Analysis of the Final EB-5 Policy Memorandum – What’s New

 Finally, the greatly anticipated EB-5 Adjudications Policy Memorandum, PM-602-0083, was released by USCIS on May 30, 2013. EB-5 practitioners across the board will welcome the significant changes added, including more clear-cut guidance on: bridge financing, the usage of EB-5 funds and the regional center amendment.

The most drastic changes are located within the regional center petition and amendments section. It is noted and appreciated that USCIS has made considerable efforts to make the EB-5 program efficient, flexible and predictable. The acknowledgement of the preponderance of evidence rule as prevailing has also been long-awaited. It is also the authors' opinion that the language used in the memorandum indicates that the program will be made permanent in the forthcoming Immigration Reform legislation.

Below is an outline of some of the more significant EB-5 policy changes contained in the final memorandum compared to the draft policy memorandum.

Changes in the Regional Center Petition

USCIS differentiate three types of projects submitted under regional center: the "actual project", "hypothetical project" and "exemplar" project.  

An "actual project" refers to a specific project proposal that is supported by a Matter of Ho compliant business plan. A "hypothetical project" refers to a project proposal that is not supported by a Matter of Ho compliant business plan. The term "exemplar" refers to a sample Form I-526 petition, filed with a Form I-924 actual project proposal

If the regional center petition with an "actual project" is approved, it will be accorded deference to subsequent I-526 filings under the project involving the same material facts and issues. Within the realms of marketing, an approval of an "actual project" will certainly rate favorably with the potential investors and registered agents and will avoid the long periods of uncertainty that presently exist.

The USCIS I-924 regional center petition approval notice should contain a statement identifying which projects have been approved as "actual projects" and will be accorded deference and those projects that have been approved as "hypothetical projects" but will not be accorded deference.

Clarification on the Usage of EB-5 Funds

The final policy memorandum used the following example to illustrate the relationship between job creation and usage of EB-5 funds.

"Ten immigrant investors seek to establish a hotel as their new commercial enterprise.

The establishment of the new hotel requires capital to pay financing costs to unrelated  third parties, purchasing the land, developing the plans, obtaining the licenses, building  the structure, taking care of the grounds, staffing the hotel, and the many other types of  expenses involved in the development and operation of a new hotel. The immigrant's investments can go to pay part or all of any of these expenses. Each immigrant's investment of the required amount of capital helps the new commercial enterprise - the new hotel - create ten jobs. The ten immigrants' investments must result in the new hotel's creation of 100 jobs for qualifying employees (ten jobs resulting per each individual immigrant's capital investment)."

The said example clarifies that in a Direct EB-5 context (which may be more appropriate for the project concerned) the EB-5 funds are not necessarily invested in the new commercial enterprise itself. It is permissible to use the funds to pay the costs to the unrelated third parties, as long as the required amount of capital helps the new commercial enterprise create jobs.  

Bridge Financing

The final policy memorandum gives more flexibility in issue of replacing bridge financing with EB-5 financing, recognizing that in the context of business, time is often of the essence.  It is now permissible to replace bridge financing with EB-5 funds even if the EB-5 financing is not contemplated prior to acquiring the bridge financing.

This change is significant given that USCIS has terminated a regional center, namely Victorville Regional Center in Victorville, California because of the bridge financing timing issue.  On May 24, 2011 USCIS issued a final termination notice and ended the Victorville immigrant investor program. On December 21, 2011, AAO affirmed the decision. See Matter of Regional Center of Victorville Development. Inc., RCW 103 1910251, Dec. 21, 2011. One of the reasons for the regional center termination was: "the record does not show that the applicant made a commitment to provide later-stage financing at the outset of the project. Instead, the applicant appears to have decided to commit capital toward later-stage financing only after the initial stages of the project that created the jobs in question were already complete."  

The final memorandum clearly states that "if the project commences based on the interim or bridge financing prior to the receipt of the EB-5 capital and subsequently replaces it with EB-5 capital, the new commercial enterprise may still receive credit for the job creation under the regulations."

Generally, the replacement of bridge financing with EB-5 investor capital should have been contemplated prior to acquiring the original non-EB-5 financing. However, even if the EB-5 financing was not contemplated prior to acquiring the temporary financing, as long as the financing to be replaced was contemplated as short-term temporary financing which would be subsequently replaced, the infusion of EB-5 financing could still result in the creation of, and credit for, new jobs.

For example, the non EB-5 financing originally contemplated to replace the temporary financing may no longer be available to the commercial enterprise as a result of changes in availability of traditional financing. Developers should not be precluded from using EB-5 capital as an alternative source to replace temporary financing simply because it was not contemplated prior to obtaining the bridge or temporary financing.

Regional Center Amendments

Within the final policy memorandum, the authors believe the most drastic changes are evident in the regional center amendments section. If the amendment is in the regional center's industries of focus, its geographic boundaries, its business plans, or its economic methodologies, the amendment is no longer required! This provision will not only save time, but will allow existing regional centers to be "rented" more easily.

"Of course, all regional centers "must provide updated information to demonstrate the center is continuing to promote economic growth, improved regional productivity, job creation, or increased domestic capital investment in the approved geographic area . . . on an annual basis," 8 C.F.R. § 204.6(m)(6), through the filing of their annual Form I-924A."

"To improve processing efficiencies and predictability in subsequent filings (i.e. application of deference), many regional centers may choose to amend the Form I-924 approval to reflect job creation in additional industries not previously reviewed at the time of project approval, as well as the resulting change in economic analysis and job creation estimates. Such amendments, however, are not required in order for individual investors to proceed with filing Forms I-526 or Forms I-829 based on the additional jobs created, or to be created, in additional industries."

Thus, we welcome the changes brought about by the new policy memorandum. It is hoped that this will actually increase efficiency and ultimately profitability.

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