2015 Year in Review

EB-5 Is Working. For You. For America.

2015 Year in Review

By Mona Shah, Esq. & Omar Hakim, Esq.

2015 was a remarkable year in the EB-5 world for many reasons. The main focus, of course, was on the impending legislation (S.1501) introduced to reform the Regional Center Program, which was scheduled to sunset on September 30, 2015. The increasing popularity of the EB-5 program, and the desire of investors to file their I-526 applications before any potential rule changes, resulted in a record number of I-526 filings being made in 2015. In addition, the number of projects continued to increase substantially as more developers learned about the potential of EB-5 as a source of low cost financing.

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The legislative reform efforts in connection with the extension of the Regional Center program were very contentious, and with major disagreements unresolved, Congress ultimately punted the issue with a short-term extension to September 30, 2016. While the legislative reform efforts dominated the headlines, there were a number of other issues in the EB-5 world that are worthy of attention:

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  • Overseas – Termination of the Hong Kong Investment Program – 2015 began with news that Hong Kong had terminated its immigration investor program, the Capital Investment Entrant Scheme (CIES). This eliminated a strong competitor to the EB-5 program. CIES had been a top choice for many wealthy investors from mainland China because of its proximity to the mainland and investors’ familiarity with the language and culture. Many Hong Kong agents began searching for an alternative program for their investors.

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  • Foreign Exchange Issues – The decline of the Chinese Stock Market created the backlash There were issues for investors attempting to transfer funds from Mainland China. These issues resulted from a tightening of rules by the Chinese government on its banks in response to the decline of the Chinese Stock Market and the resulting outflow of capital as Chinese investors looked for alternatives investments. On the positive side, in February, India increased currency allowances to $250,000 per individual.

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  • GAO REPORT: In August 2015, the United States Government Accountability Office released a Report to Congress, relating to the Immigrant Investor Program titled: “Additional Actions Needed to Better Assess Fraud Risks and Report Economic Benefits”. A copy of the GAO report can be found at http://www.gao.gov/assets/680/671940.pdf. In particular, the GAO report stated that it can be difficult for USCIS adjudicators to verify the lawful source of investor funds, which is then identified as a fraud risk. The GAO report assessed 150 petitions, mostly from China, designated as “high risk” for fraud concerns, and the Fraud Detection and National Security Unit (FDNS) determined that the source of funds contained a risk of fraud, including counterfeit documents and the inability to verify information from foreign banks. As a result, EB-5 practitioners witnessed a tougher adjudication by USCIS of investor’s Source of Funds, as USCIS was pressured to maintain higher standards and take a tougher stance on their Source of Funds policy.

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  • Source of Funds Issues (Loans/Indebtedness) – USCIS’ tougher stance became apparent very quickly and especially in their adjudication of SOF’s that contained loans. Currently, USCIS is in litigation regarding its recent requirement that a loan of EB-5 funds to make EB-5 investments be secured by sufficient collateral. The draft bills proposed as part of the legislative reform effort had even further restrictions that would only allow gifts to be used as source of funds if they were from parents or siblings and only allow loans from banking institutions. Though none of the reform bills passed, these issues were not opposed by most of the EB-5 community, and it is very possible that USCIS will attempt to implement these changes through a policy shift.

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  • Adjustment of Status and Consular Processing – October 1, 2015, USCIS issued a new rule allowing individuals to file their I-485 application for Adjustment of Status and Consular Processing before their priority dates are current. This is hugely beneficial as the Visa Bulletin now has two “application dates” for beneficiaries of employment based immigrant petitions. There is an application final action date when the beneficiary will be eligible to receive his/her green card, but there is also a date for filing visa or adjustment applications that upon approval will allow the beneficiary get the benefits thereof such as an Employment Authorization Document, advance parole and protection under the Child Status Protection Act (which addresses age-out issues).

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  • USCIS’ Clampdown on Regional Centers’ Use of Names and Use of USCIS Logos – USCIS took that position that “United States,” “U.S.,” “US” and “Federal” in a Regional Center name may falsely imply a relationship between an entity using the name, and USCIS, DHS and the United States Government. USCIS took a similar position with respect to the use of the USCIS logo on Regional Center marketing materials and websites. As a result, USCIS issued notices to many Regional Centers requesting that they change their names and cease using the USCIS logo.

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  • SEC Prosecution of Immigration Lawyers for Broker/Dealer Violations and new FINRA Rule 2040 – The Securities and Exchange Commission took a series of enforcement actions against lawyers across the country charged with offering EB-5 investments while not registered to act as brokers. The SEC alleged that the immigration attorneys accepted commissions for selling, recommending, and facilitating EB-5 investments, and as a result, violated relevant securities laws and regulations. The SEC also alleges that the attorneys broke the law by failing to disclose to investors that they were receiving commission.

Further, FINRA Rule 2040 went into effect in August. The rule requires all FINRA members to disclose to investors all fees and commissions paid to foreign agents and to receive written acknowledgement by investors that they are aware of these fees. Any EB-5 project that uses a broker-dealer has to comply with this rule. One of the latest drafts of the EB-5 reform bills applied a similar requirement to all Regional Centers. It is apparent that the fees paid in connection with the EB-5 program is becoming a hot topic for the SEC.

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  • Draft Policy Memorandum on Job Creation On August 10, 2015, USCIS issued a policy memorandum that built upon prior policy guidance for adjudicating EB-5 applications and petitions regarding the job creation requirement, and the requirement to sustain the EB-5 investment during the conditional residence period. Even though the policy memorandum has not been finalized, the memo has been cited in Requests for Evidence by USCIS.

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  • Increase in Regional Centers Receiving a Notice of Intent to Terminate – The number of Regional Centers has substantially increased in recent years (as of January 4, 2016, USCIS has approved 790 regional centers). In an apparent attempt to reduce the number of existing Regional Centers, USCIS has been increasingly focusing on inactive Regional Centers and in 2015 issued a large number of notices of termination to regional centers that have gone several years without any economic activity.

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2016 Outlook

The outlook in the EB-5 world for 2016 appears similar to 2015 in many ways. Legislative reform is sure to dominate the headlines, and there is likely to be another rush of investors seeking to file I-526s before the September 30, 2016 sunset date. Many Congressmen, in particular Senator Grassley, did not hide their disappointment that the reform effort of 2015 was not successful and are sure to bring several Congressional hearings investigating the EB-5 program. With 2016 being a presidential election year, it is very possible that there is another short-term extension to the EB-5 program, possibly with minimal changes such as an increased investment amount and integrity measures.

In addition, USCIS is sure to implement changes through policy memorandums. Looking at the draft bills from the reform effort produces some hints as to what these changes may be. In particular, USCIS is likely to further restrict the source of funds that immigrants may use in making EB-5 investments.

In summary, 2015 was a very busy and action-packed year in the EB-5 world and with the short-term extension of the EB-5 program through September 2016, 2016 should be much the same. It is our hope the EB-5 community will unite and speak with a united voice during the legislative reform efforts of 2016.

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About the Authors:

Mona Shah, Esq. is a dual licensed attorney, in the UK and the US. While in England, Mona worked as a Prosecutor with the British Crown Prosecution Service, before moving to New York. Mona has more than 19 years of experience and extensive knowledge of all facets of U.S. immigration law; her practical expertise ranges from specialist business petitions to complicated, multi-issue deportation and removal litigation in both state & federal courts. Mona is highly proficient and experienced in EB-5 law and practice, with hands-on experience setting up, working with and establishing EB-5 projects, both direct pooled investments and Regional Centers, nationwide. In addition, she has dealt with complex, multifaceted RFE’s for both Regional Centers as well as for the Investor. Mona is the author of a published book for investors on the EB-5 laws and procedures. Mona regularly writes and publishes articles and opinions, as well as addressing investors and developers in EB-5 related seminars in the US and overseas. Mona has been interviewed by mainstream news channels and quoted in major newspapers. Mona was also voted as one of the top 25 EB-5 attorneys by EB-5 Investors.com. Mona is also an adjunct professor at the Zicklin Business School of Baruch College, part of the City Universities of New York. She teaches part time courses on EB-5. Mona Shah & Associates have been instrumental in the success of numerous projects, crafting projects and marketing overseas, bringing in millions of dollars for the US as well as helping to create thousands of jobs.

Omar Hakim, Esq. is an attorney at Mona Shah & Associates in New York City. The firm is an established source for EB-5, assisting numerous Regional Centers/EB-5 Projects and Investors in navigating this complex, nuanced and constantly changing area of immigration law. Omar offers clients years of experience in corporate finance, the financial regulatory system, securities matters and in general corporate governance matters. Additionally, he is able to draw on his experiences at major federal regulatory agencies and bodies, which includes work at the SEC, the United States House of Representatives Committee on Financial Services, and the CFTC. He earned his J.D. at the University of Virginia; his Master of Laws in Securities and Financial Regulation at the Georgetown University Law Center; and his B.A. in Economics at Georgetown University.

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