Regional Center Business Journal (01/2016) by IIUSA

REGIONAL

CENTER

BUSINESS JOURNAL January 2016

$4.38 Billion EB-5 FDI IN 2015

+1,267%

$4.38

INCREASE SINCE 2008

2016

$2.56

2015 2014

$0.32 2008

$0.63

$0.68

$0.79

2009

2010

2011

$1.84

$1.85

2012

2013

2014

2015

In this issue:

Negative Assurance Letters in EB-5 Offerings

2015 Government Affairs Year in Review

The Realities and Implications of Chinese EB-5 Investors' Wait for Visa Numbers

Short Term Extension New Challenges and Opportunities in 2016 2015 EB-5 Market Exchange Recap EB-5 in the Media: A Look Back at 2015

Regulatory Considerations Through the Investor Life Cycle

What We Learn from SEC Investigation

Emerging EB-5 Markets Spotlight: South Africa

Six Data Points Show EB-5 has Never Been Stronger

What Do Chinese Migration Agents Really Want?

RIMS II Regional Multipliers Updated for First Time Since 2012

Emerging EB-5 Markets Spotlight: Venezuela

APRIL 20-22, 2016

EB-5 Regional Economic Development

Advocacy Conference WASHINGTON, D.C. Invest in the USA (IIUSA) cordially invites you to join us in our nation’s capital from April 20-22, 2016 for the 9th Annual EB-5 Regional Economic Development Advocacy Conference. Much like the 2015 EB-5 Regional Economic Development Advocacy Conference (attended by 500+ people) we expect a large international crowd of attendees to join us in our nation’s capitol. The three-day conference features: • Business Development: Network with hundreds of global EB-5 practitioners over multiple days at the industry’s cornerstone event! Sponsorship & exhibiting opportunities are available. • Grassroots Advocacy: The EB-5 Program is due to sunset on September 30, 2016. Unite behind IIUSA, the EB-5 industry's trade association, in our collective efforts to advocate for long-term EB-5 Regional Center Program Reauthorization. • Hear Directly from the Federal Government on the Future of the EB-5 Program: IIUSA is proud to welcome back Nicholas Colucci, Chief, USCIS Immigrant Investor Program Office (IPO) as our Guest of Honor Speaker this year. In addition, attendees will hear from members of Congress, Financial Industry Regulatory Authority (FINRA), Securities & Exchange Commission (SEC), SelectUSA, U.S. Department of Commerce, U.S. Department of State Office of Visa Controls,, U.S. Citizenship & Immigration Services (USCIS) and the U.S. Department of Homeland Security (DHS). • Expert Speakers & Hot-Topic Panels: Hear from your industry peers on the most pressing topics including Securities Laws, Due Diligence, Visa Retrogression, the latest USCIS adjudication and processing trends, review of EB-5 government & public affairs, and much more!

CALLING ALL MEMBERS!

11th Annual IIUSA Membership Meeting APRIL 20TH 2-5PM

MEETING AGENGA: • Welcoming Remarks from K. David Andersson, IIUSA President: "State of the Association & Industry • Vote on Committee Recommendations: The membership will vote on any committee recommendations requiring a vote (such as 2016-2017 budget, bylaws amendments if there are any to consider, best practices, or otherwise). • Committee Reports: Each committee chair will present annual reports, summarize the year ahead and give membership opportunity to provide input. • Annual Elections: IIUSA will hold its annual elections for officer and board seats. All three officer (President, Vice President, Secretary-Treasurer) as well as three board seats are up for re-election. Officers are elected for one-year terms while members of the Board of Directors are elected for three-year terms. Candidates will address members during the annual meeting on Wednesday (4/20), votes are eligible to be cast through Thursday (4/21), and results will be announced on Friday (4/22).

To purchase your tickets today, visit iiusa.org/dc2016 Members: $700 | Nonmembers: $850 For sponsorship inquiries, contact Allen Wolff, allen.wolff@iiusa.org.

Early-bird discount ends March 1, 2016

FOR YOU. FOR AMERICA.

12 43

REGIONAL

Robert C. Divine (2010-Present)

Table of Contents

Vol. 3, Issue #4: January 2016

$4.38 Billio n EB-5 FDI IN 2015

2016

INCREASE SINCE 2008

2014

6 6

2008

2009

$0.68

2010

$0.79

2011

Letter from the Editor In this iss ue: IIUSA Editorial Committee

ADVOCACY

47 Regulatory Considerations Through the Investor Life Cycle

$2.56

$1.84

2012

$4.38

+1,267%

2015

WELCOME

Beth Zafonte, Akerman, LLP

VICE-PRESIDENT

ary 2016

ASSOCIATION BUILDING

K. David Andersson Whatcom Opportunities Regional Center

INE JOURNASLS Janu

$0.63

Committee Chairs

PRESIDENT (2010-Present)

CENTE BUS R

$0.32

Board of Directors

$1.85

2013

2014

2015

Negative Assu 2015 Gove rnment Affai rance Lette Offerings rs Year in Revie rs in EB-5 Short Term w Extension The Realities Opportuni New Challenge ties in 2016 s and EB-5 Inves and Implications of tors' Wait for 2015 EB-5 Chin Market Exch Visa Numbers ese Emerging ange Reca EB-5 Mark EB-5 in the p ets Spotlight Africa Media: A Look : South Back at 2015 What We Learn What Do Chin from SEC Inves ese Migration tigation Six Data Point Want? Agents Reall y Stronger in s Show EB-5 has Neve Emerging Fiscal Year r Been EB-5 Mark 2015 ets Spotlight Venezuela :

2015 Government Affairs Year in Review

10 Short Term EB-5 Extension Brings New Challenges and Opportunities in 2016 12 2015 EB-5 Market Exchange Recap 17 EB-5 in the Media: A Look Back at 2015

58 INTERNATIONAL PERSPECTIVES 58 Emerging EB-5 Markets Spotlight: South Africa 61 What Do Chinese Migration Agents Really Want? 64 Emerging EB-5 Markets Spotlight: Venezuela

66 MEMBERSHIP INFORMATION

20 EDUCATION/RESEARCH

20 What We Learn from SEC Investigation

26 Six Data Points Show EB-5 has Never been Stronger 33 RIMS II Regional Multipliers Updated for First Time Since 2012 38 Negative Assurance Letters in EB-5 Offerings

BYLAWS

EXECUTIVE DIRECTOR Peter D. Joseph (2010-present)

Texas Lone Star Enterprises

Ex-Officio DIRECTORS

Angelique Brunner (2014-pres.) EB5 Capital

George W. Ekins (2012-present) American Dream Fund, Inc.

William P. Gresser (2010-pres.) EB-5 NY State Regional Center

Patrick F. Hogan (2010-present) CMB Regional Centers NES Financial FirstPathway Partners

Tom Rosenfeld (2011-present) CanAm Enterprises, LLC

Dave Souders (2015-present) Todd & Associates

William J. Stenger (2010-pres.) Jay Peak Resort, Inc.

Cletus M. Weber (2015-present) Peng & Weber, PLLC DIRECTOR EMERITUS

Henry Liebman

President’s Advisory Council VOL. 3, ISSUE #4, JANUARY 2016

Robert G. Honts

Texas Lone Star Enterprises, LLC

Robert Kraft (2014-present)

Founding Director (2005-2012)

American Life, Inc. PRESIDENT EMERITUS

Stephen W. Yale-Loehr Founding President/CEO (2005-2010)

Miller Mayer, LLP

Government Affairs AKIN GUMP STRAUSS HAUER & FELD, LLP CARTWRIGHT & ASSOCIATES PUBLIC AFFAIRS JDM STRATEGIES, LLC REPUBLIC CONSULTING, LLC Copyright ©2016 IIUSA. Every effort has been made to ensure that the information contained in this guide is complete and accurate at the time of publication. All questions and concerns regarding this publication can be directed to IIUSA, 300 New Jersey Ave NW, Suite 1075, Washington, DC 20001, 773-899-0563 or info@iiusa.org.

City Regional Center

Texas Lone Star Enterprises

Honorary Members

IIUSA has no direct affiliation with, nor endorses the products/services of, any companies that are advertising in this magazine.

Mary King, New York

SECRETARY-TREASURER Robert G. Honts (2010-present)

Committee Corner I-526 & I-829 Trends

41 The Realities and Implications of Chinese EB-5 Investors' Wait for Visa Numbers

BEST PRACTICES

BUDGET & FINANCE

Jill Jones (2014-present)

IIUSA Reaches 285 Members EB-5 History: October-January

Bonnie Novella, NES Financial

Baker Donelson Bearman, Caldwell & Berkowitz, PC

Industry Event Schedule Member Portal Update

69 IIUSA Marketplace By the Numbers

BANKING

Robert G. Honts COMPLIANCE

Mariza McKee, Kutak Rock LLP Kurt Reuss, EB5 Diligence EDITORIAL

Lincoln Stone Stone Grzegorek & Gonzalez LLP INVESTOR MARKETS

Lili Wang, New City Advisors MEMBERSHIP

Kyle Walker, Green Card Fund PUBLIC POLICY

Steve Strnisha, Cleveland International Fund PUBLIC RELATIONS

Warren Oakes, M&D Regional Center TECHNOLOGY

David Bovee, Zenith Global Capital

Staff Members Peter D. Joseph, Executive Director Allen J. Wolff, Associate Director of Marketing & Communications Lee Li, Policy Analyst Nicole Merlene, Advocacy Coordinator McKenzie Penton, Membership Development Assistant Molly Conroy, Policy/Research Assistant

Contact IIUSA 300 New Jersey Ave NW Suite 1075 Washington, DC 20001 info@iiusa.org (202) 795-9669

Media Contact Liz Poston,

Rasky Baerlein|Prism Public Affairs

lposton@prismpublicaffairs.com (202) 207-3638

Information about membership is available by emailing membership@iiusa.org.

IIUSA.ORG | 3

Welcome

Letter from the Editor

IIUSA Editorial Committee LINCOLN STONE

STONE GRZEGOREK & GONZALEZ LLP (COMMITTEE CHAIR)

Dear Readers:

015 was a busy year for all of us involved in putting foreign direct investment (FDI) to work creating American jobs through the EB-5 Regional Center

Program (the "Program"). Together, we set new records for investor demand, capital formation, economic impact, and more. Along the way, the EB-5 Regional Center industry made substantial progress establishing the Program as a potent regional economic development tool.

K. DAVID ANDERSSON

PETER D. JOSEPH

KELVIN MA

REID THOMAS

SUZANNE LAZICKI

MICHAEL KESTER

WHATCOM OPPORTUNITIES REGIONAL CENTER, IIUSA PRESIDENT

IIUSA

This edition of the Journal encapsulates the busy year that was and looks ahead to the critical months ahead for the EB-5 industry. In 2015, for the first time in Program history, EB-5 investments measured in foreign direct investment (FDI) exceeded $1 billion per quarter, totaling $4.38 billion for the fiscal year (pg 26-30). Yet, EB-5

DEMEI LAW FIRM

NES FINANCIAL

stakeholder enthusiasm should be tapered by the realities and implications of Chinese EB-5 investors' wait for visa numbers, which continues to get longer by the month (pg 41-43). Looming at the end of September 2016 is a new “sunset date” for the EB-5 Program – which brings with it unprecedented opportunities and challenges for our industry and stakeholders to work productively together for the long-

LUCID PROFESSIONAL WRITING

IMPACT DATASOURCE

term benefit of the Program. It is through publications such as The Regional Center Business Journal that EB-5 stakeholders produce thoughtful discussion on the industry’s most critical subjects. We thank you for your continued support of IIUSA and its Journal. As always, we welcome your comments on how the Journal can

PARISA KARAAHMET

FRAGOMEN, DEL RAY, BERNSEN & LOEWY, LLP

SCOTT BARNHART

BARNHART ECONOMIC SERVICES

better serve the needs of IIUSA members.

Lincoln Stone

Chair of the Editorial Committee, IIUSA Stone Grzegorek & Gonzalez LLP

MICHAEL HOMEIER HOMEIER & LAW, P.C.

4 | IIUSA.ORG

BOB HONTS

TEXAS LONE STAR ENTERPRISES

VOL. 3, ISSUE #4, JANUARY 2016

Advocacy

2015 GOVERNMENT AFFAIRS

YEAR IN REVIEW

• 1/5 – IIUSA officially opens for business in its new headquarters in Washington, D.C

• 1/28 – Congressmen Jared Polis (D-CO2) and Mark Amodei (R-NV2) introduce H.R. 616, the American Entrepreneurship and Investment Act of 2015. • 2/26 – United States Citizen and Immigration Services (USCIS) and the Immigrant Investor Program Office (IPO) host their first EB-5 Interactive session of 2015 focused on Requests for Evidence (RFEs) and lawful source of funds. • 3/10 – IIUSA hosts representatives from the Government Accountability Office (GAO) at its office as part of an ongoing audit of the Program at the request of Congress. IIUSA provides detailed 300+ page written response from the interview to GAO for its records. • 3/11 – IIUSA launches its Member Portal providing members an access to thousands of pages of industry data and resources. • 4/12-14 – IIUSA’s hosts its annual membership meeting and 8th Annual EB-5 Regional Center Economic Development Advocacy Conference in Washington, D.C. Members sweep Capitol Hill offices to advocate for EB-5 reauthorization and economic development.

• 4/13 – IIUSA membership adopts a new best practices document aimed at providing guidelines for engaging with foreign sales intermediaries. • 4/14 – IIUSA celebrates its 10th birthday at its new offices on Capitol Hill. • 4/24 – IIUSA in conjunction with the IIUSA Technology Committee, unveils its Economic Impact Interactive Map. It allows users to tract economic impact both nationally, stateby-state, by Congressional districts, and by year. • 4/27 – Secretary of the Department of Homeland Security, Jeh Johnson, submits a letter to the Senate Judiciary Committee that sets forth recommendations for reform of the EB-5 Regional Center Program.

6 | IIUSA.ORG

• 5/21 – IIUSA submits letter to Senate Judiciary Committee regarding reauthorization and reforms of the EB-5 Program. The letter comments on and provides recommendations to an April 27 letter from Secretary Jeh Johnson which was sent to the Senate Judiciary Committee.

• 5/22 – The NYU Stern Center for Real Estate Finance Research publishes its final draft of its study, A Roadmap to the Use of EB-5 Capital: An Alternative Financing Tool for Commercial Real Estate Projects • 6/3 – Chairman of the Senate Judiciary Committee, Charles Grassley (R-IA) and Ranking Member Patrick Leahy (D-VT) of the Senate Judiciary Committee introduce the American Job Creation and Investment Promotion Reform Act of 2015 (S. 1501) • 6/12 – IIUSA officially establishes its National Security Taskforce so it can better engage in the conversation around national security in EB-5. • 6/22 – U.S. Conference of Mayors (USCOM) approves a resolution urging Congress to add addition visas to the EB-5 Program and ensure that any reform of the Program maintains the ability to deliver job-creating capital to urban areas, streamline approvals for all applications, and urging permanent reauthorization.

• 7/12 – National Association of Counties (NACo) passes resolution in support of federal legislation to permanently authorize the EB-5 Regional Center Program and to maximize its capacity for economic impact and job creation. • 7/16 – White House publishes report titled: Modernizing and Streamlining Our Legal Immigration System for the 21st Century. The report instructs various federal departments and agencies to update regulations and administrative procedures to modernize the visa system and also specifically recommends updates to EB-5 standards through the rulemaking process and clarifying eligibility of EB-5 investors to obtain a tourist visa to perform site visits on EB-5 investment opportunities.

• 7/17 – IIUSA submits comments to the Senate Judiciary Committee on the American Job Creation and Investment Promotion Reform Act of 2015 (S. 1501). • 7/22-23 – IIUSA holds Congressional Fly-In to educate Congress on how EB-5 is benefitting local communities across the country. • 7/28 – USCIS publishes record-breaking Q3 adjudication data on Form I-526 and Form I-829 petitions showing that EB-5 contributed over $1.4 billion in the third quarter in foreign direct investment into the U.S. economy. • 7/30 – Ranking Member of the House Immigration Subcommittee, Representative Zoe Lofgren (D-CA19), and Representative Luis Gutierrez (D-IL4) introduce the EBJOBS Act of 2015 (H.R. 3370), which would permanently authorize, expand, and reform the EB-5 Regional Center Program. • 8/12 – The US Government Accountability Office (GAO) releases a report on the EB-5 Program articulating that in order to continue to bring capital and job creation to American communities, USCIS will need to continue to enhance oversight, transparency, anti-fraud efforts, and compliance and enforcement of all applicable securities laws within the EB-5 Program. • 8/14 – IIUSA releases a statement regarding the GAO report on the EB-5 Program, welcoming the official review of how USCIS has improved – and must continue to improve – its administration of the EB-5 Program through hiring a robust interdisciplinary team at the USCIS Immigrant Investor Program Office (IPO) and interagency relationships with other relevant federal regulators/ law enforcement agencies.

VOL. 3, ISSUE #4, JANUARY 2016

• 8/24 – White House sends a continuing resolution (CR) wish list to Congress that includes the extension of the EB-5 Regional Center Program. • 8/25 – IIUSA issues a statement in support of legal action by the Securities and Exchange Commission (SEC) to protect investors and integrity of the EB-5 Program after recent enforcement action. • 8/27 – IIUSA holds a Leadership Summit and dinner at AILA conference giving an in depth look at the state of Congressional action to reauthorize the EB-5 Regional Center Program. • 9/8 – IIUSA submits comments to USCIS regarding its draft policy memo PM-6020121 on visa retrogression and sustaining the investment asking for clarification on redeployment of capital, the definition of “at risk”, and job permanency. • 9/15 – Bipartisan Policy Center releases report on the EB-5 Program: EB-5 Program: Successes, Challenges, and Opportunities for States and Localities. • 9/22 – IIUSA submits its Congressional Letter of Support, signed by more than 875 organizations telling Congress that #EB5isWorking and needs to be reauthorized in order to continue providing local economic development across the country. • 9/30 – Congress passes CR extending federal funding and the EB-5 Regional Center Program until December 11, 2015. • 10/1 – Senator Jeff Flake (R-AZ) of the Senate Judiciary Committee, introduces the Targeted Employment Areas Improvement Act (S. 2115) with a new proposal to reform TEAs. • 10/1 – Senator Rand Paul (R-KY) introduces the Invest in Our Communities Act (S. 2122) to permanently authorize, expand, and reform the EB-5 Regional Center Program.

GOVERNMENT AFFAIRS TIMELINE

• 10/6 – The EB-5 Regional Center Program was created by Congress 23 years ago, permitting the designation of Regional Centers to pool EB-5 capital from multiple foreign investors for investment in economic development projects. • 10/7 – Senate Judiciary Committee Chairman, Chuck Grassley (R-IA) takes the Senate floor to express concern of perceived violation of Program intent and the need for Program integrity reforms. • 10/9 – IIUSA Board Member, Angel Brunner of EB-5 Capital, receives the Urban Land Institute’s Global Award for Excellence for their City Market at O in the Shaw neighborhood of Washington DC for its impact on the Shaw community, including increasing property values by more than 500%. • 10/21-23 – IIUSA hosts its 5th Annual EB-5 Market Exchange in Dallas, TX. As the industry’s largest conference there were 20 panels, eight general sessions, and was attended by over 550 guests. • 11/2 – IIUSA announces the massive website overhaul that is underway that will enhance user experience at IIUSA.org. • 11/2-6 – IIUSA attends the Council of Development Finance Agencies (CDFA)’s National Summit in Charleston, SC which brought together the leaders and deal makers in the public development finance industry to discuss best practices, trends, and project financing solutions. • 11/3 –IIUSA delivers its EB-5 legislative compromise proposal to the bipartisan leadership of House and Senate Committees, providing recommendations on Targeted Employment Areas (TEAs), minimum investment amount, job creation methodologies, effective dates, and more. The Proposal was supported by 83% of IIUSA Membership.

• 11/3 – The Securities and Exchange Commission (SEC) files a complaint against EB5 Asset Manager, LLC, and Lily Zhong, alleging that she has defrauded at least 17 EB-5 investors by improperly using funds. • 11/5 – IIUSA launches daily member portal recap to deliver members an update on materials being added to IIUSA’s ever growing industry database in its New Member Portal, directly to its member’s inboxes. • 11/8 – RIMS II multipliers are made available based on 2007 national benchmark input-output data and 2013 regional data. They are available for 369 detailed industries and 64 industry aggregates. • 11/12 – IIUSA develops a compromise proposal for reform to be considered for longterm reauthorization legislation. The recommendations were delivered to the bipartisan leadership of House and Senate Committees. The compromise is supported by 83% of IIUSA membership. • 11/18 – U.S. Citizenship and Immigration Services (USCIS) publishes updated data for Q4 (July-September) pertaining to the number of I-526 and I-892 petitions received, approved, denied, and pending as of September 30, 2015. • 11/19 – The Securities and Exchange Commission (SEC) announces it has obtained a court order freezing the assets of Lily Zhong as well as an order appointing a receiver to administer and manage the business affairs and assets of the company and its subsidiaries for the protection of investors. • 11/19 – IIUSA submits amicus brief for the SEC v. Path America case providing important background information about the EB-5 Program and the potential ramifications of the litigation for immigrant investors who have invested significant amounts of capital through Path America. • 11/20 – Ranking Member of the Senate Judiciary Committee, Senator Patrick Leahy (D-VT), posts a press release on the need to reform the EB-5 Regional Center Program and his ongoing efforts to improve Program integrity and effectiveness for years.

CONTINUED ON NEXT PAGE >>

VOL. 3, ISSUE #4, JANUARY 2016

IIUSA.ORG | 7

Advocacy

• 8/18 – USCIS issues warning on unauthorized use of the Department of Homeland Security and USCIS seals.

2015 GOVERNMENT AFFAIRS TIMELINE • 11/23 – IIUSA releases a data report for I-526 and I-829 petitions that were received, approved, and denied in Q4 of 2015, as well as an analysis of I-526 and I-829 petitions, and I-924 application processing times as of September 30, 2015.

• 12/4 – IIUSA Executive Director, Peter D. Joseph, is quoted in the Real Deal South Florida talking about EB-5 legislation “These reforms are urgently needed and the time is now to enact this important bipartisan agreement”.

• 11/24 – IMPLAN announces the release of 2014 Annual Data including improved employment and labor income methodology, commuter flows, incorporating BEA data into farm sectors, and county changes.

• 12/7 – The Securities and Exchange Commission (SEC) announces a series of enforcement actions against lawyers across the country charged with offering EB-5 investments while not registered to act as brokers.

• 11/24 – IIUSA submits comments and recommendations on the SLS_433_xml Discussion Draft to House and Senate Judiciary leaders taking the lead on negotiating legislative language. Topics again highlight effective dates, job creation methodologies, Targeted Employment Areas (TEAs), and investment levels among other topics.

• 12/9 – Bureau of Economic Analysis (BEA) release new data highlighting new foreign direct investment (FDI) expenditures in the United States with detail by industry, source, source country, and destination state. FDI in the United States in 2014 was $241.3 billion, and does not include EB-5 investments.

• 11/27 – The Securities and Exchange Commission (SEC) announces an asset freeze obtained against Robert Yang, MD, Claudia Kano, and their affiliated entities after being accused of defrauding investors . • 11/30 – IIUSA President David K. Andersson speak on a panel held by the Churchill Society of America on the growth of the EB-5 Program and its positive impact throughout the state of Washington, while Board Members Cletus M. Weber and Director Emeritus Henry Liebman speak on a panel titled, “Cities, Business and Companies”. • 12/2 – Jeanne Calderon and Gary Friedland of NYU Stern School of Business publish an article on the Commercial Observer, “EB-5 and the American Dream” on the benefits of EB-5 investments and an explanation of the use of EB-5 in mezzanine financing. • 12/4 – IIUSA Board of Directors unanimously support a bipartisan, bicameral agreement among the chairmen and ranking members of the House and Senate Judiciary Committees to reform and reauthorize the Regional Center Program. • 12/4 – The Senate Judiciary Committee Chair, Chuck Grassley (R-IA), and Ranking Member, Patrick Leahy (D-VT) give a joint Press Release urging support for legislation to reform and extend EB-5 as a job-creating foreign investment Program that provides jobs and investment in distressed communities. • 12/4 – USCIS posts annual reporting information and filing tips for form I-924A, the Supplement to Form I-924, for fiscal year 2015, as well as a reminder to file no later than December 29, 2015.

8 | IIUSA.ORG

• 12/9 – Senate Judiciary Committee releases updated legislative reform Discussion Draft, MDM15J20_XML, and a summary is posted on Senator Leahy’s website. • 12/10 – PBS NewsHour’s Paul Solman reports on EB-5 reauthorization and highlights IIUSA Board Member, Bill Stenger of Jay Peak on the benefits of the Program in Vermont during PBS’s series, Making Sense. • 12/11 – The U.S House of Representatives passes a short-term funding bill, H.J. 2250 by a voice vote to avoid a government shutdown until December 16, 2015, including the EB-5 Regional Center Program. • 12/14 – U.S. Department of State – Bureau of Consular Affairs releases its Visa Bulletin for the month of January. For the first time, all EB-5 Regional Center categories have all gone to “U” meaning unauthorized (i.e., numbers are not authorized for issuance), and remain unauthorized until legislation reauthorizing the Program is passed. • 12/15 – The United States Congress finalizes the text of the proposed omnibus appropriation spending bill. EB-5 provisions in the legislation allows the Program to continue with no lapse through September 30, 2016. Senate adopts the Act by 65-33 and the House by 316-113. • 12/15 – IIUSA Executive Director, Peter D. Joseph, authors “Time Is Now to Reform & Reauthorize the EB-5 Regional Center Program” for the Huffington Post Blog. He emphasizes the importance of this opportunity to extend and strengthen the EB-5 Regional Center Program as an economic development and job creation Program.

• 12/16 – United States Citizenship and Immigration Services (USCIS) Director Leon Rodriguez provides written testimony for the hearing on “Oversight of U.S. Citizenship and Immigration Services” before the House Judiciary Subcommittee on Immigration and Border Security”. He comments on the uptick in petition filings before September 30, 2015 and how he uses stakeholder engagements to improve program efficiency and integrity. • 12/17 – Senate Judiciary Committee Chairman, Senator Chuck Grassley (R-IA), takes the Senate floor vowing to continue his push for reforms to the EB-5 Regional Center Program after bipartisan, bicameral reform legislation was not included on the omnibus spending bill. • 12/17 – Senator Jeff Flake (R-AZ) introduces the EB-5 Integrity Act of 2015 (S.2415) cosponsored by Senators Charles Schumer (D-NY) and John Cornyn (R-TX), to implement integrity measures to strengthen the EB-5 Regional Center Program in order to promote and reform capital investment and job creation in American communities. • 12/18 – President Obama signs a $1.1 trillion omnibus spending bill keeping the federal government and the EB-5 Regional Center Program running until September 30, 2016. • 12/18 – House Judiciary Committee Chairman Bob Goodlatte (R-VA), and Ranking Member John Conyers (D-MI) issue a joint statement of disappointment that bipartisan, bicameral efforts to reform the EB-5 Regional Center Program were not included in the 2015 omnibus appropriations bill. • 12/18 – U.S. Citizenship and Immigration (USCIS) invites the public to comment on the application for a Regional Center in EB-5 and its supplement, Form I-924 and I924A to be submitted by February 16, 2016. • 12/21 – IIUSA releases statement of support for efforts by Congress to strengthen the integrity of the EB-5 Regional Center Program through enhanced oversight and law enforcement and reinforced support of the bipartisan, bicameral agreement among Judiciary Committee leadership for comprehensive reforms as part of a long-term reauthorization of the Program in the omnibus appropriations legislation.

VOL. 3, ISSUE #4, JANUARY 2016

E B - 5 AT WORK

Century Plaza Hotel

Group 48: I-526 Approved

Fully Subscribed in 2015

West Los Angeles, California

Dakota Spirit AgEnergy

$2.5-Billion Makeover Of Century Plaza Hotel Is Set To Start In March December 8, 2015

Group 32: I-526 Approved Jamestown, North Dakota

Prairie Business Magazine:

Jamestown Area Ethanol Plant Starts Commercial Operations July 27, 2015

CMB RESULTS •

Over 4,300 EB-5 Participants in 49 Distinct Partnerships

•

Over $2.2 Billion in EB-5 Capital Raised

•

Approximately 2,500 I-526 Approvals

•

Approximately 500 I-829 Approvals

•

I-829 approvals in 11 EB-5 Partnerships

•

$123 Million in Repayment by Borrowers

•

Operator of 10 Successful Regional Centers

•

A History in EB-5 Dating to the Mid 1990’s

•

Over 140,000 New Jobs Created

One of two successful $1 million CMB EB-5 Partnerships

Newport Center Residences

Group 12: I-526 Approved Newport Beach, California

Orange County Business Journal: High-End Homes Aimed To Fill Newport Center Void

CMB Regional Centers CMBEB5VISA.COM

Telephone: 309-797-1550 Facsimile: 855-852-5133

Midwest Executive Offices: 7819 42nd Street West Rock Island, IL, USA 61201

CMB Export, LLC • CMB Summit, LLC • CMB Southeast Regional Center, LLC CMB Pennsylvania Regional Center, LLC • CMB Illinois Regional Center, LLC CMB Texas Regional Center, LLC • CMB Colorado Regional Center, LLC CMB Nebraska Regional Center, LLC • CMB North Dakota Regional Center, LLC Exclusive Operator of The Iowa Regional Center

April 28, 2013

Advocacy

Short Term EB-5 Extension Brings New Challenges and Opportunities in BY PETER D. JOSEPH EXECUTIVE DIRECTOR, IIUSA

015 was a year like no other in the history of IIUSA or the EB-5 Regional Center Program (the “Program”). We had hundreds of meetings and phone calls with key leaders in Congress, offered detailed critiques of complex legislative reform proposals, responded to numerous oversight and critiques of the Program from Congress, Government Accountability Office (“GAO”) and the media, avoided overly aggressive reforms that would have effectively killed the Program, and survived two different sunset dates. In the midst of a legislative stalemate, IIUSA also expanded on our detailed statement of principles for reform and reauthorization by stepping into the breach with a detailed compromise proposal. This proposal helped to spur intense negotiations with key Congressional leaders, including the Speaker of the House and the Senate Majority and Minority Leaders. While the clock ran out on our efforts to achieve long-term reform and reauthorization, we reportedly heard from key Hill offices that IIUSA today is better known, respected and trusted as an expert and advocate for the Program and the industry than ever before. After a year like 2015, it is good to remember how we got here – as an industry and organization – so we can chart a path forward together.

10 | IIUSA.ORG

In 2005, IIUSA was founded as a not-forprofit association representing the EB-5 Regional Center industry by leaders who saw common interest and governing bylaws as a means to establish processes for adopting policies and positions through member participation. These processes have been amended over the years to reflect the evolving needs of the Program and IIUSA membership. The Board has expanded and membership structure has changed. New committees and an advisory council were formed. Voting protocols have been adopted to reflect IIUSA’s mission, and new best practices have been adopted. Ten years later, IIUSA remains committed to an open, transparent and deliberative agenda setting and policymaking process designed by the membership to ensure that IIUSA’s positions reflect the consideration of diverse points of view, compromise, and carefully considered public policy objectives. There is a good reason now to re-focus on these fundamentals. We have known since 2012’s three-year reauthorization of the Program that 2015 would be a pivotal year for all EB-5 stakeholders. This year flew by as the EB-5 Regional Center industry matured into a source of more than $1 billion in foreign direct investment (FDI) per quarter for the U.S. economy. In fact, since 2008 the Program has delivered over $13 billion in FDI to the U.S. economy with over $9 billion awaiting federal government approval today. The Program has finally come of age, becoming a potent economic development tool for diverse communities and industries across the country. With this new reality comes unprecedented opportunities and challenges. Looking ahead

to 2016 and beyond, our industry and stakeholders need to work productively together for the long-term benefit of the Program. Another sunset date is already upon us – a short nine months away that puts debate about the renewal of the Program in the midst of a presidential election. The impact of presidential politics on any discussion about longterm reauthorization and Program reforms cannot be understated. At the same time, Congress has signaled its intent to increase its attention on oversight of the Program. And, as you are all aware, the visa system that is the foundation for the Program’s success continues to backlog. Critics of the Program and champions of reform will both be making their case in the public sphere. If we are to succeed in spearheading a longer-term extension and careful reform of the Program, IIUSA members with different interests and views will need to work together towards this common goal. Our internal processes are designed specifically to foster this kind of cooperative engagement. There is significant risk in the assumption that Congress will continue to extend the Program without reforms in the absence of broad agreement within the industry. Broad political support will be required to achieve our shared objectives – and that level of support is best achieved by developing an equally broad consensus among industry stakeholders. Time is of the essence for the EB-5 Regional Center industry to determine how best to move forward in 2016. I look forward to rolling up our sleeves and working together over the next year to achieve long-term reform and reauthorization of the Program!

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Advocacy

2015 EB-5 Market Exchange Recap

BY ALLEN WOLFF IIUSA ASSOCIATE DIRECTOR OF MARKETING & COMMUNICATIONS

IUSA’s 5th Annual EB-5 Market Exchange, the most comprehensive industry conference for advanced education and business development, proved once again to be a “can’t miss” event for all global EB-5 practitioners. The 2015 edition of IIUSA’s largest annual conference was held from October 21-23 in Dallas, Texas – a city that has been at the forefront of putting EB-5 to work as a tool for regional economic development and job creation. Throughout the conference, attendees were reminded that EB-5 investment is an increasingly significant part of the city and region’s economic development goals. In record breaking numbers, this year’s Market Exchange hosted approximately 600 registrants, 53 exhibitors, and 61 sponsors. The conference agenda featured 20 panel discussions, including 80+ speakers on a topics ranging from recent SEC actions, to market diversification and public-private-partnerships as well as important legislative updates from the IIUSA government affairs team.

EB-5 101 BASICS SEMINAR, COMMITTEE MEETINGS & MEMBER EVENTS – WEDNESDAY OCTOBER 21ST Activities began bright and early on Wednesday, October 21st with a sold-out gathering at IIUSA’s 2nd Annual EB-5 101 Basics seminar. Consisting of five one-hour

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panels on topics ranging from basic concepts, overview of securities laws & compliance, business plan writing/economic reporting, marketing projects overseas, and tales from the trenches (practical tales from experienced EB-5 operators) the seminar provided keen insights into various facets of the EB-5 Regional Center Program. Over 20 speakers with diverse backgrounds and specialties within the EB-5 industry helped contribute to the overall success of the seminar. Throughout the day, IIUSA’s ten committees, as well the Board of Directors, held meetings of strategic importance toward advancing industry goals and initiatives. Meeting first were members of the Association Building, Banking and Best Practices committees followed by Public Policy, Public Relations and Investor Markets, and lastly Compliance, Editorial, Technology and Membership Committees. In sum, over 90 members serve on IIUSA committees and it is through their selfless hard work and dedication that IIUSA has become a strong advocate for the EB-5 Regional Center Program industry. For the first time ever, IIUSA held a special half-day membership networking & training workshop designed to provide members with the tools to better utilize IIUSA’s vast resources. Leaders from IIUSA’s government and public affairs teams, as well as representatives from the Technology Committee provided their expertise to the gathering of members. The first session, EB-5 Public Relations: Tools for Success focused on utilizing IIUSA’s PR toolkit and strategies for interacting with the media. The second panel, EB-5 Advocacy & Legislative Affairs, focused on best practices in engaging with federal/state and local government officials to advocate on behalf of the

EB-5 Program. Lastly, the EB-5 Technology Tools panel provided in depth training on IIUSA’s Member Portal and previewed IIUSA’s new website.

KICKOFF RECEPTION – HALL ARTS BUILDING – WEDNESDAY OCTOBER 21ST The kick-off reception for the Market Exchange was held at the beautiful HALL Art’s building, an EB-5 project developed by Civitas Capital Group, the conference’s host city sponsor. Along with breathtaking views of the city, attendees were able to see a successful project – and how it fit into the broader economic development story of the city itself – first-hand. Midway through the reception, IIUSA held a short ceremony to honor its sponsors and public sector partners – the cities of Dallas and Fort Worth - and thank attendees for supporting the EB-5 Market Exchange. During the ceremony, Texas Office of the Governor representative Michael Treyger (Manager of International Business and Economic Development) presented IIUSA with a certificate and official welcome to the state of Texas. After several hours of networking and greetings friends old and new, the evening concluded with a final toast with an eye towards the jam-packed agenda the next two days would bring.

IIUSA HONORS 11 MEMBER REGIONAL CENTERS WITH I-829 APPROVAL AWARDS For the third consecutive year, IIUSA honored member Regional Centers who have been successful in bringing EB-5 projects “full circle” – that is those who have had clients’

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Advocacy

I-829 petitions approved by U.S. Citizenship and Immigration Services (“USCIS”) in Fiscal Year 2015. Collectively, these projects have created thousands of jobs for the U.S. economy and stand as primary examples for why the EB-5 Regional Center Program should be permanently authorized by Congress. The full list of Regional Centers honored this year include: • American Dream Fund • Birch Capital LLC • CanAm Enterprises • Civitas Capital Group • CMB Regional Centers • Florida Overseas Investment Center • M&D Regional Center • Metropolitan Milwaukee Association of Commerce • New York City Regional Center • Vermont EB-5 Regional Center • Whatcom Opportunities Regional Center

IIUSA GUEST OF HONORS SPEAKERS – THURSDAY/FRIDAY OCTOBER 22-23 Jon Huntsman, Jr. – U.S. Ambassador to China (2009-2011) & Governor of Utah (2005-2009) IIUSA’s Guest of Honor speaker roster was headlined by the Honorable Jon M. Huntsman, Jr., former Governor of the State of Utah and Ambassador to China. During his

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50-minute address on Thursday afternoon, Ambassador Huntsman addressed important issues in U.S. foreign relations including the geopolitical relationship between U.S. and China. With the EB-5 Program operating at the crossroads of U.S. economic development and foreign direct investment – with a special emphasis on China – the speech given by Ambassador Huntsman provided conference-goers an opportunity to take a step back and reflect on the important contributions of the EB-5 Program to the national interest.

Charles Oppenheim – Chief, Visa Controls Office, U.S. Department of State On Thursday afternoon, Charles Oppenheim, Chief of the Visa Controls Office at the U.S. Department of State (DOS) along with Bernard Wolfsdorf, Managing Partner of Wolfsdorf & Rosenthal, and Nima Korpivaara, Partner, David Hirson & Partners, LLP, provided an in-depth update on EB-5 visa demand including predictions as to the Chinese EB-5 waiting line for the year ahead.

Clay Jenkins – Dallas County Judge Mayor Betsy Price –Mayor of Fort

Worth, Texas

On Friday morning, Dallas County Judge Clay Jenkins and Betsy Price, Mayor of Fort Worth, Texas took to the stage to discuss regional economic development and how EB-5 has played a part in the Dallas-Ft. Worth success story. Moderated by Rafael Anchia (former Texas state representative and current Managing Director of Civitas Capital Group), the discussion provided insights into the in-

terplay of local government and economic development in one of the country’s booming metropolises.

Maria M. Odom – Citizenship and Immigration Services (CIS) Ombudsman On Friday afternoon, Citizenship and Immigration Services (CIS) Ombudsman Maria M. Odom sat down with IIUSA Executive Director Peter D. Joseph for an “armchair discussion” to review key functions of Department of Homeland Security (DHS) ombudsman role. Assessment of USCIS efforts for consistent and productive Engagements with the EB-5 community, EB-5 processing times and what is being done to address the I-526 and I-829 backlogs, as well as interagency collaboration and technical assistance on legislative reforms.

Dawn Calonge – Surveillance Director, Financial Industry Regulatory Authority (FINRA) On Friday afternoon, Dawn Calonge took to the podium to address the hundreds of EB-5 stakeholders in attendance. Ms. Cologne’s role at FINRA is to manage the staff responsible for the ongoing financial monitoring and sales practice surveillance of member firms. In her address, Ms. Cologne discussed FINRA’s major functional areas, including member regulation, market regulation, enforcement and dispute resolution as well as the regulatory risks and concerns in conducting EB-5 offerings.

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GENERAL SESSION PANELS – THURSDAY/FRIDAY OCTOBER 22-23 IIUSA conferences are known to bring together EB-5 industry leaders to discuss pertinent topics affecting EB-5 stakeholders. This year’s EB-5 Market Exchange included ten general session panels and 39 speakers on topics including IIUSA Best Practices, EB-5 in China, USCIS Policy trends, Regional Center Compliance, and more.

DEEP DIVE IN LEGISLATIVE PROPOSALS: WHAT WOULD IT MEAN TO YOUR BUSINESS? • Angel Brunner - Director, IIUSA; President, EB5 Capital • William P. Gresser - Director, IIUSA; President, EB-5 New York State, LLC • Charles O’Byrne - Senior Vice President for Government Affairs at Related Companies • Stephen Strnisha – Chair, IIUSA Public Policy Committee; CEO, Cleveland International Fund

EB-5 CASE STUDIES: LESSONS LEARNED FROM THE GOOD & BAD • K. David Andersson - President, IIUSA; President, WORC Regional Centers • Patrick F. Hogan - Director, IIUSA; President, CMB Regional Centers • Bob Kraft - Director, IIUSA; Chairman & CEO, First Pathway Partners, LLC • Al Rattan - President, USA Continental Regional Center

EB-5 & SECURITIES: ENFORCEMENT & COMPLIANCE TRENDS • Jeff De Cicco - CEO & CCO, CanAm Enterprises, LLC • Christopher F. Robertson - Partner, Seyfarth Shaw LLP • Osvaldo Torres - Partner, Torres Law, PA • Russell Weigel - Partner, Russell C. Weigel, III, P.A.

EB-5 VISA DEMAND: AN UPDATE FROM THE DEPARTMENT OF STATE • Nima Korpivarra - Partner, David Hirson & Partners, LLP • Charles Oppenheim - Chief, Visa Controls Office, U.S. Department of State • Bernard Wolfsdorf - Managing Partner, Wolfsdorf Rosenthal LLP

IIUSA INDUSTRY BEST PRACTICES: HISTORY LESSON & LOOK AHEAD • Chad Ellsworth - Partner, Fragomen, Del Rey, Bernsen & Loewy, LLP • Mary King – Chair, IIUSA Best Practices Committee; COO, New York City Regional Center • Dawn M. Lurie - Shareholder, Polsinelli • David Souders - Director, IIUSA; Vice President, Todd & Associates, Inc.

NEW NORMAL: EB-5 REGIONAL CENTER PROGRAM AFTER THE LATEST “SUNSET” DATE • Hunter Bates - Principal, Republic Consulting, LLC

EB-5 IN CHINA: THE LATEST FROM THE LARGEST INVESTOR MARKET

• Peter D. Joseph - Executive Director, IIUSA

• He Boyi - Chairman, Guangdong ExitEntry Association

• Tom Loeffler - Senior Counsel, Akin Gump Strauss Hauer Feld, LLP

• Kelvin Ma - Chairman, IIUSA International Membership Sub-committee; Partner, Shanghai Demei Law Firm

• Hans Rickhoff - Senior Policy Counsel, Akin Gump Strauss Hauer Feld, LLP

REGIONAL CENTER COMPLIANCE: A SYSTEMIC APPROACH TO LONG TERM SUCCESS

USCIS POLICY TRENDS: AN IN-DEPTH LOOK AT WHAT’S DRIVING EB-5 ADJUDICATION & ADMINISTRATION • Robert C. Divine - Vice President, IIUSA; Shareholder, Baker Donelson Bearman, Caldwell & Berkowitz, PC • Carolyn S. Lee - Partner, Miller Mayer, LLP • Robert F. Loughran - Partner, Foster LLP • Lincoln Stone – Chair, IIUSA Editorial Committee; Partner, Stone Grzegorek & Gonzalez LLP

USING EB-5 FOR REGIONAL ECONOMIC DEVELOPMENT IN DALLAS AND FORT WORTH • Rafael Anchia - Managing Director, Civitas Capital Group • Honorable Clay Jenkins - Dallas County Judge • Honorable Betsy Price - Mayor, Fort Worth, TX

BREAKOUT SESSION PANELS – THURSDAY/FRIDAY OCTOBER 22-23 The EB-5 Market Exchange is a unique event in that it features a number of curated breakout sessions which allow attendees to choose from alternate topics on processes, roles and updates within the EB-5 Regional Center industry. This year’s conference featured 10 total panels over two days while featuring 38 speakers from across the industry.

BUSINESS DEVELOPMENT & COMPLIANCE: BANKING CONSIDERATIONS IN EB-5 TRANSACTIONS • Bonnie Novella - Vice President of Business Development, NES Financial • Damien Oberding - Vice President, Citigroup • Steve Shpilsky - Managing Principal, California Real Estate Regional Center • Gregory L. White - Partner, Seyfarth Shaw LLP

ROLE OF DUE DILIGENCE & BROKER/DEALERS IN EB-5

• Kyle Walker – Chair, IIUSA Membership Committee; Managing Partner, Green Card Fund, LLC

• Daniel J. Healy - CEO, Civitas Capital Group

• Howard Wu - CEO, CanAchieve Consultants Ltd

• Daniel B. Lundy - Partner, Klasko Immigration Law Partner, LLP

• Douglas Hauer - Partner, Founder/Chair, EB-5 Financing Practice, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo P.C.

• Rachel Zou - Chair, LianHong Overseas Consultants Ltd.

• Mark Giresi - Chief Operating Officer & General Counsel, U.S. Immigration Fund

• Michael Homeier - Founding Shareholder, Homeier & Law, P.C.

• Reid Thomas - Executive Vice President, NES Financial

• Lili Wang - Managing Partner, New City Advisors

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• Rupy Cheema - Partner, EB5 Diligence

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BUILD, BUY, OR RENT A REGIONAL CENTER? IT DEPENDS... • Eren Cicekdagi - Director, Golden Gate Global • Joe McCarthy - Principal, American Dream Fund, LLC • Julia Park - Managing Director, Advantage America Regional Centers • James C. Wolf - Partner, Lipman & Wolf, LLP

REASONABLE, REPRODUCIBLE & FEASIBLE: BUSINESS PLANNING & THE ECONOMICS OF EB-5 • Scott Barnhardt - President, Barnhart Economic Services, LLC • Lauren Cohen - President, e-Council Inc. com, Inc. • Michael Kester - Economist, Impact DataSource, LLC

P3: EB-5 IN THE DEVELOPMENT FINANCE TOOLBOX THROUGH PUBLIC PRIVATE PARTNERSHIPS • Erin Birkenkopf - HEDC, Public-Private Partnerships, National Development Council • Bill Stenger - Director, IIUSA; President at Jay Peak Resort • Beth Zafonte - Director of Economic Development Services, Akerman LLP • Karl Zavitkovsky - Director of Economic Development, City of Dallas

INVESTOR SOURCE OF FUNDS, PRE-IMMIGRATION TAX PLANNING & POST-IMMIGRATION TAX COMPLIANCE • Jana Aristizabal - Senior Tax Manager, Marcum LLP

• John P. Pratt - Partner, Kurzban Kurzban Weinger, Tetzeli, and Pratt P.A.

• Edward Beshara - Managing Partner, Beshara, P.A.

• Cletus M. Weber - Director, IIUSA; Founder/Partner, Peng & Weber, PLLC

• Rana Jazayerli - Partner, Phillips Lytle LLP • Charley Huang - Principal, PKF Consulting

RC VS. DIRECT EB-5: WHY MOST INVESTORS CHOOSE REGIONAL CENTERS BUT SOME DON’T • Nic Applegate – CEO, Gate Industries • Jason Brown - Senior VP of Business Development, Lucky’s Market • Mona Shah - Managing Partner, Mona Shah & Associates

INVESTOR MARKET DIVERSIFICATION: LOOKING BEYOND CHINA TO EMERGING HOT SPOTS OF DEMAND • William P. Cook - Managing Member, Global Migration Law Group PLLC • Charles Raether - Managing Partner, AmLaw Group • Ronit Sharma – Associate, Henley & Partners, Ltd. • Ken Wright- Partner, Baker & Hostetler LLP

EB-5 LITIGATION: THE LATEST FROM COURT PROCEEDINGS RELEVANT TO POLICY • Ira J. Kurzban - Partner, Kurzban Kurzban Weinger, Tetzeli, and Pratt P.A.

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• Susan L. Pilcher - Partner, Stone Grzegorek & Gonzalez LLP

REGIONAL CENTER MODELS: DIFFERENT APPROACHES TO REGIONAL ECONOMIC DEVELOPMENT WITH EB-5 • Patrick Barber- President/CEO, Encore Global Investment Management, LLC • Brian Hicks - Managing Partner, MidAmerican Global Ventures LLC • Bob Honts - Secretary-Treasurer, IIUSA; President/CEO, Texas Lone Star Enterprises Regional Center (TLSERC) • Ron Klasko - Founding Partner, Klasko Immigration Law Partners, LLP

LOOKING AHEAD TOWARD IIUSA CONFERENCES IN 2016— A NEW NORMAL POSTREAUTHORIZATION In just a few short months, the EB-5 Re¬gional Center industry will convene again in Washington D.C. for IIUSA’s 9th Annual EB-5 Regional Economic Development Advocacy Conference. The 2016 edition, from April 20-22, will held at the vibrant Marriott Marquis, completed in May of 2014 with the help of EB-5 investment. With each subsequent year, this event has grown in numbers and content. We are counting on YOU to join us for this momentous occasion and to help us write the next chapter for the EB-5 Program!

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Ambition Growth Financing Ambition & Facilitating Growth

is a proud supporter of IIUSA Since inception, U.S. Immigration Fund has successfully raised over $1.5 billion in EB-5 capital for real estate development nationwide. This success is based on our strong partnerships with international immigration agents, attorneys and the developers we work with. With USCIS-approved Regional Centers in New York, New Jersey and Florida, our company and network continue to grow.

1.855.EB5.USIF I WWW.USIFUND.COM To encourage immigration through the EB-5 category, Congress created the EB-5 Regional center (Pilot) Program in 1990. Regional Centers are considered to be any government approved entity, organization or agency which focuses on a specific geographical area of the United States and that seeks to promote economic growth, increased regional productivity, job creation and domestic capital investment. This advertisement is intended for general information purposes only. This does not represent an offer or solicitation to buy or sell any security. Investments are available only to qualified investors via a confidential offering memorandum.

Advocacy

EB-5 in the Media: A Look Back at 2015 BY MOLLY CONROY IIUSA POLICY/RESEARCH ASSISTANT

015 was a banner year for the EB-5 Program and with it brought unprecedented media coverage. Over the course of the year, IIUSA tracked dozens of articles each day from outlets all across the country, covering new economic development projects utilizing EB-5 capital, efforts in Congress to reform the Program, federal oversight and enforcement actions, and more. Below are a selection of the year’s best stories and quotes which demonstrate the various ways in which EB-5 investment is working for local communities all across the United States.

Navajo Prez Calls for Foreign Investment Via EB-5 Program published in Law360 on 3/3/15 by Andrew Westney “It’s always capital that is the stumbling block for the success of small business in the reservation… The EB-5 program gives us the opportunity to receive capital and the business acumen from foreign investors. This is a great program to be a part of.” – Ben Shelly, President of the Navajo Nation

An EB-5 project that fits visa program’s original intent published in The Seattle Times on 3/7/15 by Sanjay Bhatt “You’re getting dollars into rural communities that otherwise would have a slim to no chance of attracting traditional bank financing because the risks are perceived to be too high. This is a program that in my opinion is a win-win. It’s a win for the investor. It’s a win for the US economy.”

$500K for a Green Card: Foreign investors help Portland boom published on KGW Portland News on 6/2/15 “EB-5 investments will only help Portland in the long run, because they bring [jobs] to the economic center of the city and they have to be full-time jobs." – Peter Englander, Director, Portland Development Commission

Global Capital Chasing U.S. Commercial Assets with Greater Appetite published in The World Property Journal on 6/4/15 by Michael Gerrity “The EB-5 program combines flexibility with a more attractive pricing model for most developers who see mezzanine debt rates that are more similar to institutional debt, but without all of the restrictions and requirements that you would get with institutional lenders.” – Steven Polivy, Managing Partner, Akerman LLP

Mount Snow readies new reservoir published in The Deerfield Valley News on 6/7/15 by Mike Eldred “This program [EB-5] is making it possible to create jobs all over Vermont. We’re seeing more investment in our mountains, and that means jobs. Out-of-staters are coming and falling in love, realizing they came to the promised land and want to stay, raise their families, and create more jobs.” – Peter Shumlin, Governor of Vermont

Buying visas with investments is big business. And Congress is taking notice. published in The Washington Post on 6/28/15 by Jonathan O’Connell “It’s a method of financing that’s current, available and very credible. It’s helping deals move forward.” – Craig Mance, Senior Vice President for Development in North America. Hilton Hotels “EB-5 is a legitimate tool for economic development and I see it working in all of my projects. I want to see development happen in every community and you can’t have that if you have bad actors. Part of protecting the Program is taking care of those bad actors.” – Angel Brunner, President, EB5 Capital

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EB-5 IN THE MEDIA: A LOOK BACK AT 2015 Time to ‘Champion’ an investment program that works for all published in The Hill on 7/31/15 by Gregory Wing, President and CEO, Education Fund of America, LLC “Two economists from the Harvard Business School-affiliated Institute for a Competitive Inner City (ICIC) found at least 178 EB-5 funded projects nationwide - including our schools - are ‘increasing employment and revitalizing urban areas.’ As our economy continues to recover, projects like ours are living proof of EB-5’s power to help businesses, entrepreneurs and publicprivate partnerships access the capital they need to invest in their communities and create jobs.”

EB-5 program is smart government policy published in The Hill on 09/17/15 by Thomas J. Donohue, President and CEO of U.S. Chamber of Commerce “These [EB-5] investments drive economic growth and job creation in the U.S. at no cost to taxpayers. Smart government policies - backed by facts, data, and statistics - are needed now more than ever to ensure that the United States can compete in the global marketplace to attract foreign capital and help finance projects that put Americans to work.”

Cal Chamber Urges Reauthorization of Program for Immigrant Investors published by the California Chamber of Commerce on 8/21/15 by Susanne T. Stirling, Vice President of International Affairs, California Chamber of Commerce “The Program is essential to many state and local government economic development entities, as well as numerous industry groups and private sector project and business developers. Over the last three years since reauthorization, the Program has grown in popularity as a source for funding critical to economic development projects, but more importantly has continued to create U.S. jobs, all at no cost to the taxpayer.” – Kim Foster, Attorney, Aero Space Port International Group Regional Center

New Report Outlines EB-5 Visa Program Successes, Challenges published on The Bipartisan Policy Center Blog on 9/17/15 by Theresa Cardinal Brown, BPC Director of Immigration Policy “The EB-5 program is clearly not going to be the primary solution for the country’s most expensive and critical development needs. However, with the right reforms and safeguards, this program offers significant opportunities for regional economic development, especially in communities hard-hit by the Great Recession.”

EB-5 Regional Center Insurance Solutions

David Souders 440.461.1101

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EB-5 IN THE MEDIA: A LOOK BACK AT 2015 EB-5 Visas Help Many Who Aren’t at all Wealthy published in The Wall Street Journal Opinions/Letters section on 9/26/15 by Marty Cummins Jr., President, Florida EB-5 Investments LLC “During the Great Recession the EB-5 visa program funded businesses that couldn’t get funding from any other source, and it still provides much needed capital. The program provides “patient”, low-cost capital that allows businesses the time to develop and flourish.”

Is this job-creating foreign investment project too good to be true? Published on PBS Newshour on 12/10/15 “A lot of the farms [in Vermont] were going out of business. There wasn’t much opportunity for the youth in this area. And now when you come here, it’s like this big enterprise and there is building and construction going on, and students are employed in high school.” – Helen Short, Nurse, Enosburg Falls, VT

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Education/Research

WHAT WE LEARN FROM SEC INVESTIGATION

RONALD R. FIELDSTONE

ATTORNEY AT LAW, ARNSTEIN & LEHR LLP., MEMBER OF IIUSA COMPLIANCE COMMITTEE

JAY M. ROSEN

PARTNER, ARNSTEIN & LEHR LLP

GENERAL DISCUSSION

he Securities Exchange Commission (“SEC”) has clearly increased its degree of scrutiny in investigations with respect to the EB 5 Program since the end of 2012, especially after the Chicago Convention Center case that was filed by the SEC in February of 2013, where the SEC took a very active role in protecting the return of investor capital based upon the existence of obvious fraud and misrepresentation in the offering documents. Since that point in time, the credibility of the EB-5 industry (including industry best practices, heightened due diligence from regional centers and agents and heightened investigation by the SEC) has elevated the degree of scrutiny and protection for the EB-5 program. One must be mindful of the fact that the SEC will take an active role in stopping any projects involving fraud and misrepresentation and will bring actions for fines, sanctions and injunctions related thereto. This overall heightened role of the SEC, as well as the industry in general, has significantly improved the awareness of issues that were apparent in the Chicago Convention Center case and, in general, has avoided repeats of that type of situation.

GENERAL ROLE OF SEC TODAY IN POLICING EB 5 INDUSTRY Fraud in Offering Documents. Pursuant to the Securities Act of 1933 (the “1933 Act”), the SEC is actively enforcing any violation of Rule 10-b(5) under the 1933 Act. As noted above, any potential violation will result in an action for injunctive relief and civil sanctions, as well as possible criminal action. The SEC does not in and of itself bring criminal pro-

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cordance with the offering documents and the business plan utilized in connection with the EB 5 program. It is apparent that budgets always vary to some degree and that is acceptable. However, if funds are slated for one project and then utilized for another project or applied for other purposes that were not otherwise disclosed in the offering documents, that would constitute a breach of the disclosures set forth in the offering documents and again result in a potential action by the SEC. The SEC has no tolerance for these situations, especially if they are material in nature.

ceedings. It would need to refer any criminal action to the Justice Department. Escrow Violations. The SEC has also taken a very heightened interest in potential discrepancies and misrepresentations related to escrow arrangements. Investors believe in most cases that they have some form of protection by having funds placed in escrow and certain pre-conditions being satisfied. In some certain situations, the escrow is really a fiction or does not exist at all and funds are directly distributed to the project company for use in the project without having necessary pre-conditions, such as at least an I-526 filing for the applicable investor or a minimum number of subscribers having subscribed to purchase units in the project, thus ensuring that at least the minimum amount of EB-5 funding has been satisfied. Improper Use of Funds. Certain SEC investigations focus on the actual use of proceeds and whether they were applied in ac-

Broker-Dealer Issues. Probably the most active area of SEC scrutiny, investigation and action involves alleged broker-dealer violations. This is in part due to the complaints from the broker-dealer industry and FINRA related to parties that are apparently receiving inappropriate commissions in connection with transaction-based compensation in the EB 5 program. In connection therewith, the SEC will undertake very detailed investigations to determine if the instrumentality of United States commerce was utilized in any manner in effectuating the sale of the EB-5 security and whether commissions were improperly paid. As part of this process, the SEC will seek discovery of all emails, written correspondence, documents, telephone records, bank accounts and the like to determine exactly what happened in connection with investor solicitation, as well as the flow of funds and the payment of compensation to all parties involved in the transaction. This will not only involve business information, but personal information as well, such as personal telephone records, personal emails and personal bank accounts.

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cific project company (referred to as the “job creating entity” or “JCE”). Notwithstanding this potential defense, it is always advisable to comply with a verbal position of the SEC in order to avoid becoming a test case in the future. Based upon our several calls with staff attorneys at the SEC, who have acknowledged their doubt whether the IC Act applies, the SEC’s Division of Investment Management will enforce the provisions of the IC Act as if they apply.

Investment Company Act of 1940 (the “IC Act”). A lesser known concern is the SEC’s overview of the IC Act and potential violations for not registering under such Act or obtaining an exemption. I am not aware of any formal action undertaken by the SEC with respect to the EB 5 program related to the IC Act, although the SEC has, on several occasions, taken the verbal position that the creation of an new commercial enterprise (“NCE”) to receive investor funds and make a loan to a project is deemed to be trading in securities under the IC Act. Many practitioners believe that this position is not properly supported under the facts and circumstances of the EB-5 program, since arguably there is no trading in securities, only the sale of a security in order to make a loan to a spe-

In connection with the 1940 Act, the following should be noted: 1. There is a so-called C(1) exemption for offerings involving no more than 100 sub scribers. 2. If the offering involves more than 100 subscribers, then the so called C(5) exemption could apply, which involves the investment in mortgage-backed collateral. However, even though many transactions do involve mortgage-backed collateral, some transactions have so-called mezzanine pledges, since the senior lender will not otherwise permit a second mortgage on the project. The SEC has taken the position that one can otherwise comply with the C(5) exemption by otherwise meeting the require-

ments of the 2007 Capital Trust No Action Letter (“Capital Trust”). The six criteria set forth in Capital Trust are as follows: “(1) a Tier 1 mezzanine loan is a subordinated loan made specifically and exclusively for the financing of real estate; (2) both second mortgages and Tier 1 mezzanine loans are underwritten based on the same considerations and after the lender performs a handson analysis of the property being financed; (3) the Company as Tier 1 mezzanine lender exercises ongoing control rights over the management of the underlying property; (4) the Company as Tier 1 mezzanine lender has the right to readily cure defaults or purchase the mortgage loan in the event of a default on the mortgage loan; (5) the true measure of the collateral securing the Tier 1 mezzanine loan is the property being financed and any incidental assets related to the ownership of the property; and (6) the Company as Tier 1 mezzanine lender has the right to foreclose on the collateral and through its ownership of the propertyowning entity become the owner of the underlying property.” Based upon the above, the SEC has taken the position that only a first lien pledge of an interest in the borrower entity or its parent

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IIUSA.ORG | 21

Education/research

Investment Advisor Issues. Pursuant to the Investment Advisors’ Act of 1940, the SEC will investigate whether unlicensed parties are providing investment advice in connection with the sale of securities. This would apply to parties that recommend various EB-5 offerings to investors, since by providing multiple choices of projects to invest in, this could be deemed the rendering of investment advice as opposed to just acting as a broker-dealer for a specific transaction.

Education/Research

WHAT WE LEARN FROM SEC INVESTIGATION company would provide for the exemption and not a second tier pledge. There is no necessary support for this interpretation based upon Capital Trust, but again, this is an issue that has yet to be tested both administratively and in the courts. As a result of the above, it is advisable for all transactions involving more than 100 investors to focus carefully on the C(5) exemption, the Capital Trust guidelines, as noted above, and the necessity of trying to accomplish a first lien pledge of the membership interest in the JCE or a parent company of the JCE.

SEC INVESTIGATION PROCEDURES Subpoena Process. If the SEC suspects there is a potential violation of securities laws, it will typically commence a private investigation pursuant to an investigatory order. Subpoenas will be issued to target parties and possibly other parties requesting documentation related to the applicable transaction. A copy of a formatted subpoena is attached to this article. As part of the investigatory process, if the

SEC determines that other parties are involved in the transaction, it will usually issue subpoenas to those other non-target parties with respect to the transaction and possibly other transactions. This may lead to a mushrooming effect, since one investigation can lead to multiple investigations based upon discovery that indicates that a particular party may have been paid improper compensation in other transactions as well. Therefore, a nontarget party can become a target party once facts are discovered that implicate the initial non-target party. A perfect example would be a regional center paying improper brokerdealer commissions to third parties. As part of the initial investigation, the SEC would determine what other parties are receiving improper compensation, and then investigate those parties. As a result of that investigation, there may be other parties paying or receiving improper compensation that would generate further investigations as well. Discovery Process. The discovery process is quite thorough and detailed and generally requires the production of all e-mails, correspondences, telephone records, bank records

and documentation related to the transaction being investigated. This applies both from a corporate and personal standpoint. The SEC may perform separate interviews during the discovery process, including contacting investors or other parties and obtaining information as to the nature of selling activities and the materials provided to the investors. In addition, the SEC will look at websites and other published information to determine if there are any inconsistencies between the offering documents and what is otherwise published. Deposition Stage. The SEC will typically conduct a deposition of the targeted parties to determine exactly what happened. It is our experience that the SEC is becoming more sophisticated with the EB-5 industry. Investigations are performed at the regional office where the target party is located or otherwise where the project is located. All investigations are apparently supervised by the main office in Washington, D.C. The deposition can be as short as a few hours, or extend for a few days. The SEC will generally ask for additional discovery material to further verify positions

IIUSA Compliance and Best Practices Committee Top 25 Immigration & EB-5 Attorney, by eb5investors.com Past President of AILA (CFL) AV-Rated Martindale-Hubbell®

 Global and National EB-5 Immigration Practice for Investors

ASSOCIATION

 Compliance and Best Practices for Regional Centers and Direct EB-5 Projects  Immigration Due Diligence  Strategic Alliances with National and International Professional Firms covering Tax and Wealth Management Guidance for Investors  Internationally Recognized EB-5 Practice and Team

EDWARD C. BESHARA MANAGING PARTNER ATTORNEY AT LAW B.JURIS, LL.B, J.D.

ORLANDO, FL USA BESHARAPA.COM 407.571.6878 EBESHARA@BESHARAPA.COM CONSULTATIONS AVAILABLE IN ORLANDO (3 LOCATIONS), MIAMI, & OTHER OFFICES FOREIGN LANGUAGE SERVICES AVAILABLE IN MANDARIN, PORTUGUESE, SPANISH, & OTHER LANGUAGES

22 | IIUSA.ORG

VOL. 3, ISSUE #4, JANUARY 2016

taken by deposed parties. It is critical that any party receiving a subpoena or being deposed have qualified counsel to represent them at the discovery and deposition stages in order to ensure that this process is properly monitored. In certain situations, there are justifications for compensation paid, which do not amount to improper transactional-based compensation. In certain circumstances, it may even be advisable to have a criminal law attorney in attendance where the potential violations could be criminal in nature and not just civil. It is very important that counsel actively interview the deponent well in advance in order to gain access to all information and have a strategy with respect to the discovery process. Negotiation and Settlement Stage. If the SEC determines that a violation is apparent, it is advisable to enter into negotiations in order to potentially obtain a settlement that may be a lot more favorable than actually having a formal legal action taken against the targeted party. The SEC has the ability to devote substantial resources to any litigation in this regard and the cost of defense is very sub-

stantial. Furthermore, the publicity of a formal lawsuit will be detrimental to all targeted parties. The most difficult part of the negotiation and settlement process is not just the monetary fine that may be imposed (which typically includes disgorgement of profits and interest), but also the negative publicity of any settlement that is otherwise published as part of an order and is made available to the public in general. There are many situations where third parties are somewhat innocent in the process, but because they have received transaction-based compensation without being registered, they may have unknowingly violated broker-dealer registration laws. Many of these parties were not aware of the existence of the broker-dealer registration laws and relied upon agreements provided by regional centers or other parties at the time. If attorneys are involved as targets, they often obtain conflict of interest waiver letters from clients so that there is full disclosure that they are receiving other compensation along with fees for representing the investor. This may satisfy ethical requirements, but does

not otherwise mitigate the potential violation of the U.S. broker-dealer laws. As part of this process, it is very important to distinguish between a payment for transactional-based compensation compared to a payment for legal services rendered in connection with the applicable transaction. In certain situations, there is a real question whether a regional center or developer can compensate an attorney for providing legal advice to a client who was otherwise recommended to invest in the program by the attorney. Same may be deemed to be transaction-based compensation as opposed to a payment of legal fees incurred by the investor for the advice given by the attorney.

KEY AREAS OF INQUIRY Marketing Activities by Targeted Parties. As noted above, the first inquiry will be a discovery request of all materials to determine whether the instrumentality of United States commerce was utilized. The best defense in the process would be to show that there was

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650 Business Plans 550 Economic Impact Studies 150 Regional Centers Designated

VOL. 3, ISSUE #4, JANUARY 2016

IIUSA.ORG | 23

Education/research

WHAT WE LEARN FROM SEC INVESTIGATION

Education/Research

WHAT WE LEARN FROM SEC INVESTIGATION no marketing activities to investors through the instrumentality of United States commerce, and that all marketing activities were done offshore, and that sales were made by foreign exempt migration agents or marketing agents. It is important to demonstrate that a party that is a target of an investigation may not actually have been involved in dealing with investors at all, but merely assisted developers and regional centers to gain access to migration agents or brokers who otherwise find investors, even though transaction-based compensation is paid. Tracing the Money/Who Gets Paid. The SEC will carefully trace all funds that may have been paid to the targeted party. If a lawyer is a target, then it is very important to distinguish payment for legal fees as opposed to attorney transaction-based compensation. As discussed above, there is a fine distinction between the two. Investor Contacts. The SEC will focus in detail on what contacts are made with investors. The best case scenario is the targeted party having absolutely no contact with investors whatsoever. If an immigration attorney represents an investor, that obviously negates that potential argument unless the investor already invested in the program prior to the immigration attorney becoming involved in representing the investor. Review of Offering Documents. As noted above, the SEC will carefully review the offering documents in addition to all marketing materials, emails and the like during the discovery process to determine if there are discrepancies, inconsistencies or marketing activities that would violate securities laws. Review of Loan Documents. The SEC will now actually seek discovery of loan documents to determine if the applicable loan transaction was carried out in accordance with the offering documents. When funds are disbursed to the JCE pursuant to a loan, it is essential that loan documents would have been executed either prior to or simultaneously with the loan proceeds being advanced.

24 | IIUSA.ORG

ATTORNEY-CLIENT PRIVILEGE ISSUES In any discovery or deposition, the attorney-client privilege is very important and is respected by the SEC. In this regard, to the extent that confidential information is provided by a client to an attorney, the privilege can be asserted. Generally, the SEC will ask for a description of the types of information for which a privilege is claimed. A perfect example would be personal information contained in an investor’s I 526 petition filing. Other types of privileged information would include legal advice provided by an attorney to a regional center in connection with securities or immigration matters.

GENERAL CONCERNS AND POLICY ISSUES Expansion of Investigation. As noted above, the SEC has been extending investigations based upon information discovered in one matter that leads to additional claims being made against other parties. For example, a regional center may receive a subpoena as a fact witness and not a target party. However, if the documentation produced shows that the regional center may have paid improper compensation in the applicable transaction, then the SEC would otherwise seek additional information from the regional center to determine if this had occurred in other transactions. Interview of Investors and Other Parties Affiliated with Offering and Transaction. The SEC has now taken a more active investigatory role in this regard. The mere fact of an active investigation may create disclosure issues in offering documents. Furthermore, the contacting of investors directly will generally have a chilling effect on the applicable EB-5 project. Minor Technical Violations Compared to More Significant and Repetitive Violations. There is a practical distinction between minor technical violations compared to more significant and repetitive violations. The SEC is far more inclined to seek enforcement action where violations are repetitive and extensive in nature compared to possibly a one-time violation.

Investor Protection Concerns. The SEC has definitely heightened its activities to protect investors. Generally, the SEC works off tips received from either disgruntled investors or other parties or professionals and then conducts an investigation to determine if there is merit to the allegations made. Offshore Marketing Activities and Ability of Offshore Agents to Avoid SEC Regulations under the Securities Exchange Act of 1934 (the “Exchange Act”). It is very important that offshore agents who are active in marketing EB 5 programs ensure that they are not conducting any marketing activities in the United States or utilizing the instrumentality of United States commerce. In connection therewith, it is always advisable that offshore agents do not directly have United Statesbased offices, since there could be a concern that these offices may be engaged in marketing activities. On the other hand, it is less of a concern if offshore agents have unaffiliated agents who source deals for the offshore migration agents and have offices in the United States since sourcing deals and providing due diligence investigation and loan administration services should be appropriate. It is also noteworthy that it is acceptable in order to preserve the Regulation S exemption as well as avoiding broker-dealer registration to have investors visit a project in the United States for due diligence purposes. It is appropriate to provide due diligence information on the project as long as no marketing activities take place in the United States. This is a very delicate issue and important that all parties involved in the EB 5 process understand the distinction between providing due diligence information compared to providing any form of marketing services or conducting marketing activities.

CONCLUSION It is apparent from our SEC investigatory experiences, as well as our regular communications with various departments of the SEC, that there are many pitfalls in EB 5 transactions that need to be carefully evaluated in order to mitigate against a potential SEC investigation and/or action being commenced.

VOL. 3, ISSUE #4, JANUARY 2016

Bob Kraft

President, Chairman and CEO FirstPathway Partners Board of Directors IIUSA

www.firstpathway.com FirstPathway Partners LLC 311 E Chicago Suite 510 Milwaukee WI 53202 414.431.0742 info@firstpathway.com

SHOW EB-5 HAS NEVER BEEN STRONGER ment (FDI) to the U.S. economy per quarter, but has also experienced an unprecedented increase in I-829 approval rates (Petition by Entrepreneur to Remove Conditions), proving the Program to be an effective financing tool that creates American jobs and provides an opportunity for foreign entrepreneurs to realize their American dreams.

BY LEE LI IIUSA POLICY ANALYST

015 been a big year for the EB-5 Regional Center Program (the “Program”). Not only has the Program matured into an economic development engine generating over $1 billion foreign direct invest-

well as the preliminary EB-5 visa usage statistics from U.S. Department of State (DOS) for FY2015 brings to light valuable data points that illustrate the Program’s latest economic impact and adjudication trends that all EB-5 industry stakeholders should be aware of. The six data points below tell a compelling story about how the Program has never been stronger than in fiscal year 2015.

Data on EB-5 adjudications from U.S. Citizenship & Immigration Services (USCIS) as

$4.378 BILLION FDI GENERATED BY THE EB-5 PROGRAM IN ONE YEAR Figure 1: EB‐5 Foreign Direct Investment (FDI) in $Billions by Fiscal Year since FY2008 FIGURE 1: EB-5 FOREIGN DIRECT INVESTMENT (FDI) IN $BILLIONS BY FISCAL YEAR SINCE FY2008 Billions

Education/Research

SIX DATA POINTS

FY2015: $4.38$5 Billion

$5.00 EB‐5 FDI growth rates: $4.50

from FY2014:

77.8%

$4.00 $3.50

$4 EB‐5 FDI in $billions by fiscal year

since FY2008:

1,263.8%

$3.00

$2.56

$2.50

$1.85

$1.84 $2.00

$1.50

$0.68

$0.63

$1.00

$0.79

Since FY2008, EB‐5 Program has generated

$ 13.05 Billion

$0.32 $0.50

in foreign direct investment

$0.00

2008

2009

2010

2011

2012

2013

2014

2015

IIUSA Data Report Source: U.S. Citizenship and Immigration Services (USCIS)

FIGURE 2:Figure I-5262: I‐526 Petitions ‐ PETITIONS: APPROVALS VS. DENIALS SINCE THE BEGINNING OF THE EB-5 PROGRAM Approal v. Denials since the Beginning of the EB‐5 Program Total Approvals

Total Denials

Approval Rate

12,000 11,000

88.7%

85.7%

84.3% 72.3%

10,000

90%

80.9%

85.9%

76.5%

79.3%

79.7%

80.2%

72.8%

69.3%

9,000

89.3%

89.2%

Avg. I‐526 approval rate (1992‐2015): 77.35%

83.5%

83.2%

70%

55.2%

8,756

54.5%

8,000

40.5%

38.2%

45.2%

I‐526 Approval Rate

50%

7,000 30%

6,000

24.1%

5,115

17.5%

5,000

10%

8.3%

4,000

3,677

3,699 ‐10%

3,000 2,000

1,558

1,265

1,110

1,000 0

1,369

642 240 40

141

120

208

165

2008

2009

2010

1,571 957

943

2012

2013

1,266

1,051

‐30%

372 ‐50%

1992

1993

1994

1995

IIUSA Data Report Source: U.S. Citizenship and Immigration Services (USCIS)

26 | IIUSA.ORG

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2011

2014

2015

VOL. 3, ISSUE #4, JANUARY 2016

In FY2015, more than 8,700 I-526 petitions were approved by USCIS, accounting for over $4.378 billion in FDI. With a 77.8% increase from the last year, FY2015 is the first year that the Program has shown its capacity to attract over $1 billion in capital investment per quarter, catalyzing local economic develop-ment across the U.S. That is almost $12 million in FDI every single day in FY2015. Since the

Great Recession, the Program has blossomed from $3.2 million in FY2008 to over $4.3 billion in FY2015, experiencing over 1,260% growth and attracting a total of over $13.05 billion in capital investment to the U.S in the past seven years.

the Program. This increased I-526 approval rate not only indicates the Program is attracting an increasing amount of qualified foreign investors who are investing an approved jobcreating business in U.S., but also implies that the EB-5 industry, in general, has become more in-tune with USCIS’s EB-5 adjudication requirements, resulting in enhanced efficiency throughout the process.

As Figure 2 shows, the average I-526 approval rate in FY2015 is over 89%, which is the highest level since the establishment of

HISTORICAL HIGH IN I-526 RECEIPTS AND PENDING 3: I-526 PETITIONS - RECEIPTS V. COMPLETIONS* (FY2008-FY2015) FigureFIGURE 3: I‐526 Petitions ‐ Receipts v. Completions* (FY2008 ‐ FY2015) Total Receipts

16,000

14,373

I‐526 Receipts in FY2015: I‐526 Receipts:

Growth from FY2008 to FY2015:

I‐526 Receipts:

14,000

1,042.53%

12,000

Total Completion

I‐526 Completion in FY2015: I‐526 Compl

9,807

I‐526 Completions:

10,000

1,187.01%

8,000

6,000

4,000

2,000

2008

2009

2010

2011

2012

2013

2014

2015

* I‐526 Completion: Number of I‐526 petitions that have been adjudicated by USCIS (either approved or denied) IIUSA Data Report Figure 4: I‐526 Petitions ‐ Pendings (FY2008 ‐ Source: U.S. Citizenship and Immigration Services (USCIS)

FY2015) FIGURE 4: I-526 PETITIONS - PENDING (FY2008-FY2015) 197.5% 118.9%

20,000

I‐526 Pending growth rate

0% growth

49.9%

42.1%

‐39.7% I‐526 Pendings in FY2015:

74.6%

39.5%

100.0%

‐100.0%

17,367

Rrepresents over

15,000

$8.68 billion

‐300.0%

12,453

EB‐5 FDI pending, an increase of

‐500.0%

1,935%

since 2008

10,000

‐700.0%

7,131 ‐900.0%

5,018

5,000

3,347 ‐1100.0%

853

514

1,125

‐1300.0%

2008

2009

2010

IIUSA Data Report Source: U.S. Citizenship and Immigration Services (USCIS)

2011

2012

2013

* I-526 Completion: Number of I-526 petitions that have been adjudicated by USCIS (either approved or denied) | Source: U.S. Citizenship and Immigration Services (USCIS)

VOL. 3, ISSUE #4, JANUARY 2016

2014

2015

CONTINUED ON NEXT PAGE >> IIUSA.ORG | 27

Education/research

SIX DATA POINTS SHOW EB-5 HAS NEVER BEEN STRONGER

Education/Research

SIX DATA POINTS SHOW EB-5 HAS NEVER BEEN STRONGER The number of I-526 petitions received by USCIS in FY2015 continued a six year steak of record growth, showing that the demand for EB-5 is stronger than ever. When the Program faced a sunset date of September 30th 2015 , the market responded with over 14,370 EB-5 investors (6,575 in the 4th quarter) filing their I-526 petition to USCIS, a 31% increase from FY2014. While the increased amount of I-526 filings in 2015 displays Program’s robust demands and potential for future growth, it also indicates a need for reform that will ensure the Program is able to utilize an increas-

ing amount of capital investment in order to continue to stimulate the U.S. economy as well as protect EB-5 investors who have risked much to invest their future in a better America of tomorrow. On the other side of the equation, USCIS has either approved or denied a total of over 9,800 I-526 petitions in FY2015. This number of I-526 adjudications increased by 54% from FY2014 with an outstanding 1,187% from FY2008. Figure 3 compares the number of I-526 receipts with I-526 competitions, illimuniating the trend that i USCIS’s com-

mitment to expand its capacity to adjudicate I-526 filings has kept up with increasing EB-5 demands. Yet, by the end of FY2015, there were still over 17,360 I-526 petitions pending and awaiting processing by USCIS. This represents over $8.68 billion in capital investment that is waiting to be injected into the EB-5 projects. Although the number of I-526 pending has grown by over 1,900% since FY2008, its growth rate in FY2015 from FY2014 was just 40%, the lowest level in the past five years.

I-829 RECEIPTS AND APPROVALS RATES: UNPRECEDENTED HIGHS IN FY2015 Figure 5: I‐829 Petitions ‐ since the Beginning of the EB‐5 Program FIGURE 5: I-829 PETITIONSReceipts v. Completions* - RECEIPTS V. COMPLETIONS* SINCE THE BEGINNING OF THE EB-5 PROGRAM Total Receipts

205.6%

4,000

Total Completion

I‐829 Receipt Growth Rate

128.2%

3,750 3,500 3,250

I‐829 Receipts growth rate

120.8%

118.0%

205.3%

106.7%

101.5%

75.7%

35.7% 0.0%

‐18.1%

0% growth

0.0%

2,750

10.0%

‐11.5%

3,000

20%

11.8% 2,767

‐28.4%

‐46.5%

120%

70.9%

‐62.8%

‐68.3%

‐80%

‐69.6%

2,500

2,516

2,345

2,250

‐180%

2,000

1,781

1,750

‐280%

1,500 1,250 1,000

877 853

500

469

397 287 24 16

130121

384

372

117

110

1998

1999

2000

143166

194

139102

123

391

338

310

216

194169

230

2006

2007

2008

437407

‐380%

1,078

888

796 712

768

750

250

1,217

1,113

‐480%

330

‐580%

‐680%

1994

1995

1996

1997

2001

2002

2003

2004

* I‐829 Completion: Number of I‐829 petitions that have been adjudicated by USCIS (either approved or denied) * The growth rate of I‐829 receipts in FY1995 was 441.7% from FY1994. IIUSA Data Report Source: U.S. Citizenship and Immigration Services (USCIS) I‐829 Approvals

2005

2009

2010

2011

2012

2013

2014

2015

Figure 6: I‐829 Petitions ‐ Approvals v. Denials (FY2008 ‐ FY2015)

FIGURE 6: I-829 PETITIONS - APPROVALS V. DENIALS (FY2008-FY2015)

2,000

I‐526 Denials

95.9%

1,800

86.0%

I‐829 Approval Rate

99.0% 95.0%

92.5% Avg. I‐829 approval rate (2008‐ 2015): 92.1%

83.0%

1,603

1,600

75.0%

70.0%

1,400

100.0%

90.0%

1,200

1,067

1,000

50.0%

844 800

736

600 25.0%

350

400 200

274 178

161 69

0 2008

2009

2010

2011

2012

2013

2014

0.0%

2015

IIUSA Data Report Source: U.S. Citizenship and Immigration Services (USCIS) * I-829 Completion: Number of I-829 petitions that have been adjudicated by USCIS (either approved or denied) | * The growth rate of I-829 receipts in FY1995 was 441.7% from FY1994. IIUSA Data Report | Source: U.S. Citizenship and Immigration Services (USCIS)

28 | IIUSA.ORG

VOL. 3, ISSUE #4, JANUARY 2016

A total of 2,767 I-829 petitions were filed to USCIS in FY2015 resulting in s growth of 10% from FY2014. This spike in volume of I-829 petitions received within the past fiscal year indicates an increasing amount of EB-5 projects delivering upon its promise of creat-

ing and sustaining American jobs. Equally as critical is the fact that EB-5 investors are realizing their American dreams of moving to the U.S. and contributing to the future of the American economy. Furthermore, the average approval rate

of I-829 petitions since FY2008 is over 92% (showed in Figure 6) and in FY2015 the rate was at a nearly-perfect 99%. These approval figures of I-829 petitions are evidence that the Program operators continue to satisfy the job creation requirements of the Program.

PRELIMINARY DATA SHOWS 10,000 VISA CAP REACHED AGAIN IN FY2015 Figure 7:FIGURE EB‐5 Visa Issued v. Adjustments of Status (AOS) ‐ FY2015 (Projection) 7: EB-5 VISA ISSUED V. ADJUSTMENTS OF STATUS (AOS) - FY2000FY2000 ‐ - FY2015 (PROJECTION) EB‐5 Visa Issued at Foreign Services Posts

71.43%

72.87%

13000

EB‐5 ‐ Adjustment of Status

*FY2015 Projection

67.35% 38.03%

54.73%

53.17%

40.61% 0.00%

12000

23.84%

23.61%

39.58%

16.86%

12.60%

14.62%

13.69%

21%* 0.00%

% of EB‐5 Visa by AOS

10,692

11000

10,588* ‐100.00%

10000

8,564

9000

‐200.00%

7,641

8000

‐300.00%

7000

Based on the Report of the Visa Office:

8,773 EB‐5 Visas

6000

‐400.00%

were issued by the Department of State in FY2015.

5000

4,218

4.9%

‐500.00%

3,463

decrease from FY2014.

4000

3000

‐600.00%

1,885 1,443

2000

‐700.00%

1000

231

188

147

126

FY2000

FY2001

FY2002

FY2003

FY2004

349

502

FY2005

FY2006

793

‐800.00%

FY2007

FY2008

FY2009

FY2010

FY2011

FY2012

FY2013

FY2014

FY2015

* Projection for FY2015 based on the historical data * Projection for FY2015 based on the historical data | IIUSA Data Report | Source: U.S. Citizenship and Immigration Services (USCIS) IIUSA Data Report Source: Bureau of Consular Affairs, U.S. Department of State

Based on the latest report from the Department of State (“DOS”) Visa Office, a total of 8,773 EB-5 visas were issued in FY2015 through overseas consular offices, a 4.9% decrease from FY2014. In January 2016, DOS published preliminary statistics on immigrant visas issued at the foreign consulate offices in

FY2015, excluding the visa usage through adjustment of status (AOS). Based on the historical EB-5 visa usage data, 21% of the EB-5 visas were used by the petitioners through AOS from FY2008 to FY2014. We estimate that approximately 1,800 EB-5 visa could be allocated through

AOS in FY2015, which would lead to the projection of a total of 10,500 EB-5 visas used in this fiscal year. The EB-5 visa usage reached the 10,000 allocated visa cap for the second year in a row and has become a new reality for EB-5 stakeholders including potential investors.

CONTINUED ON NEXT PAGE >> VOL. 3, ISSUE #4, JANUARY 2016

IIUSA.ORG | 29

Education/research

SIX DATA POINTS SHOW EB-5 HAS NEVER BEEN STRONGER

Education/Research

SIX DATA POINTS SHOW EB-5 HAS NEVER BEEN STRONGER IN FISCAL YEAR 2015 I-526/I-829/I-924 PROCESSING TIMES CONTINUE INCREASING Figure FIGURE8:8:USCIS EB‐5 Petition Processing Times (Months) FY2015 USCIS EB-5 PETITION PROCESSING TIMES (MONTHS) - FY2015 I‐526

I‐829

I‐924

16.0

I‐829 Processing Time 15.0

I‐526 Processing Time

14.0 13.0

I‐924 Processing Time 12.0 11.0

As of the end of FY2015 10.0 9.0 8.0 7.0

As of 10/31/2014

As of 11/30/2014

As of 12/31/2014

As of 01/31/2015

As of 02/28/2015

As of 03/31/2015

As of 04/30/2015

As of 05/31/2015

As of 06/30/2015

As of 07/31/2015

As of 08/31/2015

As of 09/30/2015

I‐526

14.7

13.8

14.2

13.4

13.5

13.4

13.8

14.4

I‐829

8.6

10.5

11.4

12.3

12.7

13.1

13.6

14.3

14.7

15.5

15.4

I‐924

8.5

10.3

11.1

11.7

12.1

12.2

11.5

11.8

12.4

12.3

11.6

IIUSA Data Report

Although USCIS hasSource: U.S. Citizenship and Immigration Services (USCIS) committed to accelerat- 39% decrease from FY2014. ing the adjudication for I-526, I-829, and I-924 Regarding I-526 adjudications, USCIS dispetitions, the overall processing times for these played some progress by shortening the I-526 petitions in FY2015 continued to climb. In parprocessing time in each of the first three quarticular, I-829 processing time increased by nearters of FY2015. Processing times decreased ly 7 months over the course of the year (from 8.6 from 14.7 months at the begin-ning of FY2015 months at the beginning of this FY2015 to over to 13.4 months at the end of Q3. However, the 15.4 months in the end). As a result, USCIS only processing time increased in Q4 to over 14 adjudicated 1,078 I-829 petitions in FY2015, a

months, with a trend of with the influx of petitions before the September 30, 2015 deadline (shown in Figure 8). The overall processing times for I-924 petitions increased by 3 months from 8.5 months at the beginning of FY2015 to 11.6 months in the end of this fiscal year, a modest increase of 2.1 months.

NUMBER OF REGIONAL CENTERS APPROVED AND TERMINATED

Figure 9: Regional Center Approval/Termination Statistics (FY2015)

FIGURE 9: REGIONAL CENTER APPROVAL/TERMINATION STATISTICS (FY2015) # of Approved RCs

# of Termined RCs

599

Total number of exiting RCs

688

677

670

653

649

643

700

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In FY2015, over 160 new regional centers gional Centers list on their website in FY2015. IIUSA Data Report were approved, adding the total number of A total of 19 regional centers were terminated Data Source: U.S. Citizenships and Immigration Services (USCIS) existing regional centers to over 740 by at the in FY2015, accounting for over half of all terend of this fiscal year. Compared to the total minated regional centers all-time. number of Regional Centers in FY2008, we obAs Figure 9 illustrates, May, August, and Sepserved a remarkable growth of 2,421%, a time tember were months that showed the greatest when only 28 regional centers were in existnumber of Regional Centers being approved in ence! FY2015; while March and May saw the most USCIS began to publish a terminated Re- Regional Centers terminated.

30 | IIUSA.ORG

0 August

September

The six data points above tell a compelling story about the EB-5 Program: that it has never been stronger in terms of overall demand, capacity to generate FDI and support for American job creation. To review the quarterly and yearly EB-5 adjudication data reports from FY2015, log-in to your member account at IIUSA.org.

VOL. 3, ISSUE #4, JANUARY 2016

USCIS APPROVED REGIONAL CENTERS

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YOUR ALL-ACCESS PASS TO EVERYTHING EB-5. Enjoy over 75+ Hours of exclusive EB-5 content including webinars and panel presentation recordings by purchasing the All Access Pass (AAP) for 2016. Exclusive to IIUSA Members, AAP holders receive additional insights from EB-5 reports and raw data on EB-5 statistics and trends.

Regional Center “data tracker” reports featuring aggregated reporting on all Regional Centers’ annual I-924A filings and designations/amendments I-829 request for evidence (RFE)/denial raw data and report (2011-2013) Notice of Intent to Terminate (NOITs) and final termination notices for terminated Regional Centers Notices/reports of Securities & Exchange Commission (SEC) enforcement actions against Regional Centers

The EB-5 Investor Visa Program attracts capital for investment in businesses and economic development projects that create jobs – at no cost to U.S. taxpayers.

Over 900 organizations have signed a letter supporting EB-5 reauthorization including:

Since 2008, EB-5 has generated $11.92 billion in foreign direct investment – with $6.5 billion in the pipeline pending government approval.

www.iiusa.org

From 2010–2013, EB5 investments contributed $9.62 billion to U.S. GDP and supported an average of 29,300 jobs per year.

These investments are making a difference in communities across the country– putting people to work in energy,

healthcare, construction, hospitality and other industries.

KEEP REAUTHORIZE EB-5 TO ER IT WORKING FOR AM ICA.

• U.S. Conference of Mayors • National Association of Counties • Council of Development Finance Agencies • Iowa Department of Economic Development • Greater Cleveland Partnership • Community Foundation of Louisville • California Chamber of Commerce

See full list of signers at iiusa.org/en/

letters-of-support/.

BY MICHAEL KESTER ECONOMIST, IMPACT DATASOURCE

he Bureau of Economic Analysis (BEA) released new regional multipliers for the Regional Input-Output Modeling System (RIMS II) on Wednesday, November 18, 2015. In prior press releases, BEA announced that this release would entail a “modified” economic model, which caused some concern in the EB-5 industry. In the past, BEA had released both an annual series and a benchmark series. The main modification to RIMS II referred to by BEA is the discontinuation of the annual series. Fortunately, the annual series was rarely, if ever, used for EB-5 economic studies. The benchmark series, which is the most common and appropriate selection for EB-5 economic studies utilizing RIMS II, has been updated and improved. Before this update, the previous RIMS II benchmark series multipliers, released in 2012, had been based on 2002 national benchmark input-output data combined with 2010 regional data. Due to reduced funding, BEA stopped providing regular updates to the multipliers. The newly released benchmark series multipliers are built on more recent data: 2007 national benchmark input-output data and 2013 regional data. In general, the overall format and types of the benchmark series multipliers provided has not changed, so it appears RIMS II users will not have significant adjustments to make. The same six types of multipliers are provided (including final-demand and direct-effect employment multipliers) for both the detailed industry (Table 1.5) and aggregated industry table (Table 2.5). Of course, the main question that EB-5 stakeholders will have is whether the new

multipliers will help or hurt job count estimations. As the multipliers are region- and industry-specific, it is difficult to make any general predictions or conclusions. However, while the newly released multipliers are not that different aesthetically, a review of the newly released multipliers indicates some important changes that EB-5 economic studies will need to account for. Besides the multipliers being reflective of more recent data, there are other notable changes. The updated multipliers are provided for 369 detailed industries (down from the 406). To provide USCIS a sufficient level of detail, most EB-5 economic studies would utilize the 369 detailed industries table. However, it should also be noted that the aggregated industry table, seen utilized in some reports, now has 64 industries (up from 62). As always, it is important to select the appropriate RIMS II industry, utilizing the NAICS descriptions as a guide. As the updated multipliers are based off of 2007 input-output data, RIMS II has provided a revised industry list which maps the updated RIMS II industries to the related 2007 NAICS codes. For industries commonly used in EB-5 economic analysis, the detailed industry revisions related to the construction industry represent the largest change – likely with the most impact on RIMS II EB-5 economic studies. Previously, there had only been one RIMS II industry for construction – the generic “Construction” (RIMS II Industry 230000). The updated multipliers now provide four separate construction industries: • Maintenance and repair (23030A) • Nonresidential structures (2332C0) • Highways and streets (233293) • Residential structures (2334B0) To properly model construction expenditures utilizing the new multipliers, RIMS II

economic studies will need to select the most relevant construction industry based on the project activity(s). For certain projects (such as mixed-use projects that have nonresidential and residential components), this may now include utilizing more than one category. The operational components for several common EB-5 project types will also be affected by other industry updates: • The previous Nursing and residential care facilities (623000) industry, which includes assisted living facility and related projects, has been split into two industries. Assisted living/memory care facilities now fall under the new Nursing and community care facilities (623A00) industry. • The previous Hotels and motels, including casino hotels (7211A0) industry for hotelrelated projects has been combined with a similar category; hotel-related projects now fall under the new, more general Accommodation (721000) industry. • The previous Food services and drinking places (722000) industry has been split into three new industries, so restaurant projects will now need to select the most appropriate new industry to model operational activity: 1. Full-service restaurants (722110) 2. Limited-service restaurants (722211) 3. All other food and drinking places (722A00) The RIMS II industries for Architectural, engineering, and related services (541300), Real estate (531000), and Wholesale trade (420000), all commonly utilized in EB-5 economic studies, remain unchanged. Other nuances in EB-5 economic studies will also be affected. In regards to the deflation (typically found in EB-5 economic studies to adjust project estimates of expenditures

CONTINUED ON NEXT PAGE >> VOL. 3, ISSUE #4, JANUARY 2016

IIUSA.ORG | 33

Education/research

RIMS II Regional Multipliers Updated for First Time Since 2012

According to information on BEA’s blog, multipliers will be updated yearly with regional data, with substantial updates to the underlying national input-output data updated only for benchmark years (those ending in two and seven). Although the BEA has released new multipliers, it appears that they have not yet updated the RIMS II User Guide, as the version available on their website (as of the date of this article) is dated December 2013. RIMS II continues to be the most popular input-output model utilized in the EB-5 industry. With certain aspects of the EB-5 program continuing to be under increased scrutiny – including job creation methodologies – and possible legislative changes on the horizon, EB-5 economic studies should continue to follow best practices. One best practice for EB-5 practitioners using RIMS II to follow is to properly utilize the newly released multipliers.

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ative of the n and represent supports fully trade associatio “IIUSA, as the Center Program industry, order and the asset freeze EB-5 Regional motion to modify to them. This action will the Plaintiff’s by the rule funds directly return investors’ the United States is governed to protect investor that demonstrate and prudently enforced in the Program e of law, efficiently investor confidenc of today exacertimes interests – restoring difficult economic of United States as a result. The for vigilant enforcement that our bate the need message to investors that sends a t and those who do invest laws securities for investmen country is open protected by our laws.” are

proDirector on to USCIS submits letter creation. 04/10 IIUSA backlog, stifling job Concessing v A Chicago to Brief in SEC Motion ng SEC’s Files Amicus 04/05 IIUSA Center Case supportito EB-5 investors. vention assets directly return frozen draft EB-5 ts on USCIS ndum submits commen 04/01 IIUSA tions guidance memora adjudica Testifies in D. Joseph Peter ee on e Director re Committ State Legislatu ernmental Affairs 03/11 Executiv Intergov front of Texas Trade and t in International Breakfas ment ic Develop from SenSpeakers Hosted Econom 03/05 IIUSA ton DC with Keynote Staff Washing Committee ate Judiciary Meeting, where Stakeholder is a featured Ombudsman Joseph 03/05 USCIS e Director Peter D. Executiv

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well over 500 has collected month, IIUSA Regional Cent“In just the last for I-526 petitions from g times range receipt numbers country. The processin of the total ers all over themonths. This small sample$250 million from 5 to 20+ petitions represents over backlog of backlog of I-526 formation. The complete of USCIS capital analysis in pure EB-5 petitions, based on an – representing pending I-526 statistics, is nearly 4,000 will result in the FY2012 filing in capital formation that all at no cost to – potentially $2.B 40,000 American jobs over ” of creation the U.S. taxpayer.

Advocacy

(or numbers g receipt them in is collectin of us know IIUSA Lead- IIUSA of 4th at the ton, WAC#’s, as most that are outside n March in Washing info@ d) for I-526’s times. Email ership Meeting of Directors for- shorthan numbers, processing DC the Board n to undertake normal your receipt a resolutio table iiusa.org to submitin confidence by IIUSA. mally adopted breaking the unaccep This be kept By Robert C. Divine of which will ot from processing. IIUSA Vice President the mission is a screensh I-526 petition on tial input from applicati Donelson, Bearman, Caldwell & backlog of image below Baker,web after substan s who The Status times that decision came l Center member peti- USCIS’ Case Berkowitz, processingP.C. s have I-526 Regiona current for IIUSA time of showing the . IIUSAn member processing February 14,re-2013, USCIS distable length are not have seen below they are reporting to an unaccep it a draft policy publicly that the times seminated tions grind of time that indicated amount real ing. adjudimemo be concerning the employprocess IIUSA flective of the petitions to situation, other for I-526ment-based fifth (EB-5). This andpreference remedy the in terms is taking show USCIS In order to the delays (1) notes theslow relatively few noteHelp us article just how unarticulate agencies that is being In cated. d federalworthy intends to changes to the prior dissemiic impact intereste to these delays.data of the econom has gotten. nated draft from November 2011 and halted due processing the reprompt necessarily we are going to use terms your (2) identifies some critical topics not adfor in in advance other words, describe the delays dressed by the■memo. U.S. Thank you request. to the above and resulting we collect . sponse to formation The new draft clarifies a disappointingly the taxpayer of lost capital to cost - all at no small number of issues and continues job creation to many important issues of significant uncertainty. Nevertheless, every effort at clarification should be appreciated so I list them here:

ment Govern view Affairs Re

Offers positive examples of restructuring/reorganization for NCEs established before Nov. 29, 1990 (converting restaurant into nightclub, or adding substantial crop production to an existing livestock farm);

Suggests that requested RC areas often are best justified by showing significant contribution to the supply chain and labor pool of proposed projects;

Recognizes that investors in troubled businesses may combine preserved and newly created jobs;

Recognizes, consistent with Director Mayorkas’ letter to Senator Leahy a few years ago, that investors may count indirect jobs located outside the RC boundaries [but providing no criteria about any limitations on this option, if any];

Hedges from prior discussion, suggesting a need for causation between injection of EB-5 capital and Adds to intro language to set a bal- creation of created jobs claimed, while recognizing that! the NCE or JCE creheard anced program tone, including refer- still voice ence to “ensuring program integrity”;your ates the jobs; to make iiusa.org Sets presumptions for I-829 adinfo@ Makes many small technical legal WAC#s to judication of “reasonable time”: and stylistic changes; backlogged your one year generally OK, but beyond that Email Opposes a guaranteed right of inonly if “extreme circumstances” such as r is vestor’s eventual ownership in april, the numbe force majeure; late-A pending ing particular asset (to be subtracted from pure to 7,000 million in closer $250 Articulates of+deference policy to capital at risk) [note:small USCISlikely has said this 70,000 ting over and In this prior same-project adjudi13, represen orally in n.stakeholder meetings and in illion cover (or $3.5+B of inefficien day 4/10/20 from capital formatio kindnot This range EB-5 cations only I-924 n Wednes times ing but also prior Isome but never in jobs). public USCIS ingadjudications, in process a letter to Fur- U.S. tabilitythough 526s, no deference if “material sample, process writing]; months. IIUSA sent Mayorand unpredic negative twenty plus Alejandro change” meaning having a natural tenUSCIS cy to seriously five to over Director using would lead Clarifies that payment to investor ch ing backProgramoratpredictable ability t times dency EB-5 to influence ing the process on the ther resear of return onbrough investment (i.e., profit, in the economicand deference to kas concern affect thein decision, impact Status data stagger- consequencesitto is peaking detrimental vs. redemption during or after IIUSA Case ent nawhen adjudicating I-829 exact and ofgcapital) log and its a time when I-526 approval the Program. developm I-526 to EB-5 conditional residency is acceptable; us the on same plan; of over r of pendin (as of growth and regional success of s of its pool ing numbe Recognizes by the .■ be 5,887risk spreading notified Mayorka backlogged I-526 Maintains that material change ns tosingel be- tionwide for petitio now investment enterprise among l It WAC#s after filing I-526 up through adRegiona 500 2-13). from our Januarymultiple projects (100% subsidiaries for mission as a conditional |7 resident require iiusa.org petitions collectedall over the country, non-RC sponsored) [ but note USCIS s new I-526 (and any approved I-526 will Center member has tended to state that the projects be revoked), and cites as “material” (a) must be identified in the I-526 of each cure of a deficiency and (b) change of investor relying on them]; industry group claimed [note: it is not May 2013 Issue #1, 8 | iiusa.org

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clear whether “another industry group” refers to real change of business plan vs. simple change of NAICS codes claimed to meet USCIS ever-changing perspectives on this];

Recognizes that changes after admission as CPR can be significant without preventing I-829 approval as long as capital remained at risk (including being “expeditiously” shifted from one plan to another) in a job creating enterprise within scope of industry approval of the same RC, and as long as there was not a preconceived intent to make the switch;

Repeats some policies already articulated in other memos, such as the requirement that jobs last at least two years to be sufficiently “permanent” to be counted (12-11-2009 memo), the requirement at I-526 to show that jobs will be created within 2.5 years of I-526 creation (12-11-2009 memo), that different investors/projects cannot count the same jobs (most recent TO memo). The February 2013 draft fails to provide desperately needed guidance and clarification on many topics, which I list here from a first reading in hope that readers will share with IIUSA or AILA any other topics they believe need coverage, so that the most effective comments can be provided to USCIS. Such omissions include the following:

Whether the new commercial enterprise (NCE) can have the option to buy back an investor’s interest after the end of the investor’s conditional residence.

Whether sale or refinance of the job creating enterprise (JCE), ostensibly because of its success, may occur before the end of conditional residence and generate return of capital to the NCE, even if the NCE does not distribute the capital to investors until after the end of conditional residence. Issue #1, May 2013

Whether and under what conditions a NCE may identify a business plan to generate jobs in and remove capital from an initial job creating enterprise and move the capital into subsequent enterprises during the investors’ conditional residence (particularly, must all future such JCEs be fully documented in I-526, must they be principally doing business in RC or TEA, and must they create any new jobs if the original JCE maintains the jobs).

Whether investors in entities other than limited partnerships having very limited control similar to limited partners may be considered to be sufficiently “engaged in management” [Note: current USCIS’ training manuals have clarified this, but the draft memo omits reference].

A host of questions USCIS addressed orally in recent stakeholder meetings but has not written down anywhere, such as to what extent part-time jobs and jobs employed by the JCE outside the U.S. are factored in.

Under what circumstances can the jobs of a tenant of the JCE, or jobs arising from visitor spending, be counted. [Note: USCIS has written only indecipherable memos on tenant occupancy, and no known decisions in contested cases].

Ad14. Space21

Whether a NCE may condition release of funds from escrow until a certain number of investors’ I-526 petitions are approved (as opposed to only the approval of the respective investor’s I-526).

Whether direct jobs created outside the RC area or TEA may be counted even when most jobs are created within the area (“principally doing business, and creates jobs in”), and whether indirect jobs arising from such direct jobs can be counted.

Whether investment across a portfolio of businesses must provide in I-526 a Matter of Ho compliant business plan for all of the businesses in the portfolio.

13.

Whether “verifiable detail” and “detailed statement” is consistent with the amended law concerning regional centers that requires only “general proposal” and “general predictions.”

Whether regional centers must be involved in developing, promoting/ marketing, managing specific projects to foreign investors, as opposed to merely promoting the economy of the region including seeking, monitoring, and reporting to USCIS about qualifying projects whose developers can market and manage the projects themselves [generally accepted, but the memo omits].

Whether a RC amendment MUST (vs. MAY, per I-924 instructions) be filed and approved in order for I-526s to be filed by investors in projects using different job prediction methodology [stated in the negative twice in stakeholder meetings but nothing written down], or under sponsorship of RC that has undergone administrative change (ownership or management) [USCIS has stated in stakeholder meetings and I-924 instructions that only email notification is necessary, but some emails from the Immigrant Investor Program suggest otherwise].

When direct vs. indirect construction jobs can be counted, as a practical matter, how “hard” and “soft” costs must be analyzed separately.

22.

What USCIS means when in requests for evidence it requires “verifiable detail” about various items.

23 24

How NAICS codes are required, and on what legal basis.

When capital is considered “invested” for purposes of TEA designation, troubled business assessments, etc.

25 Ad Space

What constitutes the location of a job for purposes of such determinations as whether the enterprise is principally doing business in a RC or TEA. (Note questions of where the employee is physically and how often, where facilities are located, whether the employee reports to a remote location, etc.)

8 9

only the language of the regulation that preceded RCs].

12.

Advocacy

Backlog! the I-526

Members:

STATE T OF

In this issue:

New Draft EB-5 Policy Petitions WAC#s for g TimesMemo from USCIS: sin SA Your what’s really new, and Send IIU al Proces of Norm YOUR HELP! what’s left undone Outside WE NEED Dear IIUSA

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Education/Research

and revenues to the base year of the model), expenditures and revenues will require three fewer years of deflation as the new multipliers are based on more recent regional data (2013 versus 2010).

Whether a TEA investment may span multiple TEAs in multiple states.

Whether an area other than a county or MSA may be considered a TEA even without state designation, such as a single census tract, if publicly available data demonstrates the area has 150% of the national average unemployment.

10 11

Whether an NCE making loans to nonprofit entities may qualify.

Whether the investor may take credit for job creation arising from other funds not only invested in the NCE (the subject of the pre-RC regulation about “multiple investors”) but also from other funds invested in or loaned to the JCE [Note: this seems generally accepted in practice, but the memo mentions

Issue #1, May 2013

Exactly which types of expenses of a project may or may not be paid with EB-5 capital (interest on loan of EB-5 capital, broker dealer fees, project development fees, etc.)

Whether a worker authorized to work in the U.S. under TPS, deferred action, pending application for suspension of deportation or cancellation of removal, may be considered a qualified employee [Note: what is “an alien remaining in the U.S. under suspension of deportation”?]

What is the legal basis for USCIS application of a policy requiring that RC-sponsored jobs be created before the end of conditional residence.

Whether the point to which an investor must maintain investment and show jobs is the filing of I-829, the expiration of conditional residence (shown on card), or the adjudication of I-829.

Whether and under what circumstances EB-5 capital may be used to repay bridge financing (debt or equity).

Whether jobs count if they were created on an indefinite basis during conditional residence but were lost before I-829 filed. USCIS simply is not keeping up with the number of questions that reasonably arise for well intentioned developers and investors-- questions that need predictable answers for prospective planning of major enterprises and projects. The government is not making EB-5 Program attractive to developers and investors when they can only find out what the rules might be until after they spend hundreds of thousands or even millions of dollars in project development and marketing and the investors file their I-526 petitions. ■

iiusa.org | 9

6 | iiusa.org

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VOL. 3, ISSUE #4, JANUARY 2016

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March 10 – Best Practices: Working with Sales Intermediaries in an EB-5 Transaction

Education/Research

Negative Assurance Letters in EB-5 Offerings

BY DOUGLAS HAUER

LAURENCE A. SCHOEN

ADAM L. SISITSKY

FOUNDER AND CO-CHAIR OF EB-5 FINANCING PRACTICE, MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.

PARTNER, MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.

ith increased scrutiny of the EB-5 program by lawmakers and more action with the Securities and Exchange Commission (SEC) stretching into 2016, we expect ongoing attention drawn to securities compliance and litigation risk mitigation throughout the EB-5 industry. It is foreseeable that issuers may be asked to provide disclosure or negative assurance letters (also known as 10b-5 letters) to parties in an EB-5 deal, such as broker-dealers, placement agents and state-owned regional centers that affiliate with projects. With the SEC striking issuers and EB-5 market participants with allegations of securities fraud, issuers and other parties involved in deals will be more concerned with reducing exposure in deals.

Brief overview of Rule 10b-5 Rule 10b-5 is a key anti-fraud provision under the Securities and Exchange Act of 1934 (Exchange Act). When you see a case of securities fraud prosecuted by the SEC, 10b-5 is most certainly among the allegations. 10b5 liability can be broad, reaching issuers and other market participants in deals including broker-dealers, regional centers and placement agents, among others who participate in selling a deal. Negative assurance letters may provide participants in a deal such as brokerdealers or placement agents with a due diligence defense to 10b-5 and fraud allegations based on the issuer’s failure to disclose material facts in offering documents. Because broker-dealers, placement agents and other market participants can be charged

38 | IIUSA.ORG

with fraud under 10b-5, issuers of EB-5 securities should be prepared to respond to requests for negative assurance letters. In the current climate of intense anti-fraud SEC litigation efforts, broker-dealers and placement agents may condition participation in a deal on issuance of a negative assurance letter. Negative assurance letters are not legal opinions, but they function as a defensive tool to confirm in future litigation that adequate due diligence was done as offering materials were prepared. At the same time, such letters do not provide comfort regarding the accuracy, fairness or completeness of offering materials, and they should not be used in a marketing process. Let’s briefly review what negative assurance letters are in a securities transaction, and then connect this concept to EB-5 practice.

What is a negative assurance letter? In public offerings of securities, there is a customary practice of underwriters and initial institutional purchasers of securities to require that issuer’s counsel provide negative assurances regarding the disclosures in a registration statement. The reason is simple: underwriters and initial purchasers in registered offerings want to be reassured that offering documents do not contain false statements that can lead later to allegations of securities fraud or rescission claims. This practice of issuing a negative assurance letter has become more common in deals involving unregistered securities or private placements. Why

is the term “negative” assurance used? As explained below, the focus in such a letter is on affirming that disclosures have not been improperly omitted, as well as ensuring that omissions are not misleading. In other words, a negative assurance letter is not an exercise to verify that facts are true in an offering, or to affirm the completeness of an offering. The focus is on disclosures, and more specifically on providing the recipient with a modicum of assurance that an issuer is not withholding material facts from investors, or misstating facts that belong to the relevant total mix of information about a transaction.. In a negative assurance letter, usually the lead securities and transactional counsel for a deal will provide a statement that affirms their involvement in the preparation of a registration statement. For such a letter to have any value or meaning, counsel would need to be able to assert that they followed the development of the offering by being present as discussions occurred with an issuer, management, other counsel and experts from various areas. In their negative assurance letter, counsel would state that after reasonable investigation, no facts came to their attention that caused them to believe that the offering document was misleading. Counsel would also affirm that nothing had come to their attention that caused them to believe that the offering materials omitted any material fact necessary in order to make the statements in the offering materials, in light of the circumstances under which those statements were made, not misleading. The recipient of such a letter may

VOL. 3, ISSUE #4, JANUARY 2016

has expertise in materiality with respect to disclosures. Hence a prudent broker-dealer or placement agent will ask securities counsel for a negative assurance letter before selling a deal.

EB-5 transactions are becoming a more normative part of the private offering landscape

How might negative assurance letters be relied on by market participants in an EB-5 deal?

Negative assurance is not an affirmation that statements in offering materials are true, or that disclosures are legally adequate. Rather, counsel affirms in a negative assurance letter that due diligence took place during the offering. State-owned regional centers that do not issue securities but that affiliate with EB-5 projects issuing securities would be prudent to require a negative assurance letter before accepting or affiliating with an EB-5 offering. It is noteworthy that in relatedparty EB-5 deals, where a regional center acts as an issuer and engages in selling a deal, a negative assurance letter would not be useful unless it were to be prepared for an unrelated third-party that had a legal claim to a due diligence defense in litigation. Due diligence certifications, attestations, or purported negative assurance letters that are provided to an issuer by counsel or a due diligence service may have no probative or evidentiary value in an investigation or litigation involving securities fraud.

As EB-5 financing becomes a permanent fixture in capital markets, the industry is going to adapt by integrating more normative practices that protect all parties in deals. The growth of the EB-5 industry is so compressed that we are seeing rapid developments on both the litigation and investigation fronts. This is taking place while there is a degree of uncertainty about what steps lawmakers or agencies may take in the near future to require EB-5 market participants to affirm compliance with securities laws.

A broker-dealer or placement agent selling a deal to investors will likely want to be able to assert that due diligence was performed before any sales were made. Requesting a negative assurance letter is not common among broker-dealers and placement agents in the EB-5 industry right now. But this may change as the SEC continues to cast a broad enforcement net. After-the-fact, mechanical or static due diligence that is accomplished by a review of an offering, without ever participating in drafting of the offering documents, is not effective. Such efforts do not catch deficiencies in disclosures. More specifically, by being present when a deal is shaped, securities counsel is aware of facts that may not have made the final cut into disclosures. Such counsel also

2015 was an unprecedented year for EB-5. The increase in SEC enforcement and litigation is a good indicator that EB-5 market makers, regional centers, placement agents and broker-dealers will have to refine and calibrate practices to bring them in step with securities laws. With the EB-5 industry moving in the direction of more due diligence in deals and overall tighter compliance, we expect to hear more about negative assurance letters and additional due diligence steps that issuers will need to adopt.

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IIUSA.ORG | 39

Education/research

have a potential due diligence defense in later litigation alleging fraud, if that party relied on the negative assurance letter to confirm that due diligence was performed before the securities in question were sold.

Chinese EB-5 Investors' Wait for Visa Numbers BY ROBERT C. DIVINE BAKER DONELSON BEARMAN, CALDWELL & BERKOWITZ, PC

he EB-5 industry needs to face a new reality: Investors born in mainland China who file I-526 petitions from now to the foreseeable future will have to wait at least six years before a visa number will be available for them to use an approved I-526 petition to actually immigrate to the United States. The higher the number of I-526 petitions that exceeds the visa supply, the longer the wait will get. This is an important statement. I first explain how I arrived at this conclusion and then explain some important implications of it.

HOW THE VISA ALLOCATION SYSTEM WORKS FOR EB-5 Currently, approximately 10,000 EB-5 immigrant visas are allocated annually, on a fiscal year beginning October 1, to alien investors and their spouses and qualifying children. EB-5 visa numbers are allocated in the order in which the investor filed the I-526, so the I-526 filing date is the “priority date” for the investor. When allocating EB-5 immigrant visas, U.S. law limits each country to an aggregate maximum of 7% of the total number of EB-5 immigrant visas available each fiscal year. Until FY2015, the annual quota was not reached, and applicants born in mainland China have tended to use approximately 85% of the numbers. (See Report of the Visa Office 2015, Table IV Part 4, reflecting that mainland China born accounted for 7,616 of the total 8,773 EB-5 visa numbers issued). If the annual worldwide quota is likely to be reached in a fiscal year, the State Department imposes a “cut-off date” for applicants born in a country that appears likely to exceed the 7% per country limit to restrict visa numbers to such applicants to the 7% limit, plus any additional

VOL. 3, ISSUE #4, JANUARY 2016

numbers that will not be used by applicants born in all other countries combined. (If visa demand from applicants from countries not using the 7% limit were likely on a combined basis to exceed the worldwide limit, the State Department would impose a worldwide “cut-off date,” but that has not been the case for EB-5, given the heavy predominance by mainland China and the lack of demand from elsewhere). An applicant receiving I-526 petition approval cannot move forward in the process toward conditional permanent residence (whether through consular processing overseas or adjustment of status in the United States) until the applicant’s “priority date” (the date the I-526 petition was filed) is earlier than any applicable published cut-off date. In April 2015, the State Department for the first time imposed a “cut-off date” for EB-5 investors born in mainland China. It is expected to continue to do so for the foreseeable future, because worldwide demand exceeds 10,000 per year. As a result, for investors born in mainland China (not including Macau, Hong Kong, or Taiwan) and not otherwise “chargeable” to a different country, delays in the processing for immigrant visa or adjustment of status application will occur. According to the January 2016 Visa Bulletin, the cut-off date for allocation of non-regional center EB-5 visa numbers for investors from mainland China is January 8, 2014. This

is the “application final action date” for the 5th employment preference in the Visa Bulletin for January 2016, which was published on December 9, 2015. On that date of publication, the law that enables regional center sponsorship was set to expire on December 11, so that Bulletin reflects that visa numbers for regional center-sponsored investors are “unavailable.” The Visa Bulletin for December 2015 had listed December 15, 2013 as the cut-off date for China-mainland born applicants both for non-regional center and for regional center sponsored investors, and it appears that the January 2016 Bulletin's cut-off date of January 8, 2014 would now also apply to regional center-sponsored investors given the extension of the regional center legislation to September 30, 2016 that was included in the Consolidated Appropriations Act, 2016 (See Division F, Title V, Section 575). This would cause one to assume that the wait for a visa number for a China-born investor is two years. That assumption would be mistaken, however, because far more than two years’ worth of people are already in the queue.

HOW LONG CHINESE INVESTORS ARE LIKELY TO HAVE TO WAIT How long is that wait likely to be for new investors today? Two sets of people need to be added together to figure out how many people are ahead in the queue for visa numbers based on I-526 filing date: those who have filed petitions and are awaiting adjudication, and those with approved I-526 petitions who are awaiting visa number allocation.

PENDING PETITIONS Take a look at USCIS performance data about I-526 processing. On December 4, 2015, USCIS published a report that it had 17,367 I-526 petitions pending as of September 30, 2015, which is the end of the fourth quarter of the fiscal year ending on that date. By now USCIS has received 3 additional months of filings but has completed adjudications during those same 3 months. There was

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Education/research

The Realities and Implications of

Education/Research

THE REALITIES AND IMPLICATIONS OF CHINESE EB-5 INVESTORS' WAIT FOR VISA NUMBERS a huge spike in filings during the fourth quarter of FY2015 ending September 30 (6,575 filings compared to an average of under 3,000 receipts during the previous seven quarters). The Q4 FY2015 spike surely was due to the expiration of the regional center legislation on September 30 and the expectation that renewing legislation would increase the minimum investment by at least 60% (to $800,000 from $500,000) and possibly change other eligibility rules, so interested investors were making their purchases before an expected price increase. The regional center legislation was initially extended until December 11 and then again to December 16 while more investors stepped up to purchase with a more heightened expectation of price increase and rule changes based on publicized proposals and negotiations about the same. USCIS has been adjudicating on average less than 2,500 petitions per quarter for the last four quarters. My conclusion from this is that pending I-526 petitions at USCIS increased to at least 20,000 by the end of December 2015 (the end of the first quarter of FY2016). On average in 2014 and 2015, 90% of I-526 petition adjudications have been approvals, so let’s reduce the number by 10% and say 18,000 petition approvals are in the USCIS adjudication pipeline. But that is 18,000 investors, and visa numbers are used also by family members, so how many visas does that represent? According to the Department of Homeland Security's 2013 Yearbook of Immigration Statistics, in Table 7 among a compendium of attached tables, more than half of employment-based immigrants are family members. Let's assume just half: that for every investor there is on average one family member getting a visa. Therefore, there are probably about 36,000 visa numbers to be used by the investors with a pending I-526 petition.

APPROVED PETITIONS AWAITING VISA NUMBERS The second group affecting the wait for visa numbers is the people who have received I-526 approval but have not yet received a visa number. During the negotiations leading up to the extension of the regional center legislation from December 16, 2015 to September 30, 2016, negotiations became heated concerning some proposed “set asides” proposed for certain categories of investors. During

42 | IIUSA.ORG

these negotiations, the State Department informally reported that as of mid-December 2014 there were 17,500 registered EB-5 applicants pending at the National Visa Center. It is hard to know what to make of this number, but I think it is an under-estimation of visa demand from approved I-526 petitions. The National Visa Center has been sending fee bills only directed to the investor and not mentioning any family members, because the I-526 form itself, unlike the I-130 for family-based petitions and the I-140 petition for other types of employment-based petitions, does not ask for identification of family members who may accompany or follow the investor in the immigration process. Only if the investor realizes that family members should be included at the fee bill stage and brings this up to the National Visa Center before paying the bill does the National Visa Center issue a revised fee bill for the rest of the family members. The NVC should have been sending out fee bills to investors who filed before May 1, 2015 based on the Visa Bulletin for December 2015 reflecting that the “date for filing” for EB-5 was May 1, 2015. Some people would not have sent in the fee bill knowing that they had a long time to go before their “application final action date” became current with their priority date. And some people might have been in the United States when the I-526 was filed and indicated that they expect to use adjustment of status, so USCIS would not have sent their petition to the National Visa Center for registration at all. So I suspect that the 17,500 “registered applicants” under-estimates the investors and family members with approved petitions and waiting in line. Let’s figure it a different way. In the December 2015 Visa Bulletin the people with visas available for “final action”-- meaning allocation of a visa number-- had filed their I-526 petition before December 15, 2013, two years before. To be the least alarmist about the expected wait times of new investors, let’s assume that everyone whose petition was approved before the end of December 2013 (the end of Q1 of FY2014) had been issued a visa number already (which we know is not true, because some people straggle). The total number of I-526 petitions approved since Q1 of FY2014 is 12,418. Typically 85% of EB-5 investors are from mainland China, so 15% might have been able to go ahead and immi-

grate promptly after petition approval, so let’s assume only 10,555 approved investors are in queue for a visa. As with the pending petitions, we double that to account for family, so 21,000 un-issued visa numbers are spoken for by investors and family members based on approved petitions. That sounds like a more realistic upward adjustment from the 17,500 number of “registered applicants” in the NVC system. Putting the two categories together, the total number of EB-5 visas spoken for by pending (36,000) and approved (21,000) investors and their family members seems to be about 57,000. That is almost six years’ worth of numbers at 10,000 per year.

OTHER ADJUSTMENTS Consider also that every investor chargeable to a country other than mainland China who files during those six years will get to “cut in line” ahead of every mainland China applicant. How many might that be? Assuming the recent history of 15% of EB-5 visa numbers going to other than mainland China-born, 1,500 of the 10,000 visa numbers per year for the six years of wait to total would be 8,000. That delays today’s new Chinese investors almost another year. Some investors might lose interest or die before their visa number becomes available, and some approved petitions may become revoked due to material changes, due to USCIS investigations into the projects, or due to termination of the sponsoring regional center. I am not aware of any data on the dissipation rate of approved investors, but I assume a 5% dissipation rate. That would reduce the wait time by about a half a year.

CONCLUSION Overall, I figure a new Chinese investor today will wait six years to get an EB-5 visa. I might be off by a year or two in either direction.

IMPLICATIONS OF A SIX-YEAR WAIT FOR VISA NUMBER BY CHINESE INVESTORS So what are the implications of such a wait?

AGE-OUT OF CHILDREN Delayed visa availability will end up disqualifying many more children from derivative eligibility due to age. One of the main reasons Chinese investors use the EB-5 program

VOL. 3, ISSUE #4, JANUARY 2016

is to create opportunity for their children who immigrate with a parent investor. Only a child who is unmarried and under age 21 at the time of the investor’s and the child’s admission as a conditional resident can qualify to immigrate based on the investor’s immigration. Under the Child Status Protection Act, codified at Section 203(h) of the Immigration and Nationality Act, the “adjusted age” of a child will be “frozen” during the period that the investor’s EB-5 Petition is pending with USCIS. But once USCIS approves the petition the child’s “adjusted age” will resume advancing until a visa number becomes available based on the date the investor filed the EB-5 Petition. If the child’s adjusted age reaches 21 before visa number availability, the child will “age-out” of eligibility for an immigrant visa based on the parent investor’s immigration. With a six year gap between I-526 petition filing and visa number availability for an investor chargeable to mainland China, and with an estimated 12 month I-526 processing time, a child who is 16 or older at the time of EB-5 Petition filing could reach an adjusted age of 21 before visa number availability and thus fail to receive an immigration benefit from the parent’s investment. The longer the period of waiting for a visa number turns out to be, the younger a child needs to have been at the time of I-526 filing to avoid “aging out.” Unfortunately, it is impossible to predict what the waiting time will be at the time of I-526 filing. Congress needs to change the law to lock in a child’s age under 21 at the time of filing an I-526 petition. Many Chinese families, fearing age-out, will consider making a gift to their child for the child to be the EB-5 investor who immigrates independently. This creates interesting questions and risks for EB-5 developers concerning the enforceability of investment agreements with minor children who could not themselves be considered accredited investors. Such issuers of securities might consider including the parents in the agreements and confirming the parents’ accreditation and source of funds.

LOSS OF ELIGIBILITY Numerous events could occur during the wait for visa numbers resulting in loss of immigration benefits.

VOL. 3, ISSUE #4, JANUARY 2016

LEGISLATIVE EXPIRATION OR CHANGES The legislation allowing credit for indirect job creation based on regional center sponsorship expires on September 30, 2016 -- long before expected visa number availability for new Chinese investors. If the regional center legislation is not extended, then according to announced USCIS policy investors who have not been admitted to conditional residence before legislative expiration will be unable to use the program to enter the United States, even if an I-526 petition was already approved. Therefore, Chinese investors require multiple successive legislative reauthorizations (in the absence of a permanent authorization) to realize their immigration benefits. Moreover, during the wait for visa number availability Congress could enact retroactive changes to the EB-5 program that could render the project or investor no longer eligible or could allow categories of other investors and their families to move ahead of the investor in the queue for visa numbers, perhaps substantially increasing the investor’s wait time. In 2015 Congressional leaders drafted a bill that would have created certain categories for visa number “set-asides” that might have more than doubled the already lengthy wait time for new Chinese investors who did not qualify for the set asides. No matter what happens after the current law’s expiration, Congress needs to protect the expectations of investors who already will have invested and filed petitions.

MATERIAL CHANGES USCIS’ May 30, 2013 EB-5 Adjudications Policy Memorandum states that if an EB-5 investment project materially changes from the date of filing the I-526 to the point that the investor actually immigrates to the U.S. as a conditional permanent resident, the I-526 becomes deniable or even revocable. The longer the wait for a visa number, the more chance there is for material changes to occur to the project, with a possible loss of the investor’s EB-5 eligibility. An investor who experienced such material change could file a new petition showing that the material changes nevertheless qualify for EB-5 benefits, but in doing so the investor will have to go to the end of the queue for visa numbers, and the risk of ageout of any derivative child increases significantly. With such long waits for visa numbers, the risk of change arguably becomes unrea-

sonable. USCIS should allow adjudication of an EB-5 petition as filed and allow investors to carry their place in the visa queue from that petition to any subsequent petition needed to cover any material changes.

SUSTAINMENT OF INVESTMENT Additionally, USCIS interpretations of EB-5 laws and regulations state that an investor must sustain the “at risk” nature of his or her investment with resulting job creation during the entire period of conditional permanent residency. Visa unavailability may significantly delay the period of an investor’s conditional permanent resident status and thus extend the time throughout which the investor must sustain the investment and sustain created jobs. If invested funds are liquidated from the relevant enterprises or created jobs are lost before an investor’s conditions are removed, USCIS could deny removal of conditions on that basis. USCIS has issued and needs to finalize draft policy suggesting that unexpected loss of jobs or liquidation of funds from the job creating enterprise after the requisite jobs have been created might not result in loss of benefits as long as the new commercial enterprise re-deploys the liquidated capital in other “at risk” investments, but the policy has not been finalized and lacks critical details. Re-deployment creates new risks of loss of the investment even if immigration benefits are retained.

CONCLUSION I hope I am wrong, but I feel compelled to make known that the wait for a visa number for an investor born in mainland China (and without an immigrating spouse born elsewhere) seems likely to be six years or more. Chinese investors seeking to benefit children age 16 or older might be sorely disappointed and might need to consider a different strategy. And the age line might turn out to be younger than 16. Securities issuers need to disclose these age-out and eligibility risks to prospective EB-5 investors, who otherwise may be lulled into complacency by the Visa Bulletin that appears to reflect a two-year waiting period. And USCIS and Congress need to take action to provide more protection of the reasonable expectations of today’s and yesterday’s investors and their children.

IIUSA.ORG | 43

Education/research

THE REALITIES AND IMPLICATIONS OF CHINESE EB-5 INVESTORS' WAIT FOR VISA NUMBERS

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VOL. 3, ISSUE #4, JANUARY 2016

IVC

INVESTMENT VISA CONSULTANTS, L.L.C.

—Member of FINRA—

Vaughan de Kirby, JD • General Securities Principal • President RE: Registered Representative

Dear Fellow Attorney, My name is Vaughan de Kirby and perhaps, like me, you dedicate your practice to EB-5 investment immigration. If so, the opportunity I extend in this letter may be of interest. Please note that this letter is not intended as an offer to sell securities. In 2013, I became a Registered Representative with a Registered Broker Dealer. It soon became clear to me that this BD was not equipped to provide the level of support I wanted to offer my EB-5 clients, lacking the requisite commitment to EB-5 and knowledge of the investment immigration process. For this reason, in 2014 I qualified as a General Securities Principal and founded Investment Visa Consultants, LLC, a registered Broker Dealer and member of FINRA. As an immigration attorney, you may have had many EB-5 clients that looked to you to select a Regional Center for their EB-5 investment. However, as you may know if you believe that the investment your client may be making is a security, unless you are properly licensed, you may be prohibited from recommending a particular Regional Center and accepting the finder’s fee. I’m writing this letter to offer a solution to the above challenge: if you can qualify, join Investment Visa Consultants, LLC as a Registered Representative. As a Registered Representative of IVC, you will receive due diligence support and you can lawfully receive the finder’s fee. If you would like to explore this opportunity, please email me at VdK@USAIVC.com and we can set up a telephone conference to discuss whether your professional goals are a good fit with IVC.

Kindest regards,

Vaughan de Kirby, President IVC, LLC PS: Please note that this opportunity may extend to qualified individuals who are not attorneys. 5139 GEARY BOULEVARD • SAN FRANCISCO • CA 94118 • PHONE: 1-415-989-0808 • EMAIL: VdK@USAIVC.com VOL. 3, ISSUE #4, JANUARY 2016

IIUSA.ORG | 45

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Education/research

REGULATORY CONSIDERATIONS THROUGH THE INVESTOR LIFE CYCLE BY GREGORY L. WHITE PARTNER, SEYFARTH SHAW LLP

number of government and self-regulatory entities are either directly involved in administering the EB-5 program or laws applicable to the offering and sale of EB-5 investments to investors. The purpose of this brief summary to identify various regulatory organizations and the laws applicable to the process of offering and sale of EB-5 investments and the handling of funds and escrows. By “process” we mean the pre-investment, investment and post-investment stages of an EB-5 offering. This is not intended as a detailed discussion of all of these regulatory agencies or rules but rather to just set the stage for a broader discussion to follow. As the U.S. regulatory system is broad, this is not intended as an exhaustive list or summary.

GOVERNMENT AND SELF-REGULATORY ENTITIES ADMINISTERING THE EB-5 PROGRAM AND CERTAIN APPLICABLE LAWS U.S. Citizenship and Immigration Services (“USCIS”), a component of the Department of Homeland Security (“DHS”), is the primary agency with authority for EB-5 program oversight. Other federal immigration entities also play a role, including the State Department, U.S. consular officers abroad, USCIS’s Fraud Detection and National Security Directorate, other DHS components (U.S. Customs & Border Protection and U.S. Immigration & Customs Enforcement), among others. Banks which become involved in the process of escrow, funds management or reporting are also subject to state and federal oversight. Also involved in program support or enforcement are the U.S. Department of Commerce, the U.S. Securities and Exchange Commission (“SEC”), and, in the case of licensed brokerage firms and individuals, the Financial Industry Regulatory Authority (“FINRA”), a self-regulating body that oversees the conduct and compensation of registered brokers and

VOL. 3, ISSUE #4, JANUARY 2016

dealers. Under the dual securities regulatory system, state securities law regulators and state securities laws also apply to EB-5 transactions and participants in addition to federal laws and regulations.

ROLES OF FEDERAL ENTITIES IN EB-5 ADMINISTRATION AND ENFORCEMENT Numerous federal departments and component agencies play a significant role in the EB-5 program. The principal government entities include: U.S. Citizenship and Immigration Services (“USCIS”), a component of the U.S. Department of Homeland Security (“DHS”) -- adjudicates EB-5 petitions as well as applications seeking immigration benefits such as an investor’s and family members’ applications for adjustment of status (“AOS”) to lawful permanent resident (green card status). USCIS also maintains a Directorate known as Fraud Detection and National Security (“FDNS”) which conducts site visits and investigates whether the facts represented in petitions and applications submitted are accurate and support the immigration benefit requested or granted. FDNS also conducts national security reviews. DHS, which stations personnel at U.S. consulates and embassies abroad to conduct similar investigations, has the authority to override the grant of an

immigrant of nonimmigrant visa by a U.S. consular officer. U.S. Department of State (“DOS” or “State”) through the Visa Office in the Bureau of Consular Affairs maintains the monthly calculation and allocation of the annual quota of immigrant visas, reporting the monthly usage data in its “Visa Bulletin.” The Immigration and Nationality Act (“INA”) requires that an immigrant visa be immediately available for use by U.S. consular officers at Embassies and Consulates around the world and by USCIS immigration officers before EB-5 investors and family members can be granted the benefit of U.S. lawful permanent residency. DOS issues Advisory Opinions on questions of law to consular officers. Under the doctrine of consular nonreviewability, however, consular-officer decisions made during the visa application process concerning questions of fact cannot be reviewed by the courts or the Executive Branch. Thus, an EB-5 visa applicant may be refused an immigrant visa if a consular officer adversely determines any question of material fact during a consular interview. State also maintains its Bureau of Diplomatic Security, another layer of law enforcement and investigative expertise that may address issues involving the EB-5 program.

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Education/Research

REGULATORY CONSIDERATIONS THROUGH THE INVESTOR LIFE CYCLE U.S. Customs & Border Protection (“CBP”), a DHS component agency with immigration authority, inspects applicants for admission to the U.S., including EB-5 immigrant visa holders, at American ports of entry or pre-flight inspection posts to determine whether the individual is qualified under the visa category requested and is not inadmissible to the U.S. on a host of statutory grounds involving undesirable individuals. When a CBP officer admits an EB-5 investor or family member on an immigrant visa to the United States, that is the point when the individual first acquires the status of conditional lawful permanent resident (green card status) in the United States. The issuance of the EB-5 immigrant visa by the consular officer merely authorizes the holder to apply for admission as an immigrant to the United States. Correspondingly, when USCIS approves an EB-5 applicant’s adjustment of status application, that is the point when the individual becomes a lawful permanent resident (holding green card status). U.S. Immigration & Customs Enforcement (“ICE”), another DHS component agency, conducts worksite inspections to determine if employers have completed and maintained proper paperwork, Form I-9 (Employment Eligibility Verification), and if the employer employs only lawfully authorized workers. ICE may play a role in verifying that the entity seeking immigration benefits under the EB-5 program has in fact employed the requisite ten full time employees per investor. ICE also serves as government prosecutor in removal (deportation) proceedings brought before a Department of Justice agency, called the Executive Office for Immigration Review (“EOIR”), comprised of Immigration Judges (“IJs”) and the Board of Immigration Appeals (“BIA”). EB-5 investors who have been granted conditional lawful permanent resident status but whose petition (Form I-829) filed two years later seeking unconditional permanent resident status has been denied by USCIS may seek review of that denial before an IJ, and may appeal an adverse decision to the BIA, while remaining a conditional permanent resident during the IJ and BIA review process. USCIS Ombudsman, a statutory body of equal rank with USCIS, has authority to investigate actions by USCIS, urge it to rectify errors, and make reports to Congress and the Executive Branch identifying systemic prob-

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lems and proposing changes to the administration of the immigration laws, including the EB-5 visa category, by USCIS. DHS Office of Inspector General (“OIG”) issues reports and recommendations on the operations of components within DHS, including a recent report on the USCIS’s administration of the EB-5 regional center program. U.S. Department of Commerce provides technical support to USCIS on EB-5 issues, and promotes the program abroad through its SelectUSA program, whose mission is to promote and facilitate business investment in the United States. SelectUSA is represented by the department’s Commercial Service at U.S. Embassies and Consulates around the world.

FEDERAL, STATE AND SELF-REGULATORY SECURITIES REGULATORS U.S. Securities and Exchange Commission (the “SEC”) has broad authority under the U.S. securities laws to regulate the offer and sale of securities by companies located in the United States or to investors who reside in the United States. It is the SEC’s position that the limited partnership or limited liability company interests sold to EB-5 investors are securities that require compliance with these laws. While EB-5 program offerings are almost always structured as exempt offerings under Rule 506 of Regulation D and/ or Regulation S, and therefore do not require registration with the SEC, a notification filing to the SEC is still required for offerings under Regulation D, as is providing investors with a private placement memorandum (“PPM”) that is necessary to comply with the federal antifraud rules discussed elsewhere. The SEC has taken increasing steps against EB-5 projects and sponsors by bringing civil enforcement lawsuits and administrative actions for violations of the antifraud rules, and by referring the earliest of such civil cases to the U.S. Department of Justice for criminal prosecution. The SEC and USCIS have also issued a joint alert with USCIS warning of potentially fraudulent EB-5 offerings. Financial Industry Regulatory Authority (“FINRA”) is a self-regulatory organization that oversees the conduct and compensation of registered brokers and dealers participating in securities offerings. If a registered broker or dealer is engaged to solicit potential investors in an EB-5 project, then the broker or dealer will be required to submit copies of the PPM

and all other marketing materials to FINRA for its review, and the amount and nature of compensation payable to the broker or dealer and its registered representatives and affiliated persons must be disclosed to FINRA. In addition, FINRA imposes various rules relating to the maintenance of escrows and handling of “client funds” by FINRA member organizations. If an EB-5 transaction involves a FINRA-licensed broker-dealer, these rules will likely apply to the escrow of EB-5 funds in the transaction. State Securities Regulators. The securities regulatory scheme in the United States is bifurcated between federal and state laws and regulators, and each state has its own laws which apply both to securities transactions and market participants such as broker dealers. For purposes of brevity, we will simply note that the perils and pitfalls applicable to non-compliance with the various federal securities laws generally have analogs in each of the U.S. states and territories. Additionally, each state has its own securities commission which performs functions similar to certain key functions performed by the SEC. In most cases, securities transactions which are exempt under the most common provisions of Regulation D will also be automatically exempt from registration requirements at the state level (however, notification filings and the payment of fees are usually required by certain states, with the failure to timely comply leading to offers and sales within those states being potentially deemed unlawful and investors who have made purchases in those states potentially being entitled to rescission rights). While in some cases EB-5 financings are styled as Regulation S financings which from a federal law perspective are deemed to take place overseas, Regulation S (which essentially delineates the extraterritorial reach of the registration provisions of the Securities Act of 1933) does not have any direct analog in the states securities laws, and so it is possible that EB-5 transactions which rely solely on Regulation S may in some rare cases still conceivably draw scrutiny at the state level. However, as the jurisdiction of the state securities authorities is limited to offers and sales directed in those states (or, sometimes, to issuers located in the state, with California being a notable example), if offers and sales are limited to foreign nationals living abroad, it is unlikely that such transactions would fall under the scope of the state securities laws. To the extent that an EB-5 project will require additional funding from investors within the

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United States, failure to comply with the applicable state securities laws could result in the project lacking sufficient funds to accomplish its goals. Each state securities commission also has concurrent jurisdiction over broker dealers and investment advisers. These state securities commissions also have powers and remedies available to them which are similar and in addition to those available to the SEC.

GOVERNMENT BACKGROUND CHECKS As part of every request for immigration benefits, USCIS conducts extensive background checks to identify potential fraud, criminal conduct or national-security threats. Until recently, EB-5 screenings were treated no differently than other immigration cases. However, in December, 2013, the DHS OIG released a report, noted above, criticizing USCIS for inadequate screening of EB-5 program participants. USCIS responded to the OIG report, noting in part that, among other measures, USCIS has expanded security checks to include regional centers and some of their executives as well as requiring regional centers to report annually on their activities. IIUSA has developed suggested guidelines for regional centers with respect to “know your customer” and for knowing and overseeing “recruiters” who might provide potential investors. The guidelines are directed at regional centers, as opposed to issuers in direct EB-5 programs. However, the practices offer benefits for direct programs as well, and it may be advisable for participants in EB-5 transactions (including professional service providers and banks and other escrow agents) to request certifications from either regional centers or direct programs as to their compliance with these or similar guidelines. While it may be difficult for regional centers or direct projects to effectively control the activities of migration agents or other recruiters of investors to ensure those agents’ or recruiters’ compliance with various laws, this is an area that deserves close scrutiny through securities industry-type due diligence, as failure to comply can have significant consequences for EB-5 projects.

SECURITIES LAW FRAMEWORK FOR EB-5 ISSUES As the focus of the securities laws is on the offering and sale of securities, most of the concerns relating to the securities laws will come during the “regional center controlled”

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portion of the investor timeline. During the pre-marketing phase, careful consideration should be given as to the form of the investment offering (for example, single entity versus two entity structures) to avoid registration for the issuer or affiliates as an investment company or investment adviser. During the marketing and receipt of investor funds phases, care should be taken both in the selection of persons involved in the marketing effort and in monitoring how the marketing effort is conducted.

BROKER-DEALER ISSUES (SECTION 15 OF THE SECURITIES EXCHANGE ACT) Section 15 of the Securities Exchange Act of 1934 (the “1934 Act”) generally requires a person effecting securities transactions for others to register with the SEC as a brokerdealer. Section 3(a)(4) of the Exchange Act defines a broker as meaning any person engaged in the business of effecting securities transactions for others’ accounts. In a 2010 no-action letter, the SEC took the position that receiving a percentage of the proceeds of an offering could require a person to register as a broker, even if their activities were limited to arranging introductions between potential investors and companies seeking financing, in contrast to past no-action letters where the SEC had also considered the nature of the activities in which a person was engaged. Engaging unregistered broker-dealers in EB-5 transactions can have significant consequences for an EB-5 project, all negative. In many EB 5 financings, the EB 5 issuers will employ foreign “finders” to assist in sourcing investments from foreign nationals. As a rule, these finders are not registered with the SEC. A finder’s failure to register as a brokerdealer, if required to do so, may subject not only the finder but potentially also the EB-5 issuer and its controlling persons (directors, officers, managers, and any controlling shareholders) to various enforcement actions and other risks. These risks include: • Regulatory sanctions for employing an unregistered broker or for aiding and abetting the violation of federal and/or state law by the unregistered broker, including administrative fines, inability to rely on certain securities registration exemptions, and criminal penalties. • Securities fraud liability to investors and

regulators for failure to disclose use of an unregistered broker. (Note that state securities regulators can also bring claims under state securities or “blue-sky” laws, although with foreign investors and a foreign finder, it would seem likely that the only state that may have jurisdiction could be the state in which the EB-5 business is located or from which the EB-5 offering is conducted; this is not necessarily the case with offerings claiming the Regulation D exemption.) • Rescission claims by investors demanding return of invested funds plus statutory interest and attorneys’ fees. • Loss of the securities registration exemption (Reg D or Reg S, or both), which then also gives rise to investor rescission rights. (See elsewhere herein relative to the relationship of these rights to the EB-5 “at-risk” requirement.) • Issues with financial statements (disclosure to investors and regulators of contingent liabilities, asset valuations or any accounting restatements). Unregistered Broker-Dealers - Certain Exemptions for Foreign Persons or Transactions. As many EB-5 projects engage the aid of foreign persons to help market their offerings, there are potential exemptions available for using such persons: • Rule 15a-6 under the 1934 Act exempts certain foreign brokers and dealers from registration. • NASD Rule 1100, among other things, permits U.S. registered broker-dealers to engage foreign persons as “foreign associates” acting as registered representatives of the broker-dealer to engage in finder or broker transactions outside the U.S. without being required to take the examinations necessary for registered representatives in the U.S., subject to specified limitations. • New FINRA Rule 2040, among other things, permits U.S. registered broker-dealers to engage nonregistered foreign persons to engage in finder transactions (but not brokering) outside the U.S. in exchange for transaction-based compensation without being required to take the examinations necessary for registered representatives in the U.S., subject to specified limitations or otherwise registering with FINRA.

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Education/Research

REGULATORY CONSIDERATIONS THROUGH THE INVESTOR LIFE CYCLE • Section 30(b) of the 1934 Act provides that the 1934 Act does not apply to persons transacting “a business in securities without the jurisdiction of the United States” but has been ruled by courts to be unavailable “if the United States is used as a base for securities fraud perpetrated on foreigners.” Even under a multi-factor test, the analysis of whether a person’s activities constituted “effecting transactions in securities” will likely focus on the actual services provided by the person, and not the label the person or the person’s issuer applied to the activity. For example, a $45,000 “administrative fee” charged when the investor’s money clears the offering escrow runs the risk of being characterized as a brokerage fee unless the foreign person provides services unrelated to the investment which have a value commensurate with the fee which is charged, such as providing advice with respect to the immigration process. By contrast, if the agent merely receives a flat administrative fee from the potential investor which is not tied to the release of the escrow, that would seem less likely to be deemed a brokerage fee tied to the success of the offering. The fewer the contacts that both the foreign finder and the investors have with the U.S., the better the possibility for arguing that their relationship should not be subject to U.S. securities laws. However, given that the issuer will be based in the U.S. and the dollars will ultimately be paid into the U.S., that may be sufficient for the SEC or a private plaintiff to asset jurisdiction even in the absence of fraud. Associated Persons Exemption. Generally, Rule 3a4-1 under the 1934 Act exempts from the definition of “broker” all “associated persons” of the issuer who are not subject to a statutory disqualification (i.e., have not committed one of a number of “bad acts”, many relating to the sale of securities), who do not receive compensation based on the sale of securities, and who either limit the nature of their sales activities with respect to the EB-5 offering or have not been a broker or associated with a broker for the 12 months prior to an offering, and are not involved in more than 1 offering per year. “Associated persons” include any natural person who is a partner, officer, director, or employee of the issuer or a related company. Use of U.S.-Registered Broker-Dealers. If an issuer of an EB-5 offering engages U.S.registered broker-dealers to help market the

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offering, such broker-dealers would still be subject to applicable securities laws governing their conduct in the offering notwithstanding the fact that the securities were marketed solely to foreign nationals. In a 2013 interpretive letter, FINRA expressly affirmed that its rules requiring broker-dealers to assess the suitability of securities offerings to their clients apply to EB-5 offerings marketed to foreign nationals, which assessment had to include an assessment of whether the investment was likely to satisfy the EB-5 requirements. To the extent that a U.S.-registered brokerdealer is involved in the EB-5 offering and makes payments to a foreign finder, it would be subject to new FINRA Rule 2040 which limits the payment of transaction-based compensation to non-FINRA members (i.e., persons not registered as broker-dealers). The FINRA rules require, among other things, that the registered broker-dealer be comfortable that the foreign finder, either as a result of its actions or payment of the fee, would not be required to register as a broker-dealer, that both the finder and the finder’s customers are either foreign nationals or foreign entities domiciled outside of the United States, that the customers receive both a descriptive statement disclosing payment of the fee and a statement on each confirmation that a finder’s fee is being paid, and that the customer provide written acknowledgement that he or she is aware of the fees. FINRA has indicated that Rule 2040 applies only if the activities of a foreign finder are limited to the initial referral of non-U.S. customers to the registered broker-dealer.

REGISTRATION AND EXEMPTIONS FROM REGISTRATION FOR SECURITIES OFFERINGS (SECTIONS 4 AND 5 OF THE 1933 ACT) Section 5 of the Securities Act of 1933 (the “1933 Act”) generally requires that offerings of securities sold through interstate means be registered with the SEC. Section 4 of the 1933 Act sets out certain exemptions from registration. EB-5 projects are generally sold under an exemption from the registration requirements. Notable exemptions from the registration requirements frequently used with respect to EB-5 projects include: • Regulation D under the 1933 Act, which exempts sales to “accredited investors.” • Regulation S under the 1933 Act, which ex-

empts sales directed outside of the United States. An offering to investors may claim to be exempt under one or more exemptions from registration under the 1933 Act, but need only qualify under one exemption. For example, an offering purportedly limited to foreign investors who are also “accredited investors” can claim to be exempt under both Regulation D and Regulation S but to the extent that a portion of the offering is sold to foreign investors who turn out not to be accredited investors sales to such investors can still be exempt under Regulation S alone. In addition, different exemptions can be claimed for different investors in the same offering. For example, an issuer could make an offering both to U.S. persons who are “accredited investors” using the Regulation D exemption (with Regulation S not applying to those sales) and to foreign persons who are not “accredited investors” in the same offering using the Regulation S (with Regulation D not applying to those sales). Failure to Perfect an Exemption. Under certain circumstances, if an unregistered EB-5 securities offering fails to comply with the applicable exemption from registration, the investor may have a right of rescission under federal and/or state law, which would entitle the investor to force the issuer to return the investor’s investment. Exercise of such right by the investor would require the investor to return its investment in the issuer. • Circumstances permitting rescission include failure to comply with all of the terms of an applicable exemption from securities registration, making payments based on the size or success of an EB-5 offering to persons not registered as a broker-dealer (but who should have been), and, in some instances, making material misstatements or omissions in offering documents. • Under federal law, rescission rights survive for the later of five years from the date of issuance of the security, or two years from the date from the discovery of the violation giving rise to the rescission rights. State statutes of limitation may differ. • Note that because investors in EB-5 transactions must have their investments considered to be “at risk” without a right of redemption, it is an open question whether the mere existence of rescission rights could disqualify an EB-5 investment even if an investor elects not to exercise them.

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ANTI-FRAUD PROVISIONS (RULE 10B-5 UNDER THE 1934 ACT) Claims by EB-5 Investors under Rule 10b-5. Rule 10b-5 under the 1934 Act generally prohibits the use of fraudulent devices in connection with the sale of securities; state securities laws have similar provisions. These all apply even if the offering of the securities was exempt from registration. Rule 10b-5 applies both to affirmative misstatements, and to omissions of information that would be necessary to make what was actually disclosed not misleading. Rule 10b-5 applies to sales to foreign nationals. Section 27(b) of the 1934 Act gives U.S. courts jurisdiction over claims made by the U.S. or the SEC with respect to breaches of the anti-fraud laws involving “(1) conduct within the United States that constitutes significant steps in furtherance of the violation, even if the securities transaction occurs outside the United States and involves only foreign investors; or (2) conduct occurring outside the United States that has a foreseeable substantial effect within the United States.” In the event that an EB-5 project fails or the investor(s) fail(s) to obtain a Green Card, it is possible that investors will claim that they were not provided with adequate disclosure concerning the material facts and risks involved in the offering, or that the issuer or project did not act in accordance with the disclosures. There have been an increasing number of civil enforcement actions brought against regional centers on grounds of fraud, and one criminal indictment (so far), and most of these have had a very high profile in the EB-5 industry and beyond.

OTHER U.S. SECURITIES LAWS WHICH MAY APPLY TO EB-5 TRANSACTIONS AND PARTICIPANTS Below is a brief summary of the laws pertaining to investment companies and investment advisers. Investment Company Matters. Section 3(a)(1) of the Investment Company Act of 1940 (the “Company Act”) defines an “investment company” in pertinent part as a company which: “is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities” or “is engaged or

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proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 per centum of the value of such issuer’s total assets (exclusive of Government securities and cash items) on an unconsolidated basis”. Typically, an investor utilizing a regional center does not make a direct investment in an EB-5 project. The investor invests in a collective investment vehicle or SPE which in turn itself invests in the EB-5 project, generally in the form of a secured loan. As the secured loan would generally be deemed to be a type of security under the U.S. securities laws, the collective investment vehicle could potentially be deemed an investment company. Investment companies are required to register with the SEC, file a registration statement describing the vehicle and its activities, and make periodic reports, and are subject to other operational restrictions, all of which make acquiring investment company status highly undesirable for most private companies. The main exemption from investment company status is not making a public offering of securities and limiting the number of investors in the project to 100 or fewer , which would allow the project to raise between $50,000,000 and $100,000,000 depending on the applicable current minimum qualifying EB-5 investment for the project. Other exceptions, which may be more difficult to comply with, include primarily investing in mortgages equal in value to the aggregate EB-5 financing received, and limiting investment in the project to “qualified purchasers” (generally meaning that they have at least $5,000,000 in total investments, not net worth or net income). Investment Adviser Matters. Section 202(a)(11) of the Investment Advisers Act of 1940 (the “Advisers Act”) defines an investment adviser as “any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses or reports concerning securities.” As noted above, funds formed to invest in EB-5 projects through regional centers are

generally investing in securities, usually debt, of a separate operating business. General partners or managers of EB-5 funds receiving a carried interest or other compensation can thus be deemed to be compensated for providing advice with respect to the investment in the securities of the operating companies. Accordingly, absent an exemption from registration, such persons could be required to register as investment advisers. The Advisers Act generally requires that persons deemed to be investment advisers either register with the SEC or the individual states where they are deemed to have clients as an investment adviser depending on the amount of assets under management, i.e., the size of the fund. State laws must also be considered for their applicability. There are potential exemptions from registration as an investment adviser. Under federal law, Section 203(b)(3) of the Advisers Act exempts “foreign private advisers.” Foreign private advisors cannot have a place of business in the United States or hold themselves out to the public in the U.S. as an investment adviser. Assuming that the foreign private adviser is just advising investment funds, fewer than 15 investors in the funds can be U.S. persons and these U.S. persons must invest an aggregate of less than $25,000,000. Otherwise the adviser may be required to register. Once again, state laws must also be considered to determine whether state exemptions are available.

LAWS AND GOVERNMENT BODIES RELATED TO FOREIGN INVESTMENT Because EB-5 projects by their nature involve investment by foreign nationals depending on the nature of the business of the project, it may be necessary to comply with certain non-securities laws relating to foreign investment in key U.S. businesses. In addition, the involvement of foreign investors raises potential issues regarding money laundering and matters relating to identification of investors. This section summarizes some of the potential concerns in these areas.

EXON-FLORIO The Exon–Florio Amendment was enacted by the United States Congress in 1988 and provides for the review of all foreign investments that might affect national security.

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Education/Research

REGULATORY CONSIDERATIONS THROUGH THE INVESTOR LIFE CYCLE The amendment empowers the President to block an investment when "there is credible evidence that leads the President to believe that the foreign interest exercising control might take action that threatens to impair the national security." Following passage of the amendment, President Reagan delegated the review process to the Committee on Foreign Investment in the United States (“CFIUS,” commonly pronounced “sifius”). CFIUS is an inter-agency committee of the United States Government that reviews the national security implications of foreign investments in U.S. companies or operations. Chaired by the United States Secretary of the Treasury, CFIUS includes representatives from 16 U.S. departments and agencies, including the Defense, State and Commerce Departments, as well as (most recently) the Department of Homeland Security. Companies proposing to be involved in an acquisition by a foreign firm are supposed to voluntarily notify CFIUS, but CFIUS can review transactions that are not voluntarily submitted. Among the examples of investments blocked under Exon-Florio authority is Ralls Corporation, owned by the Chinese Sany Group, which in 2012 was ordered by President Barack Obama to divest itself of four small wind farm projects located too close to a U.S. Navy weapons systems training facility in Boardman, Oregon.

PATRIOT ACT/”KNOW YOUR CUSTOMER” Know your customer (“KYC”) is the process used by a business to verify the identity of their clients. The term is also used to refer to the bank regulation which governs these activities, Section 326 of the Patriot Act which required banks to establish certain customer identification programs, and subsequent requirements by bank regulators that expand those requirements. KYC processes are also employed by companies of all sizes for the purpose of ensuring the anti-bribery compliance of their proposed agents, consultants, or distributors. Banks, insurers, and export credit agencies are increasingly demanding that customers provide detailed anti-corruption due diligence information, to verify their probity and integrity. EB-5 has some unique parallel requirements, such as verifying the source of investors’ funds.

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HART-SCOTT-RODINO The Hart–Scott–Rodino Antitrust Improvements Act of 1976 (Public Law 94-435, known commonly as the “HSR Act”) is a set of amendments to the antitrust laws of the United States, principally the Clayton Antitrust Act. The HSR Act provides that parties must not complete certain mergers, acquisitions or transfers of securities or assets, including grants of executive compensation, until they have made a detailed filing with the U.S. Federal Trade Commission and Department of Justice and waited for those agencies to determine that the transaction will not adversely affect U.S. commerce under the antitrust laws. While parties can carry out due diligence and plan for post-merger integration, they may not take any steps to actually integrate operations, such as an acquiring party obtaining operational control of the acquiree. HSR would likely only be implicated if an EB-5 project involved the acquisition of an existing business.

OFAC The Office of Foreign Assets Control (“OFAC”) is a financial intelligence and enforcement organization of the U.S. government charged with planning and execution of economic and trade sanctions in support of U.S. national security and foreign policy objectives. Acting under Presidential national emergency powers, OFAC carries out its activities against problematic foreign states, organizations and individuals alike. A component of the U.S. Treasury Department, OFAC operates under the auspices of the Office of Terrorism and Financial Intelligence and is primarily composed of intelligence experts and lawyers. While many of OFAC's targets are broadly set by the White House, most individual cases are developed as a result of lengthy investigations by OFAC's Office of Global Targeting (“OGT”). OFAC is responsible for administering the Specially Designated Nationals (“SDN”) List. The list is a publication of OFAC which lists individuals and organizations with whom United States citizens and permanent residents are prohibited from doing business. This list differs from the one maintained pursuant to Section 314(a) of the USA PATRIOT

Act, which is based on information sharing between law enforcement and the financial industry. When an entity or individual is placed on the SDN List, it may petition OFAC to reconsider, but OFAC is not required to remove an individual or entity from the SDN List. While two federal court cases have found the current Treasury/OFAC process establishing and administering the SDN list to be constitutionally deficient and allowed entities placed on the list to challenge seizure of their assets, it would still be advisable for companies not to do business with persons named on the SDN List. As EB-5 involves raising funds from foreign investors, it is advisable for sponsors of EB-5 projects to check their prospective investors against the SDN List.

TIMING The vast majority of the regulatory concerns discussed above relate to the structuring and marketing of the EB-5 project and/ or obtaining information regarding potential investors, and thus would generally relate to the period commencing with the pre-marketing of an EB-5 project through the deposit of funds in escrow. As noted above, to the extent that ultimate adjudication does not lead to “green cards” for investors, that may give rise to claims that fraud was involved in the offering of the project in an attempt by investors to recoup their investment. Many of the rules relating to the handling of funds and the KYC rules apply to all stages of the project, because the funds must be accounted for in connection with the I-526 application as well as at the time of the I-829.

CONCLUSION The scope of the securities and other relevant laws and regulations that may apply to EB-5 investments and the applicability of such laws to varying stages of an EB-5 project require those involved in the offering and sale of EB-5 projects to maintain constant vigilance to ensure compliance with such laws and regulations. Failure to maintain compliance can have substantial consequences both for the issuer and the investors, including, but not limited to, fines for the issuers and the obligation to refund investments and the potential loss of the opportunity to obtain a green card for the investors.

VOL. 3, ISSUE #4, JANUARY 2016

ON BEHALF OF OUR EMPLOYEES AND PARTNERS, CIVITAS IS PROUD TO ANNOUNCE THE RETURN OF CAPITAL TO OUR FIRST INVESTORS WITH I-829 APPROVALS The journey of a thousand miles begins with a single step. We are grateful to be part of these investorsâ&#x20AC;&#x2122; journeys and very proud to be the preferred choice for over 1,000 families. Civitas Capital Group | 1601 Bryan Street, Suite M-200 | Dallas, Texas 75201 214 572 2300 telephone | 214 572 2398 facsimile | info@civitascapital.com | civitascapital.com

This does not constitute an offer or recommendation to sell or solicitation of an offer to purchase any securities or investment products. Such an offer may only be made to qualified investors by delivery of a definitive confidential private placement memorandum or other similar materials that contain a description of the material terms. Nothing in this document constitutes financial, tax or legal advice.

SGG IMMIGRATION A full-service immigration law firm

Deep EB-5 Experience, Real EB-5 Solutions • More than $4 billion of EB-5 capital raised by our clients • More than 200 EB-5 compliant commercial enterprises • More than 1,000 families with approved I-829 petitions • More than 3,500 families with approved I-526 petitions • Led by four nationally-recognized experts on EB-5 compliance, including Lincoln Stone with 25 years of continuous industry-leading experience • More than 200 years of experience – the combined immigration law practice experience for the ten senior attorneys directing SGG client legal services • More Certified Specialists in immigration and nationality law, State Bar of California Board of Legal Specialization, than any other law firm • A full-service immigration practice having impact unlike any other with 27 immigration attorneys and 65 total staff, directed by nationally-recognized experts in business, investor, entrepreneur, family, asylum, and immigration court practice

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Michele Franchett | michele@sggimmigration.com

Lincoln Stone | lincoln@sggimmigration.com

800 Wilshire Boulevard, Suite 900 Los Angeles, CA 90017 213 627 8997 www.sggimmigration.com

EB5 Coast to Coast is a family of regional centers spanning the Pacific to Atlantic Oceans. The map below shows which states currently have RC approval and which states are pending.

Stephen Smith, President Direct: (509) 738-4000 Cell: (206) 214-8882 steve@stevesmithdev.com

First RC approved in 2011

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$50+ million raised from 100+ investors

HUD Financing (non-recourse)

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I-526 petitions APPROVED: 15 Now under construction - completion: February 2017 HUD loan APPROVED TEA - APPROVED TC Wu, Vice President

(206) 849-8858

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