercial enterprise is in a targeted employment area, the capital investment is reduced to $500,000.9 A targeted employment area is an area that, at the time of the investment, is a rural area or an area that has experienced unemployment of at least 150 per-cent of the national average.10
The Regional Center Pilot Program was initially set to expire in 2000, but the Visa Waiver Permanent Program Act of 2000,11 extended the Pilot Program for three years until September 30, 2003. On the eve of its expiration, Senator Chuck Grassley (R-IA) introduced the Basic Pilot Program Extension and Expansion Act of 2003 to extend the Pilot Program
5 See S. Rep. No. 55 (1989). 6 The proposed S. 1348 Senate immigration bill would cut overall EB-5 immigrant investor numbers from 10,000 to just 2,800 a year, and EB-5 regional center green card num-bers from the current 3,000 to just 1,500 a year. INA §203(b)(5)(A); 8 CFR §204.6. 7 8 CFR §204.6(j)(4)(iii). 8 8 CFR §204.6(e). 9 8 CFR §204.6(f)(2). 10 INA §203(b)(5)(B); 8 CFR §204.6(e). 11 Visa Waiver Permanent Program Act of 2000, Pub. L. No. 106-396, 114 Stat. 1631, §402(a).
for another five years until September 30, 2008.12 Thereafter, Senator Patrick Leahy (D-VT) had tried to push for another five-year extension of the Pilot Program and even introduced legislation to make the program permanent; however, on September 30, 2008, just in time to avoid a gap, the Regional Cen-ter Pilot Program was extended until March 6, 2009,13 and then extended again until September 30, 2009.14 On October 1, 2009, President Obama signed a stopgap bill to extend the program until October 31, 2009. Thereafter, on October 28, 2009, he signed into law the fiscal year (FY) 2010 De-partment of Homeland Security Appropriations bill, which extended the EB-5 Program through Septem-ber 30, 2012.15
The extensions of the Pilot Program are an im-portant sign of strong bipartisan support and con-gressional commitment to the Immigrant Investor Program. However, unless Congress makes the Re-gional Center Pilot Program permanent, the program will continue to be marred with uncertainty and de-ter potential investors.
REQUIREMENTS AND RESTRICTIONS Immigrant investor eligibility requires proof that:
(1) petitioner has invested or is actively in the proc-ess of investing the required amount of capital in a new commercial enterprise; (2) the investment is at risk; and (3) petitioner is or will be engaged in the management of the new commercial enterprise, ei-ther through day-to-day managerial control or policy formulation.16 An investor qualifies by initially fil-ing Form I-526, Immigrant Petition by Alien Entre-preneur.17 After the petition is approved, the investor must apply for adjustment of status in the United
12 President George W. Bush extended the Pilot Program until September 30, 2008, when he signed Senate bill 1685 into law on December 3, 2003. 13 Consolidated Security, Disaster Assistance, and Continu-ing Appropriations Act, 2009, Pub. L. No. 110-329, 122 Stat. 3574. 14 Omnibus Appropriations Act, 2009, Pub. L. No. 111-8, 123 Stat. 524. 15 Department of Homeland Security Appropriations Act, 2010, Pub. L. No. P.L.111-83, 123 Stat. 2142. 16 8 CFR §204.6. However, the establishment requirement was later eliminated by the 21st Century Department of Justice Appropriations Authorization Act (DOJ Amendments), Pub. L. No. 107-273, 116 Stat. 1758, signed into law on November 2, 2002. 17 8 CFR §204.6(a).
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EB-5 IMMIGRANT INVESTOR PROGRAM—A CHANGING LANDSCAPE 81
States or at a U.S. consulate/embassy overseas.18 Upon approval, the investor is granted a two-year conditional green card.
During the 90-day period prior to expiration of the conditional period, Form I-829, Petition by Entrepre-neur to Remove Conditions, must be filed.19 In this petition, the investor must demonstrate the stated in-vestment was made or still sustained over the two-year conditional period, and the requisite full-time jobs were created or will be created within a reason-able period of time. Only upon approval of the I-829 petition is the conditional nature of the green card lifted and full permanent residence granted. Restrictive Interpretation of Regulatory Goals
During the first 15 years, the restrictive interpreta-tion of the regulations drastically limited the types of investment permitted under the program. For exam-ple, a purely passive investment of more than $1 million that created at least 10 jobs would be de-nied for failure to meet the managerial requirement.20 Likewise, if an investor sought to expand an already existing business that did not result in a substantial change, i.e., an increase of at least 40 percent in either the net worth or number of employees, the petition would be denied for failure to meet the establishment requirement.21 A strict reading of the regulation would mean that if an investor wished to risk $1 mil-lion in an existing enterprise that already has 100 em-ployees, he or she had to create at least 40 new jobs with his or her investment, despite the statutory re-quirement of creating only 10 new jobs, as clearly designated by Congress. These restrictions enor-mously altered the statutory goals of the EB-5 pro-gram and made investment in existing businesses dif-ficult. While a passive investment or an expansion of a business may have met the goals of employment creation and infusion of capital, it would not meet the government’s restrictive interpretations and would thereby lose its eligibility under the EB-5 regulations. Restrictive Standard of Adjudication
Not only did the regulations alter the statutory goals, but the legacy Immigration and Naturalization Service’s (INS) restrictive standards of adjudication
18 As of the date of this article, U.S. Citizenship and Immi-gration Services (USCIS) does not permit concurrent filing of the application to adjust status with the I-526 petition. 19 8 CFR §216.6. 20 8 CFR §204.6(j)(5). 21 8 CFR §204.6(h)(3).
further stifled the EB-5 program. In 1997, the Office of General Counsel issued an opinion that drastically altered the existing regulations and devastated an already faltering program.22 The General Counsel’s legal opinion prohibited certain types of business arrangements, such as: (1) the use of a down pay-ment of cash with the remainder of the alien’s con-tribution in the form of a promissory note; (2) a multi-year installment plan on a promissory note with a substantial “balloon” payment after the re-moval of the conditional status of the alien’s perma-nent residence; (3) an option given to the alien to sell his or her investment for a fixed price that may be less than, equal to, or greater than the alien’s cash contribution; (4) an option given to the enterprise or limited partnership to buy the investment at a fixed price; (5) a provision that allows or requires the commercial enterprise to place sufficient cash into a bank account to guarantee that funds will be avail-able to repay the alien if the alien exercises an op-tion to sell; (6) the withholding of a portion of the alien’s capital contribution for attorneys’ and find-ers’ fees and other costs; and (7) a guaranteed return on the cash portion of the alien’s investment.23
Many of the initial EB-5 applications involved business plans where the creation of a limited part-nership was used to pool multiple investors’ money to invest in either a new or a troubled business in the United States. Unfortunately, some of these limited partnership agreements were designed to reduce the investor’s risk, so that only a small amount of the investment capital actually reached the business en-terprise, and much of the investment included prom-issory notes of collateral where it was clear the ac-tual, designated cash amount was not at risk.24 Fur-thermore, the General Counsel’s legal opinion also directed legacy INS to use not only these new stan-dards going forward, but to retroactively apply these new standards to previously approved EB-5 petitions at the I-829 stage.
In 1998, the Administrative Appeals Office (AAO) issued a series of opinions (Matter of Soffici, Matter of Izumii, Matter of Hsiung, and Matter of Ho), collectively known as the “1998 precedent de-cisions,” that not only echoed the 1997 legacy INS
22 D. Hirson and C.I. Mayou, “The Sinking of the Titanic, or the Rising of the Phoenix? An Update on Immigrant Investor Visas,” 98-09 Immigration Briefings (Sept. 1998). 23 75 Interpreter Releases 332 (Mar. 9, 1998). 24 8 CFR §204.6(j)(2).
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mandate, but that effectively signaled the end of the road for the EB-5 program.25
For example, under the initial regulation, a prom-issory note could be valued at face value, but under the new standard, the promissory note had to be val-ued at fair market value. Under the old standard, the term of the promissory note was limitless, but under the new standard, the note had to be paid after two years. Furthermore, bank accounts could no longer be used as security.26
These decisions applied a restrictive approach and, even worse, retroactively applied the 1998 in-terpretations to investors who already had received I-526 approvals but were still subject to the two-year conditional residency requirement. As a result, hun-dreds of I-829 petitions filed by immigrant investors were denied based on the retroactive criteria. Most of the I-526 investor petitions filed after 1998 never had a chance, as investors relied on plausible inter-pretations of published regulations and invested in what appeared to be lawful investment plans, but ultimately became entangled in the government’s restrictive interpretation of the law. Restrictive Evidentiary Requirements
Consistent with the restrictive standards of adju-dication and ever wary of fraud, USCIS requests extensive documentation. To cite a few examples, both I-526 and I-829 petitions require extensive proof that an investment has been made or is in the process of being made and must include evidence that the petitioner’s personal capital was placed at risk.27 USCIS will not recognize investments made directly through a petitioner’s incorporated or lim-ited liability business because the corporate assets are not considered the petitioner’s personal assets.28 Furthermore, the investment arrangement cannot be
25 Matter of Soffici, 22 I&N Dec. 158, 19 Immigr. Rep. B2-25 (AAO June 25, 1998); Matter of Izumii, 22 I&N Dec. 169, 19 Immigr. Rep. B2-32 (AAO June 13, 1998); Matter of Hsiung, 22 I&N Dec. 201, 19 Immigr. Rep. B2-106 (AAO July 31, 1998); and Matter of Ho, 22 I&N Dec. 206, 19 Im-migr. Rep. B2-99 (AAO July 31, 1998). All four of these precedent decisions are reproduced in the Appendix materi-als to this volume. 26 S. Yale-Loehr, “EB-5 Immigrant Investors: An Overview,” Immigration Options for Investors 51, 62 (AILA 2006). 27 8 CFR §204.6(j)(2); 8 CFR §§216.6(a)(4)(ii), 1216.6(a)(4)(ii). For more on this topic, see C. Lee, “The Meaning of ‘At Risk’ in EB-5 Investment,” elsewhere in this volume. 28 See Matter of M–, I&N Dec. 24, 50 (BIA 1958, AG 1958).
structured to shift the financial risk from the investor to the commercial enterprise.
USCIS also has been particularly concerned about whether the capital used for the investment was obtained through lawful means. The regulations instruct the petitioner to document the source of funds by providing foreign business registration, five years of tax return filings (within and outside the United States), and evidence identifying any other source of capital (e.g., inheritance).29
In practice, the petitioner may have to trace the lawful source of funds back by several decades to the origin—which can be a daunting, if not impossible, task. Business in many countries is conducted on a trust basis and parties may agree to a contract with a handshake. This is a common problem with emerging economies that do not have the sophisticated docu-mentary paper trails which U.S. businesses are gener-ally required to possess. Thus, investors from certain countries often do not have credible records of in-come tax documents. Moreover, even where the in-vestment can be traced to an original source, USCIS continues to use every technical basis to deny cases, leaving some potential investors discouraged from pursuing the EB-5 category because of the rigorous evidentiary requirements for the initial I-526 and the subsequent I-829 petitions.
Another example of unduly strict interpretation affects investors who transfer exactly $500,000 or $1 million, as required, but neglect to calculate the cost of the nominal bank wire transfer fee. USCIS will routinely reject these investors based on such minor technical grounds.
THE LANDSCAPE CHANGES Several positive developments in the last few
years indicate the landscape may be changing, as USCIS begins to approve EB-5 applications. Inves-tors applying through the Employment Creation Pi-lot Program’s regional centers appear to have met with considerably more success recently. This may be due to a perceived preference in adjudication on the part of USCIS, which seems to be approving EB-5 Pilot Program petitions at a substantially higher rate than in prior years. Unfortunately, most of the previously designated regional centers are now defunct, and investors are encouraged to under- 29 8 CFR §204.6(j)(3). For more on this topic, see E. Arias & L. Stone, “Navigating the Lawful Source Requirement for EB-5 Immigration,” elsewhere in this volume.
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take extensive due diligence analysis before apply-ing for EB-5 status. Judicial Involvement
In May 2001, a California federal district court in Chang v. United States chastised the government and ruled that INS could not apply the new stan-dards of adjudication retroactively in connection with approved I-526 petitions.30 The court held that:
INS could not “change the rules of the game” by automatically applying its new more restrictive interpretations retroactively to investors who had already received conditional green cards and who are now trying to have those conditions removed. Instead, the agency must allow some investors an opportunity to show how such a retroactive ap-plication would hurt them. Despite this apparent victory for immigrant in-
vestors, this decision actually had the effect of cur-tailing the program. The court ordered that the mer-its of the retroactivity claim be remanded to the ad-ministrative courts for review. Unfortunately, INS refused to hear the retroactivity claims. Even though the parties argued the issue of retroactivity before the district court, the subject was left unresolved.
Two years later, on April 29, 2003, the Ninth Circuit Court of Appeals issued its review of Chang v. United States.31 The court held that no further ex-haustion of the administrative process was necessary and that it had jurisdiction to review the claims. More significantly, the court performed the retroac-tivity analysis, noting that the district court’s actions were irrational because it “wasted judicial resources by remanding to the INS for it to do what it firmly states it may not and will not do . . . The district court was itself fully capable of doing what it asked the INS to do against its will. The remand was thus an abuse of discretion.”32 The Ninth Circuit deter-mined that retroactive application of the 1998 AAO precedent decisions was impermissible. It further chastised the government, stating:
INS’s approving and receiving the benefits of [immigrant] investments, only to renege on the promise of LPR status once those benefits were garnered, must seem very unfair. It is hard to
30 Chang v. United States, No. CV-99-10518-GHK (AJWx) (C.D. Cal. May 3, 2001). 31 Chang v. United States, 327 F.3d 911 (9th Cir. 2003). The Chang decision is reproduced at Appendix B. 32 Id. at 925.
imagine how the INS has a compelling statutory interest in such an outcome. Congress has not re-pealed the EB-5 program; it still intends for it to continue. The reputation and integrity of the EB-5 program is ill-served by the proposition that INS approval of an I-526 petition as satisfying EB-5’s requirements cannot be relied upon.33 Consequently, for those investors caught in the
midst of the rule changes, this landmark decision provided the first indication that the 10-year pattern of negative, restrictive adjudication might be draw-ing to a close based on the appellate court’s conclu-sion that retroactive application of the 1998 prece-dent decisions was impermissible. Congressional Involvement
While the federal courts breathed new life into an otherwise moribund program, Congress also tried to revive the program with the 21st Century Depart-ment of Justice Appropriations Authorization Act (DOJ Amendments), signed into law on November 2, 2002.34 This law was specifically designed to re-form the program and provide some regulatory guidance. The DOJ Amendments considerably eased the regulations by providing relief to investors left in limbo by the restrictive 1998 precedent decisions, outlining special procedures for investors with I-526 petition approvals between January 1, 1995, and August 31, 1998, and who had filed an adjustment of status application or had applied for an immigrant visa overseas.35
Some investor applicants with denied I-829 peti-tions were given an opportunity to file a motion to reopen, and others with approved I-526 petitions awaiting removal of conditional resident status in the United States were given a second chance at compliance.36 Even investor applicants outside of the United States with approved I-526 petitions were given an opportunity to return to the United States, if necessary, to obtain adjustment.37
The DOJ Amendments eliminated the “establish-ment” requirement—that EB-5 investors have “estab-lished” a commercial enterprise.38 Instead, investors 33 Id. at 929. 34 21st Century Department of Justice Appropriations Au-thorization Act, supra note 16. 35 Id. at §§11031–32. 36 Id. at §11031(b). 37 Id. at §11032(c)(2)(B). 38 Supra note 12, at 53.
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only needed to show they have “invested” in a com-mercial enterprise. Thus, immigrant investors who invest in an existing enterprise no longer had to prove they expanded the net worth or the number of em-ployees by 40 percent.39 This significantly altered the original regulations and eliminated one of the biggest obstacles created by the 1998 precedent decisions. For instance, in Matter of Izumii, the AAO deter-mined that the limited partners who had joined the general partnership over varying periods had used these “pooling agreements” to circumvent the estab-lishment of a new business enterprise requirement. Because the DOJ Amendments eliminated the “estab-lishment” requirement, the finding stated in Matter of Izumii is no longer applicable.
For advocates of the investor visa program, Con-gress’s decision to eliminate the establishment re-quirement was seen as a significant positive devel-opment. However, soon after those judicial and statu-tory victories were celebrated, USCIS once again dealt the program another setback. On June 10, 2003, USCIS issued an interim guidance memo confirming that although an “alien entrepreneur is no longer re-quired to establish a commercial enterprise,”40 the new law does not remove the requirement that the enterprise be “new,” as defined in 8 CFR §204.6(e). From this restrictive interpretation, it appeared that the “establishment of a new commercial enterprise” requirement still pertained to those enterprises estab-lished prior to November 29, 1990.
Most disturbing, however, is that USCIS has yet to issue conforming regulations to implement the DOJ amendments. Investors remain stuck in the quagmire from the prior confusion and guessing as to how they can extract themselves from the regula-tory and adjudicatory mess.
Investors should continue to exercise caution in applying for immigrant investor visas as restrictive adjudications continue. For this reason, most EB-5 investors choose to participate in recently approved Pilot Program-designated regional centers, as they allow for creation of indirect employment, and the alien investor is not required to engage in the day-to-day management of the new commercial enter-
39 8 CFR §204.6(h)(3). 40 USCIS Memorandum, W. Yates, “Amendments Affecting Adjudication of Petitions for Alien Entrepreneur” (June 10, 2003), 8 Bender’s Immigr. Bull. 1306 (Aug. 1, 2003), pub-lished on AILA InfoNet at Doc. No. 03061744 (posted June 17, 2003).
prise.41 Also, USCIS appears to be approving Pilot Program cases for designated regional centers at a higher rate than traditional cases. However, the in-vestor is cautioned that the strict reading of the source of the funds issue continues to be rigorously enforced for all cases. Also, with so many new re-gional centers being established, there are now con-cerns as to whether some will be economically vi-able, and if they will be able to meet the require-ments to remove the conditional nature of the resi-dency that is granted for an initial two-year period.
THE EFFECTIVENESS OF THE PROGRAM The Basic Pilot Program Extension and Expan-
sion Act of 2003 mandated that the Government Ac-countability Office (GAO) study the efficacy of the EB-5 program.42 The GAO found that despite its turbulent history and negative perception by the government and potential investors, the program has been beneficial to the economy.43 The 653 immi-grant investors who have managed to attain perma-nent residency have collectively invested approxi-mately $1 billion. This is a small estimate of the to-tal investment in the U.S. economy because it only accounts for just over 10 percent of all EB-5 partici-pants who have invested over a 13-year period. The GAO found that investments were made in various industries, including real estate, hotels/motels, manufacturing, import/export, agriculture, and tech-nology, and across 17 states. However, California was the primary recipient, having drawn 41 percent of the investors.
The GAO concluded that the EB-5 program has a worthy mandate that can be beneficial to the U.S. economy and recommended that DHS issue the long-awaited regulations, thereby providing relief to the hundreds of investors whose status and cases have been in limbo for years. Furthermore, the GAO determined that the regulations will help provide guidance for adjudicators and potential investors.
ON THE BRIGHT SIDE As mentioned above, participation in the EB-5
program through the Pilot Program appears to be the
41 Citizenship and Immigration Services Ombudsman “An-nual Report 2009” (June 30, 2009), published on AILA In-foNet at Doc. No. 09063065 (posted June 30, 2009). 42 The Basic Pilot Program Extension and Expansion Act of 2003, Pub. L. No. 108-156, 117 Stat. 1944, §5. 43 GAO Report, supra note 2.
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best option for prospective investors. By investing in commercial enterprises located within a designated regional center and targeted employment area, the investment amount is reduced to $500,000, and the petitioner does not have to directly prove job crea-tion. USCIS appears to show preference for these types of cases, and there have been several reports confirming the higher rate of approval for invest-ments made under the Pilot Program. This positive development provides greater certainty that both the I-526 and I-829 petitions will be approved, and the investor will eventually succeed in obtaining perma-nent residence status.
Another positive development occurred in Janu-ary 2005, when USCIS established within the agency the Investor and Regional Center Unit (IRCU) to provide oversight for policy and regula-tory development, field design, case auditing, and training on regional center adjudication. USCIS be-lieves that this will encourage foreign investment and job creation without damaging the integrity of the EB-5 program.44 IRCU is now known as the USCIS Foreign Trader, Investor and Regional Cen-ter Program (FTIRCP) and also oversees the E treaty traders and investors visa programs.
Currently, prospective investors may choose from 49 approved regional centers operating in 21 states.45 USCIS maintains a public list of all ap-proved regional centers46 and recently confirmed that another 41 regional center applications are pending at the California Service Center.47
JOB CREATION METHODOLOGY In a further sign that that the government is
warming up to the EB-5 investor program, USCIS
44 USCIS Memorandum, W. Yates, “Establishment of an Investor and Regional Center Unit” (Jan. 19, 2005), pub-lished on AILA InfoNet at Doc. No. 05012663 (posted Jan. 26, 2005). The Yates Memo is reproduced at Appendix C. 45 See “Q&As from EB-5 Stakeholders Meeting Hosted by Invest in the USA (IIUSA) and the American Immigration Lawyers Association (AILA)” (June 24, 2009), published on AILA InfoNet at Doc. No. 09071362 (posted July 13, 2009), at Q&A No. 4. 46 The list is posted at: www.uscis.gov/portal/site/ uscis/menuitem.5af9bb95919f35e66f614176543f6d1a/ ?vgnextoid=3df2b199cb011210VgnVCM1000004718190a RCRD&vgnextchannel=4f719c7755cb9010VgnVCM 10000045f3d6a1RCRD. 47 See “Q&As from EB-5 Stakeholders Meeting Hosted by IIUSA and AILA,” supra note 45, at Q&A No. 5.
recently issued two important memoranda clarifying key program questions and stakeholder concerns. Michael Aytes, Acting Deputy Director of USCIS issued the first memo, titled “Response to Recom-mendation 40, Employment Creation Immigrant Visa (EB-5) Program Recommendations,” on June 12, 2009.48 The memo provides responses to eight issues highlighted by Acting USCIS Ombudsman Richard Flowers concerning the improvements to the immigrant investor program. Among other rec-ommendations, Mr. Flowers had urged USCIS to issue procedures “specifically direct[ing] EB-5 ad-judicators to not reconsider or re-adjudicate the indi-rect job creation methodology in Regional Center cases, absent clear error or evidence of fraud.”49 In response, the Aytes Memo states:50
USCIS concurs with the intent of this recom-mendation to the extent that EB-5 adjudicators should not re-adjudicate the indirect job creation methodology for Regional Center cases absent clear error or evidence of fraud. USCIS will, however, continue to review the I-829 petitions to ensure that all measurable variables and as-sumptions that underlie the indirect job creation methodology have, in fact, been met. For exam-ple, an investor may make a proposal to create a shopping center that would be leased to various businesses. At the I-526 stage, the investor may claim that this proposal would result in the hiring of a certain number of employees by the tenant businesses and that a certain number of indirect jobs would be created as well. USCIS must en-sure that the tenant jobs have substantially been filled to support the indirect job count. This is not re-adjudicating the job creation methodology, merely verification of an assertion previously made during the I-526 stage. In the alternative, if the job creation was based on total expenditure of capital to create the shopping center, USCIS must make sure the full amount has, in fact, been invested in the job creating enterprise to support the job count.
48 See USCIS Memorandum, M. Aytes, Acting Deputy Di-rector, USCIS, to Richard Flowers, Acting Ombudsman, USCIS, “Response to Recommendation 40, Employment Creation Immigrant Visa (EB-5) Program Recommenda-tions” (June 12, 2009), published on AILA InfoNet at Doc 09061770 (posted June 17, 2009), and reproduced at Appen-dix G (Aytes Memo). 49 Id. at 2. 50 Id.
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As is apparent, USCIS conceded that the job crea-tion methodology “is an issue”51 and should not be re-adjudicated in Regional Center EB-5 cases. USCIS also stated that the government’s goal is not to re-adjudicate issues “previously decided in instances where circumstances remain unchanged.”52 USCIS further stated that it was in the process of drafting a guidance memo that would clarify which issues should be decided at each stage of the process.53
On the other hand, the agency appears to retain the right to review this same methodology at the stage of the I-829 petition to remove conditions. Presently, California Service Center (CSC) adjudica-tors continue to demand proof of indirect job crea-tion and issue challenges regarding previously cleared methodologies to both I-526 and I-829 peti-tioners. Furthermore, CSC continues to question the factors and models that formed the basis for gaining approval of Regional Centers every step of the proc-ess. Thus, it remains to be seen what impact such half-hearted concessions will have on future EB-5 cases and petition approval rates. Timing of Job Creation
On June 17, 2009, USCIS published a memoran-dum from Donald Neufeld, Acting Associate Direc-tor, USCIS Domestics Operations, titled “EB-5 En-trepreneurs—Job Creation and Full-Time Posi-tions.”54 Under USCIS regulations, I-526 petitions must be accompanied by “a comprehensive business plan showing that, due to the nature and projected size of the new commercial enterprise, the need for not fewer than ten (10) qualifying employees will result, including approximate dates, within the next two years, and when such employees will be hired.”55 The Neufeld Memo updates the Adjudica-tors Field Manual (AFM), clarifying that “each peti-tioner must submit a business plan”56 and that the requirement that the requisite jobs will be created in two years “applies to all Form I-526 petitions, in-
51 See “Q&As from EB-5 Stakeholders Meeting Hosted by IIUSA and AILA,” supra note 45, at Q&A No. 12. 52 Id. 53 Id. 54 USCIS Memorandum, D. Neufeld, “EB-5 Entrepreneurs—Job Creation and Full-Time Positions (AFM Update AD 09-04)” (June 17, 2009), published on AILA InfoNet at Doc. No. 09061964 (posted June 19, 2009) (Neufeld Memo). The memo is reproduced at Appenidx C. 55 8 CFR §204.6(j)(4)(i)(B). 56 Neufeld Memo, supra note 54, at 1.
cluding those filed under the Regional Center Pro-gram, [which] rely on indirect job creation to satisfy the statutory employment creation requirement.”57
The memo acknowledges that USCIS regulations do not specify when the two-year period begins for purposes of adjudicating I-526 petitions and that the phrase “next two years” referenced in 8 CFR §204.6(j)(4)(i)(B) “relates to the two-year period of conditional residence.”58 In other words, at the end of the two-year period of conditional residence, the alien investor must demonstrate with his or her I-829 peti-tion that he or she has either “created or can be ex-pected to create within a reasonable period of time” the necessary jobs, in order to have the conditions removed and full residence granted.59 Thus, USCIS decided to fix the start of the two-year period with respect to the petitioner’s job creation obligation since “the officer adjudicating Form I-526 cannot be certain when the period of conditional residence will in fact commence,”60 among others. In particular,
USCIS has determined that the average process-ing times for EB-5 petitioners filing for immi-grant visas via consular processing and EB-5 pe-titioners filing for adjustment of status [to obtain conditional resident status] is approximately six months. Accordingly, in order to best approxi-mate the two-year period of conditional residence the two-year period described in 8 CFR §204.6(j)(4)(i)(B) will be deemed to commence six months after the adjudication of Form I-526. USCIS officers should ensure that the business plan filed along with Form I-526 reasonably demonstrates that the requisite number of jobs will be created by the alien’s investment by the end of the two-year period that commences six months after the adjudication of the petition.61 [Emphasis added.] In essence, USCIS has extended the timing of job
creation from two years to two years and six months, which, in turn, means that an I-526 petitioner must produce a business plan detailing how and when the required number of qualifying (full-time62) jobs will 57 Id. at 3. 58 Id. 59 8 CFR §216.6(c)(1)(iv). 60 Neufeld Memo, supra note 54, at 3. 61 Id. at 3–4. 62 The Neufeld Memo clarified that “direct and indirect con-struction jobs that are created by the petitioner’s investment and that are expected to last at least 2 years, inclusive of
continued
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be created within two and a half years of I-526 ap-proval. USCIS assumes, however, that an investor will require, “on average,” six months to receive conditional permanent residence either via consular processing or adjustment of status. If either one of these processes takes more than six months (which is not unusual), will the alien still have to meet the job creation requirement “by the end of the two-year period that commences six months after the adjudi-cation of the petition”? Thus, fixing the start of the job creation period, while adding some certainty to USCIS adjudications, may end up creating more uncertainty for EB-5 petitioners. It might addition-ally have the effect of ruling out EB-5 projects that take longer than two and a half years to create the requisite jobs.63 Although USCIS has the discretion to approve major projects that are delayed because of circumstances beyond the applicant’s control, such as delays in issuing building permits, or where there are less than 10 jobs because an employer un-knowingly hires an undocumented worker, but re-grettably, we have not seen much favorable exercise of discretion for substantial good faith compliance. Initial Review of Form I-829 Petitions Where Jobs Have Not Been Created
The Neufeld Memo states that I-829 petitions are “intended to examine whether the alien entrepreneur has satisfied the conditions of his or her admission to the United States.”64 USCIS must determine “whether the alien has invested the requisite capital and created the requisite jobs through that invest-ment.”65 Because USCIS regulations provide that I-829 petitions must be accompanied by evidence that “the alien created or can be expected to create within a reasonable time ten full-time jobs for quali-fying employees,”66 the memo advises that:
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
when the petitioner’s I-829 is filed, may now count” as “full-time” jobs. Id. at 5. 63 See S. Yale-Loehr, “USCIS Clarifies Key Aspects of EB-5 Program” available at www.abil.com/articles/USCIS%20 Clarifies%20Key%20Aspects%20of%20EB-5%20Program %20(Yale-Loehr).pdf (last accessed Sept. 11, 2009). 64 Neufeld Memo, supra note 54, at 6. 65 Id. 66 See 8 CFR §§ 216.6(4)(iv) and 216.6(c)(1)(iv).
Form I-526, the nature of the industry or indus-tries in which the jobs are to be created, and any other evidence submitted by the petitioner. If, af-ter considering the evidence, the officer deter-mines that the jobs are more likely to be created within a reasonable time, Form I-829 should be approved consistent with 8 CFR §2166(d)(1) if the petitioner is otherwise eligible to have his or her conditions removed. If, however, the officer determines that the jobs will not be created within a reasonable period of time, Form I-829 should be denied consistent with 8 CFR §216.6(d)(2).67 This portion of the Neufeld memo provides
needed flexibility in I-829 adjudications for invest-ments where jobs have not yet been created and di-rects adjudicating officers to consider various factors in determining whether the required job creation may be shown “within a reasonable period of time.”
TEA DESIGNATIONS Another area of concern is that USCIS continues
its position of requiring different investment levels ($500,000 versus $1,000,000) in multi-year projects located within designated “targeted employment areas” (TEAs) where the area’s TEA designation is withdrawn but the project is ongoing and requires further investments. USCIS’s position is that once the TEA designation is lost, the amount of invest-ment in this same project is $1,000,000. This issue was captured in the June 24, 2009, EB-5 stake-holders meeting:68
Most states update census tracts and coun-ties/cities once a year. Assume that a regional center starts a project in a census tract that is a TEA for the current period but may not be a TEA for the following year. If funding is not com-pleted until the second year, when the tract may no longer qualify as a TEA, can EB-5 investors who come into the project the second year never-theless invest $500,000 rather than $1 million? It makes little sense to require investors invested in a project at different amounts, based on the sole fortuity of when a state updates its TEA list. USCIS Answer: The project location has to qual-ify as a TEA at the time of filing the I-526, so if
67 Neufeld Memo, supra note 54, at 6, 7. 68 See “Q&As from EB-5 Stakeholders Meeting Hosted by IIUSA and AILA,” supra note 45, at Q&A No. 15.
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the area does not qualify then the minimum in-vestment is one million dollars. Although extremely unfair to EB-5 investors who
come to the project perhaps a year later from their predecessors, the above answer implies USCIS’s respect for TEA designations by state governments. In fact, adjudicators often question such designa-tions, creating more uncertainty for the program and inconsistency in both regional center and individual petition adjudications. USCIS has finally recognized this concern and appears willing to issue a memo “instructing adjudicators not to question TEA desig-nations.”69 The agency stated that it was not “in the business of questioning the governors or the state designation in this regard.”70
A larger issue underlying TEA designations is that robust regional center investments and the re-sulting job growth in a targeted employment may lead to the loss of the area’s TEA designation.71 Ba-sically, the commercial success of a regional center may be fatal to its very existence if the area in which it is located has seen improved economic activity and significant reduction in unemployment rates thanks to EB-5 investments.
EB-5 PROGRAM – STILL THE BEST CHOICE FOR INVESTORS AND ENTREPRENEURS?
Despite the EB-5 Program’s turbulent history, it has many advantages over other employment-based immigrant visa classifications. First, it does not re-quire an offer of employment and approved labor certification application. Second, as a historically underutilized program, prospective investors will have immigrant visas immediately available to them and need not wait years for a visa number.72
Since the EB-5 Program most closely parallels the EB-1C classification for multinational execu-tives and managers, it is worthwhile to compare the attributes and nuances of the two visa categories. Practitioners should consider the EB-1C classifica-tion first, as it does not require a two-year condi-tional residence period. If the investor is qualified and if the investment can be structured to meet the 69 Id., at follow-up Q&A. 70 Id. 71 8 CFR §204.6(m)(6). 72 Visa retrogression is of particular concern for Indian and Chinese-born nationals who are currently subject to five– and nine-year waits in the EB-2 and EB-3 categories, respec-tively. See Visa Bulletin (Mar. 2010).
requirements for EB-1C classification, then the prac-titioner should prepare and file the Form I-140 peti-tion based on the EB-1C classification and avoid conditional residency.73 If EB-1C classification is not available, then consider the EB-5 classification.74 Characteristics of Investor and Control of the Enterprise
The investor applying for permanent residence based on the EB-5 classification need not have a particular background or any experience at all. Regulations for the EB-5 classification are silent on characteristics of the investor. Successful petitioners have included students, relatively young adults, re-tirees, petitioners with limited English language ability and no prior investment, managerial, or en-trepreneurial skills or experience, and investors with no management experience or entrepreneurial skills.75
Not only is the EB-5 petitioner excused from presenting evidence of past experience, but the EB-5 classification, in essence, minimizes the significance of what the investor actually will do in the U.S. en-terprise. The EB-5 classification mandates only that the investor will be “engaged” in the enterprise, which can be as minimal as having a role in policy formulation.76 The investor does not have to be a manager, executive, or even an employee in the business, and does not have to direct and control the business. The EB-5 regulation requires some partici-pation in the management of the enterprise, either day-to-day managerial control or a role in policy for-mulation.77 Presumably, an officer or director posi-tion would satisfy the requirement to be engaged in the enterprise.
73 An added benefit is that the I-140 petition, unlike the I-526 petition, can be concurrently processed with an I-485 appli-cation for adjustment of status. Interim Rule, 67 Fed. Reg. 49561 (July 31, 2002), published on AILA InfoNet at Doc. No. 02073171 (posted July 31, 2002). 74 For an in-depth analysis of the EB-5 classification as it com-pares to other visa classifications, see L. Stone, “A Comparison of the EB-5 Category with Alternative Immigration Strategies” Immigration Options for Investors and Entrepreneurs (AILA 2006). See also Exhibit I to this article—a checklist to help de-termine if an investment would qualify for EB-5 classification. 75 Holders of the EB-1C classification, on the other hand, must have worked as an executive, manager, or specialized knowledge employee for an affiliated business. 76 INA §203(b)(5)(A); 8 CFR §204.6(j)(5). 77 8 CFR §204.6(j)(5).
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EB-5 IMMIGRANT INVESTOR PROGRAM—A CHANGING LANDSCAPE 89
EMPLOYMENT IMPACTS The EB-5 Program stresses the employment con-
sequences of the investment and, thus, is named the “employment creation” visa category. As noted above, the investment must lead to the creation of at least 10 jobs.78 The jobs filled by the investor or the investor’s immediate family do not count toward meeting the requirement.79 The jobs must be full-time (i.e., at least 35 hours weekly), although part-time positions can be combined in cases of job shar-ing.80 The I-526 petition must demonstrate either that at the time of filing the petition the investment already has created the requisite 10 full-time jobs, or the petition may include evidence of a comprehen-sive business plan that provides details on how the jobs will be created during the investor’s conditional residence period.81 In contrast, the EB-1C regula-tions, for instance, do not prescribe the number of employees an enterprise must have to qualify an ap-plicant as “manager,” but experienced practitioners know well that USCIS examiners look for depth in company organization charts and are more favorable towards businesses that employ numerous U.S. workers.
For those clients who have sufficient funds to in-vest, but who do not maintain a multinational business with offices abroad and in the United States, the EB-5 permanent residence classification can be an attractive vehicle to achieve U.S. permanent residence.
BE ENCOURAGED BUT PROCEED WITH CAUTION
Following a decade of turbulence, there have been positive developments for investors who are able to demonstrate the lawful source of funds used for in-vestment in designated regional centers under the Pi-lot Program. Moreover, Congress has historically ex-pressed support for the EB-5 program. Whenever leg-acy INS interpreted the regulations restrictively, Con-gress took action and passed new laws, attempting to soften the blow on immigrant investors. Congress’s continuous extension of the Pilot Program reiterates the government’s commitment to the EB-5 program. Regrettably, USCIS continues to delay the issuance of final enabling regulations that may help those lost in
78 8 CFR §204.6(j)(4)(i). 79 8 CFR §204.6(e), defining “Qualifying employee.” 80 8 CFR §204.6(e), defining “Full-time employment.” 81 8 CFR §204.6(j)(4).
the labyrinth of restrictive adjudication, leaving pre-vious investors without clear directions as to how to emerge from the quagmire. Hopefully, USCIS will recognize the clear congressional intent and draft regulations that will stabilize and energize a program that has the potential to reduce unemployment and revive the economy.
The Regional Center Pilot Program appears to be the best option for many prospective investors. It now appears that approximately 90 percent of all EB-5 petitions are filed through the Regional Cen-ters.82 By investing in commercial enterprises lo-cated within a designated regional center located in a targeted employment area, the investment amount is reduced to $500,000 and the investor does not have to directly prove job creation but can do so through a combination of direct and indirect jobs. USCIS therefore appears to continue to show preference for these types of cases. There have also been several reports of expeditious approvals, and a higher rate of approval for investments made under the Regional Center Pilot Program. This positive development provides greater certainty for some investors seeking to obtain permanent residence status.
82 “USCIS Q&A from Stakeholder Session with AILA EB-5 Committee and Invest in the USA” (Dec. 14, 2009), published on AILA InfoNet at Doc. No. 10010462 (posted Jan. 4, 2010), and reproduced at Appendix H.
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90 IMMIGRATION OPTIONS FOR INVESTORS AND ENTREPRENEURS, 2ND ED.
EXHIBIT I The following checklist may be handy in deter-
mining whether an investment will qualify for the EB-5 classification: The investment must be made after November 29,
1990, the effective date of the enabling legislation. Only an individual can make the investment. Al-
lowing for the possible exception where the peti-tioner owns 100 percent of the investing entity, in most instances, if an entity makes the investment, the immigration benefits will be limited to the L-1 and E-2 visa categories and the EB-1C immigrant classification.
The investment must be for a for-profit commer-cial enterprise formed for the ongoing conduct of lawful business.
Location of the investment is pivotal for the requi-site amount of capital and if the investment is in a Regional Center, the task of proving job creation is simplified. In contrast, investment location is ir-relevant for seeking EB-1C classification.
The EB-5 classification stipulates a minimum capital investment of $1 million. As indicated above, if the investment is in a “targeted employ-ment area,” the minimum capital that must be in-vested is reduced to $500,000. Capital that is not cash, such as equipment or inventory, is credited in the amount of its fair market value. Regula-tions for the EB-5 permanent residence classifi-cation do not require considerations of substanti-ality, proportionality, or marginality, as in E-2 visa practice.
The petitioner must demonstrate that the invested capital was “obtained through lawful means.”83
The investment capital must be at risk. The in-vested funds may be escrowed pending the ap-provals of the I-526 petition and immigrant visa, as in E-2 visa practice, to protect the investor. But adjudicators are likely to require firm and de-tailed evidence of how the escrowed funds will be expended by the enterprise immediately after approval of the I-526 petition and visa issu-ance.84
83 8 CFR §204.6(j)(3). 84 Legacy Immigration and Naturalization Service (INS) Memorandum, R. Bach, “Immigrant Investor Petitions—Placement of Invested Funds in Escrow and Extension of Time to Withdraw a Held Petition and File a New Petition in its Place” (Aug. 28, 1998), published on AILA InfoNet at Doc. No. 98083198 (posted Aug. 31, 1998); see also 22 CFR §41.51(b)(7); 8 CFR §214.2(e)(12).
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EB-5 Regional Centers: For Many Immigrants, The Key to Unlock the Closed Door
By H. Ronald Klasko*
If you are an attorney who represents individual foreign nationals seeking permanent
residence in the U.S., you likely have experienced a significant number of potential
clients for whom existing immigration laws do not provide a solution that addresses their
needs. For many of these individuals, the lack of options is nothing new; for a significant
amount of others, paths that previously existed have now been blocked.
Although certainly not for everyone, one manifestly underutilized category that provides
an optimal solution for many of these potential clients is the EB-5 regional center
investment option. As will be discussed in more detail below, the EB-5 regional center
allows a foreign national and his spouse and children to obtain employment authorization
relatively promptly; allows the foreign national to work wherever he pleases (or not work
if he pleases); and allows his children to go to school in the U.S. and to pay in-state
tuition. Given the unprecedented favorable exchange rate for most foreign currencies
against the U.S. dollar, the required investment amount - - usually $500,000 - - is not an
insurmountable obstacle to many foreign national clients.
* H. Ronald Klasko (www.klaskolaw.com) is a Philadelphia-based former National President of AILA. He served for 3 years as AILA General Counsel. He was only the second practicing attorney ever honored with the AILA Founders Award for his contributions to immigration jurisprudence. He has been selected for inclusion in Best Lawyers in America every year since 1991. Ron was chosen as the most highly-regarded immigration lawyer in the world by International Who’s Who of Business Lawyers. Ron’s firm, Klasko, Rulon, Stock & Seltzer, LLP, was chosen with five other firms by Chambers Global 2007 and 2008 as the top U.S. business immigration law firms. Ron heads up the firm’s EB-5 practice, and he serves as counsel to three approved regional centers. Ron is a member of the prestigious Alliance of Business Immigration Lawyers.
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Regional Center Targeted Client List
Let’s start by listing the categories of clients who may be looking for an option that
doesn’t readily appear to be available. Then, I will address whether EB-5 presents a
viable option for these categories of clients; and, if so, whether an individual EB-5
petition or a regional center EB-5 petition provides a better option. Finally, for those
clients for whom the EB-5 regional center may be the best option, I will provide
suggested criteria for choosing among USCIS-approved regional centers.
The following are examples of foreign nationals for whom investment in an approved
regional center may be the best immigration option:
1. Retirees - - These potential clients are often devoid of immigration options if
they do not have a close family member or employer to sponsor them.
2. Potential H-1B shut out by quota - - This group is growing larger every year.
As the H-1B category deteriorates into a lottery, new options - - even if not
the most preferable options - - must be explored.
3. H-1B nearing six year limit - - Some of these individuals did not initiate the
permanent residence process early enough; others have no permanent
residence options available. Unless something can be done very quickly,
these individuals will be out of options.
4. Investors from non-treaty countries - - For some foreign nationals, an E-2
nonimmigrant treaty investor visa may be completely sufficient but for the
fact that they are not nationals of a country that has an E-2 treaty with the U.S.
5. Individual owner of a business outside of the U.S. who wants to set up a
business in the U.S. - - Some of these individuals will not qualify for L-1
status because the overseas company will close upon transfer of the
owner/manager to the U.S.
6. Entrepreneurs who want to set up a new business in the U.S. - - Some of these
individuals will not qualify for L-1 because there is no related company
overseas or because the individual does not have the one year of qualifying
experience. Others may not qualify for E-2, L-1 or individual EB-5 because
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the U.S. company will not create any jobs or sufficient jobs in the near future.
Still others may not want to wait to apply for permanent residence until the
U.S. company has engaged in active business for one year.
7. Potential L-1 applicants who are nationals of a country (such as China or
Russia) for which USCIS views startup L-1s with great suspicion.
8. F-1 student who wants to start a business - - Since on-campus employment for
a business unrelated to the needs of the student body, and any off-campus
employment, may be unavailable to the F-1, wealthy parents may provide an
answer.
9. Spouse of permanent resident - - With long quota wait and no derivative status
available, visa options are extremely limited.
10. Doctor who has not passed USMLE 1, 2 and 3 – Unless the doctor has a level
of national prominence, H-1B is not an option.
11. Foreign nationals in a multiple-year immigrant quota waiting list - - As quotas
in virtually all family and employment-based categories get longer, and with
the prospects worsening, a permanent residence category with no quota wait
becomes even more alluring.
12. CEO/manager of a company who is not a transferee - - With H-1B numbers
unavailable, and with labor certification a particularly inappropriate option,
another solution becomes necessary.
13. Parent who does not want to be involved in active management of, or
employment in, a business but wants the children to be able to go to school in
the U.S. - - F-1 may not be an option either because the children are pre-
college or because INA §214(b) may be an obstacle. A relatively prompt
route to permanent residence without a commitment that the parent work in
the U.S. is an ideal option. The possibility of qualifying for in-state tuition on
a relatively expedited basis is a special bonus.
14. Foreign national affected by Department of Labor regulations requiring
employers to pay labor certification fees and costs - - Many employers cannot
or will not pay legal fees and advertising costs for a labor certification
application on behalf of a foreign national employee. This group of foreign
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nationals who could previously obtain permanent residence based upon
employer sponsorship now needs another option.
15. Any foreign national with an urgent need or desire to become a permanent
resident of the U.S.
Regional Center Background
Partly because regional center investments address the needs of the foreign nationals
described above, and partly because the standards for individual EB-5 petitions are so
restrictive, the number of EB-5 regional center petitions has increased substantially in
recent years and now well exceeds the number of individual EB-5 petitions.
Before discussing the details of EB-5 regional center petition filings, some background is
in order. Established in 1992, the U.S. Immigrant Investor Pilot Program has had a
troubled past. The program was suspended in 1997 because of two major problems:
a. Failure by investors to complete their total investments; and
b. Failure of the investment projects to create jobs.
Under the new guidelines of the program, issued in 2002, regional center investors are
now required to invest the full $500,000 before submitting the I-526 petition, thereby
resolving the first problem. As will be discussed in more detail below, the second
problem has been resolved to a greater extent by some regional centers and to a lesser
extent by others. For this reason, choosing the optimal regional center is a critical
decision.
The Immigrant Investor Pilot Program remains a “pilot program” with continuing
extensions through the present date. The latest extension expires September 30, 2008.
Because of the success of the program both in terms of attracting investors and in terms
of providing capital for economic development and job creation, as well as demonstrated
support within the headquarters office of USCIS, as of the date of this article there is an
expectation - - but not certainty - - that the pilot program will be extended by Congress.
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Comparing Regional Center and Individual EB-5
The major advantage of the regional center as compared with an individual EB-5
investment is that the investment has been pre-approved by USCIS with respect to the
qualifying amount of the investment and with respect to the job creation requirement.
8 C.F.R. § 204.6 (m). As a result, for purposes of approval of the I-526 investor petition,
the remaining issues are tracing the funds from the investor to the regional center and
proving the lawful source of the investor’s funds. This eliminates the need to deal with
the many complicated issues involved in an individual EB-5 petition for which the
investment enterprise has not been pre-approved, such as whether the investment entity
qualifies as a “new commercial enterprise;” whether the investment is in a “targeted
employment area;” whether the investment is in a “troubled business;” whether the
requisite “employment creation” has taken place; and whether the investment meets the
“establishment” of a new commercial enterprise standard.
In addition, the regional center option is advantageous because:
Indirect employment creation is allowable; There is presently no quota waiting list; The government generally expedites adjudication of the investor petition; The foreign national can work anywhere he wants; or not work, as he pleases; The foreign national’s children may stay in the U.S. and study in the U.S.; and The foreign national can travel in and out of the U.S. as frequently as she
desires.
The following analysis illustrates the similarities and differences between the individual
EB-5 investment and the regional center investment with reference to some of the major
elements involved in EB-5 adjudications:
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Amount of Investment:
Virtually all of the approved regional centers have been approved as “targeted
employment area” investments, thus qualifying for the reduced $500,000 investment
requirement. 8 C.F.R. § 204.6 (e). Individual EB-5 investments are either $500,000 or
$1,000,000 depending upon whether the investor can prove that the investment is in a
“rural area” or in an area which has experienced unemployment of at least 150% of the
national average rate. Otherwise, if the investor does not meet her burden of proof on
these points, the required amount of investment is $1,000,000.
Job Creation:
An individual EB-5 petition requires proof of “full-time employment” as direct
employees (not independent contractors) of ten U.S. workers. 8 C.F.R. § 204.6 (j)(4).
Although technically the requisite employment does not have to have been created at the
time of approval of the I-526 petition, adjudication history reveals great difficulty in
getting cases approved based upon business plans showing that the requisite employment
will be created within the two year period before the necessity of filing a condition
removal petition.
This problem is solved with the regional center petition since the employment creation
has been pre-approved. In addition, pursuant to 8 CFR §204.6 (e), the regional center can
qualify based upon indirect employment creation generated in the community through the
regional center investment.
Although an investment in the regional center should not raise the issue of employment
creation for purposes of the I-526 approval, the choice of regional center in which the
investment is made is critical. In order for the investor to have conditions removed after
the end of the two year conditional period, USCIS will have to be satisfied that the direct
or indirect employment creation has actually taken place and that the job creation has
taken place in the targeted employment area. 8 C.F.R. § 204.6 (a)(4). Choosing a
regional center with a track record of employment creation thus enhances the likelihood
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that the investor will, in fact, be able to remove conditions, and become a non-conditional
permanent resident on track to citizenship (if desired). The investor should scrutinize
how job creation is documented and calculated and the economic models of job creation
methodologies utilized for determining indirect job creation.
Management:
As part of the pre-approval process, the regional center had to satisfy USCIS that the
investors would be engaged in the “management” of the enterprise as opposed to
maintaining a “purely passive role.” 8 C.F.R. § 204.6 (j)(5). This must be proven on a
case-by-case basis by the individual EB-5 petitioner.
Most of the regional centers are limited partnerships. Pursuant to 8 CFR §204.6
(j)(5)(iii), if the petitioner is a limited partner and the limited partnership agreement
provides the petitioner with the rights, powers and duties normally granted to limited
partners under the Uniform Limited Partnership Act, the investor will be considered
sufficiently engaged in the management of the enterprise. As a practical and legal matter,
this requirement can be met by a limited partner without the necessity of the investor
committing to any specific amount of time or engaging in any day-to-day management,
since such activities are performed by the general partner.
Source of Funds:
The requirements for the investor to prove the lawful source of her investment funds is
the same for individual and regional center EB-5 petitions. 8 C.F.R. § 204.6 (j)(3). In
both cases, the documentation requirements are extensive.
Timing:
USCIS has committed to expedited processing of regional center petitions. In most
cases, this results in I-526 approval within two to five months of filing. Since the quota
is current for this category of immigrants, within two to five months of filing of the I-526,
the investor and his family who are in the U.S. are able to file applications for permanent
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residence, employment authorization and advance parole travel documents. The
timeframe is generally slower for individual EB-5 petitions.
Choice of Regional Center
Assuming that the above analysis leads to the conclusion that an EB-5 regional center
investment may be a good or the best option for a particular foreign national, a critical
decision still remains. There are presently approximately 20 regional centers that have
been approved by USCIS. Some of the approved regional centers have long and well-
established track records; other are newly established and relatively untested. Because of
the importance of the regional center’s continued existence throughout the condition
removal process, and the importance of the predicted job creation - - direct or indirect- -
actually occurring in order to accomplish condition removal, the choice of regional center
is an especially important one.
For this reason, the author has compiled a list of questions that may be relevant in
enabling an investor to choose the optimal regional center both for immigration purposes
and for purposes of addressing his investment needs and desires. In reviewing this list
with their clients, most attorneys will want to draw a clear line between providing
immigration advice and providing business/tax/investment advice. Presumably, it is the
immigration attorney’s role to provide some guidance on the immigration ramifications
of a decision to invest in any particular regional center. Equally clearly, the immigration
attorney will likely want to steer clear of providing any non-immigration advice.
The following is a suggested due diligence list:
1. When was the regional center approved by USCIS, and has it gone through
recertification?
Regional centers that have more recently been approved may have very little track
record of successful immigrant petitions or of job creation. Some regional centers
have become inactive, and some have not been recertified.
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2. Has the regional center’s program been reviewed by the AAO?
If so, there is an added level of security.
3. Is the regional center affiliated with any government entity?
If so, an added level of credibility exists; and the government entity may have
experience in job creation.
4. How many years of experience does the general partner or principal in the
investment project have in working with immigrant investor programs?
Some of the general partners or regional center creators have little or no
experience with immigrant investor programs. Others have extensive experience
both in the United States and with investor immigrant programs in other
countries.
5. How many years of experience do the principals involved in the regional center
have in job creation?
In order for the condition removal to be successful, actual jobs will have to be
created. Principals who have extensive experience in actually creating jobs
should be a consideration.
6. Does the regional center investment include direct job creation, indirect job
creation, or both?
Although indirect job creation is acceptable for regional centers, projects with at
least some significant amount of direct job creation may be safer alternatives.
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7. How many I-526 petitions have been filed by investors in the regional center?
How many have been approved? How many have been denied?
The regional center’s track record is of critical importance. A record of a
substantial number of approvals and no denials is optimal.
8. How many I-829 condition removal approvals have the regional center investors
received? How many denials?
This is ultimately one of the most important questions. Approval of the I-526
petition is not the ultimate goal; approval of the I-829 condition removal petition
is the goal. From an immigration point of view, the safest regional center
investments are those in regional centers with condition removal approvals.
9. Does the investor have to make a deposit or pay any fee for the offering
materials?
If so, the investor needs to evaluate the benefits of investing in a regional center
that has such requirement versus one that does not.
10. What is the amount required to be paid by the investor?
In virtually all regional centers, the investment amount is $500,000. Regional
centers generally have additional costs and fees of $25,000 to $50,000.
11. Is payment made into an escrow account? Is the investment amount refunded if
the I-526 is not approved?
The provision of an escrow account with the money remaining in escrow until the
I-526 petition is approved is a critical security feature for the investor. This is
perfectly appropriate on EB-5 cases.
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12. Can the investor redeem his investment following condition removal?
The investor will certainly want to have an understanding of the likelihood of
being able to redeem his investment after a specified period of time following
condition removal. With some regional centers, this is fairly certain; with others
it is not.
13. What provisions are made regarding the security of the investment?
Needless to say, the investor wants to perform due diligence regarding the likely
security of his investment.
14. What use is made of the investor’s funds? What is the type or types of projects?
Regional center investments may involve commercial building projects,
condominiums, hotels, films, studios or other projects.
15. What is the form of the investment—limited partnership, LLC or other?
Limited partnerships are most common; however, other forms of investment exist
in different regional centers.
16. What has been the rate of return to investors historically?
As with other investments, investors may need to balance the importance of
immigration track record, security of the investment and rate of return on the
investment.
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17. Does the regional center provide regular reporting of the status of the investment
to the investors, and at what intervals?
Optimally, the investor should receive a regular report with an update on the
investment project, job creation and new investment opportunities.
18. What precautions are taken to monitor job creation? What steps are taken if the
requisite job creation has not occurred?
The investor should look for a project with detailed job reporting on a regular
basis and with a provision that failure to create the required jobs establishes a
basis for reinvestment of the proceeds in another project, so as to keep the
investor’s immigration and investment process on schedule.
19. Who are the attorneys who regularly represent the regional center?
Some regional centers require the investor to use the regional center’s attorney to
file the investor petition, and others do not. The regional center’s immigration
attorney may provide review and counseling to an investor’s attorney.
20. Does the regional center’s attorney contact the foreign national directly, or can
the referring attorney maintain all contact with the foreign national?
With some regional centers, the attorney deals with the investor directly. With
others, even if the regional center’s attorney is handling the investor petition, the
attorney may deal only with the referring attorney at the referring attorney’s
request.
21. Does a referring attorney get any fee from the regional center?
Most regional centers provide a fee to a referring attorney. Each individual
attorney needs to determine any ethical considerations involved in accepting such
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EB-5 Regional Centers: For Many Immigrants, The Key to Unlock the Closed Door
Klasko, Rulon, Stock & Seltzer, LLP Page 13 of 13
referral fee under the rules of professional responsibility of the state in which the
attorney practices.
Conclusion Although certainly not a solution for a majority of clients, the combination of diminishing
immigration alternatives and the “cheap” U.S. dollar for nationals of many countries
makes the regional center EB-5 option worth serious consideration in developing
strategies for many clients. However, not all regional centers are created equal. Both the
attorney and her client should exercise careful due diligence in selecting an appropriate
center to maximize immigration and investment benefits.
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Regional Centers EB-5s: Gold Mine or Fools Gold? By H. Ronald Klasko1 and Tammy Fox-Isicoff2
The Regional Center EB-5 program is one of the hottest topics in U.S. immigration. The number of Regional Center EB-5 petitions has increased well over 100% in the last 24 months. Whereas there were less than 25 approved regional centers as recently as 2 years ago, there are presently over 80, with the number increasing at a rapid pace. All of this is not surprising since it is a win-win-win government program: Capital is provided for construction projects during a time when capital availability is a serious problem; jobs are created during a time of critically high unemployment; and high net worth individuals who otherwise might not have an opportunity to obtain U.S. permanent residence are able to do so. For the foreign national, regional center EB-5 has a number of advantages:
There is presently sufficient visa availability. There is no requirement of a sponsoring family member or employer. The amount of investment required (usually $500.000) is not prohibitive for many
foreign nationals, especially with today’s exchange rates. The foreign national is not required to work in the U.S. and, should she decide to work, is
able to work anywhere she chooses. The investor can be geographically mobile and is not tied down to any specific business
location. The investor is not required to start a business or create direct employment. The investor’s children can be educated in the U.S. and receive in-state tuition benefits. It is often the only permanent residence option for a retiree.
However, there are many misconceptions regarding regional center EB-5s. The fact that USCIS has approved a regional center does not mean that a particular project undertaken by the regional
1 H. Ronald Klasko is one of the country's leading lawyers representing investors in EB-5 and treaty investor (E-2) cases. He is the Chair of the EB-5 Committee of AILA. Ron was the lead attorney on the famous Walsh and Pollard case, which established the key precedent for treaty investor visas. Ron Klasko is the Philadelphia-based Managing Partner of Klasko, Rulon, Stock & Seltzer, LLP, chosen as one of six top tier immigration firms by Chambers Global. Ron is a former national president and three term General Counsel of AILA and has been a member of its Board of Governors since 1980. He is one of only three practicing attorneys ever honored with the AILA Founders Award for his contributions to immigration jurisprudence. His website is www.eb5immigration.com. 2 Tammy Fox-Isicoff is a past president of South Florida AILA and serves on the Board of Governors. She chaired numerous AILA committees, including Media and Congressional, and serves on the EB-5 Committee. Tammy received several presidential awards from AILA for her advocacy of immigrants. She served as AILA representative to the ABA Immigration Coordinating Committee. She is a legal expert for various news sources and has appeared on "NBC Today" and "The CBS Morning Show." Tammy has published hundreds of articles and is a frequent local and national lecturer. Listed in the Best Lawyers in America and South Florida Legal Guide as one of the top lawyers in South Florida, Ms. Fox-Isicoff has testified as an expert on immigration topics in many jurisdictions.
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center will be approved by CIS3. The regional center designation is merely a designation by CIS that pooled investments in a certain geographical area in designated industries can utilize indirect employment creation in addition to, or instead of, direct employment creation. In fact, as of the writing of this article, of the more then 80 approved regional centers, a small percentage actually have had investors obtain I-526 petition approvals and far fewer have had investors who have successfully removed conditional permanent residence following approval of the I-829 petition. What should be the role of counsel in advising a client in which regional center to invest? The authors subscribe to a middle ground. While some attorneys advise clients exactly which regional center to invest in, this has serious potential liability issues and requires the attorney to make an assessment regarding financial risk, rate of return, security of investment, redemption possibilities and timing, likelihood of job creation and other issues for which the attorney does not generally have an appropriate level of expertise. Other attorneys provide a list of all approved regional centers and leave it up to the client to select the one in which to invest. We believe that the immigration attorney acts most appropriately by providing a list of regional centers that the immigration attorney knows have had a high success rate of approved I-526 petitions and, in some cases, approved I-829 petitions, with a caveat that the client should conduct her own due diligence and employ experts of her choosing to assist with this process. The immigration attorney might want to provide a list of due diligence issues to aid in this process. A sample due diligence list is appended to this article. So what could go wrong if an investor invests the required amount of capital in an approved regional center? In addition to issues particular to the investor (inability to document lawful source of funds; inability to trace funds from various accounts through to the regional center), there are many regional center-based issues that could result in the investor not obtaining permanent residence status or not being able to remove the conditions to obtain unconditional permanent residence status. A non-exhaustive list follows:
1. Even though the regional center is approved, a particular project within the regional center in which the investor invests may not be approved. As of the date of submission of this article, USCIS has just developed a new procedure to have regional center projects pre-approved, which could alleviate this problem. However, absent such pre-approval, each adjudicator reviewing an I-526 petition filed by an investor must make his or her own determination as to whether the project qualifies.
2. Regional center designation can be re-visited by CIS when the business assumptions utilized in the econometric model are not realized. An I-526 petition may be approved based upon an economist’s report using a recognized econometric model to predict the number of indirect and induced jobs that will be created based upon a specific dollar investment in a specific project in a specific geographical area in a specific industry in a
3 USCIS has recently unveiled a program permitting, for the first time, pre-approval of projects engaged in by regional centers. USCIS Memorandum from Donald Neufeld, Acting Associate Director, Domestic Operations (HQ70/6.2, AD009-38) dated December 11, 2009, entitled “Adjudication of EB-5 Regional Center Proposals and Affiliated Form I-526 and Form I-829 Petitions.”
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specific timeframe with a specific number of tenants and other specific foundation facts. Although CIS should not second guess the econometric report at the I-829 stage, CIS will want proof that the assumptions relied upon in the report have actually occurred. If they have not occurred because of economic conditions, change of plans, construction delays, etc., the investor is at risk that the condition removal petition will not be approved.
3. Regional center designations are based on the full investment of many different investors
in a single project. Although some regional centers’ projects are in great demand and even have waiting lists, that is not the case with all regional centers. If a regional center project does not attract a sufficient number of investors, the project may not happen or may be delayed, which could result in the original investors being unable to remove conditions.
4. A regional center may lose certification. CIS is in the process of developing standards to
review regional centers. The results of any review process could lead to regional center decertification.
5. In order for an I-526 petition to be approved, the investor’s investment must be “at risk.”
If an adjudication is made that the funds are not truly at risk at either the I-526 or I-829 stage, the petition will be denied. At a minimum, the investor’s commitment is a 5 year commitment. Although there can be no guaranteed right of redemption or specific return, some regional center investments are more risky than others; some have a greater chance of the investor getting his money back after 5 years with some rate of return; and some are more speculative investments. While the investor is allowed to have a guaranteed right to return of the investment money if the I-526 is not approved (and some regional centers place the investment money in escrow pending the I-526 approval), CIS’ position is that there can be no guarantee of redemption of the investment if the I-829 petition is not approved.
6. The entity into which the investor invests may go bankrupt. The results could be not only the inability to remove conditions on permanent residence but also a loss of the investment money.
7. There are serious, largely unexplored securities law issues involved in this process. It is
generally accepted that an investment in a regional center project is a securities transaction subject to federal and state securities laws. Any violation of securities laws could have a serious impact on the investor and her counsel.
8. Even if none of the contingencies occurs, the investor is subject to the risk inherent in the
nature of the adjudicating agency. It is not unusual for there to be contradictory adjudicatory results on identical projects. Often very complicated financial transactions are being adjudicated by immigration examiners with little or no financial background and with relatively minimal training. This can lead to – and has lead to – decisions on individual petitions that may be difficult to comprehend. In addition, the agency has been known to adopt restrictive positions and change those positions without notice in the EB-5 area.
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Despite all of these potential issues, the regional center EB-5 option may be the best option for many clients. Knowing of these issues, the prudent attorney will want to apprise his client in writing of the issues that could arise. The authors suggest that an attorney should insist their clients sign a retainer agreement containing the following disclosures, confirmations, warnings and conflict waivers: We have not and will not advise you in which regional center to invest. (We have and
will advise, if requested, of information available to us regarding the immigration approval history (I-526 and I-829 petitions) for specific regional centers);
We have not and will not advise you on rate of return of your investment, security of your investment, timing of return of your investment, or any tax or financial aspects of your investment;
We have not and will not advise you on US, state, or foreign country securities law issues;
We have not and will not advise you on foreign country currency laws and restrictions; We have not and will not advise you whether any regional center is a better investment
than any other regional center or than another investment you might otherwise make; You agree that you have been advised to seek independent advice on these matters from a
financial advisor, business advisor, business or securities lawyer or accountant and that you have sought such advice, or declined to seek such advice;
The privileges of the lawyer-client relationship we have with you, such as our independent advice to you and the protection of your confidential communications with us, only extend to lawyers and staff of the firm and do not extend to services and communications you may receive from the regional center.
A regional center EB-5 petition has certain inherent risks in addition to the risk that your investor petition may not be approved. You confirm that you are aware of these risks, and you have chosen to accept these risks, including the following:
o Risk of loss of some or all of your investment, or risk of delay in realizing any return of or on your investment, for which risks you certify that you have received advice and counsel from financial, tax, business, securities and/or other advisors, and not from our law firm;
o Risk that a particular regional center project may be found not to qualify under the EB-5 regulations and guidance;
o Risk that a qualifying regional center project may be found not to qualify for removal of conditions on your permanent resident status for any reason, including failure of the project for economic or other reasons to produce revenues, expenditures, employment creation or other predicted criteria on which the approval of the EB-5 petition was based;
o Risk that a regional center may lose certification; o Risk that a regional center or a regional center project may file for bankruptcy or
otherwise default on its obligations; o Risk that the regional center EB-5 program, which is a pilot program that must be
periodically renewed, will expire; and
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Klasko and Fox-Isicoff, Regional Centers EB-5s: Gold Mine or Fools Gold? Page 5 of 5 Copyright © 2010 Klasko, Rulon, Stock & Seltzer, LLP and Rifkin & Fox-Isicoff, P.A. All rights reserved. This document contains copyrighted material and may not be reproduced in whole or part without the written expressed consent of the authors.
o Risk that material deviations may occur between representations made in the business model forming the basis of the econometric report and actual business realities, requiring at a minimum the submission of an amended Form I-526, resulting in a new period of conditional residence. Should this occur, dependent children may be too old to derive a benefit from the new petition.
Conclusion The regional center EB-5 program has great benefits both to the country and to many foreign nationals. However, every investor – and every attorney advising investors – should go into the program with eyes wide open. Investors should understand the inherent risks in any securities investment regarding likelihood of return, timing of return and rate of return. Some combination of Congressional and administrative action is necessary to provide greater certainty to investors that, if they do everything right and sustain their investments in an approved regional center, they have some assurance that they will not find themselves subject to removal from the United States because of issues outside of their control.
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Klasko and Fox-Isicoff, Sample Due Diligence List Page 1 of 2 Copyright © 2010 Klasko, Rulon, Stock & Seltzer, LLP and Rifkin & Fox-Isicoff, P.A. All rights reserved. This document contains copyrighted material and may not be reproduced in whole or part without the written expressed consent of the authors.
List of due diligence issues as referenced in “Regional Centers EB-5s: Gold Mine or Fools Gold?”
The following is a suggested due diligence list:
1) When was the regional center approved by USCIS? Regional centers that have more recently been approved may have a minimal track record of successful immigrant petitions. Some have been inactive. Some have lost their regional center designations.
2) Has the regional center’s project that the investor is investing in to obtain conditional residence been reviewed and approved by USCIS? USCIS has recently unveiled a new process where regional center projects can be pre-approved. This pre-approval does provide an added level of security.
3) Is there any AAO decision addressing the regional center’s program? AAO decisions blessing the regional center’s project or business plan may provide an added level of security.
4) Is the regional center affiliated with any government entity? If so, an added level of credibility exists.
5) What experience does the general partner or principal in the investment project have in working with immigrant investor programs? An investor may want to invest in a regional center where the principals have experience in directing regional center projects and in creating jobs.
6) Does the regional center investment include direct job creation, indirect job creation or both? Although indirect job creation is acceptable for regional centers, projects with a t least some significant amount of direct job creation may be safer.
7) How many I-526 and I-829 petitions have been filed by investors in the regional center? How many have been approved? How many have been denied? A substantial record of I-526 and I-829 approvals is a good indication of a successful regional center
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Klasko and Fox-Isicoff, Sample Due Diligence List Page 2 of 2 Copyright © 2010 Klasko, Rulon, Stock & Seltzer, LLP and Rifkin & Fox-Isicoff, P.A. All rights reserved. This document contains copyrighted material and may not be reproduced in whole or part without the written expressed consent of the authors.
8) What is the amount required to be paid by the investor? Regional centers have additional costs besides the $500,000 investment. What are these costs?
9) Is payment made into an escrow account? Is the investment amount refunded if the I-526 is not approved?
The investor may want some assurance that should the I-526 fail, the investor’s $500,000 will be returned.
10) When will the investor be able to redeem his or her investment following condition removal and with what rate of return? A financial professional should be able to advise the investor regarding security of the investment, when the investor may be able to recover his investment and likelihood and amount of return on the investment.
11) What type of investment is being made with the investor’s funds? Investments may be made in a wide variety of projects from construction to film production. Certain investments may be better able to withstand economic downturns.
12) What type of reports does the regional center provide to investors and when are these
provided?
An investor should be able to monitor a project to determine that progress of the project is in accordance with the business plan for the project.
13) What is the regional center’s plan for demonstrating direct or indirect job creation, and is this plan realistic? Various econometric models exist for demonstrating job creation. It may be very difficult in some cases to show indirect job creation based upon certain models.
14) Who represents investors in the regional center?
Some regional centers mandate the use of their attorney exclusively. Others permit the investor to have his or her own private counsel, often partnering with the investor’s counsel.
15) Is the success of the regional center project dependent on bank financing, or the ability of the center to raise certain capital? If so, the center may never get off the ground.
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Strategies for Documenting Lawful
Source of EB-5 Invested Funds
By H. Ronald Klasko1
July 29, 2009
USCIS’s definition of “capital” for EB-5 purposes excludes “assets acquired, directly or indirectly, by
unlawful means (such as criminal activities)” 8 C.F.R. §204.6 (e). Although this definition seems fairly
innocuous, USCIS has applied this definition to place an extremely rigorous burden on the EB-5 investor
to prove that the capital was “obtained through lawful means.” 8 C.F.R. § 204.6 (j)(3). Specifically, 8
C.F.R. §204.6(j)(3) requires either “foreign business registration records”; corporate, partnership and
personal tax returns filed within 5 years; “evidence identifying any other source of capital”; or
documentation of court judgments or pending court cases. However, in practice, this is one of many
examples in EB-5 practice where USCIS ventures well beyond the regulatory requirements in insisting
upon far more substantial documentation to prove lawful source of funds. Although the regulatory list of
documents is in the disjunctive, in practice USCIS requests all of the listed categories of documents and,
in most cases, significant additional documentation.
“Documents to Prove Lawful Source of Invested Funds” by the same author of this article is an outline of
suggested types of documents to meet the lawful source of funds requirements. In reviewing this list, the
1 H. Ronald Klasko (Ron) ([email protected]) is recognized as one of the country’s leading immigration lawyers. A founding member of Klasko, Rulon, Stock & Seltzer, LLP and its Managing Partner, he has practiced immigration law exclusively over three decades. Ron was named as the world’s most respected corporate immigration lawyer (The International Who’s Who of Business Lawyers 2007 and 2008). A former National President of the American Immigration Lawyers Association (AILA), Ron has been selected in the highly regarded Best Lawyers in America for the past 16 years. Ron’s practice includes a substantial focus on EB-5 investor cases. Ron is the designated preferred attorney for filing EB-5 petitions for four of the approved regional centers. He is the Chairman of the EB-5 Committee of the American Immigration Lawyers Association. He is a frequent speaker and author on EB-5 issues. Mr. Klasko is a member of the prestigious Alliance of Business Immigration Lawyers (ABIL). Copyright © 2009 Klasko, Rulon, Stock & Seltzer, LLP. All rights reserved.
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client or attorney should be aware of the following practice pointers based upon the author’s experience
with these types of applications:
1. As indicated above, this is one area of the law where simply following the regulations will
not be sufficient. The regulatory requirements (including especially the 5 years of tax
returns) should be viewed as a starting point. In some cases (unfortunately not the norm), tax
returns will show a sufficient enough income to preclude the necessity of any further
documentation. In many cases, tax returns may not reflect a level of income commensurate
with the investment being made. In these cases, substantial additional documentation will be
required. In some cases, the last 5 years have been low income years (e.g., retirees). In those
cases, tax returns from the highest earning years should be added.
2. The requirement to document lawful source of funds is the same whether the investment is an
individual investment or a regional center investment.
3. Documenting lawful source of funds requires extreme attention to detail and knowledge of
business documentation and sometimes of finance and accounting. Many financial
transactions require a multitude of documents to evidence, and USCIS will insist on all of the
detailed documentary evidence.
4. It is only necessary to prove where and how the investor obtained the $500,000 or $1,000,000
required to be invested. It is not necessary to prove where the investor obtained every dollar
that he now has or ever had.
5. The difficulty of documenting the lawful source of funds often varies greatly by country. It
can be especially difficult in countries where no tax returns are required to be filed or where
full disclosure of revenues and profits on tax returns is the exception rather than the rule.
Where tax returns are not required to be filed, this should be documented. Where tax returns
are required to be filed but the individual’s tax returns show very little income, the
documentation of the source of funds should provide overwhelming evidence to counter the
negative implication that comes from a review of the tax returns. As with other types of
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cases -- L-1, for example, -- the quantity of documentation required might be greater in
suspected high-fraud countries or countries for which the US has national security concerns.
6. Documenting lawful source of funds is a different requirement than the requirement to trace
the funds from the individual investor to the investment enterprise. See In re of Izummi, 22 I.
& N. Dec. 169 (BIA 1998). This also needs to be done in great detail. For countries with
restrictions on the outflow of currency, this can be especially difficult, since the investor may
engage in several layers of transactions between the money leaving the investor’s account
overseas and arriving in the US enterprise. Although it is not necessary to prove compliance
with a country’s currency laws, it is necessary to trace the funds from the investor, through
intermediaries, to the investment enterprise.
7. In documenting lawful source of funds, the ultimate focus is on the person who originally
obtained the funds and tracing these funds from that person to the investor. If the investor
obtained all of the funds on her own, this is not an issue. If the funds were the result of a gift,
the lawful source of the giftor’s funds must be documented, as if the giftor were the investor.
A logical explanation of the reasons for the gift -- with documentation as appropriate --
should be included. If a gift tax was paid or a gift tax return filed, documentation should be
provided. If the source of funds was a loan, the lawful source of the lender’s funds must be
documented as if the lender were the investor, as well as the lawful source of any collateral
put up by the investor for the loan.2 The actual loan agreement should be included, as well as
a logical explanation -- with documentation as appropriate -- of the reasons for the loan. The
reason can be to enable the investor to make a qualifying EB-5 investment. If the source of
funds is an inheritance, the decedent’s source of funds may be the issue. If the estate and
probate documentation is available, include it. The decedent’s death certificate and
documentation of the relationship between the decedent and the investor are normally part of
the package of documents presented.
2 If the assets or interests in the EB-5 commercial enterprise are collateral for the loan, the loan cannot be used for the EB-5 investment. 8 C.F.R. § 204.6(j)(2)(v).
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8. Very often in documenting lawful source of funds, the attorney or client must make a
judgment regarding how far back to go with the documentation. For example, if the source of
funds is a real estate transaction that resulted in substantial proceeds from the sale of real
estate, the documentation of the real estate ownership, appraisal, sale and transfer of funds is
certainly required. See In re Soffici, 22 I. & N. Dec. 158 (BIA 1998). If the real estate was
purchased within the last several years, it is highly recommended to document how the
investor obtained the money to purchase the real estate that has now been sold. If the real
estate was purchased 30 years ago, it may be impossible to provide such documentation.
There is no clear line regarding how far back one must go to obtain documentation, with
“reasonableness” being the rule of thumb. The same concepts apply to, for example,
securities transactions. For inherited money, if the decedent earned his money 50 years ago,
USCIS may agree it is not possible to document the earning of those funds at the present
time. If the source of funds is the sale of the investor’s shares of stock in a company, the
company’s tax returns may be sufficient, together with any purchase/sale agreements and
documentation of the transfer of funds. If the shares were recently acquired, USCIS may
want documentation of the source of funds to purchase the shares.
9. The source of funds may be from the US or abroad. However, if the investor obtained the
invested money through unlawful employment in the US, issues may be raised by USCIS. If
possible, it is best to provide evidence that the source of the invested funds is something other
than the unauthorized employment -- even if the funds were accumulated while the investor
was not in lawful status.
10. Although primary documents should be obtained wherever possible, written statements,
affidavits and resumes can help fill some of the holes in the primary documentation and can
help to paint a picture that satisfies the USCIS examiner that the invested capital had a lawful
source.
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Strategies for Documenting Lawful Source of EB-5 Invested Funds
Klasko, Rulon, Stock & Seltzer, LLP Page 5 of 5
11. It is always a good idea to provide a narrative description of the investor and the invested
funds, with citations to the documentary exhibits, rather than relying on the USCIS examiner
to understand all of the documentation and to draw the conclusion that the investor wants
drawn from the documentation.
12. In some cases, no one or two transactions, and no one or two tax returns, provides convincing
evidence of the lawful source of the investor’s funds. In these cases, it may be possible to
prove and document that the investor accumulated savings over a period of many years that
would be commensurate with the ability to now make a $500,000 or $1 million investment.
For example, this may be proven through a pattern of steady income over many years that
would enable the investor to meet expenses and set aside some extra for savings.
Documentation of savings, with interest or wise investments over time, may be sufficient.
Another example might be investments in securities that provide dividends that, while not
particularly large on an annual basis, when accumulated over time provide substantial
savings.
13. Analogy to E visa practice is unhelpful. There is no specific requirement to document the
lawful source of funds to qualify as a treaty investor. A treaty investor’s funds that come
from a gift for the sole purpose of enabling the treaty investor to qualify for E-2 status is not
considered a qualifying E-2 investment, while it might be considered a qualifying EB-5
investment.
In many EB-5 cases, documenting the lawful source of funds can be the most arduous and time
consuming part of the process. The investor should be forewarned of the need for substantial
documentation. Sometimes, the investor may have gone to great lengths to avoid having
documentation of the very transactions that now have to be proved for purposes of the EB-5 petition.
A good rule of thumb is that if the attorney can understand, through the documentation, where the
money came from, the chances of being able to satisfy USCIS should be greatly enhanced.
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I M M I G R A T I O N A T T O R N E Y S
INTRODUCTION
Immigration to the U.S. is a challengingtask, especially with the restrictionsimposed after 9/11. The first section of
this article discusses pre-immigration taxplanning opportunities, and the secondsection describes the availability of fasttrack immigration and Green Card status.
I. PRE-IMMIGRATION TAX PLANNING
Foreigners legally resident in the U.S.(“Resident Aliens”) are taxed like U.S. citizens,subject to income tax on worldwide income.Resident Aliens are also subject to U.S. gift,estate, and generation-skipping taxes, butthey are denied significant tax exemptionsotherwise available to U.S. citizens. Examplesinclude a nominal estate tax exemption forgifts to a surviving non-citizen Spouse and a$100,000 gift tax exemption, rather then theunlimited exemptions afforded to Citizenspouses. Joint tenancy property held by non-citizens receives disadvantageous estate tax treatment, and there are other tax disadvantages.
A foreigner becomes a U.S. tax resi-dent by having a Green Card, or bysimply by remaining the U.S. 183 days ormore in any single calendar year, or 183days as determined over a three-year peri-od by the following formula:
The multiplier is:Current year . . . . . . . . . . . . . 11st preceding year . . . . . . . .1/32nd preceding year . . . . . . . 1/6
The Tax obligation on worldwideincome is often an unpleasant surprise tothe uninformed immigrant. However, forthose who have the foresight and goodadvice to plan before immigrating to theU.S., and possibly even for those who did
not, current law affords significant plan-ning opportunities.
The U.S. tax code treats a foreigntrust established by a Citizen or ResidentAlien a “grantor trust,” meaning that itis transparent for income tax purposes;all trust activity must be reported annu-ally, on Forms 3520 and 3520A, and alltrust income is currently taxed. Failureto timely file the required reports carriesserious civil and possibly criminal penalties.
However, a Non-Resident Alien, atleast five years prior to immigration,might create a discretionary trust in his orher own country or in a low or no taxjurisdiction, to hold assets for investmentand for future distributions to U.S. bene-ficiaries. The Trust must be drafted tomeet both foreign and U.S. criteria. If thefive year rule is not met, the new residentwill be treated as if the assets were trans-ferred into trust on the date U.S.residency commenced, resulting ingrantor trust treatment, and therefore tocurrent tax and reporting requirements.
The immigrant may become a U.S. res-ident without the knowledge or time totake advantage of the five-year rule. Theremay nevertheless still be some planningopportunities. As an example, the newResident Alien may have a wealthy familyliving outside the U.S., with the desire toestablish a foreign Trust for the benefit ofthe U.S. residents. For example, a foreignTrust established by a foreign Trustor,and which is revocable by that Trustor,could, if it meets other requirements,qualify to make tax-exempt distributionsto U.S. beneficiaries. The U.S. beneficiar-ies must not have any direct ownership orcontrol over the Trustee’s discretion to
make Trust distributions. However, thereceipt by Citizens or Resident Aliens offunds or assets from a foreign trust arereportable, even if not taxable. Any for-eign Trust, foreign or domestic, must beconsidered as part of overall estate plan-ning and should provide for alternativesin the event of the death of the primaryU.S. beneficiaries.
The U.S. Resident Alien can receivemonetary gifts from foreign sources.While such direct gifts are not subject toU.S. tax, the new rules require that giftsfrom foreign sources be reported on Form3520 with annual tax returns. The report-ing required for foreign gifts is much lessextensive than that required for foreignTrusts, and does not require the taxpayerto reveal the identity of the individualdonor of the gift. Partnerships or corpora-tions, or an “intermediary” for suchentity, must however be specifically iden-tified. The IRS reserves the right torequire the beneficiary to reveal the iden-tity of an individual donor.
The IRS reporting form excludesreporting of annual gifts from foreignindividuals under $100,000 from foreignindividuals or estates.
Unlike U.S. Citizens, the ResidentAlien may be in a position to avoid estatetax on assets located outside the U.S. if heor she (or the estate) can establish that theU.S. is not the country of domicile. TheU.S. estate tax is based on the concept ofdomicile, and not on Citizenship. Thelong term Resident Alien will have toplan in advance to establish foreign domi-cile, which the U.S. regulations definegenerally as the place where the ResidentAlien intends to eventually return to as a
I n P r i n t
VOL. 15. NO 1. 2007
Immigration to the U.S. Tax Planning and FastTrack PermanentResidencyBy Mark A. Ivener, Ivener & Fullmer LLP and
Stephen A. Malley, Law Offices of Stephen A. Malley
© 2007. All Rights Reserved
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Telephone: (310) 477-3000 Fax: (310) 477-2652
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Telephone: (212) 358-9500 Fax: (212) 223-4343
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permanent abode. IRS regulations pro-vide some guidance as to requirementsto establish a foreign domicile, andeach country has its own definitionsand requirements, but it must beemphasized that advance planning iscritical. The Resident Alien with a for-eign domicile will pay U.S. incometaxes, but all foreign assets could beexcluded from estate taxes on death,particularly important since theResident Alien will be denied the estatetax exemption available to Citizens ifthe beneficiary is not a Citizen, includ-ing the surviving spouse.
The benefits of foreign trusts forasset protection are beyond the scope ofthis article, but in the litigious U.S.,sheltering assets from potential businessand personal creditors is often of pri-mary concern. Neither a foreign Trusteenor a foreign Trust with U.S. beneficiar-ies is subject to the jurisdiction of U.S.courts. Furthermore, many offshorejurisdictions have laws which effectivelypreclude a creditor from reaching theassets even if the creditor were willingto undertake the expense and uncertain-ty of bringing legal action in thatcountry. Several “tax-haven” countrieshave adopted extremely short time peri-ods (“statutes of limitation”), some asshort as one year, after which a creditorcan not reach assets transferred to aTrust regardless of “fraud” as defined invarious U.S. statutes. It should benoted that most countries will not pro-tect assets derived though criminalconduct, although tax avoidance maynot be included in that category. To beeffective, the foreign Trust must pre-clude the U.S. person’s control overTrust assets.
This section on tax planning is only anoverview and brief summary of a complexarea of United States law. U.S. tax law is sub-ject to frequent change and interpretation.
II. U.S. IMMIGRATION GREENCARDS IN LESS THAN 11⁄2 YEARSTHROUGH INVESTMENT
For foreign investors looking for free-dom and flexibility to live and work in theUnited States in a way accommodating totheir lifestyles, the little-known EB-5investor category can provide an excellentopportunity to accomplish this goalthrough the obtaining of Green Cards.Since this regulation first became law in1990, EB-5 case adjudications have gonethrough several modifications, withdrawalsand other hiccups before implementationof the latest statute in 2002.
There are essentially two EB-5 pro-grams, i.e. the Regular program and theRegional Center program. In order for anapplicant to qualify under the Regularprogram, the following three basicrequirements must be met: investmentin a new commercial enterprise; invest-ment of at least $1 million (or $500,000in certain cases) into the business, andcreation of full-time employment for atleast 10 full-time U.S. workers.
Additionally, to satisfy CIS’ (formerlyINS) standards of a bona fide “new com-mercial enterprise,” a business can qualifyin one of three ways: investment in abusiness formed after November 29,1990; substantial restructure of businessformed before November 29, 1990; orsubstantial expansion of business formedafter November 29, 1990.
The investment may consist of the con-tribution of various forms of capital,including cash, equipment, inventory,property, and other tangible equivalents.An investment amount of $1 million isgenerally the minimum. However,$500,000 is acceptable if the business is sit-uated in a “targeted” employment area, i.e.one that has experienced unemployment ofat least 150 per cent of the national averagerate or a rural area, as designated by theU.S. Office of Management and Budget.
The final Regular program requirement isthat at least 10 full-time jobs are subse-quently created for U.S. workers.
The second program within the EB-5category, i.e. the Regional Center pro-gram, is ideal for the retiree or inactiveinvestor due in large part to the “indirectemployment” feature of this program. TheRegional Center program advantageouslyremoves the 10 employee requirement ofthe Regular program and substitutes theless-restrictive “indirect employment cre-ation,” which allows the investor to qualifyfor an EB-5 Green Card without hiring 10people in the company that the investorhas invested in. So, in a nutshell, under aRegional Center program, the investor canqualify by presenting evidence that 10new jobs will be created throughout theRegional Center economy, typically sup-ported by an economist’s report.
The EB-5 management requirement isminimal in that the investor can be a limit-ed partner with a policy making role andstill qualify. Thus, for those who are notinterested in day-to-day management orrunning an active business, Regional Centerprograms offer a more acceptable inactiveform of investment, than do most Regularprogram investments.
Another advantage of Regional Centerprograms that adds to the flexibility ofthis Green Card category is that theinvestor is not required to live in theplace of investment; rather, he or she canlive wherever he/she wishes in the UnitedStates. For example, the investor mayinvest in a Regional Center in the state ofWashington, but choose to live in upstateNew York.
Under mandate by Congress, RegionalCenter EB-5 petitions are given priorityby CIS which, among other benefits, oftenresults in a quicker path to approval. Theofficial CIS definition of a RegionalCenter is “any economic unit, public orprivate, which is involved with the pro-
motion of economic growth, includingincreased export sales, improved regionalproductively, job creation, or increaseddomestic capital investment.” EachRegional Center program must be pre-approved by CIS in order to be eligible forEB-5 Green Cards. Currently, there are 4 primary active CIS approved RegionalCenter programs with long term trackrecords, including:
E A real estate limited partnership pro-gram that offers an investment inindustrial properties that generallywill be renovated into commercialoffices and stores in a specified majorcity.
E A limited partnership program thatmakes low interest loans to businessesin a specified major city.
E Ownership of machine equipment ina specified location.
E Ownership of dairy farms in the Mid-west.The procedure for obtaining an EB-5
Investor Green Card is relativelystraightforward. The investor must pro-duce 5 years of tax returns to substantiatethe source of investment funds. Thefunds can be in the form of a loan or gift,which would allow a parent to gift a sonor daughter. Gift taxes, if required in theinvestor’s home country, should be paid.He or she must also present evidence thattraces the capital, through bank transfersand other documentation, from theinvestor directly to the enterprise. Thisprovision of the regulation, whichrequires clear evidence that the source of
funds was procured by legal means, arose
from earlier concerns of Congress overmoney laundering issues.
After the investor completes a thor-ough business and financial due diligenceanalysis of the viability of the business,the investment is made and a petition isfiled by the foreign investor with the CIS,requiring CIS to certify that the applicantand the investment are eligible for EB-5status. The approval of the petition takes,on average, a mere 3–6 months.
If the investor is already in the U.S., he orshe then applies for a Green Card throughCIS. No interview customarily is required,and approval has been taking approximately10–12 months. If the investor residesabroad, an application for the Green Card isgenerally made at the U.S. embassy or con-sulate of the investor’s home country;however, in this case, for consular process-ing purposes, an interview is necessary.Approval of the Green Card in this casetakes on average about 8-10 months.
In either of the above two scenarios, inmost Regional Center cases, the entireprocess generally takes less than 11⁄2 years.This is based on current CIS and Consularprocessing times.
Once CIS approves the investor’sGreen Card, it is conditional for a periodof two years.
Conditional Green Card status confersthe same rights as the permanent uncon-ditional Green Card.
Between 21–24 months after the con-ditional Green Card has been approved,the investor must reconfirm that theinvestment has been made or is still in
place and that the employment require-ment has been fulfilled or maintained. Anapplication to remove the conditionalGreen Card status is then filed with CIS.
Once the condition has been removed,a full Green Card is granted for indefinitepermanent resident status and work per-mission in the United States. From thetime the conditional Green Card isapproved until approval of the removal ofcondition usually takes about two and ahalf years. Thereafter, in approvedRegional Center programs, depending onthe terms of their agreement, the invest-ment may be sold, and the investor willstill maintain the permanent Green Card.U.S. Citizenship is possible two and a halfyears later, five years after approval of theconditional Green Card, upon satisfactionof residence and other criteria.
In summary, freedom to live anywherein the United States, a passive form ofinvestment with no required direct man-agement responsibilities, priority standingwithin the Immigration process, and anaccelerated path to Green Card procure-ment, are important factors which makethe little-known EB-5 Green Card catego-ry (and the approved Regional Centerprograms) an ideal investment vehicle forthe inactive investor or retiree who wishesto live and work in the United States.
As with other U.S. Immigration visas,applicants also need to take into accountU.S. and foreign tax and other businessand personal planning considerations.
Nothing in this article should be consid-ered legal advice, and interested persons areadvised to consult qualified advisors.
IVIVEENNERER&&FFUULLLMELMERR LLLLPP
I M M I G R A T I O N A T T O R N E Y S
Immigration to the U.S.
Tax Planning and Fast Track Permanent Residencycontinued from front
Mark Ivener, managing partner of Ivener & Fullmer LLP, a business immigration law firm in Los Angeles, has been practicing immigration lawfor over 35 years and is the author of 5 books on immigration law. Email: [email protected].
Stephen A. Malley, of the Law Offices of Stephen A. Malley, in Los Angeles specializes in U.S. and International tax law, tax treaty applications, international estate and asset protection planning, and international business planning. Mr. Malley counsels on offshore insurancestructures including captive insurance companies and private placement life insurance. Email: [email protected].
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permanent abode. IRS regulations pro-vide some guidance as to requirementsto establish a foreign domicile, andeach country has its own definitionsand requirements, but it must beemphasized that advance planning iscritical. The Resident Alien with a for-eign domicile will pay U.S. incometaxes, but all foreign assets could beexcluded from estate taxes on death,particularly important since theResident Alien will be denied the estatetax exemption available to Citizens ifthe beneficiary is not a Citizen, includ-ing the surviving spouse.
The benefits of foreign trusts forasset protection are beyond the scope ofthis article, but in the litigious U.S.,sheltering assets from potential businessand personal creditors is often of pri-mary concern. Neither a foreign Trusteenor a foreign Trust with U.S. beneficiar-ies is subject to the jurisdiction of U.S.courts. Furthermore, many offshorejurisdictions have laws which effectivelypreclude a creditor from reaching theassets even if the creditor were willingto undertake the expense and uncertain-ty of bringing legal action in thatcountry. Several “tax-haven” countrieshave adopted extremely short time peri-ods (“statutes of limitation”), some asshort as one year, after which a creditorcan not reach assets transferred to aTrust regardless of “fraud” as defined invarious U.S. statutes. It should benoted that most countries will not pro-tect assets derived though criminalconduct, although tax avoidance maynot be included in that category. To beeffective, the foreign Trust must pre-clude the U.S. person’s control overTrust assets.
This section on tax planning is only anoverview and brief summary of a complexarea of United States law. U.S. tax law is sub-ject to frequent change and interpretation.
II. U.S. IMMIGRATION GREENCARDS IN LESS THAN 11⁄2 YEARSTHROUGH INVESTMENT
For foreign investors looking for free-dom and flexibility to live and work in theUnited States in a way accommodating totheir lifestyles, the little-known EB-5investor category can provide an excellentopportunity to accomplish this goalthrough the obtaining of Green Cards.Since this regulation first became law in1990, EB-5 case adjudications have gonethrough several modifications, withdrawalsand other hiccups before implementationof the latest statute in 2002.
There are essentially two EB-5 pro-grams, i.e. the Regular program and theRegional Center program. In order for anapplicant to qualify under the Regularprogram, the following three basicrequirements must be met: investmentin a new commercial enterprise; invest-ment of at least $1 million (or $500,000in certain cases) into the business, andcreation of full-time employment for atleast 10 full-time U.S. workers.
Additionally, to satisfy CIS’ (formerlyINS) standards of a bona fide “new com-mercial enterprise,” a business can qualifyin one of three ways: investment in abusiness formed after November 29,1990; substantial restructure of businessformed before November 29, 1990; orsubstantial expansion of business formedafter November 29, 1990.
The investment may consist of the con-tribution of various forms of capital,including cash, equipment, inventory,property, and other tangible equivalents.An investment amount of $1 million isgenerally the minimum. However,$500,000 is acceptable if the business is sit-uated in a “targeted” employment area, i.e.one that has experienced unemployment ofat least 150 per cent of the national averagerate or a rural area, as designated by theU.S. Office of Management and Budget.
The final Regular program requirement isthat at least 10 full-time jobs are subse-quently created for U.S. workers.
The second program within the EB-5category, i.e. the Regional Center pro-gram, is ideal for the retiree or inactiveinvestor due in large part to the “indirectemployment” feature of this program. TheRegional Center program advantageouslyremoves the 10 employee requirement ofthe Regular program and substitutes theless-restrictive “indirect employment cre-ation,” which allows the investor to qualifyfor an EB-5 Green Card without hiring 10people in the company that the investorhas invested in. So, in a nutshell, under aRegional Center program, the investor canqualify by presenting evidence that 10new jobs will be created throughout theRegional Center economy, typically sup-ported by an economist’s report.
The EB-5 management requirement isminimal in that the investor can be a limit-ed partner with a policy making role andstill qualify. Thus, for those who are notinterested in day-to-day management orrunning an active business, Regional Centerprograms offer a more acceptable inactiveform of investment, than do most Regularprogram investments.
Another advantage of Regional Centerprograms that adds to the flexibility ofthis Green Card category is that theinvestor is not required to live in theplace of investment; rather, he or she canlive wherever he/she wishes in the UnitedStates. For example, the investor mayinvest in a Regional Center in the state ofWashington, but choose to live in upstateNew York.
Under mandate by Congress, RegionalCenter EB-5 petitions are given priorityby CIS which, among other benefits, oftenresults in a quicker path to approval. Theofficial CIS definition of a RegionalCenter is “any economic unit, public orprivate, which is involved with the pro-
motion of economic growth, includingincreased export sales, improved regionalproductively, job creation, or increaseddomestic capital investment.” EachRegional Center program must be pre-approved by CIS in order to be eligible forEB-5 Green Cards. Currently, there are 4 primary active CIS approved RegionalCenter programs with long term trackrecords, including:
E A real estate limited partnership pro-gram that offers an investment inindustrial properties that generallywill be renovated into commercialoffices and stores in a specified majorcity.
E A limited partnership program thatmakes low interest loans to businessesin a specified major city.
E Ownership of machine equipment ina specified location.
E Ownership of dairy farms in the Mid-west.The procedure for obtaining an EB-5
Investor Green Card is relativelystraightforward. The investor must pro-duce 5 years of tax returns to substantiatethe source of investment funds. Thefunds can be in the form of a loan or gift,which would allow a parent to gift a sonor daughter. Gift taxes, if required in theinvestor’s home country, should be paid.He or she must also present evidence thattraces the capital, through bank transfersand other documentation, from theinvestor directly to the enterprise. Thisprovision of the regulation, whichrequires clear evidence that the source of
funds was procured by legal means, arose
from earlier concerns of Congress overmoney laundering issues.
After the investor completes a thor-ough business and financial due diligenceanalysis of the viability of the business,the investment is made and a petition isfiled by the foreign investor with the CIS,requiring CIS to certify that the applicantand the investment are eligible for EB-5status. The approval of the petition takes,on average, a mere 3–6 months.
If the investor is already in the U.S., he orshe then applies for a Green Card throughCIS. No interview customarily is required,and approval has been taking approximately10–12 months. If the investor residesabroad, an application for the Green Card isgenerally made at the U.S. embassy or con-sulate of the investor’s home country;however, in this case, for consular process-ing purposes, an interview is necessary.Approval of the Green Card in this casetakes on average about 8-10 months.
In either of the above two scenarios, inmost Regional Center cases, the entireprocess generally takes less than 11⁄2 years.This is based on current CIS and Consularprocessing times.
Once CIS approves the investor’sGreen Card, it is conditional for a periodof two years.
Conditional Green Card status confersthe same rights as the permanent uncon-ditional Green Card.
Between 21–24 months after the con-ditional Green Card has been approved,the investor must reconfirm that theinvestment has been made or is still in
place and that the employment require-ment has been fulfilled or maintained. Anapplication to remove the conditionalGreen Card status is then filed with CIS.
Once the condition has been removed,a full Green Card is granted for indefinitepermanent resident status and work per-mission in the United States. From thetime the conditional Green Card isapproved until approval of the removal ofcondition usually takes about two and ahalf years. Thereafter, in approvedRegional Center programs, depending onthe terms of their agreement, the invest-ment may be sold, and the investor willstill maintain the permanent Green Card.U.S. Citizenship is possible two and a halfyears later, five years after approval of theconditional Green Card, upon satisfactionof residence and other criteria.
In summary, freedom to live anywherein the United States, a passive form ofinvestment with no required direct man-agement responsibilities, priority standingwithin the Immigration process, and anaccelerated path to Green Card procure-ment, are important factors which makethe little-known EB-5 Green Card catego-ry (and the approved Regional Centerprograms) an ideal investment vehicle forthe inactive investor or retiree who wishesto live and work in the United States.
As with other U.S. Immigration visas,applicants also need to take into accountU.S. and foreign tax and other businessand personal planning considerations.
Nothing in this article should be consid-ered legal advice, and interested persons areadvised to consult qualified advisors.
IVIVEENNERER&&FFUULLLMELMERR LLLLPP
I M M I G R A T I O N A T T O R N E Y S
Immigration to the U.S.
Tax Planning and Fast Track Permanent Residencycontinued from front
Mark Ivener, managing partner of Ivener & Fullmer LLP, a business immigration law firm in Los Angeles, has been practicing immigration lawfor over 35 years and is the author of 5 books on immigration law. Email: [email protected].
Stephen A. Malley, of the Law Offices of Stephen A. Malley, in Los Angeles specializes in U.S. and International tax law, tax treaty applications, international estate and asset protection planning, and international business planning. Mr. Malley counsels on offshore insurancestructures including captive insurance companies and private placement life insurance. Email: [email protected].
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I M M I G R A T I O N A T T O R N E Y S
INTRODUCTION
Immigration to the U.S. is a challengingtask, especially with the restrictionsimposed after 9/11. The first section of
this article discusses pre-immigration taxplanning opportunities, and the secondsection describes the availability of fasttrack immigration and Green Card status.
I. PRE-IMMIGRATION TAX PLANNING
Foreigners legally resident in the U.S.(“Resident Aliens”) are taxed like U.S. citizens,subject to income tax on worldwide income.Resident Aliens are also subject to U.S. gift,estate, and generation-skipping taxes, butthey are denied significant tax exemptionsotherwise available to U.S. citizens. Examplesinclude a nominal estate tax exemption forgifts to a surviving non-citizen Spouse and a$100,000 gift tax exemption, rather then theunlimited exemptions afforded to Citizenspouses. Joint tenancy property held by non-citizens receives disadvantageous estate tax treatment, and there are other tax disadvantages.
A foreigner becomes a U.S. tax resi-dent by having a Green Card, or bysimply by remaining the U.S. 183 days ormore in any single calendar year, or 183days as determined over a three-year peri-od by the following formula:
The multiplier is:Current year . . . . . . . . . . . . . 11st preceding year . . . . . . . .1/32nd preceding year . . . . . . . 1/6
The Tax obligation on worldwideincome is often an unpleasant surprise tothe uninformed immigrant. However, forthose who have the foresight and goodadvice to plan before immigrating to theU.S., and possibly even for those who did
not, current law affords significant plan-ning opportunities.
The U.S. tax code treats a foreigntrust established by a Citizen or ResidentAlien a “grantor trust,” meaning that itis transparent for income tax purposes;all trust activity must be reported annu-ally, on Forms 3520 and 3520A, and alltrust income is currently taxed. Failureto timely file the required reports carriesserious civil and possibly criminal penalties.
However, a Non-Resident Alien, atleast five years prior to immigration,might create a discretionary trust in his orher own country or in a low or no taxjurisdiction, to hold assets for investmentand for future distributions to U.S. bene-ficiaries. The Trust must be drafted tomeet both foreign and U.S. criteria. If thefive year rule is not met, the new residentwill be treated as if the assets were trans-ferred into trust on the date U.S.residency commenced, resulting ingrantor trust treatment, and therefore tocurrent tax and reporting requirements.
The immigrant may become a U.S. res-ident without the knowledge or time totake advantage of the five-year rule. Theremay nevertheless still be some planningopportunities. As an example, the newResident Alien may have a wealthy familyliving outside the U.S., with the desire toestablish a foreign Trust for the benefit ofthe U.S. residents. For example, a foreignTrust established by a foreign Trustor,and which is revocable by that Trustor,could, if it meets other requirements,qualify to make tax-exempt distributionsto U.S. beneficiaries. The U.S. beneficiar-ies must not have any direct ownership orcontrol over the Trustee’s discretion to
make Trust distributions. However, thereceipt by Citizens or Resident Aliens offunds or assets from a foreign trust arereportable, even if not taxable. Any for-eign Trust, foreign or domestic, must beconsidered as part of overall estate plan-ning and should provide for alternativesin the event of the death of the primaryU.S. beneficiaries.
The U.S. Resident Alien can receivemonetary gifts from foreign sources.While such direct gifts are not subject toU.S. tax, the new rules require that giftsfrom foreign sources be reported on Form3520 with annual tax returns. The report-ing required for foreign gifts is much lessextensive than that required for foreignTrusts, and does not require the taxpayerto reveal the identity of the individualdonor of the gift. Partnerships or corpora-tions, or an “intermediary” for suchentity, must however be specifically iden-tified. The IRS reserves the right torequire the beneficiary to reveal the iden-tity of an individual donor.
The IRS reporting form excludesreporting of annual gifts from foreignindividuals under $100,000 from foreignindividuals or estates.
Unlike U.S. Citizens, the ResidentAlien may be in a position to avoid estatetax on assets located outside the U.S. if heor she (or the estate) can establish that theU.S. is not the country of domicile. TheU.S. estate tax is based on the concept ofdomicile, and not on Citizenship. Thelong term Resident Alien will have toplan in advance to establish foreign domi-cile, which the U.S. regulations definegenerally as the place where the ResidentAlien intends to eventually return to as a
I n P r i n t
VOL. 15. NO 1. 2007
Immigration to the U.S. Tax Planning and FastTrack PermanentResidencyBy Mark A. Ivener, Ivener & Fullmer LLP and
Stephen A. Malley, Law Offices of Stephen A. Malley
© 2007. All Rights Reserved
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UPDATED ARTICLEORIGINALLY PUBLISHED IN THE
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14 Bender's Immigration Bulletin 938 (Aug. 1, 2009) HEADLINE: The Relevance of U.S. Securities Laws to Immigrant Investors, EB-5 Regional Cen-ters and Their Advisors AUTHOR: By Jennifer Mercier Moseley, Angelo A. Paparelli, Ladd W. Mark and Carolyn Lee Jennifer Mercier Moseley is a partner in the Birmingham, Alabama office of Burr & Forman, LLP. She represents both public and private companies in connection with mergers and acquisitions, pri-vate securities offerings and securities regulatory matters. Her email is [email protected]. Angelo Paparelli is a partner at Seyfarth Shaw LLP. He practices immigration law in Southern California and New York City. He has been named the world's leading corporate immigration lawyer (2008, 2006 & 2005, International Who's Who of Business Lawyers) and a first-tier business immigration lawyer (2008, Chambers USA). He co-authors the New York Law Journal's ''Immigration'' column, writes a blog (www.nationofimmigrators.com), and serves as an expert witness/consultant on immi-gration to law firms and businesses. His email is [email protected]. Carolyn S. Lee is a part-ner at Miller Mayer LLP in Ithaca, NY. She has written numerous articles related to EB-5 visas published in AILA publications, Bender's Immigration Bulletin, and ILW.com. She is the recipient of the 2008 AILA's Joseph Minsky Young Lawyer Award and is also listed in the 2008 Interna-tional Who's Who of Corporate Immigration Lawyers. Her email is [email protected]. Ladd W. Mark is an associate in the Birmingham office of Burr & Forman, LLP. His email is [email protected]. BODY:
Introduction
The EB-5 employment-creation immigrant visa category,n1 especially its more popular regional center pilot program,n2 is on the rise as a favored form of U.S. immigration for wealthy foreign na-tionals. The EB-5 regional center programn3 requires no labor market test to prove the unavailabil-ity of U.S. workers; no anchor relative in the United States to petition on the immigrant's behalf; no claim of extraordinary or exceptional ability; no fear of persecution in the homeland; no business to manage directly on a day-to-day basis; or job to perform for a sponsor. The category instead allows conditional and permanent resident status by investing lawfully acquired funds (at least $500,000 within a rural area or one of high unemployment, or $1 million anywhere else) in a regional center approved by U.S. Citizenship and Immigration Services (USCIS). To qualify, each investor must directly or indirectly through the regional center create ten full-time jobs in the United States.
From the investor's point of view, he or she is provided with offering materials from the re-gional center, such as a private placement memorandum and subscription agreement, and asked to sign the subscription agreement and deposit his money usually into an escrow account or an account controlled by the regional center. An investor, his or her immigration counsel, and/or perhaps even
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some principals within a regional center may not fully understand the function of those offering documents. The purpose of this article is to provide insight regarding the securities law require-ments governing regional center offerings.n4
When a regional center forms a limited partnership or limited liability company in which the EB-5 investor would become a limited partner (or member, in the case of a limited liability com-pany), the regional center is offering an EB-5 investor a security.n5 Therefore, a regional center must comply with federal and state laws in conducting the offering of securities. Given that the main focus of an EB-5 investment for the investor is obtaining permanent residency in the United States, investors may not recognize or consider that a regional center is offering a security. More importantly, EB-5 investors most likely will have no idea what the implications are if a regional center tells them they are being offered or sold a security. Some regional centers may themselves not be fully aware of these implications.
Moreover, foreign investors, given their likely unfamiliarity with U.S. law, may not understand that state and federal securities laws are designed to protect investors, provide accurate information about potential investments, and punish unscrupulous persons or entities that violate these laws and ultimately injure owners of securities and harm financial markets. These investor concerns and pro-tections may seem unimportant at the outset when the primary focus is on obtaining permanent resi-dent status. Still, investors should recognize that not every investment is safe; not every investment in a regional center will ultimately result in green card status and produce a profit; and not every professional who offers to help investors through the process has the necessary expertise. One major form of investor protection is to sue for a return of the investment, but this recourse does not help the EB-5 investor achieve permanent resident status.
What then is a security? The Securities Act of 1933, as amended (the ''Securities Act'') defines ''security'' quite broadly. It includes any note, stock, bond, ''investment contract'' or, in general, any interest or instrument commonly known as a ''security.'' An ''investment contract'' is made when a person (i) invests money, (ii) in a common enterprise, (iii) with an expectation of profit, (iv) to be earned solely from the effort of others. The U.S. Securities and Exchange Commission (''SEC'') has determined that interests in a limited partnership are an investment contract, and therefore, a secu-rity. Though there have been disputes over whether a membership interest in a limited liability company is also a security, the SEC has considered limited liability company interests to be securi-ties. In fact, if a limited liability company offers unregistered interests in a limited liability company to a large number of investors, it can expect that the SEC will initiate an action against it asserting that the membership interests are securities.
The Securities Act requires that all securities sold must be registered with the SEC, unless ex-empted by its rules. Rule 506 of Regulation D promulgated under the Securities Act provides the exemptions to the registration rules that regional centers typically use to avoid the burdensome and expensive process of registering the securities to be offered and sold to EB-5 investors.n6 To meet the exemption provided by Regulation D, a regional center must comply with certain conditions set forth in Rule 502 of Regulation D, including:
1. Information requirements. If all of the investors are ''accredited investors'' then there are no informational requirements under Regulation D, though issuersn7 are still sub-
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ject to anti-fraud requirements under securities laws. An accredited investor is a person whose: (i) individual net worth, or joint net worth including that person's spouse, at the time of the purchase of the securities exceeds $1,000,000; (ii) individual income exceeded $200,000 in each of the two most recent years and who expects to reach that income level in the current year; or (iii) joint income including that person's spouse exceeded $300,000 in each of the two most recent years and who expects to reach that income level in the current year. If securities are sold to non-accredited investors, then Rule 502(b) requires that the is-suer provide each non-accredited investor with the information specified in that rule (similar to a prospectus required in a registration of securities). The enhanced informa-tional requirements are an onerous and costly task that the issuer can avoid by only sell-ing to accredited investors. 2. Limitation on manner of offering. Rule 502(c) prohibits a general solicitation (dis-cussed below) or advertising in the offer or sale of securities. 3. Limitations on resale. Rule 502(d) prohibits the resale of securities sold under Regu-lation D, unless the securities are registered or another exemption applies to the resale. One potential exemption available for the resale of restricted securities is in Rule 144 promulgated under the Securities Act. Under certain circumstances, Rule 144 states that securities held for at least six months are no longer restricted and may be resold without registration. It is the responsibility of the issuer to ensure that the purchasers of the se-curities do not violate the resale restrictions. 4. Integration. Rule 502(a) also states that offers and sales made within the six months before and after the completion of a Regulation D offering might be considered as a part of that Regulation D offering or ''integrated'' into that offering. The SEC will gen-erally look at the facts and circumstances of all the offerings within this one-year inte-gration window to determine whether separate sales are actually part of the same offer-ing. The factors that the SEC looks at are whether: (i) the sales are part of a single plan of financing; (ii) the sales involve issuance of the same class of securities; (iii) the sales have been made at or about the same time; (iv) the same type of consideration is being received; and (v) the sales are made for the same general purpose.
Rule 503 requires an issuer offering securities in reliance on Regulation D to file a notice of sales on Form Dn8 with the SEC for each new offering of securities no later than 15 calendar days after the first sale of securities in the offering. To determine whether a separate Form D must be filed for a subsequent offering of the same type of securities, the issuer should evaluate the same factors the SEC uses to determine whether there is integration under Rule 502(a), such as whether the offering is part of a single plan of financing or made for the same general purpose. The notice must contain the information required by Form D.
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Of the foregoing conditions, the limitation on the manner of offering is one that most distin-guishes a private placement offering from a public distribution that requires registration of the secu-rities. To maintain the exemption under Regulation D as a private placement offering, issuers must pay careful attention not to engage in general solicitation or advertising.
General Solicitation or Advertising If a regional center violates the prohibition on general solicitation and advertising under Rule
502(c), the Regulation D exemptions are no longer available and any securities attempted to be sold under Regulation D could be voided. The regional center would be required to register the securities or find another available exemption.
General solicitation includes any advertisement, article, notice or other communication pub-lished in any newspaper, magazine, or similar media or broadcast over television or radio and any seminar or meeting whose attendees have been invited by the foregoing methods. This applies whether conducted in the United States or abroad. In addition, sending mass e-mails, newsletters or other mailings is considered general solicitation.
Activities by any third party intermediary assisting the regional center, such as immigration brokers or finders, are included in the evaluation of whether a regional center has complied with Rule 502(c). If an immigration attorney assists a regional center and accepts fees from someone other than his or her own EB-5 investor client for services rendered to that client, then the immigra-tion attorney would be acting as a third party intermediary and his or her activities should also be evaluated within the context of Rule 502(c).
Both the EB-5 investor and the regional center should vigilantly monitor solicitation and mar-keting activities because the consequences of violating Rule 502(c) will be costly. As mentioned above, a transaction in violation of Rule 502(c) will be voidable and the Regulation D exemption will no longer be available.n9 If the transaction is voided, this could reverse any financial benefit conferred to the regional center's project. Since there is no precedent in the EB-5 investment con-text, it is unknown what effect a voided investment transaction could have on any immigration benefit conferred to the EB-5 investor. Nevertheless, an investor does not (and neither does the re-gional center) want to be involved in an investment that will require registration of the securities; registration means extra time, extra disclosures and extra money. Furthermore, registration by a non-public company such as a regional center will involve even more time and enhanced disclo-sures, since the registration would be the initial public offering (''IPO'') for the regional center.
From a time perspective, the investor cannot afford to wait for the process of a registration statement to be prepared and filed with the SEC, and then for the SEC to declare the registration effective. To complete an IPO, the regional center would need at least three years of audited finan-cials, or if it qualifies as a ''smaller reporting company,'' two years of comparative audited balance sheet data in annual financial statements. The regional center cannot offer or sell securities until the registration statement is effective. What this means in the EB-5 context is that an investor cannot sign a subscription agreement until effectiveness of the registration statement, thereby delaying the filing of the I-526 application with the USCIS. Added to the period of time it takes to get an effec-tive registration statement, it could be four to six years before the EB-5 investor's conditions on residence are removed and lawful permanent resident status is granted unconditionally.
Therefore, the EB-5 investor cannot afford to make an investment in a regional center that en-gages or uses a third party intermediary that engages in general solicitation or advertising activities.
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As the issuer, it is the regional center's obligation to comply with the conditions under Regulation D. Because of the potential negative impact on the EB-5 investor, however, a potential investor will want to do his or her own due diligence to ensure the regional center is complying with all applica-ble securities laws.
The initial dissemination of information to potential investors with whom a regional center has no pre-existing relationship may only be made in general terms and may not identify a specific in-vestment opportunity. If there is a pre-existing relationship between the regional center and the po-tential investor, then a solicitation of such investor would not be considered general and references to specific investment opportunities could be made by the regional center. While there are no spe-cific guidelines on how issuers can form a pre-existing relationship with a potential investor, SEC no-action letters and releases provide that a pre-existing relationship can be properly formed through the use of a questionnaire to determine whether a potential investor is an accredited inves-tor. The SEC has referred to the use of accredited investor questionnaires as essential to establishing a substantive pre-existing relationship.n10
State Securities Laws, Broker-Dealers, Agents, and Finders One of the benefits of the Rule 506 exemption under Regulation D is that securities transactions
pursuant to this regulation are exempt from any state securities registration requirements. In 1996, Congress passed The National Securities Markets Improvement Act (''NSMIA'') preempting state securities laws when a transaction involves ''covered securities.'' Securities exempt from registration under Rule 506 of Regulation D are among the transactions that are expressly listed as ''covered se-curities.'' Under the NSMIA, however, states are still allowed to require notification of the exempt transaction and payment of a fee for such notification from the issuer. All states generally require that an issuer file a copy with it of the Form Dn11 filed with the SEC, along with a fee. In addition, the NSMIA does not preclude the states from requiring conditions other than registration of the se-curities, such as prohibiting issuers from paying remuneration to anyone who is not a registered broker-dealer or agent.n12
Most regional centers have agents abroad to connect potential EB-5 investors to their offerings. Most regional centers also provide for referral offered to domestic individuals, including often im-migration lawyers, for referring potential investors to their regional center. As discussed below, a violation of the broker-dealer registration requirements may impose liability not only on the puta-tive agent but also the regional center. The investment opportunity, if found tainted, may also affect the EB-5 investor.
Though each state's securities statute must be examined for specificity, generally, states prohibit issuers from paying anyone in effectuating a securities transaction unless the recipient is a regis-tered broker-dealer or agent.n13 All states require that broker-dealers and agents register in the states in which they operate (there are a few limited exceptions). States will interpret the activities that qualify as ''effectuating a securities transaction'' broadly, as will the SEC. Performing due dili-gence, negotiating terms of the offering, soliciting the investors, and handling the funds of the in-vestors are activities that states and the SEC have found to qualify as broker-dealer activities. In ad-dition, a third party who receives any transaction-based compensation in connection with a securi-ties transaction will almost always be deemed a broker-dealer. On the other hand, if a third party does nothing more than provide the name and contact information of a potential investor to the is-suer, the third party would be considered a ''finder'' rather than a broker-dealer.
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Nevertheless, the exception for finders is still unclear in many instances because the concept of a finder is principally a construction of regulatory interpretations from various SEC no-action let-ters. Moreover, most state securities laws do not explicitly reference finders with respect to their broker-dealer registration requirements. Alabama is one state that does explicitly address finders. In the policy statement regarding Rule 506 exemptions set forth by the Alabama Securities Commis-sion, the commission prohibits any remuneration, including finders' fees, to be paid to unregistered broker-dealers or agents.n14 If the third party intermediary conducts any activities that would be considered broker-dealer activities and is not a registered broker-dealer or agent, then it cannot re-ceive any payments for its services relating to the securities transaction. The determination of whether the activities rise to the level of broker-dealer activities will be made on a case by case ba-sis by the state securities regulatory body or the SEC.
A potential EB-5 investor dealing with a third party intermediary may be unaware of the rules and regulations that apply to an intermediary's activities relating to a Regulation D offering. Recent informal advisories by some regulators to issuers warn that the use of unregistered broker-dealers will render the issuer liable as aiders and abettors of securities law violations under Section 20(e) of the Securities Exchange Act of 1934. Some states also impose civil and criminal penalties for issu-ers that compensate unregistered broker-dealers. As a result, a regional center should take the pro-hibition on payments to unregistered broker-dealers very seriously. Potential EB-5 investors should also be concerned, since a violation of this prohibition could affect the validity of their investment as a whole in some cases and therefore could potentially impact their ability to receive an EB-5 green card.
Conclusion
Many hail the EB-5 regional center program as a clean and easy way to invest and thus obtain a green card. Prospective EB-5 investors, regional centers, and the lawyers who counsel them should recognize, however, that the brass ring is attained not merely by qualifying for immigration benefits and maintaining compliance with the Immigration and Nationality Act. All parties involved should also pay close attention to the demands of federal and state securities laws if the goals of permanent residence and return on investment are ultimately to be realized. FOOTNOTES: (n1)Footnote 1. INA ß 203(b)(5), 8 U.S.C. ß 1153(b)(5).
(n2)Footnote 2. Authorized under the Departments of Commerce, Justice, and State, the Judici-ary, and Related Agencies Appropriations Act of 1993, Pub. L. No. 102-395, ß 610, 106 Stat. 1828; S. Rep. No. 102-918 (1992).
(n3)Footnote 3. A list of currently active EB-5 regional centers, effective as of May 2009 (cour-tesy of Miller Mayer LLP), is available at: http://www.millermayer.com/LinkClick.aspx? fi-leticket=dE%2fgrYpeBOM%3d&tabid=126&mid=863 [last accessed Jul. 21, 2009].
(n4)Footnote 4. The authors are not providing legal advice in this article. Please consult your own securities counsel to discuss your specific facts and the applicability of securities law.
(n5)Footnote 5. We assume in this article that the regional center is the issuer of the securities. However, if a separate entity other than the regional center is offering the securities to the EB-5 in-vestors, the securities laws we discuss would apply to that entity.
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(n6)Footnote 6. This article does not address the other potential exemption from registration, which is provided by Regulation S. Unlike Regulation D, Regulation S does not provide an exemp-tion from state securities registration.
(n7)Footnote 7. Under Section 2(a)(4) of the Securities Act, an issuer is a person or entity who issues or proposes to issue any security.
(n8)Footnote 8. A copy of the Form D can be found on the SEC's website at http://www.sec.gov/about/forms/formd.pdf [last accessed Jul. 21, 2009].
(n9)Footnote 9. In addition, if the Regulation D exemption is no longer available, issuers will then have to find a separate exemption under each applicable state's securities laws in order to avoid registration of the securities.
(n10)Footnote 10. In a no-action letter, the SEC found that a 30-day waiting period should exist between the determination of accredited investor status and the date an offering is made (that is, of-fering materials are provided to the accredited investor). Lamp Technologies, Inc., SEC No-Action Letter (May 29, 1997) available at http://www.sec. gov/divisions/investment/noaction/1997/lamptechnologies052997.pdf [last accessed Jul. 21, 2009]. This 30-day ''safe harbor'' provides regional centers and potential investors with a concrete guideline to follow.
(n11)Footnote 11. Under Rule 503, an issuer selling securities in reliance on the exemptions provided for in Regulation D must file a Form D with the SEC.
(n12)Footnote 12. Federal rules also require broker-dealers to be registered. These rules are not discussed in this article since Regulation D does not have a specific condition prohibiting issuers from paying remuneration to unregistered broker-dealers.
(n13)Footnote 13. Generally, a broker-dealer is defined as any person who effectuates or at-tempts to effectuate a securities transaction, and an agent is a person who effectuates or attempts to effectuate a securities transaction on behalf of an issuer or broker-dealer. Federal securities laws have a similar definition. Section 15 of the Securities Exchange Act of 1934, as amended, defines a ''broker'' as any person engaged in the business of effecting transactions in securities.
(n14)Footnote 14. For a copy of the policy statement, see http://asc.state.al.us/statutes.htm [last accessed Jul. 21, 2009].
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