The EB-5 Stakeholder’s Meeting held on September 10, 2014, in Washington, DC., was the first EB-5 Stakeholder’s Meeting following the State Department’s critical announcement last month, relating to the unavailability of current visas for mainland Chinese nationals.
Seasoned practitioners, eager for clarification on pressing issues such as the impact of the visa backlog, had high expectations of the event. Below is a summary of the meeting.
EB-5 Program Updates
The Chief of the Immigrant Investor Program Mr. Nicholas Colucci provided the program updates. USCIS as promised continued to hire and train adjudicators. Currently USCIS have 83 full-time adjudicators on board and another 10-12 new employees scheduled to start at the middle of October. The new adjudicators will review the incoming I-526 and I-829 petitions. The Service plans to have another round of recruitment. The staffing goal is to have 110 staff members under the EB-5 Program before the end of fiscal year 2015 (September 30, 2015).
The three areas the Service intends to focus upon are: building the foundation of the program, increase customer services and the transparency and increase of performance and predictability.
Three additional division chiefs were hired to supervise the EB-5 Program. They include a former USCIS officer with experiences in Adjudication Oversight and USCIS’ Office of Policy and Strategy; an immigration lawyer who worked at the Department of Labor and private practice in immigration law and an economist who has experiences in investment banking and consulting business.
Customer Service and Transparency
USCIS is not best known for providing a timely response. Notwithstanding this, Mr. Colucci stated that since April 2014, the Service has responded to 3,500 requests from stakeholders relating to the EB-5 Program. The authors have tried and tested the E-request system. We did receive a timely response, but it was of little substance. Nevertheless, the authors support the Services’ efforts to establish a functional mechanism to take in requests and provide a response in a timely fashion.
The meeting also highlighted the fact that the Service continues to engage the stakeholders in the process of policy formation. The EB-5 Interactive will be established for USCIS to post filing tips, common reasons to issue a Request of Evidence (RFE), etc. The interactive forum will enable stakeholders to send questions, request clarification and to facilitate the efficient communication. Perhaps an iPhone app will be next!
USCIS will further strengthen their partnership with other federal agencies. Next week USCIS intends to hold an interagency symposium with 13 other federal agencies including the Department of Commerce, the Department of Labor, the Department of State, Securities and Exchange Commissions, Federal Bureau of Investigation, Immigration and Customs Enforcement and the federal banking regulators.
An annual report will be released by USCIS at the end of this calendar year. The report will, include the average processing time, filing statistics and a macro review of the EB-5 Program.
Further to expectations, the EB-5 Program has evolved into a multi-billion dollar industry within the past few years. USCIS have partnered with the Department of Commerce to develop a comprehensive study of the economic impact of the EB-5 Program. The study will be released in the summer of 2015.
EB-5 Filing and Visa Backlog
Regional Centers will continue to file Form I-924A annually. 340 regional centers of 369 regional centers approved by September 30, 2013 filed the Form I-924A, 29 regional centers failed to file Form I-924A, which resulted in a receipt of a Notice of Intent to Deny (NOID). Inactive regional centers are slowly receiving their marching orders as USCIS have issued 24 NOIDs to inactive regional centers, citing that they no longer serve the purpose of economic growth as provided in the regulations.
The processing time for I-526 petitions is presently 13.1 months; for I-829 petitions it is 7.8 months and I-924 petition typically takes 7.1 months to be adjudicated. Without distinguishing the specific types of filing (Direct EB-5 I-526 filing, Hypothetical/Actual/Exemplar I-924 regional center filing), the adjudication time frame provides little guidance on what to expect. USCIS confirms that they are unlikely to provide a breakdown processing time any time soon. The filing of the electronic system ELIS will not automatically expedite the adjudication, as originally hoped. This is hardly surprising given the complexities in filing via ELIS.
The reason given for the delays in I-526 processing was again as expected – a significant backlog due to a heavy case load. More than 8,000 I-526 petitions were received in the first 8 months of fiscal year 2014. Given the situation, an EB-5 investor from mainland China should file their I-526 petition as soon as possible, because according to the information provided by Charles Oppenheim, the state department visa office chief, the visa retrogression for Chinese investors will occur in May/June 2015.
Visa Backlog Misconception
The issue of visa retrogression impacts investors only from Mainland China. It is a misconception that the EB-5 visas have all been “used up” as the current visa number for mainland Chinese remains “current” on the October 2014 Visa Bulletin, released on September 9, 2014 by the State Department. Thus Chinese investors can continue to submit I-526 petitions and USCIS will continue to adjudicate these I-526 petitions. No visa interviews will be scheduled at the consulate from August 23, 2014 to September 30, 2014. From October 1, 2014 another 10,000 visas will be released reverting the situation from red back to green (normal). To quote USCIS, the visa backlog currently has “minimum impact” in Fiscal Year 2014.
Recently, issues surrounding escrow accounts have been troublesome to even seasoned practitioners. During today’s stakeholder meeting, USCIS provided an approved specific case scenario for an escrow holdback account. The EB-5 project establishes two designated escrow accounts. The capital release term for the primary escrow account is upon the filing of the I-526. The secondary escrow account established, holds a percentage of the EB-5 capital. The purpose of this account would be to compensate investors in the case of an I-526 denial. The release term for the secondary escrow is upon I-526 approval. The said structure has been tested and approved by USCIS.
As holding funds within an escrow account is not an EB-5 requirement, the authors agree with a comment made by a seasoned practitioner, that escrow should not be a USCIS issue at all!
Portfolio of Investments
USCIS also provided a specific case study for an investment portfolio scenario. Here, the New Commercial Enterprise, or NCE, establishes as a holding company. The EB-5 investment funds are initially invested into the holding company and subsequently deployed to a portfolio of businesses wholly owned by the NCE. As long as the minimum number of jobs has been created, regardless from which wholly owned subsidiary, the structure meets the EB-5 requirements.
This scenario is a significant step forward for USCIS, who have traditionally taken a more simplistic view of funds established to minimize risks. Today’s information is valuable as the investors and the investment advisers are continually seeking feasible ways to minimize the investment risks for the EB-5 Program. The authors believe that the structure will have to be carefully crafted in order to avoid any USCIS rulings relating to the ambiguity of the nexus of the job creation and the funds.
Under the said fund portfolio structure, there is a pressing question relating to the issue of construction jobs and construction timelines. If a combination of wholly owned subsidiaries can in aggregate, complete the job creation requirement, can the construction timelines also be combined and added up to meet the 24 month requirement? Under the current EB-5 rules, as the nature of construction jobs is temporary and seasonal, only if the construction timeline exceeds 24 months, can direct construction jobs be counted. The authors are of the opinion that it is unlikely USCIS would accept such a scenario, where the construction timeline of a portfolio of businesses can be added up to make the 24 months benchmark.
During the Stakeholder Meeting, which is always well attended, more questions were raised than answers given. Most of these unanswered questions related to visa retrogression issues (for mainland China). The issues are pertinent and will require clarification from USCIS in the very near future.
In a visa backlog situation where Chinese Direct EB-5 investors, who are either investing in their own job creating entities or in a non-passive pooled investment project, need to travel to the US to manage their business either through active daily management or through policy formulation. With the visa backlog, investors may not be able to enter the US years after the I-526 has been approved. It is unclear whether they can enter the US on a B1/B2 or other non-immigrant visa given that they have clear immigrant intent. It is also unclear whether aging out children from China will receive preferential treatment due to the current visa backlog and likely visa retrogression.
Should there be significant Chinese retrogression, how long would direct jobs need to be maintained? The authors believe that there is no statutory basis to “maintain” the jobs. The jobs need to be “created” and the investment capital needs to be “maintained”. The reality is often at the time of I-829 adjudications; USCIS has been known to prefer that direct jobs be in existence and are evidenced by W-2 forms and payroll records. The visa backlog may prolong the EB-5 process into 7-8 years.
For regional center projects, the visa backlog affects the timing of the capital deployment. If the EB-5 process is prolonged to 7-8 years, most regional center projects obtain a term loan from the EB-5 investors for 5 years. Can they return the capital to the EB-5 investors prior to the I-829 adjudication? What about returning the capital to the new commercial enterprise, if not to the individual investor?
Further, if a Chinese Investor is forced to wait 2 or more years before adjusting status, will an investor be allowed to file an I-829 petition upon entering the US, rather than wait 2 years?
As the leading EB-5 practitioner, Mona Shah & Associates aim to identify the unresolved issues as well as to interpret the existing bodies of statutes, regulations and policies to better serve the EB-5 stakeholders in the near future.
Mona Shah is the principal of Mona Shah & Associates in New York City. The firm has assisted many Regional Centers and Investors in navigating this complex, nuanced and constantly changing area of immigration law. Mona has more than 18 years of legal experience in immigration law and extensive knowledge in EB-5 law as well as prior participation in major regional centers. Mona's substantial litigation background includes her representation of clients in both state and federal courts. She has handled complex immigration law appeals before the US Circuit Courts of Appeal nationwide. Before coming to the US, Mona was a Crown Prosecutor in the UK. Mona has authored and published numerous articles and has spoken extensively both in the US and overseas.
Yi Song is an attorney at Mona Shah & Associates with advanced experience in EB-5 law and EB-5 related Securities law. She is admitted to practice law in New York and in the People’s Republic of China. She has authored many published articles on EB-5 financing and securities law. She practiced tax law in China and has experience in class action securities litigation cases. Yi is a graduate from Georgetown University Law Center in Washington, DC.
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