Analysis of the Final EB-5 Policy Memorandum II

Analysis of the Final EB-5 Policy Memorandum II

By    Mona Shah, Esq.

Yi Song, Esq.

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The new EB-5 Adjudications Policy Memorandum (PM-602-0083) released by USCIS on May 30, 2013 has elicited commentaries from EB-5 practitioners across the board[1]. Happily the vast majority of comments welcome the guidance. This article is the second of this series evaluating a few of the areas of the EB-5 program that usually cause confusion and are worth emphasizing. It should be noted that many of the issues in the policy memorandum are not new, just more defined.

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1.     Indirect Job Creation Outside of the Regional Center

Indirect jobs are those held outside of the new commercial enterprise but are created as a result of the new commercial enterprise. Indirect jobs can qualify and be counted as jobs attributable to a regional center, based on reasonable economic methodologies, even if the indirect jobs are located outside of the geographical boundaries of a regional center.

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This is not a new concept and it is important to note that each section of the policy memorandum should not be read in isolation. Further to the new Policy Memo, a regional center is no longer required to file a 924 Amendment Petition if the amendment is in the regional center’s industries of focus, its geographic boundaries, its business plans, or its economic methodologies. Thus with regard to  the job creation section and the regional center amendment section, it is fair to conclude that indirect jobs created outside the geographic boundaries of a regional center can be counted towards the EB-5 job creation even without filing the regional center amendment. For example,  in the context of a regional center based in New York that has a project, cleaning chemically contaminated soil in New York, should the project deploy employees to a contaminate site in California, the indirect employees are able to be counted. This is because the RC has the relevant NAICS codes and the project purpose is the same.  Another example quoted is that of a regional center based in California which includes a franchise restaurant within its industry codes. The project owner would like to open a franchise restaurant in Oklahoma, under the same regional center petition, even without filing an amendment, the indirect jobs generated outside of the geographic boundaries from the franchise restaurant can be attributed to the California regional center job creation.

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2.     Assets Acquisition of an Existing Business

The EB-5 law defines “new” in the new commercial enterprise as established after November 29, 1990. For a business established before November 29, 1990 the investor can either restructure/reorganize the existing business or expand the business by 40% in either net worth or in the number of employees.

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It is well known in the industry that the restructuring and reorganization route is only available theoretically. In reality, USCUS has not yet approved many “new” commercial enterprise petitions based on the restructuring and reorganization model. In  precedent case of the Matter of Soffici – where the investor purchased a Howard Johnson hotel and continued to run it as a Howard Johnson hotel – this was not sufficient to establish the restructuring and reorganization element. The changes must be “substantial”, for example from a restaurant to a night club.

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In a further example relating to  the asset acquisition of an existing business ( which is an actual petition that was approved by USCIS), a  “new” company established after November 29 1990 acquired the assets of an existing business established before November 29, 1990; the new company continued to run the business as it was without making substantial changes. Here the restructuring and reorganization rules do not apply. Instead the existing business will be treated as a “new” commercial enterprise.

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3.     Loan Model in Non-Regional Center EB-5 Projects

There are different opinions in whether a direct EB-5 project can adopt a loan model instead of an equity model for the EB-5 funding. The authors believe that the final EB-5 policy memorandum does not preclude the non-regional center EB-5 project to use a loan model.

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For immigrant investors who are not associated with a regional center, the capital may be deployed into a portfolio of a wholly-owned businesses, so long as all the capital is deployed through a single commercial enterprise and all the jobs are created directly within that commercial enterprise or through the portfolio of businesses that received that EB-5 capital through that commercial enterprise.

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The authors have successfully filed a non-regional center petition where the new commercial enterprise received a loan from its wholly owned subsidiary. Subsequently, the subsidiary directly hired the employees. The financial benefits of this structure are that the project owners’ equity in the new commercial enterprise will not be diluted by the capital contribution of the foreign investors through the wholly owned subsidiary. Further on a marketing point of view, investors seem to prefer the loan model to the equity model.

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4.     Project Failure After the I-526 Approval

Many investors worry about the project failing after they have entered the US as conditional lawful permanent residents.  It is important to note that the EB-5 Regulations requires the immigrant investors only to sustain their investment. The investor is required to “create” the jobs not to “sustain” the jobs. Thus, the timing of the failure becomes crucial.

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The final policy memorandum clarifies that jobs that should be created within a year (reasonable time requirement) of the two-year anniversary of the alien’s admission as a conditional permanent resident or adjustment to conditional permanent resident.

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If the project failure occurs after the jobs are created, assuming at the time of the I-829 filing the jobs still exist, the investors are still able to receive their permanent resident card. However, the final policy memorandum did not provide the answer for the scenario that if the job level drops or the project fails after the I-829 filing but prior to the I-829 approval, how the Service would adjudicate the petition. It is likely that if a Request for Evidence (RFE) is issued when the job level drops or the project fails, the burden will be upon the petitioner to prove that the jobs that have been created were in fact “permanent” and that their loss, whether at the time of responding the I-829 RFE or thereafter was not as a result of the withdrawal of the investment.

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The EB-5 program further provides that if two years after obtaining conditional permanent resident status, the immigrant investor has sustained the investment, created or can be expected to create within a reasonable period of time ten full-time jobs to qualifying employees, and is otherwise conforming to the EB-5 Program requirements, the conditions generally will be removed and the immigrant investor will be an unconditional lawful permanent resident.

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The EB-5 policies have developed and evolved over the past few years. To provide clear and practical guidelines on the EB-5 program is an on-going process. The authors welcome efficient and effective communication between the USCIS and the practitioners. It is the goal of the stakeholders in the industry to make the EB-5 program in the Unites States one of the most competitive immigrant investors program in the world.

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About the Authors:

Mona Shah, Esq. is the principal of Mona Shah & Associates in New York City. The firm has assisted many Regional Centers and Investors in navigating this complex, nuanced and constantly changing area of immigration law. Mona has more than 18 years of legal experience in immigration law and extensive knowledge in EB-5 law. Mona’s substantial litigation background includes her representation of clients in both state and federal courts. She has handled complex immigration law appeals before the US Circuit Courts of Appeal nationwide.  Before coming to the US, Mona was a crown prosecutor in the UK. Mona has authored and published numerous articles and has spoken extensively both in the US and overseas.

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Yi Song, Esq. is an attorney at Mona Shah & Associates focusing on EB-5 and securities law. She is also admitted to practice law in New York and People’s Republic of China. She has authored many published articles on EB-5 financing and securities law. She practiced tax law in China and has experience in class action securities litigation cases. Yi is a graduate from Georgetown University Law Center in Washington, DC.

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