Three’s a Crowd: Third-Party Promoters and the Alphabet of I-956 Forms
By Mona Shah, Esq. and David Hirson, Esq.
Yet again we are seeing the practical ramifications of the Reform and Integrity Act (“RIA”), and yet again the focus lands on regional centers.
One of the less-discussed facets of the RIA is its requirement for “direct and third-party promoters” to register with USCIS. Other than stating that the category of “promoter” includes migration agents, their definition of what a “promoter” is remains unclear. The EB-5 community as a whole would agree; the public was recently invited to comment on the new forms and regulations, and the overall consensus was that USCIS ought to narrow its definitions.
What we know for sure is this: historically, agents have long served a middleperson between the regional center project and the investor. They operate in a manner similar to a broker, in that it is within the agent’s scope to connect investors with projects, and then to collect a portion of funds as compensation.
A lack of clarity seems to be a trend in post-RIA fallout, and the follow-up explanation offered by USCIS was similarly unhelpful:
“Any person acting as a direct or third-party promoter (including migration agents) of a regional center, any new commercial enterprise, an affiliated job-creating entity, or an issuer of securities intended to be offered to alien investors in connection with a particular capital investment project must submit Form I-956K before operating on behalf of any of the specified entities or promoting any offering under the EB-5 Regional Center Program. This includes employees of entities with agreements in place to promote a regional center, any new commercial enterprise, an affiliated job-creating entity, or an issuer of securities intended to be offered to alien investors.”
Experts advise an abundance of caution. David Hirson and Mona Shah, in a recent episode of EB-5 Investment Voice, recommended widening our understanding of just who is “involved” in a regional center. Mona Shah says: “You don’t take chances. You include everybody.”
Even if one should take this advice, it still behooves USCIS to offer more of an explanation, and there will no doubt be plenty of questions asked about the policy at the stakeholder meeting on March 20th, where interested parties will be able to yet again voice their concerns. This meeting, also referred to by USCIS as an “engagement session,” will also address the topics of investment periods and regional center operations.
The I-956K Form is integral to the registration of third-party promoters, and USCIS has stated that any form that is rejected for being incomplete will not qualify for registration. While this may seem like a no-brainer, it will undoubtedly lead to further backlog of the EB-5 process.
And more questions remain: if foreign nationals are, as stated in the RIA, excluded from the right to own a regional center, do they retain the privileges of owning or managing a new commercial enterprise? What about a job-creating entity? One issue of great concern is whether or not regional centers that were already under foreign ownership prior to the RIA will be able to remain operating as they were. David Hirson speculates: “…there’s argument there for grandfathering… But when you file your I-956 to extend the project, you’ve got to give all these disclosures and all these forms. And that is the point where immigration may turn around and say, ‘well, the new law says you’ve got to comply with all of these issues and you’re no longer in compliance because you have foreign ownership and it’s not going to work.’” Yet again, the RIA has left regional centers with very few guarantees about their future.
While the issue raises these complications, it is worth it to note that the exclusion of foreign nationals from owning regional centers is not without some sense; it can be argued that anyone hoping to maintain ownership of a US-based regional center ought to reside in the US.
“USCIS has stated that any form that is rejected for being incomplete will not qualify for registration.”
But let us not exclude the rest of the alphabet; USCIS has also published new stipulations about I-956F, I-956H filings, and I-956K filings.
I-956F forms, yet another of the revelations included in the RIA, are used to request approval of each particular investment offering for an EB-5 project. Recently, USCIS has stated that regional centers must provide “the written disclosure of all fees, ongoing interest, and other compensation paid to any promoter.”[1] The logistics of how a regional center ought to most effectively present this information, however, are not expected to be discussed during the March 20th engagement session.
The I-956H form is a mandatory filing for all US nationals or permanent residents “involved with” a regional center. The RIA has, since its inception, caused a deluge of confusion due to its unclear language. It appears that now USCIS is trying to make up for, if not get ahead of, that and any further misunderstanding. They have since attempted to clarify what is meant by “involved:”
“[An involved person] directly or indirectly is in a position of substantive authority to make operational or managerial decisions over pooling, securitization, investment, release, acceptance, or control or use of any funding that was procured under the program… An individual may be in a position of substantive authority if the person serves as a principal, a representative, an administrator, an owner, an officer, a board member, a manager, an executive, a general partner, a fiduciary, an agent, or in a similar position at the new commercial enterprise or job-creating entity, respectively.”
Wordy, and yet the description still leaves quite a bit of room for interpretation. Any disagreements on this interpretation between filers and USCIS could lead to denials, backlog, and certainly litigation. This issue is also not on the March 20th agenda. Neither is there any time slotted to discuss the potential mess that could be caused by the influx of promoters needing to update their I-956K forms.
“[USCIS’s] description still leaves quite a bit of room for interpretation.”
Thankfully, USCIS does plan to discuss and field comments about another hot-button issue in the EB-5 industry of late: sustainment and redeployment of funds. There has been much talk about the validity and fairness of the widely-practiced 2-year sustainment period, a time frame which some are calling unrealistic. This comes in the wake of another moment of USCIS backlash; the industry recently took them to task for their proposed fee increases.
Needless to say that as these issues keep popping up, it does not appear as though the ongoing puzzle of the RIA will be solved in the near future.
Aaron Muller, Mona Shah & Associates Global contributed to this article.
[1] Listen to Mona Shah and Jennifer Hermansky discuss agent disclosure.