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June 2013 EB-5 Newsletter

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June 2013 EB-5 Newsletter

  1. 1. Joe Whalen’s EB-5 Roundup June 1, 2013Final EB-5 Policy Memo Published!On May 30, 2013, USCIS released its “Final” version ofthe long awaited EB-5 Policy Memo. Several othershave already commented on the contents, pointing outthe highlights while still studying it. I will not repeat thehighlights her. Instead I will tackle a couple of thoseitems in greater depth.Interim or Bridge Financing“Since it is the commercial enterprise that creates thejobs, the developer or the principal of the newcommercial enterprise, either directly or through aseparate job-creating entity, may utilize interim,temporary or bridge financing – in the form ofeither debt or equity – prior to receipt of EB-5capital. If the project commences based on theinterim or bridge financing prior to the receipt of theEB-5 capital and subsequently replaces it with EB-5capital, the new commercial enterprise may stillreceive credit for the job creation under theregulations. Generally, the replacement of bridgefinancing with EB-5 investor capital should havebeen contemplated prior to acquiring the originalnon-EB-5 financing. However, even if the EB-5financing was not contemplated prior to acquiringthe temporary financing, as long as the financingto be replaced was contemplated as short-termtemporary financing which would be subsequentlyreplaced, the infusion of EB-5 financing could stillresult in the creation of, and credit for, new jobs.For example, the non EB-5 financing originallycontemplated to replace the temporary financing mayno longer be available to the commercial enterpriseas a result of changes in availability of traditionalfinancing. Developers should not be precludedfrom using EB-5 capital as an alternative sourceto replace temporary financing simply because itwas not contemplated prior to obtaining thebridge or temporary financing.” pp. 15-16Notwithstanding the above, I would use caution. I canenvision certain investors whether stand-alone, RCaffiliated or in a non-RC group abusing this apparentgenerosity. Please do not let yourself get into a positionwhere USCIS believes that the EB-5 investor shoppedaround for a successfully completed project to simply“buy-out”. USCIS still has an eye open for fraud anddeception.Material Change(s)“Because businesses strategies constantly evolve,with new opportunities identified and existing plansimproved, the instructions to Form I-924 provide thata regional center may amend a previously-approveddesignation. The Form I-924 provides a list ofacceptable amendments, to include changes toorganizational structure or administration, capitalinvestment projects (including changes in theeconomic analysis and underlying business plan usedto estimate job creation for previously-approvedinvestment opportunities), and an affiliatedcommercial enterprise’s organizational structure,capital investment instruments or offeringmemoranda.Such formal amendments to the regional centerdesignation, however, are not required when aregional center changes its industries of focus, itsgeographic boundaries, its business plans, or itseconomic methodologies. A regional center mayelect to pursue an amendment if it seeks certainty inadvance that such changes will be permissible toUSCIS before they are adjudicated at the I-526 stage,but the regional center is not required to do so. Ofcourse, all regional centers “must provide updatedinformation to demonstrate the center is continuing topromote economic growth, improved regionalproductivity, job creation, or increased domesticcapital 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.” pp.22-23The above is a major departure and I fear that it too willlead to investors being harmed by RCs that try to “pushit” beyond reason. The language in approval noticesdirecting RCs to seek amendments when “investmentopportunities arise outside the approved” “geographicarea” and “industry categories” was just rendered mootand void by this Memo. That said, where will USCIS“draw the line in the sand”?Revisiting Issues“USCIS will develop a mechanism for the regionalcenter or the immigrant investor to notify USCISwhen substantive material changes need to becommunicated. Although USCIS will no longer denypetitions solely as a result of a departure from thebusiness plan described in the Form I-526, thecertainty afforded by adherence to a previouslyapproved business plan may be eroded as aregional center project departs from that plan. …..”“Similarly, while the adjudication of Form I-829petitions will be determined by the facts of anindividual case, USCIS may need to revisit issuespreviously adjudicated in the Form I-526, such asthe economic analysis underlying the new jobcreation in cases where the changes could affect thepreviously decided issues. …”
  2. 2. Joe Whalen’s EB-5 Roundup June 1, 2013“USCIS recognizes the fluidity of the business worldand therefore allows for material changes to apetitioner’s business plan made after the petitionerhas obtained conditional lawful permanent residentstatus. However, immigrant investors, and theregional centers with whom they associate, shouldunderstand that availing themselves of thisflexibility does decrease the degree ofpredictability they will enjoy if they instead adhereto the initial plan that is presented to and approved byUSCIS. ….” At p. 27Navigating this tightrope will not be easy. Manymistakes will be made by the overzealous anduninitiated.“Substantial Compliance” and“Within a Reasonable Time”“It is also important to note that the EB-5 Programallows an immigrant investor to become a lawfulpermanent resident, without conditions, if theimmigrant investor has established a new commercialenterprise, substantially met the capital requirement,and can be expected to create within a reasonabletime the required number of jobs. All of the goals ofcapital investment and job creation need not havebeen fully realized before the conditions on theimmigrant investor’s status have been removed.Rather, the regulations require the submission ofdocumentary evidence that establishes that it ismore likely than not that the investor is in“substantial” compliance with the capitalrequirements and that the jobs will be created“within a reasonable time.” “ pp. 22This memo clearly tells us that most investors willaccomplish their job creation within the 2-year period(which is really longer due to USCIS processing delays).However, if they anticipate needing an additional year,USCIS won’t put up much of a fuss. Lastly, if even moretime is needed, those--“[j]obs projected to be created beyond that timehorizon usually will not be considered to be createdwithin a reasonable time, unless extremecircumstances, such as force majeure, are presented.”p. 22In an earlier rulemaking, found at 76 FR 59927-59950,September 28, 2011, USCIS defined “SubstantialCompliance” for EB-5 capital determinations as follows:“... Substantial Compliance With the CapitalInvestment RequirementPublic Law 107–273 requires DHS to considerwhether the eligible alien is in “substantialcompliance” with the capital investmentrequirement. Public Law 107–273 sections11031(c)(1)(A)(iii), 11031(c)(2)(E)(iii), and11032(e)(2)(C). By contrast, removing theconditions from permanent resident status of analien entrepreneur typically requires aliens todemonstrate that they invested, or were actively inthe process of investing, the requisite amount ofcapital. See INA section 216A(d)(1)(A)(i), 8 U.S.C.1186b(d)(1)(A)(i). The requirement to be“actively in the process of investing” capital hasno quantitative aspect with respect to the amount ofthe investment. Instead, it focuses on the process ofinvesting the required capital, and could besatisfied by showing that the process of investing thecapital has been commenced and is continuing.“Substantial compliance” suggests that thesubstance of the capital investment has in factbeen made.Accordingly, this rule defines substantialcompliance as meaning that that the alien hasinvested nearly all the requisite amount (i.e., $1million or $500,000). 8 CFR 216.7(c)(2). .....” At p.59938.About the AuthorJoseph P. WhalenSend e-mail to: joseph.whalen774@gmail.comhttp://www.slideshare.net/BigJoe5/whalen-service-agreement-as-of-may-18-2013http://www.slideshare.net/BigJoe5/whalen-mutual-non-disclosure-agreement-rev-april-2013“.. I fear that it toowill lead to investorsbeing harmed by RCsthat try to “push it”beyond reason.” [OnMaterial Changes w/oAmendments.]

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