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A TALE OF TWO BUSINESS PLANS

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A TALE OF TWO BUSINESS PLANS

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A TALE OF TWO BUSINESS PLANS

  1. 1. Contact: joseph.whalen774@gmail.com Page 1 of 8 A TALE OF TWO BUSINESS PLANS By Joseph P. Whalen (Wednesday, October 21, 2015) Yes, the title of this article is a play upon the Charles Dickens classic “A Tale of Two Cities” (1859) which begins with an often quoted passage, and although usually only the first two phrases are quoted, here is the entire first sentence: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.” In pondering requests for EB-5 Regional Center Designation, I am drawn to the following phrases: “…it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity…” Having had the opportunity to read through upwards of 65 regional center proposals, I am struck by the dichotomies of wisdom vs. foolishness and belief vs. incredulity.1 Unfortunately, these competing concepts compete so hard sometimes within an I-924 application packages, formerly a Regional Center Proposal, that the line between them blurs into obscurity. They are often lost in the wake of blatant obfuscation, i.e. attempts to “baffle them with bullcrap” and let confusion reign unchecked. When seeking EB-5 Regional Center Designation, there is a lot of confusion even after all these years. It seems obvious to me that too many folks have sought designation without fully understanding their obligations and responsibilities to the alien investors if they are awarded such designation. USCIS and AAO must shoulder some of the blame. By                                                              1 Incredulity: a feeling that you do not or cannot believe or accept that something is true or real. "Incredulity." Merriam-Webster.com. Merriam-Webster, n.d. Web. 20 Oct. 2015. http://www.merriam- webster.com/dictionary/incredulity . Also, synonymous with “disbelief” or “not credible”.
  2. 2. Contact: joseph.whalen774@gmail.com Page 2 of 8 applying the concepts of the “general proposal” and “general predictions” too generously in the wake of the 2013 EB-5 Adjudications Policy Memo, applicants got the wrong idea. It also did not help that AAO initially resisted weighing in on the concept of “administrative oversight” and the level of it that is required by an EB-5 Regional Center. AAO had an opportunity to weigh in on this subject matter in early 2014, but chickened out. Here is a link to that non-precedent and snippets from it.  FEB212014_01K1610.pdf (Appeal Dismissed) “The director denied the application, determining the following: 1. The applicant was not an economic unit on the date it filed the proposal; 2. The proposal failed to sufficiently project job creation through the submission of business plans and an economic impact analysis; 3. The proposal did not explain how the applicant would promote economic growth within the selected geographic area or have a positive impact on the regional or national economy; 4. The record lacked a sufficient promotional and recruitment plan, and evidence that the regional center would perform adequate administrative oversight.” At p. 2 * * * * “Finally, with respect to the director's conclusion that the regional center proposal does not demonstrate that if USCIS approves and designates the applicant as a regional center, the regional center will provide administrative oversight, counsel notes that the applicant has submitted a "pro forma" Form I-924A Supplement and asserts that this submission demonstrates its ability to update USCIS on its activities in the future. The director determined that the proposal was deficient because it did not demonstrate how the regional center would maintain its approval by demonstrating its administration, oversight and monitoring of investment activities under its sponsorship. See 8 C.F.R. § 204.6(m)(6) (requiring that a regional center annually update USCIS with information demonstrating that it continues to promote economic growth, improved regional productivity, job creation, or increased domestic capital investment in the approved geographic area). As the application may not be approved on the other grounds the director identified, the AAO need not determine whether 8 C.F.R. § 204.6(m)(6) imposes evidentiary requirements on an applicant when it applies for designation as a regional center.” At p. 10
  3. 3. Contact: joseph.whalen774@gmail.com Page 3 of 8 After nearly a year and a half, AAO got over its cold feet and engaged in some deeper discussion about the necessary level of “administrative oversight” required of an EB-5 Regional Center. Once again, here is a link, and some excerpts.  JUL092015_01K1610.pdf (Appeal Dismissed) “The chief denied the application, determining that the applicant did not submit a business plan for the regional center or provide any evidence of the regional center's administrative oversight. On appeal, the applicant submits a brief with additional documentation.” At p. 1 “I. ANALYSIS A. The Regional Center's Business Plan The regulation at 8 C.F.R. § 204.6(m)(3) requires the regional center applicant to submit a detailed proposal for the regional center rather than a general or hypothetical proposal. For instance, the proposal must clearly describe how the regional center focuses on a geographical region of the United States and how it will promote economic growth through increased export sales, improved regional productivity, job creation, and increased domestic capital investment. 8 C.F.R. § 204.6(m)(3)(i). In addition, the proposal must provide in verifiable detail how jobs will be created directly through increased exports. 8 C.F.R. § 204.6(m)(3)(ii). Furthermore, the proposal must provide a comprehensive statement regarding the amount and source of capital which has been committed to the regional center, as well as a description of the promotional efforts taken and planned by the sponsors of the regional center. 8 C.F.R. § 204.6(m)(3)(iii). Moreover, the proposal must contain a thorough prediction regarding the manner in which the regional center will have a positive impact on the regional or national economy in general. 8 C.F.R. § 204.6(m)(3)(iv). Finally, the proposal must be supported by economically or statistically valid forecasting tools. 8 C.F.R. § 204.6(m)(3)(v).” At pp. 3-4 “… on April 22, 2013, the Director, California Service Center, issued a request for evidence (RFE), in part, notifying the applicant that a request for regional center designation should contain at least two business plans - one for the regional center's operational plan and one for a hypothetical, actual, or exemplar business plan for a project in each of the defined target industries in the proposal. …” At p. 4 “In response to the RFE, the applicant submitted a revised […….] dated July 11, 2013, that also pertained to the spa and resort project of the regional center but did not reflect a specific business plan for the regional center. The chief denied Form I-924
  4. 4. Contact: joseph.whalen774@gmail.com Page 4 of 8 on November 12, 2014, in part, because the applicant did not submit an operational plan for the regional center as required by the regulation at 8 C.F.R. § 204.6(m)(3). Specifically, the chief determined that the applicant: did not demonstrate how the regional center will identify, assess, and evaluate proposed investor projects, activities, and enterprises; did not establish that the regional center had sufficient capital to operate; and did not demonstrate the promotional activities for the regional center.” At p. 4 I think that the most important point to take away from all of this is that each proposal in support of a Form I-924 requesting EB-5 Regional Center Designation needs at least two business plans and as demonstrated above, the plan for the Regional Center itself is often described as an “operational plan” in part, to distinguish it as a different evidence requirement from the “business plan” for the investment. While most EB-5 enthusiasts are familiar with the fact that there are three levels of detail2 for a business plan in support of an investment vehicle or project, usually a development; there is only one level of detail allowed for the Regional Center’s business (or operational) plan. That one level is sufficiently detailed, and many specific details are drawn from the statute and expanded via regulation. One might be curious how to prove, or how to measure and judge, what constitutes sufficient detail. Once again I am of a mind to toss out a favorite saying: It’s just not that simple! “B. Administrative Oversight To ensure that a regional center continues to meet the requirements of section 210(a) of the Appropriations Act, as amended, the regulation at 8 C.F.R. § 204.6(m)(6) requires that the regional center provide USCIS with updated information by filing Form I-924A Supplement (Form I-924A) to demonstrate that the regional center continues to promote economic growth, including increased export sales, improved regional productivity, job creation, and increased domestic capital investment. The chief determined that the applicant did not submit any evidence of administrative oversight to determine the regional center's ability to monitor the immigrant investment activities in a manner that would allow the regional center to be fully responsive to the yearly information collection requirements of Form I-924A. The                                                              2 Footnote 2 in the Policy Memo: 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, that contains copies of the commercial enterprise’s organizational and transactional documents, which USCIS will review to determine if they are in compliance with established EB-5 eligibility requirements.
  5. 5. Contact: joseph.whalen774@gmail.com Page 5 of 8 applicant's brief states that the […….] "makes clear that the procedures have been laid out for […….] to comply with the requirements of 8 CFR [§] 204.6(m)(6)." As indicated above, page two of the […….] indicates that the president and vice president will "ensure that all necessary oversight is performed." In addition, the […….] asserts that the president and vice president will hire bookkeepers, outside accountants, and a certified public account (CPA) to prepare income and tax documents. Further, the […….] asserts that although no firms have been retained for any of these purposes, it has been "in regular contact with many capable bookkeepers, accountants, and CPA's in and around the […….]." The […….] does not include specific, credible information as to how the applicant will collect information to perform the administrative oversight of the regional center. There is no indication of any budgeted funds to pay for the employment of financial consultants and employees or any other overhead costs and staffing needs. Although the […….] makes general statements, it does not explain how it will monitor regional productivity, job creation, and domestic capital investment. Accordingly, for the reasons stated above, the applicant has not established that the regional center would be able to comply with the yearly reporting requirements set forth at 8 C.F.R. § 204.6(m)(6).” At pp. 6-7 The best I can figure is that it is important to seek out certain words in the statute and then the implementing regulations. The laws are written with a prospective imperative which meaning I believe is worth chasing. First, I tend to examine the statute for verbs and then adjectives as they relate to the nouns that state the specific “details”. While it is not simple, neither is it impossible. I am not going to diagram the sentences but if that is what you need to do, then do it. I will present the of §§ 610(a) and (c) and add emphasis to help you see what I see as pertinent to creating a sufficiently detailed proposal, or operational plan, for a regional center as opposed to an investment vehicle or specific project’s business plan which is industry based and coincides with the applicable NAICS code. Here we go, hang on tight! (a) Of the visas otherwise available under section 203(b)(5) of the Immigration and Nationality Act (8 U.S.C. § 1153(b)(5)), the Secretary of State, together with the Secretary of Homeland Security, shall set aside visas for a program to implement the provisions of such section. Such program shall involve a regional center in the United States, designated by the Secretary of Homeland Security on the basis of a general proposal, for the promotion of economic growth, including increased export sales, improved regional productivity, job creation, or increased domestic capital
  6. 6. Contact: joseph.whalen774@gmail.com Page 6 of 8 investment. A regional center shall have jurisdiction over a limited geographic area, which shall be described in the proposal and consistent with the purpose of concentrating pooled investment in defined economic zones. The establishment of a regional center may be based on general predictions, contained in the proposal, concerning the kinds of commercial enterprises that will receive capital from aliens, the jobs that will be created directly or indirectly as a result of such capital investments, and the other positive economic effects such capital investments will have. In the above section of law Congress directed the executive branch agencies to create “a program to implement” the sorely underutilized EB-5 visa. USCIS as a part of DHS is to “designate” “regional center[s]” based on “a general proposal for” a bunch of lofty goals and objectives but on a “regional” level. The “general predictions” allowed as a basis for designation pertain to such generalized aspects as “the kinds of commercial enterprises” being financed and the resultant “jobs that will be created” and “other positive economic effects” of those investments. Those broad goals are intended to occur on a “regional” level at a minimum as evidenced by use of the phrase “improved regional productivity” used in both §§ 610(a) and (c). INS encouraged even greater goals by including the possibility of “national” impacts in the implementing regulations. (c) In determining compliance with section 203(b)(5)(A)(iii)[(ii)] of the Immigration and Nationality Act [8 U.S.C. 1153(b)(5)(A)(iii)[(ii)]], and notwithstanding the requirements of 8 CFR 204.6, the Secretary of Homeland Security shall permit aliens admitted under the program described in this section to establish reasonable methodologies for determining the number of jobs created by the program, including such jobs which are estimated to have been created indirectly through revenues generated from increased exports, improved regional productivity, job creation, or increased domestic capital investment resulting from the program. In regard to the inclusion of the term “notwithstanding”, the 8 CFR § 204.6 which Congress disliked was the one that existed before 8 CFR § 204.6(m) was written. That particular section was written in response to this legislation. I wish to point out that the regulatory requirements for Regional Center Designation have not been successfully challenged in any court of which I am aware. I do not know of them being challenged at all. While unhappy customers have filed lawsuits over the years none were direct challenges to the validity of the overall implementing regulations pertaining to Regional Center Designation. As far as I am aware the first Regional Center appeal was to AAO in the decision found at this link: Nov182008_01K1610.pdf. I was the one who
  7. 7. Contact: joseph.whalen774@gmail.com Page 7 of 8 decided to deny the Proposal for Regional Center Designation. We were surprised that an appeal was filed because, as noted in the denial, there was no fee for refiling a new proposal but the appeal did require a fee with Form I-290B and that should tell you something all by itself. The real specifics for the Regional Center’s operational plan are found in the regulations and further detailed in the form instructions. (m) Immigrant Investor Pilot Program— (3) Requirements for regional centers. Each regional center wishing to participate in the Immigrant Investor Pilot Program shall submit a proposal to the Assistant Commissioner for Adjudications [Immigrant Investor Program Office (IPO)], which: (i) Clearly describes how the regional center focuses on a geographical region of the United States, and how it will promote economic growth through increased export sales, improved regional productivity, job creation, and increased domestic capital investment; (ii) Provides in verifiable detail how jobs will be created indirectly through increased exports; (iii) Provides a detailed statement regarding the amount and source of capital which has been committed to the regional center, as well as a description of the promotional efforts taken and planned by the sponsors of the regional center; (iv) Contains a detailed prediction regarding the manner in which the regional center will have a positive impact on the regional or national economy in general as reflected by such factors as increased household earnings, greater demand for business services, utilities, maintenance and repair, and construction both within and without the regional center; and (v) Is supported by economically or statistically valid forecasting tools, including, but not limited to, feasibility studies, analyses of foreign and domestic markets for the goods or services to be exported, and/or multiplier tables. Just as a reminder, form instructions are incorporated into the controlling regulation for the benefit being sought through the filing of that form. See 8 CFR § 103.2(a)(1) Every benefit request or other document submitted to DHS must be executed and filed in accordance with the form instructions, notwithstanding any provision of 8 CFR chapter 1 to the contrary, and such instructions are incorporated into the regulations requiring its submission. … Note: A business plan provided in support of a regional center application should contain sufficient detail to provide valid and reasoned inputs into the economic forecasting tools and must demonstrate that the proposed project is feasible under current market and economic conditions. The form of the EB-5 investment from the commercial enterprise into the job creating project (equity, loan, or
  8. 8. Contact: joseph.whalen774@gmail.com Page 8 of 8 some other financial arrangement) should be identified. ********* The business plan should also identify any and all fees, profits, surcharges, or other like remittances that will be paid to the regional center or any of its principals or agents through EB-5 capital investment activities. ********* The application should be supported by a statement from the principal of the Regional Center that explains the methodologies that the Regional Center will use to track the infusion of each EB-5 alien investor's capital into the job creating enterprise, and to allocate the jobs created through the EB-5 investments in the job creating enterprise to each associated EB-5 alien investor. The anticipated minimum capital investment threshold (either $1,000,000 or $500,000) for each investor should also be identified. ********* Submit a plan of operation for the regional center which addresses how investors will be recruited and how the regional center will conduct its due diligence to ensure that all immigrant investor funds affiliated with its capital investment projects will be obtained from lawful sources. The above excerpts from the I-924 form instructions support the proposition that at least an initial I-924 must include a business and/or operational plan specific to running the Regional Center itself. In my opinion, this aspect of the eligibility requirements for a Regional Center will tighten in the near future. Either Congress will legislate reactionary “enhancements, fixes, and improvements” or USCIS will have to make major changes through lengthy notice-and-comment rulemaking. Or if we are really lucky, Congress will consult the agency which will immediately respond with desired enhancements and then some useful changes will come about very quickly. We will just have wait and see! Dated this 21st day of October, 2015 /s/ Joseph P. Whalen That’s my two-cents, for now! Digitally signed by Joseph P. Whalen DN: cn=Joseph P. Whalen, o, ou, email=joseph.whalen774@gmail.com, c=US Date: 2015.10.21 21:55:53 -04'00'

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