Creating and Representing EB-5 Regional Centers - ALI CLE

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56Creating and Representing EB-5 Regional Centers• Plans to remain in compliance with ongoing USCIS monitoring requirements;• Proof of the investor’s involvement in the business;• Procedure the regional center will use to perform due diligence on the source of funds of theinvestors; and• Documentation of community or political support.At the same time as the regional center requests designation, it can also file an application for preapprovalof its initial project. This procedure is completely optional, and investors can file I-526 EB-5petitions without project pre-approval. Also, project pre-approval can be filed independently forsubsequent projects. If the regional center opts for project pre-approval, it must file a complete packagecontaining everything that would be required in an investor’s I-526 petition except the investor’s sourceof funds and path of funds.The advantages of project pre-approval are the possibility of avoiding multiple adjudications of projectsand a clear marketing advantage. The disadvantages are that project pre-approval can add significant timeunless it is filed concurrently with the I-924 form. Also, USCIS examiners often disregard the preapproval.Assuming the regional center designation is approved, and the marketing effort is successful, thedevelopers want to know when the money will actually be available for the project. Generally, theinvestor must invest 100% of the investment before the I-526 petition is filed. The developer has theoption of either using the money immediately or putting the money into escrow to be released when theinvestor’s I-526 petition is approved. Either option is fully compliant with EB-5 rules and policies, butthe latter certainly provides a marketing advantage.Because of the substantial processing time to obtain the regional center designation, particular project preapproval(if requested) and approval of the investor’s EB-5 petition, developers often obtain interim orbridge financing to enable the project to move forward pending receipt of the EB-5 capital. The EB-5capital then often replaces the bridge financing. This is normal business practice and should not create anissue for EB-5 petition approval, because it is the new commercial enterprise (and not the investor) thatmust create the jobs. However, some USCIS adjudicators have questioned whether the EB-5 moneyactually creates the jobs in this scenario.Another sometimes controversial issue involves the requirement that the investment must be “at risk.” 9This principle prevents an investor from being assured of a guaranteed redemption at a specific price.Redemption at fair market value is acceptable. Third party guarantees of the investment have beenallowed. The issue of third party insurance provided by the regional center is an unresolved one.In addition to dealing with investors, regional centers have ongoing reporting requirements. Every year,the investor must file form I-924 A providing, inter alia, the total amount of EB-5 capital invested; the9 Matter of Izummi, 22 I&N Dec.169 (Assoc. Comm’r, Examinations 1998).Klasko, Rulon, Stock & Seltzer, LLP Page 7 of 8
57Creating and Representing EB-5 Regional Centersamount of job creation; the industry focus; the number of approved and denied I-526 petitions; and thenumber of approved and denied I-829 petitions.Certain changes in regional center operations could result in a need for a regional center to seek anamendment of its designation on Form I-924. These include:• Expanding geographical boundaries;• Adding new industry designations;• Changing economic methodologies.Once all of the investors’ EB-5 petitions are approved, the regional center’s job is not done. Within thewindow of 21 to 24 months after each investor’s conditional permanent residence is approved, theinvestor must file an I-829 petition to remove the conditions on permanent residence and become a fullpermanent resident. In order to get that petition approved, the investor must prove that he has sustainedhis investment, that there has been no “material change” in the business plan and that the projected jobshave been created 10 . The latter two issues require amplification.The concept of material change is a controversial one. The USCIS position is that, even if all requisitejobs have been created, conditions will not be removed if there has been a material change in the businessplan 11 . What a material change is remains undefined. It is therefore critical for the regional center toprepare its business plan in such a manner as to minimize the risk that a material change could jeopardizethe ultimate permanent residence status of its investors.It is certainly best if the regional center can prove that all of the projected direct jobs have occurred andthat all of the foundation facts that provided the input for the economist’s projection of indirect andinduced jobs have actually occurred. What if all of the jobs have not actually occurred by the time of thefiling of the condition removal petition? The USCIS regulation allows for proof that the jobs will becreated “within a reasonable time” from the date of filing of the condition removal petition 12 .The regional center EB-5 option is a classic win-win-win program. Developers are able to move forwardwith projects that otherwise might not have sufficient financing; jobs are created; and investors get greencards. However, the program remains a “pilot program” that needs to be renewed by Congress at variousintervals 13 . Efforts are underway to get Congress to make the program permanent, which would likelyspur its growth well beyond present levels.10 8 CFR § 216.6(c).11 USCIS Adjudicator’s Field Manual § 22.4.12 8 CFR § 216.6(c)(1)(iv).13 Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriation Act of 1993,Pub. L. No. 102-395, § 610,106 Stat. 1828, S. Rep. No. 102-918 (1992).Klasko, Rulon, Stock & Seltzer, LLP Page 8 of 8
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