Transparent complexity to achieve flexibility in eb 5 plans and proposals 05-24-2011
 

Transparent complexity to achieve flexibility in eb 5 plans and proposals 05-24-2011

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This is an updated and revised version. A couple of errors were corrected and an additional topic is added.

This is an updated and revised version. A couple of errors were corrected and an additional topic is added.

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Transparent complexity to achieve flexibility in eb 5 plans and proposals 05-24-2011 Transparent complexity to achieve flexibility in eb 5 plans and proposals 05-24-2011 Document Transcript

  • The Role of Transparent Complexity in Preserving EB-5 Investment Flexibility By Joseph P. WhalenAcknowledging and Inviting “Material Changes”:Aside from the four EB-5 Precedent Decisions1 decided by the AAO in 1998, I could only findone actual BIA decision dealing with an older investor classification. That older case was in aslightly different context. Interim Decision # 2581 or Matter of Heidari2, 16 I&N Dec. 203 (BIA1977) [specifically May 4, 1977] dealt with a student who overstayed his student visa and begana business and sought to Reopen and later to Reopen and Reconsider a deportation order. Afterhe was already ordered deported, he sought that relief in order to take advantage a newimmigration classification which required an alien to invest $40,000 and be the principalmanager of the business and employ at least one USC or LPR employee (excluding self, spouse,and children). In that case, the BIA refused to consider new evidence that came into being afterthe fact, long after the filing of the initial petition and after he was ordered deported. Theprohibition against making a ―material change‖ and the requirement for ―eligibility at time offiling‖ specifically within the immigrant investor context goes back to 1977, long before Izummiin 1998. However, that too was a decision involving a visa petition rather than an I-829 seekingto lift conditions, or an I-924 for a Regional Center neither of which yet existed.I urge USCIS to specifically distinguish the I-924 as an application which does not require anapplicant to be completely ―eligible at time of filing‖ and is not prohibited from making materialchanges post-filing. The context to consider for an I-924 is that the applicant must establishcomplete eligibility at the time of adjudication upon an evidentiary showing to the satisfaction ofUSCIS that the applicant is fully qualified for the benefit sought. It seems that USCIS ismoving in that direction but has not stated it in plain language. This sentiment is expressedin the Background section of the May 19, 2011, EB-5 Proposal3 as: ―‗Actual‘ applications are supported by specific business plans and economic analysis, the actual capital-investment structures and documentation for the investment offering, the anticipated regional economic impacts, and the Regional Center‘s operating plan and1 In 1998, the AAO (attributed to The Associate Commissioner, Examinations) through the BIA, issued four EB-5Precedent Decisions, but they are for the Immigrant Investors‘ I-526s, not Regional Centers (I-924s), and not I-829s.Matter of Ho http://www.justice.gov/eoir/vll/intdec/vol22/3362.pdfMatter of Hsuing http://www.justice.gov/eoir/vll/intdec/vol22/3361.pdfMatter of Izummi http://www.justice.gov/eoir/vll/intdec/vol22/3360.pdf For the I-924, the most pertinent part of the13 part holding is number ―(9) The Service does not pre-adjudicate immigrant-investor petitions; each petition mustbe adjudicated on its own merits.‖ However, the AAO inappropriately applies number ―(3) A petitioner may notmake material changes to his petition in an effort to make a deficient petition conform to Service requirements.‖Matter of Soffici http://www.justice.gov/eoir/vll/intdec/vol22/3359.pdf2 http://www.justice.gov/eoir/vll/intdec/vol16/2581.pdf3 http://www.uscis.gov/USCIS/Outreach/Feedback%20Opportunities/Operartional%20Proposals%20for%20Comment/EB-5-Proposal-18May11.pdf 1 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011
  • structure. The review of the specific documentation to be provided in I-526 petitions for projects that can be started immediately after the approval of the I-924 application promotes efficiency and predictability within the EB-5 immigrant petitioning process as issues can be identified and resolved within the I-924 application prior to the filing of any I-526 petitions.‖In the ―Proposal‖ posted by USCIS, there is one item listed in the ―chart‖ at the end of Step1 thatI have a question about. The third item up from the bottom is labeled as ―I-526 – RegionalCenter ―Exemplar‖ Project‖. I can ―guess‖ and ―suggest‖ what I would mean by that but I canfind no specific explanation in the ―Proposal‖.I can‘t imagine what set of circumstances would make this filing ―NOT accelerated‖ and ―NOTeligible for PPS‖ on the contrary, I would think something like that (as I envision) would besuitable and would expect every one of them to be filed as PPS.Here is what I would mean by that “I-526 – Regional Center “Exemplar” Project”:An ―I-526 – Regional Center ―Exemplar‖ Project‖ case filing would be allowed by either a leadalien immigrant investor (a volunteer-guinea pig) or a Regional Center agent, who is acting asthe ―general partner‖ in a RC-affiliated project-specific ―(limited) partnership‖ for: 1.) The sole purpose of a last minute check of the validity of the standardized prima facie evidence of eligibility before allowing I-526 investors to file petitions en masse. This would be a less expensive alternative to the filing of an I-924 as an amendment when the sole purpose is a check of executable project-specific documentation for EB-5 compliance. AND/OR 2.) When a previously-vetted RC “exemplar” project gets utilized (is pulled off-the-shelf of previously-vetted exemplars in the RC library/repertoire/arsenal of such projects) and becomes an ―actual‖ project.If the ―exemplar‖ business plan (BP) and ―proposed‖ economic methodology and an ―exemplar‖economic analysis (EA) had already been presented in an I-924, then a last minute check of the―acceptability‖ of the ―final‖ version of the ―actual‖ BP and/or EA, instead of or, in addition to,the ―standardized documentation last-step vetting for EB-5 compliance‖, right before allowinginvestors to file I-526s, en masse, would be money well spent and promote the Congressionalintent of EB-5.If the I-924 for an ―exemplar‖ is sufficiently vetted, sculpted, and hammered-out during thelonger, more expensive process, i.e. ―put through the wringer-up front‖, then the ―follow-up‖ viaan I-526 ―exemplar‖ vetting would serve to transform the prior I-924 ―exemplar‖ into an ―actual‖at a lower cost that is suitable to the task at hand.Of course, that just my take on the possible meaning of a term that is not explained in theProposal. 2 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011
  • Transparent Complexity to Achieve Desired Flexibility:One must understand also that once an I-526 is approved that an individual alien investor ispretty much locked in to a plan that needs follow through. Guidance on the limits to aRegional Center‘s (RC‘s) plans and structure of investments are crucial but limitations need notmerely be restrictive, limits can also be expansive and inclusive.The AAO non-precedent Decision of April 23, 20104 (excerpts below) involves a RegionalCenter limited partnership that initially chose to invest in the expansion of Tommy D‘s, a homeimprovement supply store, and then switched to a restaurant, Butcher & Singer. That Decisionhas some points to be considered for further development. This decision relates to an I-829 butdoes discuss Regional Center issues as well, and perhaps it is even more pertinent to an I-924. ―The business plan stated that the objective of the partnership would be to operate as an ongoing series of investments that serve the best interests of the limited partners and in a manner that furthers the economic development of Philadelphia. The plan references a PIDC advisory agreement with the Partnership that requires PIDC to recommend investments to the Partnership...‖ (At p.5) There would appear to be a certain amount of flexibility built in to the referenced ―AdvisoryAgreement‖. USCIS should not move away from that flexibility but rather embrace it and defineit appropriately within the forthcoming revised form instructions. That same decision goes on tostate: ―The full amount of the requisite investment must be made available to the business most closely responsible for creating the employment upon which the petition is based. Matter of Izummi, 22 I&N Dec. 169, 179 (Commr. 1998). While counsel notes on certification that the job creating enterprise and the new commercial enterprise are not always the same and notes that Matter of Izummi does not preclude prospective investments, nothing in that decision suggests that the alien is free to move his investment from the prospective project presented to USCIS in support of the Form 1-526 to a project that USCIS has never reviewed in any respect.‖ (At p.11) [Emphases added.]Pay close attention to the phrase ―employment upon which the petition is based” and rememberthat this is the certified denial of an I-829 which is a process that includes proving the jobs havebeen created. Working from that position, the value in the use of ―exemplars‖5 is made quite4 http://www.uscis.gov/err/B7%20-%20Form%20I-526%20and%20I-829/Decisions_Issued_in_2010/Apr232010_01B7203.pdf5 ex·em·plar –noun [from: http://dictionary.reference.com/browse/exemplar]1. a model or pattern to be copied or imitated: Washington is the exemplar of patriotic virtue. 3 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011
  • clear. In order to preserve the desired flexibility to shift to a different project or supplement aninvestment portfolio with an additional previously only ―prospective investment‖ requiressufficient advanced planning. The Regional Center desiring such flexibility needs to have aninventory of ―prospective projects‖ in the form of sufficiently ―USCIS-vetted exemplars‖ on-the-shelf from which to choose. Planning ahead for a variety of contingencies is a wise move for anyRegional Center. That case also involved shifting from a TEA to an area not shown to be a TEA.The RC cannot afford to lose sight of any pertinent detail in their specific investment maneuversand the advanced planning for those possibilities or contingencies is critical.It would also be incumbent upon the Regional Center to invest the needed resources in creating asufficiently variegated overall Regional Center business plan that is well supported withexemplar projects and economic analyses with reliable and credible job projections based on avalid econometric model. In essence the more successful Regional Center is going to be one witha large library or catalog of ―USCIS-vetted‖ exemplar project plans and economic analyses.This previous point is where a broad, credible, comprehensive business plan that is wide-rangingin scope and breadth submitted at the Regional Center (RC) Proposal (I-924) stage is critical. If aRC asserts a flexible investment approach and builds such flexibility into its written supportingdocumentation with a certain amount of specificity sufficient to put USCIS on notice, thenshifting from one vetted ―actual‖ project to another project based on a ―previously vettedexemplar‖ project remains a possibility. Preserving such flexibility is not a simple task.The RC applicant must invest great effort into the planning in order to retain such flexibility forits prospective investors. The “general proposal” based on “general predictions” allowed bythe statute [8 USC 1153 Note] must be presented with sufficiently detailed information“concerning the kinds of commercial enterprises that will receive capital from aliens” asallowed and envisioned all in that same statute. Congress also directed the agency to writeregulations and to establish ―reasonable methodologies‖. Well, those mechanisms are there in theregulations at 8 CFR § 204.6(m)(3). It is up to the RC applicant to comply with thoserequirements from the very beginning. The Regional Center investor is no-more free to abruptlychange midstream than USCIS, however, if the possibility is already built into the USCIS-vetted2. a typical example or instance.3. an original or archetype: Plato thought nature but a copy of ideal exemplars.4. a copy of a book or text.ex·em·plar n. [from: http://www.thefreedictionary.com/exemplar]1. One that is worthy of imitation; a model. See Synonyms at ideal.2. One that is typical or representative; an example.3. An ideal that serves as a pattern; an archetype.4. A copy, as of a book.[Middle English exemplere, from Late Latin exempl rium, from Latin exemplum, example; see example.] 4 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011
  • and approved plan in advance of a shift, then it is not an impermissible material change outsidethe I-526 approved plan.While USCIS must set certain limits to such flexibility it would be to the detriment of thesuccess and survival of the EB-5 Immigrant Investor Program to cut off any possibility offlexibility. I urge USCIS to address this concept in the anticipated revised I-924 and I-526 forminstructions and any planned regulatory update. Transparent Complexity “Up Front” Is Key To Reasonable Reliance On The Prospect Of Enjoying Future Deference Within EB-5 Based on Regional Center AffiliationFlexibility can be built into a complex Regional Center Proposal supporting the I-924 if it fullyembraces each and every aspect of the implementing regulations and statute, as amended.If one reads 8 CFR § 204.6(m)(3)(i-v) like this and thinks outside the box, then the successfulTransparent, Complex, and Flexible Proposal will be one that: “Clearly describes how the regional center focuses on a geographical region of the UnitedStates,” It is essential to choose a realistic statistical universe to work within (geographicallyspeaking), amendments can be made later that refine and/or replicate what has thus far provensuccessful in order to expand the RC‘s reach and scope. This part of the planning processestablishes a workable basis for the econometric model and dictates the appropriate inputs for thevariables needed for use in the chosen model/methodology6 (RIMS II, IMPLAN, REMI,REDYNE, other) when creating the actual or exemplar ―economic analysis‖.“...and how it will promote economic growth through.....improved regional productivity,job creation, and increased domestic capital investment;” This part underlies the necessarycomprehensive and credible business plan or plans7. These should focus on the particular ―kindsof commercial enterprises that will receive capital‖ as dictated by the statute to be identified upfront. This is where one must chose their types of projects and flesh out their desired commercialenterprises that are expected to create the required jobs. This is where one looks to the NAICS 8codes.Once again, it is critical to be specific enough to get appropriate inputs for the economic modelyet try to leave some wiggle room by choosing the right category at a wide enough level toretain sufficient flexibility. Be specific enough to satisfy USCIS up front with an exemplarproject but build in enough flexibility to be able to tailor the previously vetted and approved6 An economic or econometric ―model or methodology‖ speaks to the selection of a viable scientific andmathematical approach to be applied though the selection of appropriate input categories and values based onlocation and industry. The result of the calculations is the ―economic or econometric analysis‖. That is theeconomist‘s work product which contains the job creation prediction or projections and is submitted as evidence.The selections of the model/methodology and the suitable inputs are dictated by, or inspired by, the credible,comprehensive business plan. Remember: garbage in = garbage out.7 Id.8 http://www.census.gov/cgi-bin/sssd/naics/naicsrch?chart=2007 5 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011
  • economic model to an actual project based on a previously USCIS-vetted exemplar project planwithout getting too far away from where you started. This is for each ―kind of commercialenterprise‖ identified. There is no limit to the different kinds of projects the RC can plan aheadfor.If an actual project falls into a category of investment that was previously vetted as an exemplarthen submitting an I-924 amendment or even an ―I-526 Regional Center ―exemplar‖ Project‖should be a straight-forward exercise of that flexibility to ensure a quick response to theamendment application or exemplar petition request, with the proviso that the actual alieninvestors‘ supporting financial documentation is always separate and apart from the RC filedapplication or petition.This would be a safe way of ensuring that a strong prima facie case could be presented with eachinvestor‘s I-526 petition, en masse. It is not yet an absolute requirement that any final projectchosen that is based on a previously vetted exemplar must be submitted as an amendment (orexemplar petition) but it would be a wise move when possible. If the flexibility has beenpresented up front through the use of transparent complexity then additional previously only―prospective investments‖ that had been planned for as contingencies and/or possibilities canbecome realities. These can be added into an evolving and/or revolving investment structure orpossibly even substituted in place of a failing project. It is key that a substitute or addition hasalready been vetted by USCIS at the very least as an ―exemplar‖ that is similar enough to the―actual‖ project that it is not interpreted and branded as “a project that USCIS has neverreviewed in any respect.‖Having a sufficient variety of possible project types is a key component for any Regional Center.Some developer may approach a Regional Center at any time and if the RC already has apreviously vetted and approved exemplar similar enough on hand, then the ―actual‖ project canget underway quicker. If an I-924 amendment is needed to cover some kind of commercialenterprise never previously vetted in any respect it will slow things down. Consider thepreparation time before submission as well as the adjudication time after filing. An amendmentof a new project that is a ―close match‖ to a previously vetted ―exemplar‖ should speed theprocess and turnaround time for both the RC and USCIS.In the April 23, 2010, PIDC case, Tommy D‘s as a ―discount seller of close-out or discountedbuilding materials used for home improvement‖ might have fit into one or more of the followingNAICS codes. 44 Retail Trade444 Building Material and Garden Equipment and Supplies Dealers4441 Building Material and Supplies Dealers44411 Home Centers444110 Home Centers44412 Paint and Wallpaper Stores444120 Paint and Wallpaper Stores44413 Hardware Stores444130 Hardware Stores 6 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011
  • 44419 Other Building Material Dealers444190 Other Building Material DealersButcher & Singer as an ―upscale supper club‖ would probably have fit into one or more of theseNAICS codes:72 Accommodation and Food Services722 Food Services and Drinking Places7221 Full-Service Restaurants72211 Full-Service Restaurants722110 Full-Service Restaurants“Provides in verifiable detail how jobs will be created indirectly...;” This part speaks to thelevel of detail required for the project plan and the economic analysis based on that plan. It alsospeaks to the quality of data used as inputs in the economic model to produce the economicanalysis and job creation projections gleaned from it. Of course, when speaking of quality of dataused as inputs one must ensure that reasonable and reliable data is chosen and that it isappropriate to the particular econometric model or methodology being used. Once again this allharkens back to the business plan. Is that plan realistic and based on current accurate data?“Provides a detailed statement regarding the amount and source of capital which has beencommitted to the regional center, as well as a description of the promotional efforts takenand planned by the sponsors of the regional center;” This part is specific to the operation ofthe entity that applied for Regional Center designation. How will these folks fund and advertisethe RC? How will they recruit? Will they be charging alien investors for services, whichservices? This may be addressed in a business plan specific to the operation of the RC alone ormay be less formal correspondence which often includes a budget. This information may becontained in an Operating Agreement, Subscription Agreement, Partnership Agreement, Bylaws,Articles of Incorporation, an Organizational Agreement, or a Charter as examples.“Contains a detailed prediction regarding the manner in which the regional center willhave a positive impact on the regional or national economy in general...” This part alsoharkens back to the prior requirement and the first under (m)(3). This is an overall statement asto the good to potentially come from the establishment of the Regional Center in a particulargeographic area as well as the various alien investor projects it will help get started. Theseeffects should be quite clearly obvious and jump out of the business plan and economic analysis.“...as reflected by such factors as increased household earnings, greater demand forbusiness services, utilities, maintenance and repair, and construction both within andwithout the regional center;” This part gives a laundry list of specifics for the economist toaddress in the economic analysis. Amazingly, these are often overlooked because the economistsare not provided with the actual regulations that their work product (the economic analysis) issupposed to support. The economists would produce better analyses if they knew what theiranalyses were supposed to specifically include. Many economic analyses blather on aboutpoverty levels, taxes, user fees, property values and socio-economic stratification based oneducational levels of the demographic composition of the population. Interesting if you are 7 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011
  • addressing Congress for funding a project in a community but irrelevant to EB-5. EB-5economists need to stick to the direct, indirect and induced job creation and general economicbenefits of the actual project or exemplar project type proposed as the new commercial enterpriseto receive EB-5 funds.“Is supported by economically or statistically valid forecasting tools, including, but notlimited to, feasibility studies, analyses of markets for....the goods or services....., and/ormultiplier tables.” This part reiterates and emphasizes that the credible, comprehensive businessplan and the economic analysis as well as the job creation projections must be sound and basedin reality. ―Economically and statistically valid‖ is crucial for the inputs being used as well as theeconomic model and/or methodology being used as a forecasting tool. The economic modelsmay employ ―multipliers‖ and the selection of the appropriate multiplier is crucial. Thepreparation of, or reliance on, ―feasibility studies‖ and ―analyses of markets‖ are paramount tothe foundation of the business plans/proposals for the various ―goods and services‖ to be offeredthrough the ―new‖ ―commercial enterprises‖.In the April 14, 2011, AAO non-precedent Decision9 pertaining to a South Dakota failed DairyFarm Regional Center affiliated I-829 case provides some analysis invoking the reasoning of theNinth Circuit in the Chang case as to the inability of USCIS to go back and re-adjudicate an I-526 at the I-829 stage. ―The Ninth Circuit, in Chang v. United States of America, 327 F. 3d 911 (9th Cir. 2003), held that, during the adjudication of a Form I-829, USCIS could not review whether the initial plan submitted with the Form I-526 was qualifying, only whether the alien sustained that plan. Specifically, the court stated that the Form 1-526 approval may not be "decoupled from [Form] I-829 approval." Id. The court further stated that Form I-829 approval is predicted by Form I-526 approval and "successful execution of the approved plan." Id. As noted by the court in Chang, 327 F. 3d at 927, far more evidence is required in support of the Form I-526 petition. In fact, as stated above, the regulation at 8 C.F.R. § 204.6(j)(4)(iii) expressly requires the submission of reasonable methodologies for determining indirect job creation at the Form I-526 stage. At the Form I-829 stage, the petitioner is not required to submit such evidence, although the petitioner must use the methodologies approved at the Form I-526 stage to demonstrate that his investment has created the requisite employment. Under the reasoning of Chang, the director erred in revisiting the appropriateness of the multiplier. The director approved the Form 1-526, which disclosed that the petitioner would be using the 2.66 multiplier for the location of the dairy. The petitioner did not materially change the location of the proposed employment creation and the director does not identify information that was misrepresented or not disclosed at the Form 1-526 stage that would warrant a new evaluation of the9 http://www.uscis.gov/err/B7%20-%20Form%20I-526%20and%20I-829/Decisions_Issued_in_2011/Apr142011_01B7203.pdf 8 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011
  • multipliers used. Thus, the petitioner should be able to rely on the 2.66 multiplier as an acceptable means of demonstrating total job creation, including indirect jobs. The AAO withdraws the directors concern that the 2.66 multiplier is not appropriate.‖ (At p.15)A Regional Center that starts with too narrow a scope has already painted itself into a cornerfrom which there is nowhere to go and is likely doomed to fail. Based on that same reasoningfrom Chang, upon which the Ninth Circuit blocked INS from re-adjudicating an I-526, and uponwhich AAO blocked CSC from re-adjudicating an I-526, the act of a petitioner’s full, honest,and accurate disclosure in the I-526 is paramount to success at the at the I-829 stage if coupledwith successful execution of the plan or a showing that one is on the cusp of achieving the goals.Therefore, through the well thought out and skillfully crafted Plan(s) put forth up front i.e.,presentation of a plan constructed with transparent complexity, one can build in any amount offlexibility it chooses to expend the effort to produce through solid business plans and economicanalyses with a verifiable and detailed basis. 8 CFR § 204.6 Petitions for employment creation aliens. (e) Definitions. As used in this section: Commercial enterprise means any for-profit activity formed for the ongoing conduct of lawful business including, but not limited to, a sole proprietorship, partnership (whether limited or general), holding company, joint venture, corporation, business trust, or other entity which may be publicly or privately owned. This definition includes a commercial enterprise consisting of a holding company and its wholly-owned subsidiaries, provided that each such subsidiary is engaged in a for-profit activity formed for the ongoing conduct of a lawful business. This definition shall not include a noncommercial activity such as owning and operating a personal residence. New means established after November 29, 1990.The law changed after the regulations were written and have done away with certain restrictiverequirements. The investor need not ―establish‖ a truly ―new‖ business. The investor may join inafter a business has already begun. The alien investor can contribute towards and grow therelatively new business and be considered as having had a hand in its establishment. The alienmay buy a business and restructure it into something considered ―new‖. The alien may invest ina business to expand it significantly to 140% or more of what it was when (s)he joined it in termsof net worth and employment (it is unclear but I think the net increase in employment should be10 new jobs per EB-5 investor with the proviso that the RC investor can include new indirectjobs). An alien investor can help save a troubled business and preserve at least 10 jobs (each)without losing any jobs. Some of these last few points above may still be open to a challenge. 9 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011
  • 8 CFR § 204.6 Petitions for employment creation aliens. (e) Definitions. As used in this section: Troubled business means a business that has been in existence for at least two years, has incurred a net loss for accounting purposes (determined on the basis of generally accepted accounting principles) during the twelve- or twenty-four month period prior to the priority date on the alien entrepreneurs Form I–526, and the loss for such period is at least equal to twenty percent of the troubled businesss net worth prior to such loss. For purposes of determining whether or not the troubled business has been in existence for two years, successors in interest to the troubled business will be deemed to have been in existence for the same period of time as the business they succeeded. (j) Initial evidence to accompany petition...... (4) Job creation...... (ii) Troubled business. To show that a new commercial enterprise which has been established through a capital investment in a troubled business meets the statutory employment creation requirement, the petition must be accompanied by evidence that the number of existing employees is being or will be maintained at no less than the pre- investment level for a period of at least two years. Photocopies of tax records, Forms I–9, or other relevant documents for the qualifying employees and a comprehensive business plan shall be submitted in support of the petition.Having fun with funds:Just how much transparent flexibility can one work into the financial arrangements? We‘ve allheard the terms ―creative bookkeeping‖ and ―cooking the books‖. That is a dangerous game toplay, just ask Al Capone and Bernie Madoff. However, when full disclosure is made ofcomplicated arrangements in terms that an actual human being can understand then complexity isnot only acceptable but can be one‘s salvation. It is once again critical to be transparent in thathigh level of complexity needed to ensure flexibility. Invest in a competent CPA and seasonedveteran tax attorney, perhaps a former IRS accountant or IRS legal counsel! It‘s money wellspent.Can you use EB-5 money to pay off a loan? The answer to that question is a qualified ―yes‖.However, a quick reading of the CFR definition of the word ―invest‖ might make you say ―no‖and stop your inquiry. That would be a bad move, read the CFR more slowly and then read thestatute. A former co-worker of mine used to say (about practically everything): ―It‘s just not thatsimple.‖ She could be frustrating but she was wise and usually right. 10 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011
  • 8 CFR § 204.6 Petitions for employment creation aliens. (e) Definitions. As used in this section: Invest means to contribute capital. A contribution of capital in exchange for a note, bond, convertible debt, obligation, or any other debt arrangement between the alien entrepreneur and the new commercial enterprise does not constitute a contribution of capital for the purposes of this part.One has to take a step back and consider the actual prohibition. There can no simple assumptionof debt between the alien entrepreneur and the new commercial enterprise. Nor can one alieninvestor simply buy-out another alien investor and have BOTH count the same jobs, ridiculous!Domestic investors and bridge loans that created unallocated new jobs are another matter.Now for a harder question: ―How do you use EB-5 money to pay off a loan?‖ The way to make itpossible is to use a mix of domestic and foreign investments and to make it even easier, structurea project in phases. Alien investors can enter and exit projects at different times so timing theinfusion of certain alien investors‘ funds is a key component to success. You cannot doublecount jobs or allocate the same jobs to more than one EB-5 investor. If the jobs will come intoexistence in a piecemeal fashion then so should the infusion of alien investor funds. Job creationand allocation are somewhat time sensitive.The earlier alien investors can get the fewer jobs that get created up front. Suppose that a newfactory will be built. There is a construction phase required before the first part of the factorywill become operational. The early construction jobs cannot be counted in this particular projector at least not immediately, they require more proof of longevity to overcome the expectation thatmost construction jobs are temporary, seasonal, intermittent or transient in nature10. The EB-5funds have, at this early stage, created indirect jobs (which are labeled as the indirect andinduced jobs in the economic analysis) that are based on the initial construction only phase ofthe project and can be safely allocated to the early investors.Now, bring in more EB-5 investors as the factory starts producing the widgets11. Now that thefactory is open, there are factory workers, assemblers, delivery truck drivers, warehouse andoffice staff etc.., and the indirect/induced jobs based on them to be allocated. There are nowmore and different jobs to allocate to the EB-5 investors.10 http://www.uscis.gov/USCIS/Laws/Memoranda/Static_Files_Memoranda/2009/eb5_17jun09.pdf11 In many economic models, something considered typical or representative, as of a manufacturers products: thewidgets coming off the assembly line. 11 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011
  • Now suppose that there are some domestic investors also involved and bridge loans that havebuilt up. As long as there are enough new direct or indirect jobs to be allocated in sufficientnumbers, then new alien investors can buy into the project and displace or join with domesticinvestors or pay down some bridge loans. In this sense, the buy-in is generally in the form ofjoining the investor group that is supplying financing to the developer rather than directownership of the factory which is the new commercial enterprise than is creating jobs. This isespecially OK if the bridge loans from lenders or short-term domestic investors were obtainedbecause of EB-5 money known to be in escrow or on the way due to aggressive Regional Centermarketing efforts known to the domestic investors and/or bridge loan sources. But wait, that‘snot all, if, as had originally been predicted, a certain number, of certain types of the constructionjobs have in fact lasted long enough to count for EB-5, then they too can be allocated for EB-5investors. The originally predicted construction jobs should be held in reserve until they havelasted long enough to count but should be identified up front and allocated as quickly as possibleonce they are deemed sufficient and substantial enough to count. 8 CFR § 204.6 Petitions for employment creation aliens. (g) Multiple investors — (1) General. The establishment of a new commercial enterprise may be used as the basis of a petition for classification as an alien entrepreneur by more than one investor, provided each petitioning investor has invested or is actively in the process of investing the required amount for the area in which the new commercial enterprise is principally doing business, and provided each individual investment results in the creation of at least ten full-time positions for qualifying employees. The establishment of a new commercial enterprise may be used as the basis of a petition for classification as an alien entrepreneur even though there are several owners of the enterprise, including persons who are not seeking classification under section 203(b)(5) of the Act and non-natural persons, both foreign and domestic, provided that the source(s) of all capital invested is identified and all invested capital has been derived by lawful means. (2) Employment creation allocation. The total number of full-time positions created for qualifying employees shall be allocated solely to those alien entrepreneurs who have used the establishment of the new commercial enterprise as the basis of a petition on Form I–526. No allocation need be made among persons not seeking classification under section 203(b)(5) of the Act or among non-natural persons, either foreign or domestic. The Service shall recognize any reasonable agreement made among the alien entrepreneurs in regard to the identification and allocation of such qualifying positions.Who can count which jobs?The option to pool investments is NOT restricted to Regional Centers only. A group of aliens canjoin forces independent of a Regional Center however, non-Regional Center-affiliated alieninvestor groups cannot take advantage of ―indirect jobs‖ as predicted by an ―economic analysis‖ 12 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011
  • based on any forecasting tools such as economic models and multipliers etc.... ALL of their jobsMUST be direct employees on-the-books, full-time, and permanent. These employees MUST allbe ―qualifying employees‖. The alien investors, spouses, sons and daughters are NOT includedin the total. No illegal aliens count in the total. Part-time positions do not count. A ―job-sharingarrangement‖ does count but is a rare thing in general. Job-sharing means that two (or more)people share one full-time job. That means that they are NOT co-workers working side-by-side.They share one 35 to 40 hour per week job. They both (or all) only equal one full-timePOSITION when added together. The non-Regional Center-affiliated alien cannot add up twoor more part-time jobs and call it one full-time POSITION*. Any job that is temporary,seasonal, intermittent, or transient in nature does NOT count.When non-Regional Center investors pool their funds, they EACH have to have ten (10) full-time permanent employees, on-the-books and present EVIDENCE to USCIS. However, for theRC investor an Economic Analysis is utilized. It must be based on a sound Econometric Modelthat uses the information provided in, or inspired by, the credible comprehensive Business Plan.Numerous Models are in existence and recognized for their validity, there is no mandate to useany particular Model. Popular choices have been from among: IMPLAN, RIMS II, REDYNE,and REMI, but others may exist or come into fashion. RC investors rely on the EconomicAnalysis supported by the Business Plan. The non-RC investors will only rely on the BusinessPlans. In either case, evidence is evidence but that evidence usually varies greatly. RegionalCenters and their investors have to prove fewer, if any, actual ―direct‖ on-the-books, permanent,full-time jobs for ―qualifying employees‖.The jobs that are predicated for RC investors through the for-profit business activities of the newcommercial enterprise must eventually be backed up with verifiable evidence. When dealingwith the evidence to be produced to back up and prove the predictions about job creation,consider the nature of the investment scheme and the ease or difficulty of producing the requiredevidence. If the one predicts ―indirect jobs‖ (which in the lingo of economic models will belabeled as both indirect and induced but for EB-5 these are both ―indirect jobs‖) based on ―directjobs‖, consider whether these are also ―indirect jobs‖ in relation to the alien investor. If theyare then that MUST be satisfactorily explained up front in the Regional Center plans and theEconomic Analysis. These might be labeled as hypothetical or base levels or some sucheconomist-speak terminology in relation to the EB-5 RC investors.One might build a retail department store and lease it out but that person won‘t be hiring thestore cashiers, stock clerks, delivery drivers, secretaries, bookkeepers, personnel specialists,buyers, accountants, and janitors. The developer of a mall won‘t be signing the paychecks for theguy selling pizza and milkshakes in the food court, selling movie tickets, or plowing the snow orpainting the lines in that parking lot. All of those folks will be ―indirect‖ in relation to the alieninvestor.Is it even a possibility for five non-RC affiliated aliens each investing one million dollars tocreate a business that would require fifty full time employees in the U.S. today? I don‘t think five 13 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011
  • million would go far enough to get the required results. Perhaps one one-million dollar investorcould achieve 10 jobs by the end of the conditional residence period but I am skeptical that eventwo such alien investors could get the required jobs.A further thought about evidence:Whatever the final decision is as to the econometric model/methodology used for determining abasis to calculate indirect jobs, and in whichever frame of reference, RC or stand-aloneinvestment (stand-alone not being based on any ―model‖), one should take into account, up front,the evidentiary requirements that will be needed to prove job creation at the I-829 stage.For the RC investors, will the Analysis demand that the alien investor will have to come up withproof of actual ―direct employees‖? In any case, then the alien whether, through the RegionalCenter, in a group, or alone, will have to come up with W-2s, quarterly wage and tax reports,and/or I-9s, all of which must be verifiable as true. DHS runs what is likely the premierforensics document laboratory in all of the U.S. and probably the entire world and they can checkwith State tax agencies as well as IRS investigators and don‘t forget that USCIS itself runs E-Verify.Proving ―direct-like‖ jobs may be achieved in different ways depending on the specificsinvolved. When the Economic Analysis bases and ties its projection as to indirect job creation ona base level of newly created jobs attributable to the alien‘s investment in a particularcommercial enterprise rather than simply to the dollar amount of the investment, it is critical todifferentiate between ―direct employees‖ on the alien’s payroll vs. ―direct employees‖ of athird party who are ―indirect employees‖ for EB-5 purposes. Third party direct employees usedas ―direct jobs‖ in terms of input into the Economic Model may be termed as ―hypothetical‖ or―base level jobs‖ or some other terminology that clearly distinguishes them as not on the alien‘spayroll. This is critical at the I-829 stage as to the evidence that will be required to lift conditionson residence. The classic and easiest example that illustrates this is ―mall tenants‘ employees‖while another could be ―factory workers‖ when the alien is loaning money to an industrialist inorder to let that other person or entity build, convert, or expand a factory. Simply basing the jobcreation projections on amount of investment may be easier to prove but both should beconsidered as the end result in net new jobs may vary.Application of multipliers at the back end of the immigration processing (I-829):In the same April 14, 2011, AAO non-precedent Decision, in determining first that even if non-qualifying direct jobs could have counted as a base for applying a previously approved multiplierto arrive at a total number of indirect jobs, there simply were not enough. AAO went on to statethat it concurred with the Service Center Director that it would not be permissible to allow that 14 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011
  • approach as it is in clear contradiction to Congressional intent. AAO acknowledged that thelifting of two previous investors‘ conditions was a mistake and USCIS is not bound by pasterrors, in general, and AAO is not bound by past mistake of the Service Center Director,specifically, in that it is the appellate authority with the power to overrule a decision below. ―The petitioners evidence regarding its direct qualifying employees is not relevant, probative or credible. Doubt cast on any aspect of the petitioners proof may, of course, lead to a reevaluation of the reliability and sufficiency of the remaining evidence offered in support of the visa petition. Matter of Ho, 19 I&N Dec. at 591. The submitted evidence in this matter is so flawed, that there is no established number of direct jobs that can be used for the multiplier. Even if we were to consider the claims in a light most favorable to the petitioner, and apply the 2.66 multiplier to the non-qualifying direct jobs, the resulting number would not satisfy the statutory minimum. The petitioner has not submitted consistent, probative, and credible evidence that Mr. and Mrs.[redacted] worked as direct employees; therefore, the petitioner has only established 14 direct jobs. Applying the multiplier to 14 direct jobs results in 37.24 jobs. As the multiplier represents total job creation (direct and indirect), we must subtract the 13 direct jobs filled by non-qualifying employees for a total of 24.24 jobs. As noted by the director, two alien investors already removed conditions based on these indirect jobs; therefore, we must subtract the 20 jobs that have been allocated to them. Thus, we could not allocate more than four of the indirect jobs to the petitioner. See 8 C.F.R. § 204.6(g)(2). With respect to the other two alien investors who have removed conditions, the AAO is not required to approve applications or petitions where eligibility has not been demonstrated, merely because of prior approvals that may have been erroneous. See, e.g., Matter of Church Scientology International, 19 I&N Dec. 593, 597 (Comm. 1988). It would be absurd to suggest that USCIS or any agency must treat acknowledged errors as binding precedent. Sussex Engg. Ltd. v. Montgomery, 825 F.2d 1084, 1090 (6th Cir. 1987), cert. denied, 485 U.S. 1008 (1988).‖ (At p.16) ***** ―Finally, there are serious legal concerns about allowing an enterprise to calculate indirect job creation based on the actual employment of unauthorized aliens. In the certified decision, the director stated that "allowing this practice may be contrary to the spirit of the law as the statute is designed to encourage job creation for qualifying employees." The AAO concurs that allowing the application of a multiplier to non- qualifying jobs would likely result in eligibility for petitioning aliens who are unable to 15 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011
  • document the creation of any jobs for qualifying employees. This outcome is inconsistent with Congressional intent to create jobs for qualifying employees. See 136 Cong. Rec. S17106-01,17107,1990 WL 165401‖ (At p.17)One final thought on the meaning of “a Job” or “POSITION”:*Economic Models that predict indirect jobs do not distinguish between multiple part-time jobsand full-time jobs. They deal in Full Time Equivalents (FTEs), i.e., one full-time POSITION.USCIS had difficulty wrapping its head around that concept at first but seems to have come torealize that that is OK after all because of the leeway provided by Congress in the statutescreating and amending the Regional Centers in the Immigrant Investor Program and theCongressional intent made clear in examining the Congressional records when passing them. 16 Comments on Proposed EB-5 Processing Changes by Joseph P. Whalen 5/24/2011