The e-Advocate Quarterly Magazine Ezekiel 47:21-22
The EB-5 Investor Immigration Project
“Helping Individuals, Organizations & Communities Achieve Their Full Potential”
Vol. III, Issue XII – Q-4 October| November| December 2017
The Advocacy Foundation, Inc. Helping Individuals, Families and Communities Achieve Their Full Potential
The EB-5 Investor Immigration Project
“Helping Individuals, Organizations & Communities Achieve Their Full Potential
1735 Market Street, Suite 3750 Philadelphia, PA 19102
| 100 Edgewood Avenue, Suite 1690 Atlanta, GA 30303
John C Johnson III, Esq Founder & CEO
(878) 222-0450 Voice | Fax | SMS
www.TheAdvocacyFoundation.org
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Biblical Authority ______ Ezekiel 47:21-22 (KJV) 21
So shall ye divide this land unto you according to the tribes of Israel.
22
And it shall come to pass, that ye shall divide it by lot for an inheritance unto you, and to the strangers that sojourn among you, which shall beget children among you: and they shall be unto you as born in the country among the children of Israel; they shall have inheritance with you among the tribes of Israel.
______
Ezekiel 47:21-23The Message (MSG) 21-23
“Divide up this land among the twelve tribes of Israel. Divide it up inheritance, and include in it the resident aliens who have made themselves among you and now have children. Treat them as if they were born there, yourselves. They also get an inheritance among the tribes of Israel. In whatever resident alien lives, there he gets his inheritance. Decree of GOD, the Master.�
as your at home just like tribe the
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Table of Contents The EB-5 Investors Immigration Project
Biblical Authority I.
Introduction
II.
The US Citizenship & Immigration Service
III. Immigrant Investor Regional Centers IV. Job Creation Requirements V.
Capital Investment Requirements
VI. The EB-5 Application Process VII. EB-5 Statistics ______ Attachments A. EB-5 Executive Summary B. Employment Creation Recommendations C. Recommendations for Improving the EB-5 Program
Copyright Š 2014 The Advocacy Foundation, Inc. All Rights Reserved.
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Introduction
The EB-5 visa provides a method of obtaining a green card for foreign nationals who invest money in the United States. To obtain the visa, individuals must invest $1,000,000 (or at least $500,000 in a "Targeted Employment Area" - high unemployment or rural area), creating or preserving at least 10 jobs for U.S. workers excluding the investor and their immediate family. Initially, under the first EB-5 program, the foreign investor was required to create an entirely new commercial enterprise; however, under the Pilot Program investments can be made directly in a job-generating commercial enterprise (new, or existing - "Troubled Business"), or into a "Regional Center" - a 3rd partymanaged investment vehicle (private or public), which assumes the responsibility of creating the requisite jobs. Regional Centers may charge an administration fee for managing the investor's investment. If the foreign national investor's petition is approved, the investor and their dependents will be granted conditional permanent residence valid for two years. [2] Within the 90 day period before the conditional permanent residence expires, the investor must submit evidence documenting that the full required investment has been made and that 10 jobs have been maintained, or 10 jobs have been created or will be created within a reasonable time period. In 1992, Congress created a temporary pilot program designed to stimulate economic activity and job growth, while allowing eligible aliens the opportunity to become lawful permanent residents. Under this pilot program, foreign nationals may invest in a preapproved regional center, or "economic unit, public or private, which is involved with the promotion of economic growth, including increased export sales, improved regional
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productivity, job creation, or increased domestic capital investment". Investments within a regional center provide foreign nationals the added benefit of allowing them to count jobs created both directly and indirectly for purposes of meeting 10-job creation requirement. Foreign investors' use of the EB-5 program has been far less than originally anticipated by Congress. In 2005, a Government Accountability Office report found that investors were not utilizing the program because of “an onerous application process; lengthy adjudication periods; and the suspension of processing on over 900 EB-5 cases—some of which date to 1995—precipitated by a change in USCIS’s interpretation of regulations regarding financial qualifications.” However, in 2011, USCIS began making a number of changes to the program in hopes of increasing the number of applicants. By the end of the 2011 fiscal year, more than 3,800 EB-5 applications had been filed, compared to fewer than 800 applications in 2007. The program reached capacity for the first time in August 2014 when the State Department stopped issuing EB-5 visas until the beginning of the next fiscal year, October 2014. USCIS defines a targeted employment area (TEA) as an area which, at the time of investment, is a rural area (not within either a metropolitan statistical area (MSA) (as designated by the Office of Management and Budget) or the outer boundary of any city or town having a population of 20,000 or more), OR an area within an MSA or the outer boundary of a city or town having a population of 20,000 or more which has experienced unemployment of at least 150% of the national average rate. If the location of the proposed new business is not a TEA, the investor has the option to gather the relevant publicly available state or federal statistics on their own and submit it with their petition for USCIS to have a new TEA determination made. In California, the investor may petition the state government for designating a particular subdivision of the area as an area of high unemployment (over 150% the national average); however, this designation is not made by USCIS. There is no centralized list of targeted employment areas. State agencies in California,[10] Florida and Washington maintain lists of TEAs. Taxation Tax planning prior to immigration prepares the prospective immigrants to structure their assets by taking in consideration the differences in the U.S. tax system. An important point is that United States has a worldwide taxation system, i.e. all income earned by U.S. persons (citizens and residents) in the U.S. and outside the U.S. is subject to taxation by the U.S. government. Once a foreigner becomes a permanent resident, and therefore a U.S. taxpayer, any income that person generates anywhere else in the world will be taxed by the U.S. In addition, when the immigrant dies, all their assets, anywhere in the world will be subject to a 40% estate tax by the U.S. Pre-immigration tax planning helps in
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understanding and structuring an immigrant’s assets and investments to their best tax advantage, such as removing capital gain prior to immigration, structuring ownership of passive assets to avoid U.S. income taxation following immigration, and structuring ownership of all assets to avoid U.S. estate taxation on death. The USCIS The United States Citizenship & Immigration Service (USCIS) maintains a list of approved (which does not signify endorsement) EB-5 (Immigrant Investor) Regional Centers by state, but without details. As of June 2nd 2014, there are 532 centers. The states with the highest numbers of regional centers are California (132), Florida (58), and Washington (37)
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The US Citizenship & Immigration Service United States Citizenship and Immigration Services (USCIS) is a component of the United States Department of Homeland Security (DHS). It performs many administrative functions formerly carried out by the former United States Immigration and Naturalization Service (INS), which was part of the Department of Justice. The stated priorities of the USCIS are to promote national security, to eliminate immigration case backlogs, and to improve customer services. USCIS is headed by a director, currently Leon Rodriguez, who reports directly to the Deputy Secretary for Homeland Security USCIS is charged with processing immigrant visa petitions, naturalization petitions, and asylum and refugee applications, as well as making adjudicative decisions performed at the service centers, and managing all other immigration benefits functions (i.e., not immigration enforcement) performed by the former INS. Other responsibilities include:
Administration of immigration services and benefits Adjudicating asylum claims Issuing employment authorization
documents (EAD) Adjudicating petitions for non-immigrant temporary workers (H-1B, O-1, etc.) Granting lawful permanent resident status Granting United States citizenship
While core immigration benefits functions remain the same as under the INS, a new goal is to process applications efficiently and effectively. Improvement efforts have included attempts to reduce the applicant backlog, as well as providing customer service through different channels, including the National Customer Service Center (NCSC) with information in English and Spanish, Application Support Centers (ASCs), the Internet and other channels. The enforcement of immigration laws remain under CBP and ICE. USCIS focuses on two key points on the immigrant's journey towards civic integration: when they first become permanent residents and when they are ready to begin the formal naturalization process. A lawful permanent resident is eligible to become a citizen of the United States after holding the Permanent Resident Card for at least five continuous Page 12 of 41
years, with no trips out of the United States that last for 180 days or more. If, however, the lawful permanent resident marries a U.S. citizen, eligibility for U.S. citizenship is shortened to three years so long as the resident has been living with the spouse continuously for at least three years and the spouse has been a resident for at least three years. The Courts The United States immigration courts and immigration judges, and the Board of Immigration Appeals which hears appeals from them, are part of the Executive Office for Immigration Review (EOIR) within the United States Department of Justice. (USCIS is part of the Department of Homeland Security.)
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Immigrant Investor Regional Centers Congress created the EB-5 program in 1990 to benefit the U.S. economy by attracting investments from qualified foreign investors. Under the program, each investor is required to demonstrate that at least 10 new jobs were created or saved as a result of the EB-5 investment, which must be a minimum of $1 million, or $500,000 if the funds are invested in certain high-unemployment or rural areas. In 1992, Congress enhanced the economic impact of the EB-5 program by permitting the designation of Regional Centers to pool EB-5 capital from multiple foreign investors for investment in USCIS-approved economic development projects within a defined geographic region. Today, 95 percent of all EB-5 capital is raised and Regional Centers. invested by An EB-5 Regional organization, regulated by facilitates creating economic projects by pooling the EB-5 immigrant Regional centers owned, (e.g. by a regional economic development agency), privately owned, or partnership.
Center is an designated and USCIS, which investment in jobdevelopment capital raised under investor program. can be publicly city, state, or be a public-private
Regional Centers maximize the program’s job creation benefits by facilitating the investment of significant amounts of capital in large-scale projects often in coordination with regional economic development agencies which use the EB-5 funds to leverage additional capital. Regional Centers use economic analysis models, including those developed by the U.S. Department of Commerce, to demonstrate that job creation targets required by law have been achieved. For investments made through Regional Centers, at least 10 direct, indirect or induced jobs must be created.
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All investment offerings made by EB-5 Regional Centers are subject to U.S. securities laws, enforced by state securities regulators and the U.S. Securities & Exchange Commission.
What do Regional Centers do?
Identify investment opportunities that will create jobs in local communities, often in partnership with economic development agencies. Assist in marketing those investment opportunities to investors from around the world. Ensure that the investment offering complies with federal and state securities laws and SEC regulations as well as specific EB-5 requirements.
Why is the EB-5 Investment Program Important? A comprehensive peer-reviewed economic study found that during fiscal year 2012, investments made through the EB-5 program contributed $3.39 billion to U.S. GDP and supported over 42,000 U.S. jobs. This is more than a 100 percent increase from the average annual impact result reported in 2011. And, these jobs were created at no cost to taxpayers. The Congressional Budget Office has scored the program as revenue neutral, with administrative costs paid for by applicant fees. More than 25 countries, including Australia and the United Kingdom, use similar programs to attract foreign investments. The American program is more stringent than many others, requiring substantial risk for investors in terms of both their financial investment and immigration status. o
o
Investments made through the U.S. EB-5 program must be “at risk” in the same way that investments in stocks or equity funds carry an inherent risk. There is no guaranteed financial return. If their application is approved by USCIS, EB-5 investors receive a conditional visa that is valid for two years. In order to receive a permanent visa, these investors must demonstrate that the legally required economic benefits flowing from their investments have been achieved.
Annually, the EB-5 Program accounts for less than 1% of the visas issued by the U.S. Throughout the process, EB-5 investors are subject to the same background checks and national security screenings as applicants in any other visa category, and their ability to eventually apply for citizenship is subject to the same criteria as other visa holders. Like any other investment vehicle, EB-5 investment funds are subject to U.S. securities and anti-fraud laws and regulations.
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Examples of Successful EB-5 Regional Center Projects Approximately 95 percent of all capital raised through the EB-5 economic development program is raised in affiliation with IIUSA’s members. These include Regional Centers that are publicly owned and operated by state economic development agencies, public-private partnerships, as well as private sector investment companies. Capital investments made by EB-5 Regional Centers have supported successful economic development projects, including: o o o
o
o o
Redevelopment of a closed Air Force base in Southern California into a vital commercial area including a distribution center and regional airport Development of assisted and retirement living communities in Washington State, creating 800 jobs and serving approximately 130 seniors The transformation of the a closed Navy yard in Philadelphia into a dynamic, multi-use development now home to 130 companies and 10,000 employees Restoration of the historic “Alaska Club” building in Seattle, creating a modern hotel that employs almost 100 people and serving over 100,000 hotel guests annually Expansion of a one season ski-resort in Vermont into a thriving four season vacation destination Rehabilitation of a 100 year old building into a hotel that created over 161 jobs while kick-starting the revitalization of an historic Dallas neighborhood
Support for the EB-5 Regional Center Program The EB-5 Regional Center program is supported by mayors and local economic development officials who see the value of the program first-hand. o
o
o
The U.S. Conference of Mayors recently endorsed permanent authorization of the regional center program, noting that EB-5 has become a vital source of urban redevelopment funds. Dallas Mayor Michael Rawlings said, “The EB-5 Program enables regional centers to be a key economic driver in their communities, creating desperately needed jobs in a tough economic environment.” Mark Jaffe, president of the Greater New York Chamber of Commerce, has called EB-5 “a common sense job creator that is straightforward with no cost to U.S. taxpayers,” and cited the program as “an important ingredient” in the success of “large-scale, public/private real estate projects that create much needed jobs in areas of high unemployment.”
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FAQ’s How are EB-5 investments affiliated with Regional Centers structured? EB-5 investments that are affiliated with EB-5 Regional Centers are made through private placements - the sale of securities to a relatively small number of select investors. Like all private placements, which are used by companies to raise capital in a number of contexts, EB-5 private placements are governed by federal and state securities laws and regulations. A private placement memorandum is developed that details the investment offering, including detailed explanations of the project that will be funded along with disclosures of risk and material information consistent with all applicable federal and state laws. The economics of the project related to EB-5 specifically – the expected job creation – are also detailed in the memorandum. In some cases, the issuer of the private placement memorandum is an EB-5 Regional Center itself. In other situations, the issuer is business entity that will be receiving the investment funds and is affiliated with a Regional Center.
What risks do investors face in EB-5 regional center investments? By law, EB-5 investments must be “at risk” in the same way that any equity, stock or other type of investment carries inherent risk. Regional centers, like other entities that market investment opportunities, cannot guarantee a return on investment. Regional Centers also cannot guarantee return of the investment principal to the investor.
What kind of financial commitment do EB-5 investors make? By law, an EB-5 investor is required to invest a minimum of $1 million, unless the investment is located in a Targeted Employment Area (TEA)—a rural area or area of highunemployment designated by USCIS. Regional Centers funding projects in TEA’s can accept a minimum of $500,000 from each EB-5 investor.
What risk do companies have in accepting EB-5 investments? Companies bear no additional risk for EB-5 investment. They interact with the money as any other equity or financing investment, albeit often at a lower cost.
Are EB-5 regional center financing options cheaper for companies than other sources of capital? Yes. In many instances, EB-5 funding is a lower-cost form of capital than alternatives because investor demand for return on their investment is often lower for EB-5 capital than other sources of capital. In addition, securing EB-5 capital increases the overall
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liquidity of a business or project which, in turn, reduces the cost of acquiring capital from other sources.
How do EB-5 regional centers help communities? EB-5 Regional Centers facilitate direct investment in projects that meet the job creation and economic development goals of designated geographic areas. Regional Centers pool investments made by multiple EB-5 investors and deploy that capital to large-scale projects, often in coordination with regional economic development agencies.
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Job Creation Requirements To Create or preserve at least 10 full-time jobs for qualifying U.S. workers within two years (or under certain circumstances, within a reasonable time after the two-year period) of the immigrant investor’s admission to the United States as a Conditional Permanent Resident. To Create or preserve either direct or indirect jobs: o
o
Direct jobs are actual identifiable jobs for qualified employees located within the commercial enterprise into which the EB-5 investor has directly invested his or her capital. Indirect jobs are those jobs shown to have been created collaterally or as a result of capital invested in a commercial enterprise affiliated with a regional center by an EB-5 investor. A foreign investor may only use the indirect job calculation if affiliated with a regional center.
Note: Investors may only be credited with preserving jobs in a troubled business. A troubled business is an enterprise that has been in existence for at least two years and has incurred a net loss during the 12- or 24-month period prior to the priority date on the immigrant investor’s Form I-526. The loss for this period must be at least 20 percent of the troubled business’ net worth prior to the loss. For purposes of determining whether the troubled business has been in existence for two years, successors in interest to the troubled business will be deemed to have been in existence for the same period of time as the business they succeeded. A qualified employee is a U.S. citizen, permanent resident or other immigrant authorized to work in the United States. The individual may be a conditional resident, an asylee, a refugee, or a person residing in the United States under suspension of deportation. This definition does not include the immigrant investor; his or her spouse, sons, or daughters; or any foreign national in any nonimmigrant status (such as an H-1B visa holder) or who is not authorized to work in the United States. Full-time employment means employment of a qualifying employee by the new commercial enterprise in a position that requires a minimum of 35 working hours per week. In the case of the Immigrant Investor Pilot Program, "full-time employment" also means employment of a qualifying employee in a position that has been created indirectly from investments associated with the Pilot Program. A job-sharing arrangement whereby two or more qualifying employees share a fulltime position will count as full-time employment provided the hourly requirement per week is met. This definition does not include combinations of part-time positions or full-
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time equivalents even if, when combined, the positions meet the hourly requirement per week. The position must be permanent, full-time and constant. The two qualified employees sharing the job must be permanent and share the associated benefits normally related to any permanent, full-time position, including payment of both workman’s compensation and unemployment premiums for the position by the employer.
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Capital Investment Requirements Capital means cash, equipment, inventory, other tangible property, cash equivalents and indebtedness secured by assets owned by the alien entrepreneur, provided that the alien entrepreneur is personally and primarily liable and that the assets of the new commercial enterprise upon which the petition is based are not used to secure any of the indebtedness. All capital shall be valued at fair-market value in United States dollars. Assets acquired, directly or indirectly, by unlawful means (such as criminal activities) shall not be considered capital for the purposes of section 203(b)(5) of the Act. Note: Investment capital cannot be borrowed. Required minimum investments are:  
General. The minimum qualifying investment in the United States is $1 million. Targeted Employment Area (High Unemployment or Rural Area). The minimum qualifying investment either within a high-unemployment area or rural area in the United States is $500,000.
A targeted employment area is an area that, at the time of investment, is a rural area or an area experiencing unemployment of at least 150 percent of the national average rate. A rural area is any area outside a metropolitan statistical area (as designated by the Office of Management and Budget) or outside the boundary of any city or town having a population of 20,000 or more according to the decennial census.
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The EB-5 Application Process The EB-5 visa is a three-step selfpetitioning process consisting of Immigrant Petition by Alien Entrepreneur (I526), Conditional Permanent Residence by Adjustment of Status (I-485) for aliens inside the US/Consular Processing for alien’s outside the US, and Removal of Conditional Residency (I-829). Filing
for Immigrant Petition (I-526) Investors should first file Form I526, “Immigrant Petition by Alien Entrepreneur,” accompanied by supporting documentation and the $1500 filing fee with the USCIS California Service Center. Subsequent to the approval of form I-526, the intending immigrant needs to adjust status through an I-485 if he or she is in the U.S., or apply for an immigrant visa through consular processing if he or she is outside of the U.S. Unlike other immigrant categories, EB-5 investors may not concurrently file form I-485 with their I-526. The required form I526 documentation must show that the immigrant investor has invested or is investing the required lawfully-gained capital in a company within the U.S., and that the investment will create full-time jobs for at least 10 U.S. workers. There are three ways to invest in the EB-5 category: a new commercial enterprise, a
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troubled business, or a regional center pilot program. The filing fee for Form I-526 is $1,500. Current processing time for I-526 is ten months. Eligibility for each avenue of investment varies; please see below for specific information. General Evidence Includes:
Evidence of the existence of the enterprise (such as past three years tax returns) Evidence of lawful capital: o Corporate, partnership and/or personal tax returns filed within the past 5 years; o Foreign business registration records or evidence identifying other sources of capital; o Other proof of the investor's income during previous years; o Certified copies of any judgments or evidence of all pending actions involving monetary judgments within the past 15 years; o Sales contracts if the source of funds is from the sale of a house or business; o Bank statements, evidence of property transferred from abroad, evidence of purchased assets, stock certificates given for investments, or loan or mortgage agreements. Evidence of the required investment Evidence of the investor's day-to-day operation of the enterprise through either management or policy (does not apply to investors in a Regional Center Program) Title and description of the investor's job duties If the enterprise is a partnership, evidence proving the investor-partner's management or policy-making activities. Evidence showing the creation of at least 10 jobs for U.S. workers or a reasonable business plan to show that it will create 10 jobs for U.S. workers o If investors have hired employees, I-9s forms and tax records; or o If investors do not currently hire employees, a business plan demonstrating that 10 U.S. workers will be hired within the next 2 years; If investors are in a category requiring a $500,000 investment: o Evidence demonstrating that 10 jobs have been or will be created in the targeted employment area by a reasonable business plan; and o Statistical proof that the targeted employment area has high unemployment and a state agency's letter demonstrating that the area is classified as a "high unemployment" area.
New Commercial Enterprise Those who invest in a new commercial enterprise must also provide proof of business organization documents or authorization to do business in a U.S. state or municipality or Articles of Incorporation. Troubled Business
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EB-5 investors must maintain at least 10 jobs for a periodof two years starting from the pre-investment level. The investor should submit photocopies of tax records, a comprehensive business plan, and Form I-9 and other documents to show the qualifications of the employees. Regional Center Program EB-5 investors need to show that they have invested in a regional center by including a letter from USCIS attached to Form I-526 designating the regional center. Furthermore, EB-5 investors need to show that they have created at least 10 direct or indirect full-time positions or will create 10 direct or indirect jobs for U.S. workers. - See more at: http://www.hooyou.com/eb-5/overview.html#sthash.IrsAMkuq.dpuf
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EB-5 Statistics According to data released by USCIS, I-526 and I-829 petition approval rateshave increased since 2005. The number of EB-5 regional centers approved by USCIS has also increased over the past few years. Approval rates of I-526 “Immigrant Petition by an Alien Entrepreneur” applications steadily increased from 2005 to 2009, before hitting a peak of 89% in 2010 and declining slightly to 78% in 2012. I-526 Statistics
Fiscal Year
Receipts
Approvals
Denials
Approval Percentage
2005 2006 2007 2008 2009 2010 2011 2012 Grand Total
332 486 776 1,257 1,028 1,955 3,805 4,156 13,795
179 336 473 640 1,262 1,369 1,563 3,002 8,824
156 124 148 120 207 165 371 775 2,066
53% 73% 76% 84% 86% 89% 81% 79% 81%
Approval rates for I-829 “Petition by Entrepreneur to Remove the Conditions” applications, the application which is filed by the alien entrepreneur following the twoyear conditional residency period, has also increased since 2005, hitting a peak of 96% in 2011 before declining slightly to 94% in 2012. I-829 Statistics
Fiscal Year 2005 2006 2007 2008 2009 2010
Receipts
Approvals
Denials
37 89 194 390 437 768
184 106 111 159 347 274
112 108 49 68 56 56
Approval Percentage 62% 50% 69% 70% 86% 83%
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2011 2012 Grand Total
2,345 546 4,806
1,067 639 2,887
46 42 537
96% 94% 84%
Statistics about I-924 “Application for Regional Center under the Immigrant Investor Pilot Program,� used by regional centers to achieve USCIS recognition, reveal a somewhat downward trend in approval rates for I-924 applications. I-924 Statistics
Fiscal Year 2010 2011 2012 Grand Total
Receipts
Approvals
Denials
152 278 163 593
78 123 30 231
41 58 44 143
Approval Percentage 51% 44% 18% 39%
In the first and second quarters of 2013, USCIS has reportedly received 325 I-924 applications and has approved 65 I-924s and denied 13 I-924s, resulting in an approval rate of 20% for the year thus far. However, the total number of approved regional centers has grown rapidly over the last few years. There are now around 243 approved EB-5 regional centers in 40 states and two territories, as compared to just 45 regional centers in 2009.
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References 1. http://www.uscis.gov/ 2. http://en.wikipedia.org/wiki/EB-5_visa 3. http://en.wikipedia.org/wiki/United_States_Citizenship_and_Immigration_Services 4. https://iiusa.org/en/eb-5-regional-center-investment-program/ 5. http://www.latimes.com/local/la-me-0830-chinese-visas-20140830-story.html 6. http://www.uscis.gov/working-united-states/permanent-workers/employment-basedimmigration-fifth-preference-eb-5/immigrant-investor-regional-centers 7. http://www.uscis.gov/working-united-states/permanent-workers/employment-basedimmigration-fifth-preference-eb-5/eb-5-immigrant-investor-process 8. http://www.uscis.gov/working-united-states/permanent-workers/employment-basedimmigration-fifth-preference-eb-5/eb-5-immigrant-investor 9. http://www.hooyou.com/eb-5/ 10. http://www.uscis.gov/sites/default/files/USCIS/Resources/Resources%20for%20Congress/ Congressional%20Reports/EB-5%20Investor%20Pilot%20Program.pdf 11. http://www.wolfsdorf.com/articles/eb5%20China%20Quota%20BERNIE%20ARTICLE%206.2014.pdf
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Attachment A
EB-5 Executive Summary
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Citizenship and Immigration Services Ombudsman
Executive Summary
EB-5 Immigrant Investor Program Stakeholder Meeting The Office of the Citizenship and Immigration Services Ombudsman (Ombudsman’s Office) held a stakeholder meeting on the EB-5 Immigrant Investor Program on March 5, 2013.
Opening Remarks Ombudsman Maria Odom began her remarks by emphasizing that the purpose of the meeting was to discuss solutions to challenges in the EB-5 Immigrant Investor Program. She noted that the EB-5 program can be an engine of economic growth and spur job creation. Ms. Odom reported the following: •
Today, there are over 243 approved EB-5 Regional Centers in 40 states and two territories, compared to just 25 EB-5 Regional Centers in 2006;
•
Investor interest in the program is spreading not just in Asia, but from all corners of the globe;
•
EB-5 filings have surged year after year for the past three years; and
•
In FY 2012, over 7,400 EB-5 visas were issued.
Ms. Odom recognized the leadership and efforts of U.S. Citizenship and Immigration Services (USCIS) Director Alejandaro Mayorkas and the agency over the past several years to make improvements to the EB-5 program, but noted that there is still work to be done. Since October 2012, the Ombudsman’s Office has received nearly 400 requests for assistance on EB-5 cases, with the vast majority of the cases presented involving filings that are beyond posted processing times. In concluding her opening remarks, Ms. Odom noted that many of the challenges that are with us today were previously identified in the Ombudsman’s 2009 EB-5 program recommendations.
Panelists Remarks A panel comprised of Peter Joseph, Association to Invest in the USA (IIUSA); Lincoln Stone, Stone & Grzegorek, LLP; and William Yates, W.R. Yates & Associates, provided the following perspectives: •
The EB-5 program faces stiff competition from countries with more predictable and speedy immigrant entrepreneur programs.
•
To compete, the EB-5 program needs stability and predictability that allows for reasonable commercial risk taking.
•
Fairness, due process, increased transparency in policy formation, and predictability in adjudications should be hallmarks of the EB-5 program. Citizenship and Immigration Services Ombudsman www.dhs.gov/cisombudsman
1
•
Future EB-5 policy development must be conducted in coordination with business realities and align with commercial reasonableness, but should not excessively intrude into business decision making.
•
A clear and binding project pre-approval process followed by actual adjudication deference is key to EB-5 reform.
•
Actual processing times that approach or exceed one year are undermining the program’s success.
•
Communication through multiple Requests for Evidence (RFE) is inefficient, causes delay, and damages the program.
•
Program integrity is critical, and the agency should use existing USCIS Fraud Detection and National Security resources to identify and take action as warranted.
•
The planned movement of the EB-5 adjudication unit to Washington, D.C. may, in the short-term, exacerbate adjudication inconsistencies and delays. Participants hope USCIS will publish its transition plan as soon as possible.
•
In addition to Director Mayorkas’ commitment to improving the EB-5 program, a program leader is needed to manage the new Washington, DC-based adjudication unit and ensure quality, timely adjudications in accordance with the preponderance of evidence legal standard.
Open Forum Session Communications •
Participants were critical of the dedicated EB-5 program email box, due to lack of responsiveness or personalized responses.
•
Stakeholders seek more direct communications with adjudicators via telephone and email.
Processing Delays •
Many participants noted that posted processing times are unreliable. They also expressed frustration over receipt of multiple RFEs.
•
It was emphasized that adjudication delays affect both investors and project developers.
Quality, Consistency, Predictability •
Participants suggested that the quality of USCIS decisions varies widely.
•
Participants expressed concern that new policy guidance is regularly implemented retroactively without notice.
Citizenship and Immigration Services Ombudsman www.dhs.gov/cisombudsman
2
Other Comments •
One participant stated that the current administration of the EB-5 process is hurting “Brand USA,” and foreign investors are taking advantage of immigrant investor programs offered by other countries.
•
Another pointed out that many individuals who obtain EB-5 visas make significant investments over time in the U.S. economy and culture; the initial investment made under the EB-5 program is just the start.
•
It was suggested that if USCIS had a predictable pre-approval process, projects would be able to eliminate the current convention of placing funds in escrow during the adjudication process, thereby advancing project funding and speeding up job creation.
•
Several participants urged that USCIS reevaluate the timing of the job creation requirements for EB-5 regional center program investors, and whether such requirements are needed or are practical.
•
Another specific area of concern raised by several participants is a recent focus they believe is being wrongfully placed by USCIS adjudicators on North American Industry Classification System (NAICS) codes; they stated that the level of specificity currently required by adjudicators is impeding regional center growth.
Stakeholder Suggestions •
Several participants expressed a desire to know what information USCIS wants in EB-5 submissions, suggesting that the agency provide filing checklists.
•
Several participants called for USCIS to convene a meeting between economists representing the government and those representing the regional centers to identify and discuss unresolved issues concerning job creation. Issues include tenant occupancy models and phased construction projects that span multiple years.
•
A representative of the Small Business Administration, Office of Advocacy was in the audience and encouraged attendees to contact her office to discuss the impact of changes in USCIS policy guidance to small businesses. The representative also stated that the SBA is interested in hearing from stakeholders regarding USCIS’s efforts to reform the EB5 program through policy guidance instead of rulemaking.
Citizenship and Immigration Services Ombudsman www.dhs.gov/cisombudsman
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Attachment B
Employment Creation Recommendations
Page 36 of 41
Office of the Citizenship and Immigration Services Ombudsman
U.S. Department of Homeland Security Mail Stop 1225 Washington, DC 20528-1225
EMPLOYMENT CREATION IMMIGRANT VISA (EB-5) PROGRAM RECOMMENDATIONS March 18, 2009 The Citizenship and Immigration Services Ombudsman, established by the Homeland Security Act of 2002, provides independent analysis of problems encountered by individuals and employers interacting with U.S. Citizenship and Immigration Services, and proposes changes to mitigate those problems. I. EXECUTIVE SUMMARY The Citizenship and Immigration Services Ombudsman (Ombudsman) has reviewed the United States Citizenship and Immigration Services (USCIS) policies and processes concerning the Employment Creation EB-5 immigrant visa, 1 and formed several recommendations that USCIS should implement to stabilize and energize the program. In passing employment creation legislation, Congress sought to attract entrepreneurial immigrants to the United States who would invest capital to create jobs for U.S. workers, and thereby stimulate the economy. 2 Congress allocates approximately 10,000 immigrant visas per year to the EB-5 category (including derivative visas for the spouses and minor children of investors), although less than 1,000 visas are used annually. 3 This underutilization is caused by a confluence of factors, including program instability, the changing economic environment, and more inviting immigrant investor programs offered by other countries. In recognition of the present turmoil in the U.S. economy, it is incumbent upon USCIS to take all necessary and appropriate steps to facilitate a healthy, vigorous, and smooth-running employment creation immigrant visa program.
1
Immigration and Nationality Act (INA) § 203(b)(5); 8 U.S.C. § 1153(b)(5). Immigration Act of 1990, Pub. L. No. 101-649 (Nov. 29, 1990). 3 Between 1992 and 2004, 6,024 EB-5s were issued, which averaged approximately 500 per year. Government Accountability Office, Immigrant Investors: Small Number of Participants Attributed to Pending Regulations and Other Factors, p. 2 (Apr. 2005) (GAO-05-256). “The bill’s supporters predicted that about 4,000 millionaire investors, along with family members, would sign up, bringing in $4 billion in new investments and creating 40,000 jobs [annually].” See Al Kamen, “An Investment in American Citizenship; Immigration Program Invites Millionaires to Buy Their Way In,” Washington Post, (Sept. 29, 1991). 2
Email: cisombudsman@dhs.gov | Web: http://www.dhs.gov/cisombudsman | Phone: (202) 357-8100 | Fax: (202) 357-0042
Citizenship and Immigration Services Ombudsman
Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 2 of 17 For these reasons, the Ombudsman recommends that USCIS: 1. Finalize regulations to implement the special 2002 EB-5 legislation which offers a certain subgroup 4 of EB-5 investors a pathway to cure deficiencies in their previously submitted petitions. 2. Issue Standard Operating Procedures (SOPs) for Form I-526 (Immigrant Petition by Alien Entrepreneur) and Form I-829 (Petition by Entrepreneur to Remove Conditions) that specifically direct EB-5 adjudicators to not reconsider or readjudicate the indirect job creation methodology in Regional Center cases, absent clear error or evidence of fraud. 3. Designate more EB-5 Administrative Appeals Office (AAO) decisions as precedent/adopted decisions to provide stakeholders, investors, and adjudicators a better understanding of the application of existing USCIS regulations to given factual circumstances. 4. Engage in formal rulemaking to further develop rules that will promote stakeholder and investor confidence as well as predictability in adjudicatory processes. 5. Form an inter-governmental advisory group to consult on domestic business, economic, and labor considerations relevant to EB-5 adjudications. 6. Offer a Special Handling Package option to EB-5 investors for faster adjudication of Forms I-526, I-829, and related applications for a higher fee. 7. “Prioritize” the review and processing of all Regional Center EB-5 related petitions and applications to foster the immediate creation and preservation of jobs. 5 8. Establish a program to promote the EB-5 program overseas in coordination with the U.S. Departments of State and Commerce.
4
This subgroup includes only those EB-5 investors whose Forms I-526 (Immigrant Petition by Alien Entrepreneur) were filed and/or approved between January 1, 1995, and before August 31, 1998. See 21st Century Department of Justice Appropriations Authorization Act, §§ 11031-37, Pub. L. No. 107-273 (Nov. 2, 2002). 5 “Priority” processing is authorized by the Basic Pilot Program Extension and Expansion Act of 2003, Pub. L. No. 108-156 (Dec. 3, 2003).
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Citizenship and Immigration Services Ombudsman
Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 3 of 17 II.
BACKGROUND
Purpose and Terms of the EB-5 Program Pursuant to INA § 203(b)(5), Congress established the fifth employment-based (EB-5) preference category in 1990 for immigrants seeking to enter the United States to engage in a commercial enterprise that will benefit the U.S. economy and directly create 6 at least ten fulltime jobs. 7 The minimum qualifying investment amount is $500,000 for commercial enterprises located within a rural area 8 (or targeted employment area), 9 and is otherwise $1,000,000. 10 Congress allocated 10,000 immigrant visas annually for this employment-based preference category. Figure 1 depicts actual EB-5 usage from FY 1998 through FY 2007.
6
A qualifying investment in a new commercial enterprise must create full-time employment for at least ten U.S. citizens, lawful permanent residents, or other immigrants lawfully authorized to be employed in the United States. INA § 203(b)(5)(a)(ii); 8 U.S.C. § 1153(b)(5)(A)(ii); see also 8 C.F.R. § 204.6(j)(4)(i) (2008). The investor and his/her immediate family, as well as lawful nonimmigrant employees, are excluded from the ten-person employment calculation. 8 C.F.R. § 204.6(e) (2008). Special rules also allow for making a qualifying investment where the investment serves to maintain jobs that might otherwise be lost in a troubled business (i.e., an existing business over two years old that has incurred a net loss exceeding 20 percent of its net worth during the 12 or 24 month period preceding a Form I-526 petition filing). 8 C.F.R. §§ 204.6(e), 204.6(j)(4)(i)(B)(ii) (2008). 7 INA § 203(b)(5)(A)(ii); 8 U.S.C. § 1153(b)(5)(A)(ii). 8 “Rural area” is defined as “any area other than an area within a metropolitan statistical area or within the outer boundary of any city or town having a population of 20,000 or more (based on the most recent decennial census of the United States).” INA § 203(b)(5)(B)(iii); 8 U.S.C. § 1153(b)(5)(B)(iii); see also 8 C.F.R. § 204.6(e) (2008). 9 “Targeted employment area” means that “at the time of the investment, a rural area or an area which has experienced high unemployment (of at least 150 percent of the national average rate).” INA § 203(b)(5)(B)(ii); 8 U.S.C. § 1153(b)(5)(B)(ii); see also 8 C.F.R. § 204.6(j)(6) (2008). 10 INA § 203(b)(5)(C)(i); 8 U.S.C. § 1153(b)(5)(C)(i).
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Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 4 of 17 Figure 1: U.S. EB-5 Immigrant Visa Utilization (Principals + Derivatives), FY 1998-2007 10,000 9,000 8,000
Visas Issued
7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Fiscal Year
Source: DHS Office of Immigration Statistics, “2007 Yearbook of Immigration Statistics,” Table 6 at p. 18, http://www.dhs.gov/ximgtn/statistics/index.shtm (accessed Feb. 19, 2009).
A Senate Committee Report stated that the EB-5 provision was “intended to provide new employment for U.S. workers and to infuse new capital in the country, not to provide immigrant visas to wealthy individuals. . . .” 11 The legislative history suggests that Congress anticipated that as many as 4,000 foreign investors and their families would seek U.S. lawful permanent residence (LPR or “green card” status), bringing in fresh investment funds totaling an estimated $4 billion and creating 40,000 jobs annually. 12 Pilot Regional Center Program To encourage use of the EB-5 visa category, Congress established the Immigrant Investor Pilot Program in 1993 and set aside 3,000 of the allocated 10,000 visas for investors who invest within designated “regional centers.” 13 This program eventually became referred to as the “Regional 11
S. Rep. No. 55, 101st Cong., 1st Sess. at 21 (1989). See Al Kamen, “An Investment in American Citizenship; Immigration Program Invites Millionaires to Buy Their Way In,” Washington Post, (Sept. 29, 1991). 13 The original set-aside was 300 visas annually. See Departments of Commerce, Justice, State, the Judiciary, and Related Agencies Appropriation Act of 1993, Pub. L. No. 102-395 (Oct. 6, 1992). In 1997, Congress increased the set-aside to 3,000 annually. See Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriation Act of 1998, Pub. L. No. 105-119 (Nov. 26, 1997). A “regional center” is defined as “any economic 12
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Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 5 of 17 Center Pilot,” and legislation was introduced in 2008 to make the Regional Center Pilot permanent. 14 Under the pilot, foreign investors can pool their investments into Regional Centers which make large investments that create jobs. Regional Center investors are permitted to demonstrate through “reasonable methodologies” that their investment resulted in the creation of ten or more direct or indirect jobs. More specifically, investors within EB-5 Regional Centers are permitted to use statistical formulas and models to demonstrate a correlation between their investment of capital into a specific business and indirect jobs created in other businesses within the greater community. In Regional Center cases, these indirectly generated jobs may be used to satisfy the job creation requirement. According to the Congressional Research Service, the South Dakota International Business Institute’s Dairy Economic Region program (SDIBI South Dakota Dairy) provides an EB-5 Regional Center story that illustrates how the successful implementation of an EB-5 program can positively impact a community. 15 Approved in June 2005, the SDIBI South Dakota Dairy program attracted more than 60 immigrant investors who infused approximately $30 million into the South Dakota economy. Their combined investment was leveraged to secure approximately $90 million in bank financing for various dairy investment projects. These EB-5 investments directly created 240 jobs. Using RIMS II 16 modeling to predict the correlation between monies invested and employment creation, the combined investment also is credited with generating an additional 638 indirectly-created jobs, and over $360 million in additional funds to the region. 17 According to the SDIBI South Dakota Dairy Director, the “paramount” EB-5 program issue is whether “USCIS [has] sufficient resources to quickly adjudicate EB-5 immigrant visa petitions. If the adjudication process is too long . . . the opportunity cost may make a South Dakota dairy investment unappealing to foreign investors.” 18 Similar sentiments were expressed to the unit, public or private, which is involved with the promotion of economic growth, including increased export sales, improved regional productivity, job creation, and increased domestic capital investment.” 8 C.F.R. § 204.6(e) (2008). 14 See S. 2751, a Senate bill co-sponsored by Senators Patrick Leahy (D-VT) and Arlen Specter (R-PA) on March 12, 2008. Although the EB-5 Regional Center Pilot program was not made permanent in the 110th Congress, bipartisan support did exist to ensure that the pilot did not expire at the end of the 2008 fiscal year. A short extension of the Regional Center Pilot (through March 6, 2009) was thus included in the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009, Pub. L. No 110-329 (Sept. 30, 2008). Following passage of a five day extension, on March 11, 2009, President Obama signed the Omnibus Appropriations Act extending the EB-5 Regional Center Pilot sunset date to September 30, 2009. Accordingly, the 111th Congress may yet again take up the question of extending the pilot, or making the program permanent, later this year. 15 See Chad C. Haddal, “Foreign Investor Visas: Policies and Issues,” pp. 31-32, Congressional Research Service (Jan. 29, 2007). 16 RIMS II is the upgraded version of the original Regional Industrial Multiplier System (RIMS) created by the U.S. Department of Commerce, Bureau of Economic Analysis, and is used in public and private sector project planning as a model to predict regional output, earnings, and employment in specific geographic and industrial settings. See “Regional Multipliers from the Regional Input-Output Modeling Systems (RIMS II): A Brief Description;” www.bea.gov/regional/rims/brfdesc.cfm (accessed Jan. 8, 2009). 17 See supra note 15. 18 Id. at p. 32.
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Citizenship and Immigration Services Ombudsman
Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 6 of 17 Ombudsman by other stakeholders. They emphasized that the EB-5 program generally, and the Regional Center Pilot particularly, needs stability and predictability to attract foreign investors. Foreign Competition and Response It is generally understood that in enacting the EB-5 provisions contained within the Immigration Act of 1990, 19 Congress intended to establish an immigrant investment program to rival those enacted by other countries, specifically Canada and Australia. 20 However, by the time the EB-5 program became law, Canada’s Immigrant Investor program was in existence for four years (since 1986). See Figure 2 below for use of this program. Figure 2: Canada’s Immigrant Investor Visa Utilization (Principals + Derivatives), CY 1998-2007 10,000 9,000 8,000
Visas Issued
7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Calendar Year
Source: Citizenship & Immigration Canada Facts and Figures 2007: Residents, p. 19, www.cic.gc.ca (accessed Feb. 19, 2009).
Immigration Overview-Permanent and Temporary
Under the Canadian program, foreign business persons establish eligibility by proving that they have “two years of business experience,” a net worth of at least CDN $800,000, and by affirmatively expressing that they are willing to deposit CDN $400,000 into designated government guaranteed securities for a period of five years. 21 Unlike the EB-5 program, the 19
See supra note 2. See 136 Cong. Rec. 17106, 112 (Oct. 26, 1990) (Senator Paul Simon (D-IL) arguing that the United States should “learn from and build upon the track record and experiences of Governments of Canada and Australia who have had great success in attracting talented people through their investor visa programs.”) 21 See Citizenship and Immigration Canada, “Investors;” www.cic.gc.ca (accessed Feb. 18, 2009). Invested funds are used by the federal government to generate new employment opportunities for Canadian citizens, and in turn, the foreign investor is granted permanent resident status, and provided a government promissory note representing a 20
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Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 7 of 17 Canadian Immigrant Investor program is a passive program: a qualifying investor is not required to open a business, or hire and manage employees. Rather, the investment itself is assumed to spur significant economic activity and create jobs. Uncertainty Has Plagued the EB-5 Program From Its Inception Initial delay in the issuance of EB-5 rules, followed by changes in interpretation of the rules, has led to uncertainty in the EB-5 program since inception. Between 1993 and 1997, the Immigration and Naturalization Service (INS) issued General Counsel interpretive guidance on key legal issues, which was received favorably by several private sector companies specifically formed to develop investment project opportunities for EB5 investors. The number of EB-5 immigrant visas issued increased from 583 in FY 1993 to 1,361 visas in FY 1997. However, informal General Counsel guidance in the mid-1990s permitted investors to obtain status without actually committing their entire investment amount to the business. 22 Concerns of insider access, suspicions of abuse, misrepresentation, and fraud surfaced in the mid-1990s at the same time that the EB-5 program was experiencing its most significant usage. Some of these concerns were later proven in a federal court case leading to convictions for immigration fraud, wire fraud, money laundering, and conspiracy against the principals and officers of an EB-5 investment business then operating as Interbank. 23 The defendants in the case attracted $21 million in investment funds from foreign investors who were seeking to lawfully obtain green card status through the EB-5 program. The fraudulent investment scheme involved the juggling of funds through an offshore financial institution, and the production and use of fake bank statements used in connection with underlying I-526 petitions filings. However,
debt obligation to return the full CDN $400,000 in five years (without interest). Id. There has never been a governmental default on these obligations, and because of their reliability, Canadian financial institutions are willing to partially finance the required investment. See Jeffrey S. Lowe, “Canada’s Immigrant Investor Program,” Research Solutions (Dec. 2007). Interestingly, the qualifying investment may be delayed until as late as the eve of the date of visa issuance. See Citizenship and Immigration Canada “Operating Procedure Manual (OP 9 Investors)” at 9.2 (Aug. 8, 2008); www.cic.gc.ca (accessed Feb. 18, 2009). In the ten-year period between 1998 and 2007, according to Citizenship & Immigration Canada, 16,213 principal foreign nationals have invested in direct qualifying funds in Canada. See Citizenship & Immigration Canada Facts and Figures 2007: Immigration Overview—Permanent and Temporary Resident, p. 19; http://www.cic.gc.ca/english/resources/statistics/menufact.asp (accessed Feb. 5, 2009). Based on the total number of principal foreign nationals and the qualifying investment of CDN $400,000, Canada has benefited from CDN $6,485,200,000 through its Immigrant Investor program. 22 See INS General Counsel Memorandum, “Sections 203(b)(5) (EB-5) and 216A of the Immigration and Nationality Act,” HQCOU 70/6.1 & 70/9-P (Dec. 19, 1997). This 1997 Memorandum clarified and provided new guidance disallowing such practices. 23 See U.S. v. O’Connor, 158 F. Supp. 2d 697, 723-38 (E.D. Va 2001).
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Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 8 of 17 none of the individual 216 EB-5 investors were found complicit in the fraud. In fact, most of the foreign investors suffered a total loss of their funds and were not granted green cards. 24 In 1998, the USCIS Administrative Appeals Office (AAO) 25 issued four precedent decisions 26 that altered the previously issued guidance and substituted new and more restrictive interpretations of the law. These changes caused much concern among current and potential EB5 investors, and introduced new and significant uncertainties into the EB-5 program. Figure 3: Changes in Selected EB-5 Legal Guidance Issue
Pre-1998 AAO Decisions
Post-1998 AAO Decisions
Establishment of “new” enterprise
Business must be created after November 1990
Investor must personally be involved in establishment of business 27C
Source of funds
General representation and proof of legal generation of fund accepted
Legal generation of funds must be traced with particularity A,C&D
Promissory notes
Considered at face value; no limit on duration; need not be perfected; foreign collateral acceptable
Must prove fair market value;C duration generally restricted to two years;C must be perfected;B foreign collateral must be seizable B and marketableC
Guaranteed returns
Permitted generally
ProhibitedC
Redemption provisions
Permissible but may not exercise until after two year conditions lifted
Impermissible to enter redemption agreement within two-year conditional periodC
A
Matter of Soffici, 22 I&N Dec. 158 (Assoc. Comm’r Examinations 1998). Matter of Hsiung, 22 I&N Dec. 201 (Assoc. Comm’r Examinations 1998). C Matter of Izummi, 22 I&N Dec. 169 (Assoc. Comm’r Examinations 1998). D Matter of Ho, 22 I&N Dec. 206 (Assoc. Comm’r Examinations 1998). B
Following issuance of the AAO’s precedent decisions, EB-5 visa applications dropped dramatically. Between FY 1998 and FY 2008, USCIS had an average approval rate of approximately 44 percent, as shown in Figure 4 below.
24
See U.S. v. O’Connor, 321 F. Supp. 2d 722, 725 (E.D. Va 2004). The AAO is the appellate body within USCIS with primary authority to review most service center decisions. 26 Matter of Soffici, 22 I&N Dec. 158 (Assoc. Comm’r Examinations 1998); Matter of Izummi, 22 I&N Dec. 169 (Assoc. Comm’r Examinations 1998); Matter of Hsiung, 22 I&N Dec. 201 (Assoc. Comm’r Examinations 1998); Matter of Ho, 22 I&N Dec. 206 (Assoc. Comm’r Examinations 1998). Precedent decisions are those decisions specially designated to provide controlling legal principles and interpretations which are “binding on all Service employees in the administration of the Act.” 8 C.F.R. § 103.3(c) (2008). 27 Congress abolished the establishment criterion though legislative action in 2002 when it passed the 21st Century Department of Justice Appropriations Authorization Act. See supra note 4 at § 11036. 25
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Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 9 of 17 Figure 4: Form I-526 Approvals and Denials by USCIS (Principals Only), FY 1998-2008 1,800
Form I-526 Applications
1,600 1,400 1,200 1,000 800 600 400 200 0 1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Year Approved
Denied
Source: USCIS Performance Analysis System Data, as of October 2008.
Many potential investors decided not to go forward with their EB-5 investments and filings. In addition, USCIS took action to remove some existing investors from the United States based on the retroactive application of the principles set forth in the precedent decisions. While most investors lost legal challenges, one group of affected investors did successfully challenge the retroactive application of these decisions in one federal court. In reversing the denials, the court found: [Investors] relied on their understanding that their business and investment plans conformed to the requirements of EB-5. They sold businesses, uprooted from their homelands, and moved to the U.S…. [They] sought no guarantee of success, but a contingent promise that, if they held up their end of the bargain … they would obtain LPR status promised by the EB-5 program. This was not unreasonable…. The reputation and integrity of the EB-5 program is ill-served by the proposition that INS approval of an I-526 petition as satisfying EB-5’s requirements cannot be relied upon. 28
28
Chang v. U.S., 327 F.3d 911, 928-29 (9th Cir. 2003).
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Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 10 of 17 In 2002, the President signed special legislation that attempted to rectify the situation. 29 However, new regulations needed to implement this legislation remain outstanding, and these cases cannot be adjudicated until final rules are issued. As a result, approximately 700 investors, most of whom are at the condition removal stage, have had their immigration status placed on hold, some since 1995. 30 This long delay has adversely impacted these affected investors (and their derivative family members) who have been unable to fully integrate into the United States. It is widely believed that the EB-5 program has never truly fulfilled Congress’ expectations. Experts may differ on the cause, but citing to input from USCIS officials and immigration attorneys, a 2005 Government Accountability Office (GAO) report attributed: … low participation to a series of factors that led to uncertainty among potential investors. These factors include an onerous application process; lengthy adjudication periods; and the suspension of processing of over 900 EB-5 cases -- some of which date to 1995 -- precipitated by a change in [USCIS’] interpretation of regulations regarding financial [qualifications.] 31 Citing the same GAO report, the Congressional Research Service’s 2005 report to Congress on “Federal Investor Visas: Policies and Issues,” stated that EB-5 visa underutilization can be traced to: [T]he rigorous nature of the LPR investor application process and qualifying requirements; the lack of expertise among adjudicators; uncertainty regarding adjudication outcomes; negative media attention on the LPR investor program; lack of clear statutory guidance; and lack of timely application processing and adjudication. 32 In 2005, USCIS established an EB-5 unit at USCIS headquarters, the Investor and Regional Center Unit (IRCU), 33 and announced the agency’s intention to re-invigorate the EB-5 29
Supra note 4. Immigrant investors affected by the retroactively applied 1998 AAO decisions were provided an additional two years to demonstrate that they made a supplemental investment, and in combination, that they met the minimum required qualifying investment and created and/or preserved ten jobs. 30 Information provided by USCIS to the Ombudsman (Jan. 30, 2008). 31 Immigrant Investors: Small Number of Participants Attributed to Pending Regulations and Other Factors, p.3 GAO-05-256 (Apr. 2005). 32 Supra note 15 at p. 8. 33 The IRCU reviews and approves the submissions of applicants seeking Regional Center designation. Applicants are required to provide a “detailed prediction regarding the manner in which the [R]egional [C]enter will have a positive impact on the regional and national economy….” 8 C.F.R § 204.6(m)(3)(iv) (2008). The proposal must be supported by “economically or statistically valid forecasting tools, including, but not limited to, feasibility studies … and/or multiplier tables.” 8 C.F.R. § 204.6(m)(3)(v) (2008). “To show that 10 or more jobs are actually created indirectly by the business, reasonable methodologies may be used. Such methodologies may include …
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Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 11 of 17 program. 34 In the last few years, the EB-5 immigrant visa category has attracted the interest of high net-worth investors seeking to immigrate to the United States. USCIS reported to the Ombudsman that it received 1,257 Form I-526 petitions in FY 2008. Despite a recent upswing in EB-5 filings, as discussed below, the Ombudsman has heard from stakeholders that USCIS’ decision to consolidate EB-5 adjudications at the California Service Center (CSC) 35 has rekindled concerns within the EB-5 investor community. Case Processing Procedures To acquire an EB-5-based green card, an investor must first make a qualifying investment, and then file a Form I-526 petition (and supporting documents) with USCIS. Once the Form I-526 is approved, an investor who is in the United States in lawful nonimmigrant status may file a Form I-485 (Application to Register Permanent Residence or Adjust Status). 36 Upon approval of the Form I-485, the investor is afforded conditional lawful permanent resident status, which is valid for two years. If the investor is outside the United States when the Form I-526 petition is approved, the U.S. Department of State’s National Visa Center will process the EB-5 immigrant visa through the local U.S. consular post with jurisdiction over the place of residence. The EB-5 immigrant visa is used to enter the United States, which commences the two-year conditional lawful permanent resident status. Regardless of whether the investor adjusted to conditional green card status while living in the United States, or acquired such status through consular processing, approximately 21 months later the investor must file a Form I-829 to remove the conditional status. In addition, petitioners must also provide supporting documents to establish that they have satisfied all EB-5 qualifying conditions. Upon approval, a new ten-year unconditional green card is issued. Prior to October 1, 2008, EB-5 related Form I-526 and Form I-829 filings were divided between the Texas Service Center (TSC) and the CSC as part of USCIS’ bi-specialization initiative. USCIS announced last year that beginning on October 1, 2008, all Form I-526 and I-829 petitions would be adjudicated at the CSC. 37
economically or statistically valid forecasting devices which indicate the likelihood that the business will result in increased employment.” 8 C.F.R. § 204.6(m)(7)(ii) (2008). 34 USCIS Interoffice Memorandum, “Establishment of An Investor and Regional Center Unit” (Jan. 19, 2005). 35 “Change in Filing Location for EB-5-Related Petitions and Applications and Regional Center Proposals,” 74 Fed. Reg. 912 (Jan. 9, 2009). 36 The spouse and minor children of the investor may also file for green card status by filing separate Form I-485 applications. 37 Supra note 35.
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Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 12 of 17 The Ombudsman met with EB-5 product line managers and adjudicators at the TSC and CSC in August 2008 regarding the scheduled consolidation of EB-5 adjudications at the CSC. At that time, there were two EB-5 adjudicators at the TSC, each with over ten years of experience. The Ombudsman learned that neither of these seasoned TSC EB-5 adjudicators would relocate to the CSC to continue work on EB-5 filings. However, these seasoned adjudicators trained ten CSC adjudicators who now supplement the EB-5 unit. The CSC advised the Ombudsman that it expects the new complement of CSC EB-5 adjudicators to reduce processing times. Final transition of all EB-5 related adjudications and oversight to the CSC, including IRCU functions, occurred in January 2009. Recent EB-5 Stakeholder Meetings and Feedback Stakeholders advised the Ombudsman that they are concerned about delays in EB-5 processing times and the impact on existing investors. Specifically, some expressed concern 38 that adjudicators who are new to the complex EB-5 product line may seek to review previously settled guidance, or request new types of evidence from investors. 39 USCIS met with an EB-5 regional center trade association group in Washington on September 22, 2008. There were four themes highlighted by EB-5 stakeholders at this meeting: program institutionalization, program enforcement, minimization of program risk, and a need to increase program predictability. Stakeholders believe that USCIS should not re-adjudicate the indirect job creation methodology when reviewing individual Form I-526 and I-829 petitions. Since that meeting, USCIS advised the Ombudsman in December 2008 that the agency is continuing to review I-829s to determine if the originally presented methodology is valid and appropriate, and whether the projected jobs were created or will be created within two years. 40 38
These concerns were raised by individual stakeholders with the Ombudsman in informal discussions in the fall of 2008, and in an Ombudsman-hosted a public teleconference on September 26, 2008, “EB-5 Investor Visas: Opportunities and Challenges.” 39 In the past, the AAO has endorsed a “hypertechnical” review of certain issues, including source and path of funds. See Matter of [Redacted], EAC 98 229 50661, Vermont Service Center (AAO Jan. 18, 2005) (“‘hypertechnical’ requirements for establishing the lawful source of an investor’s funds serve a valid government interest….”) citing a Ninth Circuit decision, Spencer Enterprises, Inc., v. United States, 229 F. Supp. 2d 1025, 1040 (E.D. Cal. 2001), aff’d 345 F. 3d 683 (9th Cir. 2003). 40 USCIS has sent mixed messages on the question of whether and when an EB-5 investor must prove that the qualifying Regional Center investment satisfied the law’s job creation requirement. In an October 22, 2008, letter to Senator Patrick J. Leahy (D-VT), Chairman of the Senate Committee on the Judiciary, USCIS stated that a business plan that relies on an indirect job creation methodology, but does not forecast the generation of the jobs within the two-year period that an investor is afforded conditional LPR status, is insufficient. Yet the same letter, citing 8 C.F.R. § 216.6(a)(4)(iv) (2008), states that the regulations do allow some flexibility for USCIS to remove the conditions on an investor’s LPR status based upon a showing that the forecasted “jobs will be created within a reasonable time.” Note that the cited regulation concerns the adjudication of Form I-829 and in fact does not
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Citizenship and Immigration Services Ombudsman
Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 13 of 17 III. ANALYSIS Based upon the foregoing discussion, EB-5 program administration has historically lacked continuity. For the EB-5 program to realize its full potential, it is essential that USCIS establish a regulatory and administrative environment to promote investor confidence that the program can be relied upon. Accordingly, the Ombudsman makes the following recommendations to USCIS: 1. Quickly Finalize the Special Legislation Regulations. USCIS drafted proposed regulations to implement the EB-5 special legislation in 2002, 41 but these proposed rules remain in internal rulemaking review processes with the USCIS Office of Chief Counsel. 42 Adjudicators in the field indicate that they are ready to address these longpending I-829 petitions to remove condition cases, but need final action on the regulations to move forward. Continued delay negatively impacts adjudicators and USCIS as a whole, as hours of customer service time are spent addressing congressional and direct customer inquiries on these cases. Finalization of these proposed regulations is overdue. For these reasons, the Ombudsman recommends that USCIS finalize regulations to implement the special 2002 EB-5 legislation which offers a certain subgroup 43 of EB-5 investors a pathway to cure deficiencies in their previously submitted petitions. 2. Do Not Re-adjudicate the Job Creation Methodology Question. USCIS should issue Standard Operating Procedures (SOPs) for Form I-526 and Form I-829 adjudications that specifically instruct adjudicators that they are not to reexamine the job methodology issue. Repeat questioning, debate, and re-adjudication of complex economic models and analyses used to prove the ten full-time job creation requirement unnecessarily uses USCIS resources and results in adjudication delays. Eliminating this re-examination may result in increased speed and predictability in adjudications, and allow adjudicators more time to focus on other factual matters. The adoption of SOPs should yield greater regularity in process, and consequently, build confidence in EB-5 project developers and attract potential foreign national entrepreneurs.
specifically state that the investor must prove that the required jobs be created and filled within the two-year conditional LPR period initially granted to the EB-5 investor. 41 Supra note 27. 42 Information provided by USCIS to the Ombudsman (Jan. 30, 2008). 43 This subgroup includes only those EB-5 investors whose Form I-526 petition was filed and/or approved between January 1, 1995 and August 31, 1998.
13
Citizenship and Immigration Services Ombudsman
Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 14 of 17 Developers and investors should be able to rely on the rules applicable at the time they make their investments and expect the government not to revisit those rules when it adjudicates their cases. Accordingly, once the agency reviews the indirect job methodology presented by a developer in its submission seeking USCIS designation as an approved Regional Center, the issue should be considered conclusively established, absent clear error or fraud. For these reasons, the Ombudsman recommends that USCIS issue Standard Operating Procedures (SOPs) for Form I-526 and Form I-829 that specifically direct EB-5 adjudicators to not reconsider or re-adjudicate the indirect job creation methodology in Regional Center cases, absent clear error or evidence of fraud. 3. Issue More EB-5 Precedent/Adopted 44 Decisions. Although the EB-5 visa category and the Regional Center pilot program have been in existence for over 15 years, many key terms have not been clearly defined by USCIS. Such ambiguity contributes to entrepreneur anxiety and uncertainty about the program, and ultimately to underutilization of this visa category. AAO issuance of additional precedent/adopted decisions would clarify USCIS’ interpretation of key EB-5 terms and policies within specific fact patterns, and assist the business community, investors, and EB-5 adjudicators. For example: •
Definition of Restructuring. Current regulations do not define what level of restructuring or reorganization is required to render the purchase of an existing business a “new enterprise” under the EB-5 provisions. The AAO has held that simply buying and changing the legal name and/or the legal form of the business entity alone is insufficient to qualify the business as a “new enterprise.”
•
Designation of High Unemployment Area and Effect of Later Changes in Unemployment Rate. Clarification is needed on which government office(s) is/are appropriate to designate an area as a qualified “high unemployment area.” The EB-5 legislation permits a lower ($500,000) threshold investment in areas so defined. In addition, clarification is needed on what impact an improvement in the unemployment rate would subsequently have on an investor who invested in a formerly designated “high unemployment area.” The lack of clarity in these matters might cause investors to avoid investing in areas which could otherwise benefit from an infusion of foreign capital and related job creation.
For these reasons, the Ombudsman recommends that USCIS designate more EB-5 Administrative Appeals Office (AAO) decisions as precedent/adopted decisions to provide 44
USCIS adopted decisions are AAO decisions that the USCIS Director proactively identifies and considers binding policy guidance on USCIS personnel, and must be followed in all cases involving similar issues. See generally Ombudsman Recommendation #20 (FR2005-20).
14
Citizenship and Immigration Services Ombudsman
Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 15 of 17 stakeholders, investors, and adjudicators a better understanding of the application of existing USCIS regulations to given factual circumstances. The Ombudsman suggests that USCIS issue additional EB-5 precedent/adopted decisions as an interim measure until completion of formal rulemaking, as outlined in Recommendation #4 below. 4. EB-5 Rulemaking Is Needed. The time is ripe to take a fresh look at how USCIS can best implement congressional intent in establishing the EB-5 category. Given that four significant EB-5 precedent decisions 45 effectively established extra-regulatory interpretations of law, the Ombudsman further recommends that USCIS initiate formal EB-5 rulemaking to advance a new set of rules to replace the combination of existing rules and controlling precedent decisions. 46 By engaging in formal rulemaking, USCIS will have a chance to reinvigorate the EB-5 program. For these reasons, the Ombudsman recommends that USCIS engage in formal rulemaking to further develop rules that will promote stakeholder and investor confidence as well as predictability in adjudicatory processes. 5. Form An EB-5 Advisory Group. USCIS should form an EB-5 inter-governmental advisory group composed of selected representatives from the Departments of Commerce, Treasury, State, Labor, and possibly, the Small Business Administration. Without recommending that these agencies have any adjudicatory role in determining the merits of an application or petition, this group should meet regularly to consult with USCIS on Regional Center designations, and to address other business, economic, and labor issues which impact the EB-5 program. Some of the specific matters which the inter-governmental advisory group could provide invaluable insight and assistance with include: the examination of Regional Center submissions for such designation, including the business plan; the financial instruments described; the designation of high unemployment areas; and the validity of “indirect job methodologies� advanced by EB-5 project developers. Additional issues might include: appropriate levels of due diligence related to program integrity; the availability and reasonableness of requesting particular financial documents and/or asset identification; and issues surrounding the path of funds.
45
Supra note 26. To avoid further confusion or inequity, the regulations concerning new EB-5 filings should not be made retroactive. 46
15
Citizenship and Immigration Services Ombudsman
Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 16 of 17 For these reasons, the Ombudsman recommends that USCIS form an inter-governmental advisory group to consult on domestic business, economic, and labor considerations relevant to EB-5 adjudications. 6. Offer A Special Handling Processing Option To EB-5 Investors. High net-worth individuals who are willing to risk in excess of $500,000 in an investment in the United States require program predictability. Such entrepreneurs frequently make significant financial decisions in a matter of hours or days, and existing EB-5 case processing timeframes simply do not mesh well with the pace of progress expected in the business world. The Ombudsman notes that this is not a new concern -- the time USCIS takes to adjudicate these filings has been regularly mentioned as a source of difficulty by stakeholders and investors. This issue was specifically raised by stakeholders during a public meeting with USCIS in Washington in September 2004. It also was the subject of an April 6, 2005, letter from House Judiciary Committee Chairman James Sensenbrenner to then USCIS Director Eduardo Aguirre, requesting that USCIS process EB-5 cases more quickly by instituting a premium processing option, as well allowing for concurrent filing. 47 The Ombudsman recognizes that it may be impractical for USCIS to institute the standard 15-day 48 premium processing $1,000 upgrade option 49 for these complex EB-5 filings. However, USCIS may formulate an appropriately priced specialized handling option that is operationally sound (e.g., 60 days). For these reasons, the Ombudsman recommends that USCIS offer a Special Handling Package option to EB-5 investors for faster adjudication of Forms I-526, I-829, and related applications for a higher fee. 7. “Prioritize” Processing of Regional Center Related Filings. Section 4 of the Basic Pilot Program Extension and Expansion Act of 2003 states: “[i]n processing [EB-5] petitions … the Secretary of Homeland Security may give priority to petitions filed by aliens seeking admission under the pilot program….” 50 Timely adjudications are of critical importance to EB-5 investors. Given the current state of the U.S. economy, USCIS should exercise this discretion and “prioritize” Regional Center filings. Additionally, as a matter of administrative discretion, the Ombudsman suggests that USCIS consider accelerating its review and adjudication of all new applications seeking Regional Center approval and designation. In these difficult times, many communities nationwide could benefit from investments in newly created Regional Centers. 47
Supra note 15 at p. 26, citing to Chairman Sensenbrenner letter. “Concurrent filing” refers to the ability to simultaneously file Form I-485 along with Form I-526, rather than to file this form sequentially after the Form I-526 is approved. Existing regulations do not currently permit concurrent filing of these forms. 48 8 C.F.R. § 103.2(f) (2008). 49 INA § 286(u); 8 U.S.C. § 1356(u). 50 Supra note 5 (emphasis supplied).
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Citizenship and Immigration Services Ombudsman
Recommendation from the CIS Ombudsman to the Director, USCIS March 18, 2009 Page 17 of 17 For these reasons, the Ombudsman recommends that USCIS “prioritize” the review and processing of all Regional Center EB-5 related petitions and applications to foster the immediate creation and preservation of jobs. 8. Actively Promote the EB-5 Program. Visible support by USCIS of the EB-5 program generally, and the Regional Center Pilot Program specifically, would send a strong signal to entrepreneurs, financiers, and stakeholders that the United States is open for business and intends to welcome immigrant investors. Sending such a signal, in coordination with its adoption of the other recommendations in this study, would likely encourage individuals and interests to look at the EB-5 program. Just as corresponding immigration components in other countries actively promote their immigrant investor programs globally, 51 USCIS should actively support the U.S. EB-5 program. For these reasons, the Ombudsman recommends that USCIS establish a program to promote the EB-5 program overseas in coordination with the U.S. Departments of State and Commerce. IV. CONCLUSION The underutilization of the EB-5 visa category is principally caused by significant regulatory and administrative obstacles, as well as by uncertainties that undermine investor and stakeholder confidence. Given current economic conditions, by adopting these recommendations USCIS will send a message that it accepts, understands, and will implement Congress’ intention that the EB-5 program serve as an employment creation engine for our nation.
51
Among others, Canada, Australia, New Zealand, Poland, and the United Kingdom have investor programs that offer high net-worth individuals the opportunity for permanent resident status. Some are more active than others in terms of marketing. One of the most active is Canada, where the equivalent organization to USCIS, Citizenship & Immigration Canada (CIC), actively promotes and sponsors initiatives to strengthen its Immigrant Investor Program. In 2004, CIC reported that immigrant investors contributed CDN $211 million in funds that were used to create employment opportunities for Canadians. “Annual Report to Parliament on Immigration, 2005;” http://www.cic.gc.ca/english/resources/publications/annual-report2005/section3.asp (accessed Dec. 22, 2008).
17
Attachment C
Recommendations for Improving The EB-5 Program
Page 37 of 41
BROOKINGS-ROCKEFELLER
Project on State and Metropolitan Innovation
Improving the EB-5 Investor Visa Program: International Financing for U.S. Regional Economic Development Audrey Singer and Camille Galdes1
“ A reconsideration of the EB-5 regional center program can strengthen its utility and better accomplish its central goal of aiding regional economic development.�
Summary Difficulties in accessing traditional domestic financing brought on by the Great Recession, along with a rise in the number of wealthy investors in developing countries, have led to a recent spike in interest in the EB-5 Immigrant Investor visa program. Through this federal visa program administered by U.S. Citizenship and Immigration Services (USCIS), immigrant investors may eventually secure permanent residency for themselves and their immediate family by investing at least $500,000 in a U.S. business and creating or preserving 10 full-time jobs. The majority of EB-5 visas are currently administered through EB-5 regional centers, entities that pool investments and are authorized to develop projects across a large swath of America’s metropolitan regions and rural areas. The focus of this paper is on the regional center program. Although utilization of EB-5 financing has increased dramatically in recent years as a source of regional economic development, the program faces some major challenges. First, immigrant investors encounter a complicated network of intermediaries with little regulatory oversight, which discourages investment. Immigrants also bear the burden of compliance with program requirements, although they themselves have little control over the investment process. Second, there is generally little coordination between regional centers and local economic development agencies (EDAs), even though these entities often share similar goals and could develop mutually beneficial partnerships. Finally, there is a dearth of reliable and publically available data that would enable better monitoring and evaluation of the economic impacts of regional center investments. The following suggestions for a reconsidered EB-5 regional center program can help federal policymakers strengthen the utility of this tool and better accomplish the central goal of the program, which is to aid regional economic development, especially in distressed areas: nD esignate an oversight role for the Department of Commerce to supervise the adjudication of regional centers, standardize data and methodology, and better monitor program impact. nC reate incentives for partnerships between regional centers and EDAs, thus aligning similar goals in mutually beneficial arrangements. Regional centers and EDAs often possess complementary resources and can leverage more funding and reduce risk for investors. nG enerate high-quality, multi-variable public data on regional centers to facilitate better evaluation of the program.
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Introduction
F
acing slow economic and job growth, many state and metropolitan leaders are searching for innovative means of rousing their economies. The 22-year old EB-5 Immigrant Investor visa program has enjoyed renewed interest since the 2008 economic downturn made traditional bank financing more difficult to access. Recently, many state and local government and business leaders have looked abroad, especially to emerging markets, for capital to help local economies grow by creating jobs through foreign direct investment (FDI). Fueling this interest in global capital is the anticipated growth in ultra-wealthy individuals: While centa-millionaires are projected to grow by 37 percent worldwide over the next ten years, they will double in China and India.2 In this context, the underutilized EB-5 Immigrant Investor visa program has been discovered as a potential strategy for job creation. This federal program allows private entities or states to apply for designation as “regional centers,” authorizing them to develop new commercial projects in which immigrants may choose to invest. These investments must create or preserve jobs and, in exchange, foreign nationals are ultimately granted permanent U.S. residence. These investments are managed by the designated regional centers that, more often than not, are pooled with domestic sources of funding. Successful projects using EB-5 financing have included investments in large commercial property developments, transit infrastructure, manufacturing, and the redevelopment of closed military bases. However, the program battles a poor reputation, largely due to high-profile cases of fraud at regional centers that highlight risks and vulnerabilities for immigrant investors and a failure to properly regulate the promotion of the program.3 Recent allegations of corruption and mismanagement within the Department of Homeland Security (DHS) have also generated attention and a sense of concern that the program’s problems outweigh its benefits.4 Despite these issues, interest in the program has escalated since the recession, with the number of regional centers doubling in the past two years. From the vantage point of state and local leaders, EB-5 investment is viewed as a potentially valuable contribution to local economic development projects. Tapping into global capital helps diversify sources of financing during a time of scarcer resources. For immigrant investors, EB-5 visas provide the means for themselves and their immediate family members to live, work, and study in the United States. Up to 10,000 visas are available annually for investors and their family members. Although this cap has never been reached, demand has been rising. The number of visas issued has grown in recent years, from approximately 800 in 2007 to 6,600 in 2012. The EB-5 program was recently featured in the 2013 congressional debates on immigration policy reform. The comprehensive immigration reform bill passed by the U.S. Senate in June 2013 includes several important changes to the investor program. In addition to other changes, the regional center program would become permanent and unused visas from a given year would potentially carry over to the next year. Federal immigration reform provides an opportunity to “clean up” the program, in order to alleviate opacity; regulate several business and economic functions; and provide access to more data and analysis going forward, as program successes have thus far been difficult to track. The EB-5 regional center program is not currently utilized by most municipalities, but the program’s unique financing could be better used to augment development plans. EB-5 funds can be utilized for public-, private-, and mixed-sector project development through investments pooled by regional centers. This paper focuses on improvements to the EB-5 regional center program at the federal level, innovations that will encourage regions to better use the program in support of their broader economic development plans, and the need for more information and ongoing evaluation of the program. First, we review some of the challenges to the performance of the program. We then turn to enhancements of federal functions that should help regions approach the program more strategically, thus serving as a starting point for further discussion.
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Background Origin The EB-5 Immigrant Investor visa program was created as part of the Immigration Act of 1990.5 It is one of five permanent resident visas available in the “employment-based” (EB) preference system that prioritizes immigrants based on their skills. There is a separate preference system for “family-based” visas. The United States admits approximately 1 million people to permanent residency annually (Table 1). During the 2010-2012 period, on average, 13 percent of immigrants and their family members were admitted under employment-based preferences, with the majority of remaining visas going to both family-based preferences and the immediate family members of U.S. citizens and permanent residents. Generally, about 3 percent of employment-based visas are for EB-5 visa investors and their immediate family members, and less than half of 1 percent of all visas issued annually.
Table 1. Employment-Based Immigration Categories and Totals for 2010-2012
Preference (Visa)
Description
Number Admitted, 2010-2012 Average
Percent of EmploymentBased LPRS, 2010-2012 Average
Percent of All LPRs, 20102012 Average
1st (EB-1)
Priority workers with extraordinary abilities in their field
35,207
24.5%
3.4%
2nd (EB-2)
Individuals with advanced degrees or considered to have exceptional ability
57,245
39.8%
5.5%
3rd (EB-3)
Skilled and unskilled workers in sectors deemed to have labor shortages
38,736
26.9%
3.7%
4th (EB-4)
Special immigrants such as religious workers, foreign nationals working for the government, etc.
8,556
5.9%
0.8%
5th (EB-5)
Immigrants who invest at least 500 thousand dollars in an project, and create a required number of jobs
4,149
2.9%
0.4%
EmploymentBased LPRs
Total Legal Permanent Residents (LPRs), Employment-Based Preferences
143,893
100.0%
13.8%
All LPRs
Total Legal Permanent Residents (LPRs) across all categories
1,045,432
N/A
100.0%
Source: Immigration Statistics Yearbook, Department of Homeland Security, 2012
The EB-5 visa program establishes a path to permanent residency for up to 10,000 immigrants (and their immediate family members) annually who invest in an existing or new business in the United States and create or preserve at least 10 U.S. jobs. Under this program, immigrants are required to invest $1 million in a qualified U.S. business; however, if they invest in a business located in specified “targeted employment areas,” the investment threshold is lowered to $500,000.6 A geographic area is classified as a targeted employment area (TEA) if it is considered rural or if it is experiencing an unemployment rate at least 150 percent of the national average (to be reported by each regional center’s state of operation). For the purposes of this program, a rural area is not part of a metropolitan statistical area (as designated by the Office of Management and Budget) and is outside of any city or town with a population of 20,000 or more. When immigrant investors apply for visas, they receive a conditional green card contingent on meeting the job creation requirement. Subsequently, when they prove that they have met the requirement, the conditions are removed. Over the years, demand for the EB-5 program has traditionally been low and negative attention has not helped to bolster its appeal. The program has developed a negative reputation due to several
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3
high-profile cases of corruption and deception by intermediaries both in the United States and abroad.7 Changes to the adjudication of business plans by the Department of Homeland Security (DHS) U.S. Citizenship and Immigration Services (USCIS), leading to the denial of green cards to some investors, have been another source of distress.8 Furthermore, other countries with investor visa programs in competition with the United States have less strict requirements.9 All in all, the program has underperformed since its inception; however, the current economic climate has been changing the trend, as an increasing number of immigrants have applied for visas and the number of regional centers has ballooned. Although the regional center program is still technically a pilot, the majority of visas administered annually since 2007 have been through regional centers. The regional center program has been continuously reauthorized since its inception in 1992, most recently in September 2012, when the program was renamed the regional center program (dropping the word “pilot” from the name).10 In this paper, we follow suit and refer to the regional center program.
Purpose: Job Creation The original EB-5 program required the creation or preservation of 10 full-time jobs, regardless of whether the investment was located in a TEA. These jobs were required to be “direct jobs,” or those created directly by the new commercial enterprise.11 Only jobs created directly by the business receiving the investment could be counted toward this requirement. Immigrant investors had to prove that the money they intended to invest was earned legally, and that it would be fully “at risk” in the forthcoming project.12 To be “at risk,” an investment had to carry a risk of loss and a chance for gain. In the original form of the program, immigrants were responsible for managing their investment and satisfying all program requirements in order to receive a green card. In 1993, due to low participation, the Regional Center Pilot Program was added to the original program to facilitate the use of EB-5. This program created “regional centers”—defined by USCIS as “any economic entity, public or private, which is involved with the promotion of economic growth”—to serve as intermediaries that provide immigrants with suitable projects and process their investments. The regional center program maintains the same parameters regarding investment levels and TEAs as the original program, but expands the job creation definition to include “indirect” jobs. Indirect jobs can include, but are not limited to, those held by employees of the producers of materials, equipment, or services used by the new commercial enterprise..13 Regional centers encourage concentrated investments.14 Pooling investments encourages more immigrants to invest, especially at the lower amount of $500,000, since this type of structure facilitates larger development projects and creates more jobs.15 The original program and the regional center program have been operating side by side since the latter’s establishment in 1993. However, the regional center program quickly became the preferred program for immigrant investors since regional centers consolidate the process, contain job creation requirements that are easier to satisfy, and require half the level of investment. Today, the vast majority of EB-5 visas are granted through the regional center program.
Process: Regional Centers and Investors Regional centers are initiated via an application to USCIS (Form I-924). USCIS reviews the regional center’s proposed industry foci, geographic scope, marketing plan, and the economic model(s) it intends to use to demonstrate job creation.16 Only upon approval of the I-924 application can the regional center begin accepting immigrant investments. In 2011, USCIS implemented a standardized reporting form, the I-924A, in which regional centers must report information regarding projects, job creation, and total investments processed in a given year on an annual basis.17 Over the course of the program, approximately 400 regional centers have been established in nearly every state in the country. The petition process for investors is the same in both the original program and the regional center program. In order to initiate investment in a regional center project, an immigrant must first come to agreement with the relevant regional center before filing an “immigrant petition by alien entrepreneur” (I-526) with USCIS,18 which provides details about the project and how the immigrant plans to satisfy EB-5 program requirements. The immigrant, not the regional center, files the application.19 If the petition is approved, the immigrant and any family members go through consular processing and are granted provisional green cards valid for two years. Before the provisional green cards expire, the
4
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immigrant and any family members are required to apply for “a removal of conditions” using Form I-829.20 This form details the project’s progress and provides evidence of how it has satisfied the program’s job creation requirements. If this form is approved, the immigrant and his or her family receive legal permanent residency. Both programs allow immigrants to live and work in any part of the country, regardless of where their investment project may be located. Regional centers have proliferated since the banking crisis made access to capital scarcer, although it is clear that very few currently have active projects. For much of the program’s existence, only a handful of regional centers existed. However, as the banking crisis set in, the number of designated regional centers rose quickly. The first two regional centers opened in 1994, two years after the program began; several more were established over the next few years (Figure 1). By 2007, 16 regional centers had been created through the first 15 years of the program’s existence. Since then, the number of regional centers has mushroomed. Between 2007 and 2008, the number of regional centers nearly doubled, and then grew at a rate of 150 percent in the following year, when 74 regional centers were up and running. Since then, the number of regional centers has grown rapidly to 207 in 2012 and more than 400 as of the end of 2013, a near doubling of the total number of unique regional centers from the beginning of the year.21 The Brookings analysis of regional center designation data runs through February 2013, when 223 unique regional centers were identified. However, only 209 designation letters were obtained: These are shown in Figure 1.22 The explosive growth seen in the number of regional centers since 2012 is not captured by the Brookings Freedom of Information Act (FOIA) data. See Appendix for notes on data and methods.
Figure 1. EB-5 Number of Approved Regional Centers, 1994–2013 250
200 Number of EB-5 Regional Centers 150
100
50
0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Brookings FOIA of USCIS Regional Center Designation Letters Note: 2013 data through 2/22/2013
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Map 1. Geographic Scope of Operation among EB-5 Regional Centers by County, 2012
Number of Regional Centers per County
Source: Brookings FOIA of USCIS Regional Center Designation Letters
0
3-5
1
6 - 14
2
15 - 34
Our geographical analysis of where regional centers are authorized to initiate projects reveals that a good portion of the United States is designated as available for investment. Combined, the investment geography of the 209 regional centers encompasses two-thirds (2,106) of the nation’s 3,143 counties or county equivalents, where 82 percent of the U.S. population lives (Map 1).23 Among these counties, about half have only one regional center, while the rest have two or more. Some 500 counties have more than two regional centers, ranging from 3 to 34 apiece. Overall, 44 states, the District of Columbia, and Guam had at least one regional center authorized to operate within their borders as of February 22, 2013. Six states had no regional centers: Alaska, Delaware, Nebraska, New Mexico, Rhode Island, and West Virginia. 36 regional centers had a geographic scope that included at least one entire state boundary, operating across 23 states, the District of Columbia, and Guam.24 Notably, 13 states had multiple regional centers, which covered the entire state. Mississippi, California, Utah, and Hawaii each had three regional centers covering all of their counties. Hence, most large metropolitan population centers are well-covered by these regional centers, as are large areas of rural America. States in the Southwest, Mountain West, and Southeast have the greatest coverage. Authorization does not necessarily mean that investment is taking place in covered areas; rather, it simply means that regional centers have the authority to enter into investment in those locations. Moreover, these authorization areas are not equivalent to targeted employment areas (TEAs), the
6
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special designation status that lowers the investment threshold to $500,000. Regional centers may place an investment in either a TEA or non-TEA location, and most have a geographic scope that includes both types of areas.25 Although the program is administered nationally by USCIS, regional centers using the EB-5 program are established in communities across the country. All regional centers must designate the geographies in which they plan to operate, and TEA designations based on unemployment must be certified by a state entity. Thus, these are referred to as state regional centers. However, regional center headquarters are often either not located where they operate, operate across several regions in different states, or are owned by parent companies operating several entities in several locations (e.g., CanAm Enterprises). Only one regional center is an exclusively public model: the State of Vermont Regional Center, which is operated entirely by a state agency.
Performance Over the course of the 22-year history of the EB-5 visa, levels of use have been low (Figure 2). While the program experienced an early peak in usage from 1996-1998, the program was temporarily suspended in 1998 due to suspicions of fraud. Following the suspension—during which upward of 900 visas were held up—the program experienced particularly low rates of use.26 See Appendix for notes on data and methods. Since 2007, the program has taken off rapidly, particularly in the number of visas allocated through the regional center program. The annual cap of 10,000 visas, which includes both investors and their family members, has never approached capacity until recently. A precipitous upswing in the number of visas granted, beginning in 2008, has brought the number to 6,627 in 2012. In total, 25,162 conditional visas have been granted through the program for the entire duration of its existence. While there was some variability in usage of the two programs in the early years, the majority of investments since 2008 have been made through the regional center program.
Figure 2. Conditional Visas Allocated in Original and Regional Center EB-5 Programs, 1992-2012 7,000 Regional Center 6,000
5,000
4,000
3,000
2,000 Original 1,000
12
20
10 20 11
20
20 09
20 08
20 07
20 06
4 20 05
20 0
20 03
20 02
20 01
20 00
19 99
19 98
96 19 97
19
94 19 95
93
19
19
19
92
0
Source: Department of Homeland Security, Office of Immigration Statistics
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Figure 3. Conditional Visas Allocated to EB-5 Investors and Dependents, 1992–2012
45.0%
7,000 Investor Share
■ Dependents ■ Investors
6,000
40.0% 35.0%
5,000
30.0%
4,000
25.0% 20.0%
3,000
15.0% 2,000 10.0% 1,000
5.0% 0.0%
0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Department of Homeland Security, Office of Immigration Statistics
Over the entire program duration, 59 percent of investors used the regional center program. Among immigrant investors who used this program, the vast majority invested in a targeted employment area (TEA) and therefore invested at the lower threshold of $500,000. Figure 3 shows that, on average, for every investor, approximately two family members have been granted conditional visas. This ratio has remained fairly consistent throughout the program’s history, and has held even in recent peak years. In total, 8,580 visas have been granted to investors and the remainder (16,582) has gone to family members. Because immigrant investors may bring spouses and children to the United States under the EB-5 program, the overall visa number includes them in the tally. Thus, overall visa numbers do not accurately reflect the dollar value of the investment and number of jobs created. Immigrants who use the EB-5 investor visa program are unlikely to have faster alternative ways to enter the United States for legal permanent residence. Many potential immigrant investors have families with minor children; one incentive provided by the EB-5 visa is the opportunity for children who migrate with their parents to attend U.S. schools, and ultimately U.S. universities.27 The explicit marketing of EB-5 visas as family visas is inconsistent with the classification of the visa as “employment-based.” In fact, the majority of the visas allocated to the EB-5 category go to family members of the investor, a higher share than for other employment-based visas.28 Over the duration of the program, nearly 80 percent of investors have come from just five additional countries: China (46 percent), South Korea (17 percent), Taiwan (10 percent), United Kingdom (4 percent), and Hong Kong (3 percent). There have also been at least 250 participating investors from five countries: Canada, India, Mexico, Iran, and Japan. However, the prevalence of investor source countries has varied over time. Currently, China is the leading source country by a large margin, with nearly nine times the total number of visas given to Chinese citizens in 2012 than to citizens of the next largest source, South Korea. Seventy-six percent of all visas went to Chinese investors in that year. By contrast, immigrants from Taiwan and Hong Kong were the most prevalent investors in the 1990s. China is the only country among the top five with a steep upward trend in the number of investors
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Figure 4. Top Five Countries of Birth of EB-5 Conditional Visa Holders, 1992–2012 6,000
China, People’s Republic
5,000
4,000
3,000
2,000
Korea, South
1,000
Taiwan Hong Kong
United Kingom
0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Department of Homeland Security, Office of Immigration Statistics
since the lull in the program in the early 2000s. In fact, the rise of Chinese investment coincides with the rise in overall use of the program. Those who made fast fortunes in China’s real estate boom are reputedly one source of EB-5 investors.29 Investors from Korea, Taiwan, United Kingdom, and Hong Kong not only receive notably fewer numbers of annual visas, but their participation in the program has tapered somewhat in the past few years. The “success rate” for immigrants making the transition to permanent residency has improved dramatically in recent years. This rate is defined by the number of investors with a conditional green card who are approved to have the conditions of their green card removed. In fact, according to USCIS, the denial rate for both I-526 (conditional residency) and I-829 (removal of conditions) applications has decreased significantly since 2005.30 Denials of applications for the conditional green card represented 47 percent of the total in 2005. However, given the steady drop in the denial rate, the average since that year rests at 19 percent. For those immigrants who applied to remove conditions from their visas, 38 percent were denied in 2005, compared to a 16 percent average for the entire period. In recent years, denial rates have improved, especially for those removing the conditions of their green card: The denial rate in 2011 was only 4 percent and, in 2012, it was 6 percent. The reduction in denials may be a sign that the program has become clearer about its requirements and more consistent in evaluation. Beyond these statistics, however, there are no estimates that would help evaluate the program, such as how many immigrants see a return on their investment versus how many lose their initial outlay. When examining EB-5 performance as a job generator, the data are less than ideal because investors are required to report only that they have met the requisite threshold of 10 jobs. Nonetheless, we estimate (from the most recent data available) that, based on the minimum requirements, the program has created 85,500 direct full-time jobs and attracted approximately $5 billion in direct investments since its inception, with nearly half of this figure accruing since just 2010. These figures refer to the entire program, not just the regional center program, so they include investments at both the lowerand higher-investment thresholds.
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While the $5 billion number is small—in its entirety, the figure represents a fraction of the $204 billion the U.S. brings in foreign direct investment annually—this source of international financing may make a substantial difference for local projects and the communities that host them, within the current economic and banking context.31 Thus, the regional center program—with its very recent growth in both the number of regional centers and investors, concurrent with the rise of the investor class in key source countries—has become the defining feature of the entire EB-5 program, and has the potential to become an important source of capital for many more regional economic development projects. This paper specifically focuses on the regional center program and its relevance as a development tool for state and local leaders.
Program Challenges
T
he EB-5 investor program has been marked by low but rapidly expanding usage rates as more states, local areas, and businesses view EB-5 funds as a viable resource for development in the face of shrinking funds from traditional sources. The complex range of program components presents challenges to various actors, who may have different interests in the process. We discuss three major challenges associated with the program and follow with strategies that should both improve its functionality and guide the use of EB-5 funds through the regional center program to make the most of the program’s economic development potential.
Immigrant investors must navigate a complicated and unpredictable web of intermediaries with little oversight, which discourages investment The EB-5 regional center program generates a number of logistical and technical challenges for regional centers, USCIS, and immigrant investors, within a complex process that involves various actors and procedures. In a nutshell, the regional center program functions as a three-way interaction. First, once a regional center is established via a successful application to USCIS, it may develop projects and recruit immigrant investors. For their part, immigrants must apply to USCIS to become an immigrant investor. This self-petition process includes information on the regional center project in which the immigrant is investing.32 Finally, USCIS adjudicates both regional center projects and immigrant investor applications. The first set of actors in this three-way interaction is the regional centers. Regional centers bear the responsibility of developing investment projects and recruiting investors and play a “brokering” role between immigrants, their cash, and the business of investing it. The relationship between a regional center and an immigrant investor is interdependent: Each needs the other to exist. However, this relationship is contingent on USCIS designating regional centers, approving regional center projects, and ultimately determining whether an immigrant’s investment has met the qualifications of job creation so that the conditional status of his or her green card is removed. The second actor is USCIS, which monitors investments and job creation, and administers visas. If a project’s business plan (as submitted by the regional center) does not match its ultimate performance, then the immigrant does not receive his or her green card and must leave the country, an issue referred to as “material change.” Whether or not an investor is approved for a conditional or permanent green card is decided independently by USCIS; regional center staff do not play any role. Also, there are no penalties imposed by USCIS on regional centers that fail to demonstrate that the required jobs were created during the 2-year probationary period. Immigrant investors—the third set of actors—bear the responsibility of meeting these requirements. Although regional centers use varying approaches to recruiting investors, many utilize a network of intermediaries to attract immigrant investors from abroad, file USCIS petitions, and execute projects in local areas.33 They also charge substantial fees to investors to cover administrative expenses associated with travel and legal fees, as well as commissions.34 Recruiters travel abroad in order to advertise regional centers’ available projects to potential investors, and receive commissions for every investor they attract. Regional centers often contract with law firms and real estate development firms in order to achieve the parallel tasks of securing legal immigration for their investors and identifying good investment opportunities. These fees and contracts are completely unregulated.
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These large commissions are probably the incentive at the root of the aggressive promotional tactics often seen abroad. Media reports indicate that some marketers have misrepresented the program to potential immigrant investors by exaggerating the safety of EB-5 investments or the likelihood of receiving a green card. One common misperception is that the regional centers are run by the U.S. government, which purportedly backs immigrants’ investments.35 While the federal government approves of EB-5 regional centers and their projects through USCIS, it does not directly administer the investments, manage any projects, or financially back any investments. Immigrants are left in a lurch if their permanent green card applications are denied, and there is no guarantee that immigrants’ investments are returned in these cases. Regional centers are largely private entities—mostly limited liability companies—which stand to profit from the investments of immigrants who participate. This can create a conflict of interest wherein regional centers and their affiliates (such as lawyers and immigrant recruiters) may have an incentive to emphasize the benefits of the program and downplay its risks. Beyond approving regional centers and the business plans of individual projects, the federal government historically has not tracked the investments of incoming immigrant investors. Furthermore, regional center operators charge fees beyond the required investment amount for their services in shepherding the immigrant through the EB-5 process, and the federal government does not regulate how this income is used. Some missteps in the first few years of the program illustrate the vulnerability of a system dependent on the relationships between USCIS, regional centers, and investors. The program faced widespread fraud and abuse in its first few years of operation. The largest case of fraud transpired in the late 1990s when the owners of Interbank, an investment business designed to coordinate EB-5 projects, were indicted and found guilty of a variety of money-laundering and fraud charges. The program was temporarily suspended and hundreds of applications were held up. Due to several cases of fraud and abuse, the official guidelines for EB-5 projects were drastically changed in 1998.36 These issues of abuse and overall administrative uncertainty contributed to a steep decline in program participation from 1998 to 2003.37 More recently, several high-profile cases have brought unfavorable attention to the program, creating a credibility problem that extends to the entire agency. In February 2013, the Securities and Exchange Commission (SEC) filed a lawsuit against a regional center owner in Chicago with the charge of attempting to defraud over 250 investors of investments worth more than $150 million.38 The project in question involved a hotel and conference center near O’Hare Airport. In March of 2012, 27 immigrant investors brought a lawsuit against a New Orleans regional center for misuse of funds that were to be used to build restaurants and hotels in an effort to revitalize the New Orleans economy after Hurricane Katrina. Instead, the regional center was alleged to have diverted funds and mismanaged construction projects.39 Most recently, in October 2013, the SEC charged a Texas couple with stealing funds from foreign investors under the guise of the EB-5 program.40 The EB-5 program involves three primary actors that—if all goes well—act in concert to secure international investment funds from immigrants, spur needed economic development in key areas, and prevent fraud and abuse. Developing standardized requirements and appropriate economic oversight should help the burgeoning program as it grows.
Regional centers and local economic development agencies lack coordination in their work, even though they share many similar goals The EB-5 program is a federal program, intended to promote economic development and job creation and created independently of state and regional development programs. However, most economic development in the U.S. happens at the state and local level. In fact, many economic development agencies (EDAs)41 have never considered using the EB-5 program (and may have never heard about it). There are no criteria in the federal program that promote coordination between regional centers and existing state and regional economic development efforts. However, there are presently approximately 400 regional centers that could potentially move projects in the direction of regional place-based or industry-based development goals. The EB-5 program could have more of an impact if both entities worked more closely with each other. Most regional centers are run by private limited liability companies (LLCs) and are established through an application to USCIS. The regional center application identifies geographies where
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investment may occur, usually at the county level, as well as a list of industries on which the regional center plans to focus investment activity. In addition, regional centers must state whether they plan to have projects in targeted employment areas (TEAs). More careful attention paid to two issues—the number and location of regional center operations and the designation of TEAs—could potentially improve the impact of the EB-5 program on regional economies. EDAs can play a role in defining both of these issues, thereby creating more robust economic outcomes. The program employs two pathways for those contributing at the lower threshold of investment, based upon definitions of TEAs. One pathway requires that the TEA be classified as a rural area (outside of a metropolitan area and not in a city of more than 20,000). The other pathway is within metropolitan areas (usually made up of either counties or census tracts) experiencing 150 percent of the national unemployment rate. The definition of a TEA relies on the unemployment rate of the residents in a given county or tract. However, the requirement that a regional center’s project create 10 full-time jobs within the TEA does not mandate that the jobs created go to residents of the TEA. Residents from neighboring areas (or anywhere else), which may not have the same unemployment levels, may commute to the TEA and fill the newly-created jobs. While TEA geographies must be officially designated by state governments, they are strikingly arbitrary and outmoded, especially when they fall within metropolitan area boundaries. Census tracts, for example, usually have small populations and can be densely populated in metro areas. Metropolitan areas (in their entirety) constitute labor markets. Workers may be just as likely—if not more likely—to commute to jobs outside their immediate neighborhood than to work inside them simply because the skills they possess may not match available jobs.42 Thus, the unemployment measure of TEAs can lose meaning when applied to the metropolitan context, especially when one considers that investment projects are not required to hire residents from within the TEA. It is likely that regional center activity and regional economic development plans do not sync. There is no requirement that regional centers work with or coordinate efforts with state or local economic development entities. Each state has a department of economic development that oversees the state’s activities that encourage and support economic growth. There are also regional and local economic development agencies that supplement state-level structures and provide the leadership to improve the economic vitality of targeted communities. These organizations—including public, private, and partnership development organizations—work with planners and the business community to attract businesses and investment, stimulate economic growth, create job opportunities, facilitate and encourage partnership between the public and private sectors, and improve the quality of life for all residents in the region. These objectives parallel the goals of EB-5 regional centers. Many state and regional economic development agencies partner with private developers to bring projects to bear in particular localities. These are generally state-, county-, or city-run agencies that utilize public resources to provide financial assistance and facilitate business and job creation. Some of the oldest EB-5 regional centers established themselves as public-private partnerships. Finally, the number of regional centers established in response to potential projects in search of financing is unclear, but it is likely that many more are established to search for potential projects. Moreover, it does not appear to be common for regional centers to partner with regional economic development agencies. Proactive coordination would help surface projects that have been vetted as state and regional priorities; these, in turn, would enjoy widespread public support because they are part of broader regional economic planning.
The regional center program’s successes and failures are difficult to evaluate due to a dearth of available information The scarcity of reliable historical data about the performance of the EB-5 visa program makes it very difficult to evaluate the benefits it has conferred to individuals, businesses, and localities. The stated goal of the EB-5 program is to stimulate local economic development but there are scant data available to measure its impact, especially at the local level. There are no comprehensive, longitudinal data regarding regional centers’ economic impact on project completion rates, job creation levels, and other regional- and municipal-level economic indicators such as change in unemployment rates. While systematic collection of information was recently initiated by USCIS, access to that information is not
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publically available. Thus, very little reliable, consistent, and clear data exist that make possible an evaluation of the job creation aspect of the program, the success and viability of the business projects, and the successes of individual regional centers. For example, among the approximately 400 designated regional centers, it is unknown how many regional centers are currently active with projects, how many have ever contributed EB-5 funding to a development project, and how many have completed requirements that enable investors to apply to have conditions removed from their green cards. Furthermore, there is no information about EB-5 project activity beyond the 2-year period required for the lifting of green card conditions, and the only piece of data available is whether an immigrant successfully met the job creation condition.43 Therefore, the ways in which projects funded by EB-5 have stimulated long-term investment or provided beneficial effects to broader regional economies is unknown. Although the media has reported on such, USCIS has not comprehensively identified regional center failures, nor has it reported the causes of such failures. Among other data, information on the number of jobs that have been created per project would be useful for evaluating the program. Currently, adjudicators are only concerned with the creation of the minimum number of 10 jobs per investment; therefore, this is all that is reported. Another important piece of data would be the share of project investment costs attributable to EB-5 investors, as opposed to the share from other sources. Moreover, the program’s effectiveness in spurring economic development or affecting local unemployment rates is not known. The regional center program has never been evaluated by Congress, despite its 20-year lifetime and multiple temporary reauthorizations, and against recommendations by the Government Accountability Office to do so.44 For these reasons, knowledge of the program’s true economic impact is elusive at best. Given the lack of available data, practitioners are hard-pressed to evaluate the efficacy of regional centers for wise investment or to find successful investment models.
A New (Regional) Approach
D
espite the challenges outlined above, many legitimate business deals have been conducted under the auspices of EB-5, and the program has seen its share of successes. For example, EB-5 funds have been used to repurpose military bases in both Southern California and Philadelphia, and in support of major infrastructure projects such as airports and public transit systems. In Seattle, EB-5 funding has revitalized the city’s SoDo industrial district.45 As an economic development tool, EB-5 investments made through regional centers offer a way of obtaining pooled investments that can contribute to the financing of deals that benefit local economies. State and metropolitan areas should be able to make better strategic use of the EB-5 investor visa program for projects that fit with the character and industries of their own region, especially if the investment is used strategically and in tandem with greater economic development objectives. However, maximizing the possibility that regional economic development efforts align with the federal program will require changes to the program at the both the federal and state levels. At the time of this writing, U.S. immigration policy is facing renewed scrutiny and the possibility of a complete overhaul, as Congress debates comprehensive immigration reform. Reform of the EB-5 investor program is likely; Senate bill S.744 (passed in June 2013) includes revisions to the program. The regional center program will likely continue as a permanent feature of the EB-5 investor visa program. Regardless of whether immigration reform happens, the recent growth in the number of regional centers and geographic areas in which they are permitted to operate, as well as the rise in the number of immigrants requesting visas in order to make investments, is an indication that EB-5 financing will become an even more popular source of funding for economic development projects. Below, we offer some suggestions aimed at federal policymakers for how to make the program more attractive to potential investors and function more efficiently. We also provide tools for evaluating the program going forward. To help regional economies, we offer suggestions for changes and enhancements to the regional center program that highlight the opportunities that EB-5 financing holds for regional officials.
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Utilize federal immigration reform to “clean up” some of the complexity of the program by standardizing key processes in collaboration with the U.S. Department of Commerce The EB-5 program brings together interests that may not be gracefully coordinated. The complexity of the application process, varying roles for different institutions, high transaction costs, a cadre of intermediaries—including unregulated brokers working abroad—and an ill-suited government agency charged with administering the program present a set of obstacles that may prevent potential investors from using the program and further erode public confidence. Changes to the federal program, including a shift in responsibility to the Department of Commerce, would benefit investors, regional centers, and the federal government. Create a partnership or consultative role for the Department of Commerce. One question that has loomed over the program, especially as the creation of regional centers has ramped up in recent years, has been whether USCIS is the appropriate U.S. government entity for adjudicating the designation and termination of regional centers and the certification of the job creation requirement. USCIS is an agency charged with managing the admission of permanent and temporary immigrants (both family-based and employment-based), along with naturalization and other functions. The agency is already overburdened by the volume of EB-5 applications and has, at times, been unable to proceed in a timely manner, holding up deals and jeopardizing the success of the program.46 The most likely U.S. government partner to play an oversight role in the adjudication of regional center applications and administer job creation assessments would be the Department of Commerce. Most recently, Senator Patrick Leahy proposed an amendment (approved unanimously) to Senate bill S.744, passed by the Senate Judiciary Committee in June 2013.47 Among other provisions, the amendment creates a new role for the Commerce secretary to “provide consultation assistance” to determine whether proposed regional centers should be designated, terminated, or subjected to other adjudicative action. Although there are drawbacks to housing the program in two separate agencies, Commerce’s expertise and staff with a related program, Invest in America (now incorporated into SelectUSA), has been cited as a good reason to shift some program responsibilities.48 This federal government initiative promotes and supports inbound foreign direct investment, similar to the aims of the EB-5 investor program.49 Another Commerce program, the Economic Development Administration (EDA), is the only federal agency involved in fostering economic development through private investment and aims to support strategic development in areas of high need.50 This program might also be well-positioned to lend expertise on projects that are regionally collaborative. Through a consultative partnership, an interagency task force, or some other mechanism, the Department of Commerce and USCIS should combine forces to improve the functioning of the regional center program. In December 2013, the DHS Office of Inspector General (OIG) released an audit of the EB-5 regional center program that also calls for collaboration with Commerce and other federal agencies (see Box: DHS Office of Inspector General Audit (OIG) and USCIS Response). One unique aspect of the EB-5 program is that USCIS, in addition to its responsibility for verifying eligibility of investors and regional centers, is charged with preventing fraud and national security threats associated with the program. Regarding these risks, USCIS has begun implementing administrative changes to improve the integrity of the program by working with the SEC and other federal agencies. We focus here on the Commerce Department and see three primary roles for the agency—in some guise—to have a hand in the EB-5 regional center program: ➤A djudicate regional center applications. The Department of Commerce, whose mission is to promote business and job creation, sustainable development, and improved standards of living, has the staff and expertise to review and assess the formation of regional centers. This agency has expertise in foreign direct investment through its SelectUSA program, which makes it better suited to evaluate regional center applications and monitor existing centers than USCIS, an agency tasked with processing applications for visas. SelectUSA is designed to promote inbound foreign direct investment opportunities in U.S. communities by providing information on federal programs and incentives for business development, including EB-5. Thus, Commerce could play an important role in overseeing the determination of regional center designation, modification, and termination.
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➤ Standardize the job creation methodology to better determine outcomes. In order for an immigrant investor to have the conditions on his or her green card cleared to move to permanent residency, the regional center must demonstrate that the individual’s investment has created 10 jobs. The onus of that demonstration is on the regional center and, over the years, a few organizations and regional centers have “cracked the nut” by developing the complex proprietary methodology necessary to demonstrate job creation.51 New regional centers may struggle with showing that the job requirements have been met and may rely on the wisdom of the successful consultants, for a price. If Commerce plays a consultative role as proposed in the Leahy amendment, the newly-tasked agency could develop clear guidelines and standard methodologies to streamline the process. The Commerce Department would have an in-house team to work with regional centers and derive estimates and projections of job creation using a standard method. The methodology would be clearly explained and available to regional centers, investors, and other interested parties. This would level the playing field by removing some of the mystery and expense for regional center practitioners. ➤ Evaluate and report on the status of regional centers annually. The Commerce Department adjudication Box: DHS Office of Inspector General Audit (OIG) and USCIS Response team would be responsible for compiling and analyzing data and generatThe DHS Office of Inspector General (OIG) released an audit of the USCIS-run EB-5 ing reports that would be useful for regional center program in December 2013.52 The audit asserted that USCIS was evaluating program performance. not effectively managing the regional center program for two primary reasons. Each regional center currently submits First, the legislation establishing the program does not give USCIS the authority Form I-924A annually regarding investto prevent fraud and national security threats; and second, the agency does not ments and the number of jobs created consistently enforce its own regulations and procedures. The audit offered four or maintained. More data should be recommendations to USCIS aimed at improving the EB-5 regional center program: collected to analyze the program, in ➤ Update and clarify regulations related to USCIS’ authority to deny or termiaddition to monitoring whether it is nate regional center participants when connections to fraud and/or national meeting its goals. In addition to annual security risks are known, and to make these concerns explicit cause for revoreports on the number of regional cation of regional center status centers, projects in process, and inves➤ Develop memoranda of understanding with other federal agencies tors (including information on the (Commerce, SEC, Labor) to lend expertise to the adjudication of applications investor’s stage in the process), there and petitions related to the EB-5 regional center program should be a separate evaluation of ➤ Conduct comprehensive reviews of the EB-5 program to measure economic the program to date. Such an evaluimpact of the program on the U.S. economy ation would include an aggregation ➤ Establish quality assurance to strengthen the integrity of the program and of several figures in order to reflect ensure that regional centers operate within the Code of Federal Regulations on program impact: the number of requirements regional centers, number of projects In their response, USCIS concurred with and is developing plans to impleever completed, total investors with ment changes related to recommendations one, two, and four listed above and conditional green cards, total investors described corrective actions and detailed steps that are already underway to with conditions removed, number of improve the functioning of the program as related to the recommendations made jobs created or preserved, number of by OIG. Regarding the first recommendation, USCIS will update regulations to proregional centers with active projects, vide greater clarity on eligibility under the program, especially regarding evidenand the amount of total investment. tiary requirements, and will issue a revised rule. In response to recommendation We discuss the role of data to enable number two, USCIS will develop and implement an interagency collaboration plan. evaluation elsewhere in this report USCIS also plans to establish quality assurance standards to promote program (See pg. 18.). integrity and ensure regulatory compliance in response to the fourth recommenWhile some initial startup time may be necdation. Regarding the third recommendation concerning a broader assessment of essary to transition these roles to Commerce, the program’s impact, USCIS did not concur that it was the best agency to conduct this is a logical partnership with a wellsuch a study, even though it agreed that such a review would be beneficial. As an prepared agency that should strengthen the agency that administers benefits, USCIS argued that it was not well-positioned to program over the longer term. conduct such a study.
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Use EB-5 financing to achieve regional economic development goals by creating partnerships between economic development agencies (EDAs) and EB-5 regional centers Regional centers and EDAs have similar goals of job creation and economic growth but usually work independently of each other. However, they stand to benefit from each other’s expertise in working toward those shared goals. Ultimately, this relationship should be mutually beneficial for municipalities, investors, and the organizations that support regional development. Create incentives for regional centers to develop partnerships with state and local economic development agencies. The main advantage to this kind of partnership is that, combined, the two entities may more effectively reach economic development goals while simultaneously ensuring more successful immigration outcomes. There are several reasons why EB-5 regional centers and local development offices should consider working together. Economic development agencies can identify projects that are likely to meet the requirements for the regional center program and, in turn, regional center projects can help EDAs find additional funding. Regional centers offer familiarity with a unique visa program that yields nontraditional capital. For their part, EDAs offer knowledge of the local development context, access to multiple funding streams (including use of federal programs like tax credits), and a pipeline of “shovelready” projects, as well as an established apparatus for managing projects over the long term. They can help identify priorities within regional strategic growth plans and coordinate multiple funding streams to support those priorities. Regional centers that partner with local economic development organizations will likely expand the impact of EB-5 money since the projects pursued by EDAs are part of broader, long-term economic development strategies and, therefore, are more likely to leverage complementary funding sources. For example, EB-5 investment funds augmented the impact of public funds devoted to the redevelopment of Philadelphia’s Navy Yard. Because the Navy Yard redevelopment project was supported by the Philadelphia Industrial Development Corporation (PIDC), which allocated state and other funds to the initiative, the project was more stable and perhaps facilitated immigrants’ successful applications for temporary visas and green cards. In addition, EDAs generally focus on developing distressed areas as part of their mission, and this model aligns well with the EB-5 program’s focus on development in targeted employment areas. Several such models already exist at different municipal levels.53 For example, the City of Dallas Regional Center is a public-private partnership, where the city has partnered with an investment firm, Civitas Capital Group. The Philadelphia Industrial Development Corporation (PIDC) Regional Center is a nonprofit-private model that pairs a city development entity with the chamber of commerce and a private company, CanAm Enterprises, that specializes in regional center operations and technical and legal assistance. CMB Export Regional Center collaborates with county-level regional economic development organizations in the Riverside-San Bernardino area of California. See Box: EB-5 Regional Center Partnerships. Creating effective partnerships between regional centers and EDAs requires drawing upon the strengths of both types of organizations. EDAs often have the best access to high-quality projects in a local area, due to a combination of their experience in development, local contacts, and public pressure to use tax dollars wisely. For these reasons, it may be attractive for EB-5 regional centers to invest in projects identified by local development agencies. EB-5 regional centers can also greatly benefit from EDAs’ existing processes and practices; since they already monitor job creation for their own projects, regional centers can benefit from agencies’ expertise in this area. Also, the stability of public investment projects is likely to be more attractive to potential immigrant investors, especially those who are most concerned about a project’s ability to comply with USCIS requirements so they can receive their green cards. The City of Dallas Regional Center clearly states this as an advantage on their website: “With every CDRC investment, the reputations of both the City of Dallas and Civitas Capital Management are at stake.”54 Combining a proportion of EB-5 funds with public development funds enhances the impact of public funding while avoiding exposure of the whole project to the risks of the EB-5 program. Thus, an alternative model for regional centers would be to work directly with economic development agencies to better coordinate economic development activities and regional goals. Regional centers that operate as public-private partnerships with state and local governments appear to have some of the strongest
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Box: EB-5 Regional Center Partnerships While each regional center has its own business model, some of the earliest regional centers, as well as the most successful examples, include partnerships with economic development agencies (EDAs). A company called CMB Regional Centers manages three regional centers: one in California (CMB Export), operating since 1997; one in Ohio (CMB Summit), which opened in 2008; and a third in Florida and Georgia that opened in 2013 (CMB Southeast Regional Center). They also operate the Iowa Regional Center on behalf of the state economic development agency. In California, CMB Export has partnered with, for example, the Inland Valley Development Authority, a regional economic development agency, thereby pooling its immigrant investor capital with funds from public sources. CMB Export was founded with the intention of focusing on California communities affected by the federal Base Realignment and Closure Commission (BRAC). These communities faced BRACassociated job losses and needed to retool their local economies. CMB’s major projects include redeveloping the Norton Air Force Base into the San Bernardino International Airport, as well as major infrastructure investments at the McClellan Air Force Base, including sewer replacements and upgrades, environmental cleanup, rehabilitation of former military base structures, new construction, railroad upgrades, street rebuilding, flood control, and other infrastructure building. Their website boasts a success rate of 100 percent with over 1,200 investors.55 Another example of regional center/EDA collaboration can be seen in Philadelphia, where the Philadelphia Industrial Development Corporation (PIDC) Regional Center partners with CanAm Enterprises, the Philadelphia Chamber of Commerce, and the city’s regional development corporation (PIDC). CanAm is a company that specializes in designating and reaffirming regional centers through USCIS, marketing to and recruiting investors, and performing due diligence on whether potential projects qualify for the EB-5 program. They have also developed a method for calculating job creation that has proven to be successful with USCIS adjudicators. Their record touts $1.3 billion in EB-5 capital raised in 40 projects across five regional centers. Thus far, more than 2,000 investors have received green cards.56 While CanAm provides technical assistance related to EB-5 program navigation, PIDC serves as a conduit to local development projects and, at times, public funding to support those projects. The PIDC Regional Center/CanAm partnership has helped finance 28 projects to date, including the redevelopment of the Philadelphia Navy Yard into a mixed-use business campus, the expansion of the Pennsylvania Convention Center, the construction of administrative headquarters for the Temple University Health System, and the construction of the corporate headquarters for Comcast Corporation. A third example of an effective partnership is provided by the City of Dallas Regional Center (CDRC).57 This regional center is a public-private partnership between the city and a private partner, Civitas Capital Management. This partnership allows the city to apply EB-5 investments to their own interests and combine those funds directly with tax abatements, grants, and other programs. Their portfolio of EB-5-funded projects includes real estate development of assisted living facilities, call centers, restaurants, and multifamily apartments.
track records to date. However, public agencies need to be careful in choosing which EB-5 regional centers to partner with, since many have little experience with the program. An agency should partner with a regional center with the expectation that they need to educate themselves in compliance with USCIS’s regulations. Create a “partnership project program” that would eliminate TEA requirements for regional center projects that involve public-private partnerships. The majority of investments through regional centers are projects that fall within TEA boundaries. If regional centers and EDAs partner on identifying viable projects and carrying them through, there may be good reason to change the standards for designating geographical regions for investment. The current practice is for states to certify
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17
TEAs based on a threshold of 150 percent of the national unemployment rate. In order to qualify, regional centers often come up with gerrymandered boundaries. As such, they are largely arbitrary (and inaccurate) representations of available labor pools. Others have suggested that the definition be revised to align the TEA designation with other welldefined federal investment incentive programs such as “enterprise zones,” or programs that encourage private investment in declining economic areas in need of job growth.58 In addition, the proposed Leahy amendment to S.744 broadens the definition of TEAs to include areas with high poverty. Our proposed “partnership project program” would make TEA requirements more flexible in order to capture an investment geography that is both strategic and regionally appropriate. The creation of this sub-program within the EB-5 regional center program would allow regional centers to develop partnership projects outside the TEA at the reduced investment price of $500K. In other words, criteria would be developed to designate select projects of highest priority to communities and regions, in order to promote collaboration by permitting regional centers and economic development agencies to work together on a partnership project to operate outside TEAs and still receive investments at the lower threshold. Thus, if Commerce takes on the role of adjudicating regional center activity, they would be responsible for the development of criteria for the certification of such partnership projects. In addition to designing fair standards, Commerce’s regulation and oversight of such partnerships would be important to ensure that “gaming the system” does not occur. State, regional, or local economic development agencies are positioned to identify the most pragmatic investment geographies to promote job creation and value for local area development. These priority projects would arguably add benefits to the region, safeguard the intent of the regional center program, and give investors more confidence in projects. In addition, the partnership project program would have the potential to unlock the EB-5 regional center program for those municipalities that are unable to meet the current TEA unemployment threshold, but could nevertheless benefit from alternative financing for economic development projects. In many cases, as in the examples highlighted above, these partnerships are already happening; it could be argued that they are making some of the best strategic investments in their regions.
Generate data regarding regional centers for evaluation purposes and make it publically available In order to judge whether the EB-5 program has achieved its stated purpose, regional centers and their economic activities need to be analyzed as institutions with a particular programmatic purpose. Measuring the program’s ability to stimulate state and local economic development requires accurate and publically available data regarding regional centers’ economic inputs, including job creation levels, direct and indirect economic effects, and impacts on particular industries. USCIS began collecting annual data on regional centers only in 2011, through Form I-924A. Each year, regional centers report on the industries that have been the focus of EB-5 capital investments; the number of jobs created and/or maintained; the total number of approved, denied, and revoked petitions for conditional green cards; and the number of petitions filed by EB-5 investors for removal of conditions. While this information is useful, access to it is limited and broader assessments about the program are narrow. Collect on a wider set of variables to permit an evaluation of the program. If USCIS develops a partnership with Commerce, data collection and analysis could be designated within the latter’s purview. Two types of reports would be valuable. The first would be an annual report produced on the state of the program, using data collected through the I-924A form. This annual report would provide a basic description of regional centers, investors, and investments. For example: ➤ How many regional centers are operating, in which jurisdictions are they located, and which industries do they support? ➤ What is the economic impact of EB-5 spending, and how many jobs have been supported directly and indirectly by the program? ➤ How many investors have invested capital, and in how many projects? From what countries are the investors coming?
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➤ How many investors have received a green card and how long did it take? ➤ How many investors did not meet the job creation requirement? ➤ What is the total amount of investment across all regional centers? In which particular regions and industries did the investment occur? ➤ Beyond direct job creation, what is the indirect impact of the EB-5 regional center program on local economies? Some of these data exist, but are not available in one place. Other statistics require complex estimation conducted with clarity across the entire universe of regional centers and investors, rather than a mere sample. A second report would be a one-time, in-depth, longitudinal evaluation of the program. In addition to the questions listed above, there would be deeper economic impact questions involved, with answers that would be valuable to an assessment of the program, and especially important for regions considering this investment tool for the first time. For example: ➤ How many estimated jobs (direct and indirect) have been created through EB-5 investment, and in which regions and industries have they been created? ➤ Were they short- or long-term jobs? ➤ Have EB-5 investments had an impact on local unemployment? ➤ How many investors have seen a return on their investment, and at what rate does the average investment turn around? ➤ What share of total investment in projects has come from EB-5 sources, and what share has come from other sources? The Association to Invest in the USA (IIUSA) recently commissioned a report to examine state and national economic impacts and investments of the EB-5 program. The report used information obtained from a Freedom of Information Act (FOIA) request of all I-924A forms reported by regional centers for the 2010-2011 period, which compiles information from I-526 and I-829 forms. Some of the questions outlined above were estimated for a recent two-year period, with the focus on economic impacts associated with EB-5 investors and their households. The analysis estimated that spending associated with EB-5 investors contributed $2.65 billion to U.S. GDP and supported over 33,000 jobs nationally during this period. Furthermore, an estimated $347 million to federal tax revenues and $218 million to state and local tax revenues were generated for the two-year period. The top ten impacted sectors were: construction (nonresidential); food services and drinking places; wholesale trade businesses; real estate establishments; securities, commodity contracts, investments, and related services; legal services; employment services; architectural and engineering services; offices of physicians, dentists, and other health practitioners; and private hospitals.59 While this effort is valuable and illuminating, the practice of evaluating the program’s effects—or at least making available the program evaluation data—should fall to the program’s administrator and be delivered to the public on a continual and regular basis. The DHS OIG audit also recommended that USCIS produce a comprehensive review of the program (see Box: DHS Office of Inspector General Audit (OIG) and USCIS Response). The regional centers highlighted above—CMB Export, CanAm’s PIDC, and City of Dallas Regional Center—have a fair amount of up-to-date information available on their websites regarding their projects and investments. While this information is likely directed primarily toward potential investors, the fact that some regional centers make this data available on their websites indicates that they do monitor their own activities. Designing a template to collect more information than the current I-924A form would not be an onerous task. For example, CanAm’s website presents a track record for PIDC as of May 2013 that includes, for each project, the loan amount, number of investors, I-526 approvals, I-829 approvals, and percent of principal repaid. With these data, USCIS, Commerce, potential investors, and regional centers will be able to better evaluate the EB-5 program, and it is imperative that the evaluations are released in a timely fashion so that the program can benefit from these insights. Evaluations will also help improve the program’s image with the public, potential investors, and regional leadership. This kind of transparency and assessment would contribute greatly toward understanding the success and failure of projects and regional centers going forward.
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Conclusion
T
he uses of EB-5 financing addressed in this paper offer a new perspective on strengthening the regional utility of the program. Using the suggestions outlined above to address EB-5 challenges should increase investors’ visa security and, thus, their confidence and willingness to invest; maximize the immediate economic impact of EB-5 dollars; and more directly aim EB-5 funds toward strategic economic development goals. When used in this way, EB-5 funding will better achieve the goals set out by the original program: that is, to stimulate economic activity, especially in economically distressed areas of the country. With the possibility of broad immigration reform looming, there is an opportunity to ensure a more predictable EB-5 process for investors and regional centers alike by moving key functions to the Department of Commerce, such as regional center adjudication, a standardized system of measuring job creation, and the production of regular and reliable program-related data.60 Direct partnerships between regional centers and economic development agencies (EDAs) have proved successful in the past. We propose that, since these entities already share development goals, they may benefit from working together. An added incentive would be the elimination of targeted employment area standards for projects involving this kind of partnership, since it is likely that EDAs, with the public interest in mind, know best where investments are needed most. Finally, the program can only benefit from more (and better) information about its impacts. An evaluation that examines the program in the aggregate—both its successes and failures—can help the program over the longer term. The ultimate objective of any changes to the EB-5 program should be to ensure a sustainable program that neither impedes investment, development, or regional job growth nor puts immigrants at risk of fraud.
Appendix: Data and Methods EB-5 Visa Data We use data on immigrant visas (I-526 application for conditional residence) obtained directly from tabulations by the Department of Homeland Security Office of Immigration Statistics. These data include EB-5 visa conditional admissions for the period 19922012, and identify pilot and non-pilot entries, investor and family member entries, and country of origin. We also use data from the Department of State on removal of conditions for legal permanent residence (I-829 application for removal of conditions).
Regional Center Data To create a data set of all regional centers, including date of designation and geographic scope, we used original designation letters from U.S. Citizen and Immigration Services (USCIS), obtained through a Freedom of Information Act (FOIA) request in May of 2012. We obtained a 1,435 page document via that FOIA request, which was to include original designation letters for all regional centers in existence at the time. These letters also included some amendments when regional centers expanded their original geography or industries. We used the letters from the FOIA request to construct a baseline data set; we then included additional letters for any missing or new regional centers, obtained from websites or directly from the regional centers. A review of the designation letters included in the May 2012 FOIA request revealed that there were letters for 197 of these regional centers.61 Through internet research we acquired the designation letters for five additional regional centers that were operating at the time of the FOIA request but were excluded in the FOIA letters, bringing the total number in our database to 202.62 On February 22, 2013, we compared our count of 202 to the updated list of regional centers on USCIS’ website. Since May 2012, another 21 regional centers had opened, bringing the total number of unique regional centers to 223. Through internet research and contacting regional centers for which we had no letters, we acquired seven additional designation letters, bringing the total number of letters in our database to 209, out of 223 regional centers. The final 14 for which we did not have letters were all recently opened regional centers that did not yet have working websites with contact information. Since then, many more regional centers and affiliates have opened. According to the USCIS website, approximately 400 are authorized to operate as of November 2013.63
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Endnotes
9.
Until recently, Canada, Australia, and the U.K. had comparable investor visa programs. Prior to 2012, Canada
1.
Audrey Singer is a senior fellow with the Brookings
and Australia required a minimum investment to be made
Institution’s Metropolitan Policy Program. Camille Galdes
directly to the government, free of middlemen. Canada
is currently an associate at the Pew Charitable Trusts.
required at least CA$800,000 in investment, while
All supporting research for this paper was performed
Australia required AU$1.5 million, but both countries guar-
while Camille was a research assistant for the Brookings
anteed that the principal investment would be returned
Metropolitan Policy Program.
after a set number of years. Since 2012, Canada and Australia have moved to more of an entrepreneur model,
2.
Knight Frank Research and Citi Private Bank, “The Wealth
similar to that of the U.K. investor visa that existed prior
Report 2012,” 2012 (http://www.thewealthreport.net/
to 2011, wherein immigrants must invest their money in
The-Wealth-Report-2012.pdf).
an at-risk venture. While the U.K. investor visa program is now closed, there is another visa program for entrepre-
3.
4.
Information on some of the recent high-profile fraud
neurs. All three countries offer multiple paths of entry for
cases and allegations can be found here: http://www.
business individuals, wherein a list of criteria ranging from
oyetimes.com/lifestyle/immigration/56549-like-
business experience to net worth and demographic char-
flies-to-honey-eb-5-investor-visas-keep-attracting-
acteristics are evaluated on a points system and require
interesting-people.
no coordination with a third party.
USCIS director’s DHS nomination was held up by an
10.
The word “pilot” was struck from the program’s title in
Inspector General investigation into whether he improp-
the most recent legislation. PL 112-176, 126 Stat. 1325.
erly used his role to help EB-5 investors obtain visas. He
Sept. 28, 2012. Congressional Record, p. D942. 112th
was confirmed on December 20, 2013. See: http://www.
Congress. (http://npl.ly.gov.tw/pdf/7994.pdf).
nationaljournal.com/defense/senate-confirms-dhsnominee-despite-ig-probe-20131220.
11.
USCIS Policy Memorandum, May 2013. (http:// www.uscis.gov/USCIS/Laws/Memoranda/2013/
5.
The original EB-5 program was created after Canada
May/EB-5%20Adjudications%20PM%20
initiated a similar investor program that successfully
%28Approved%20as%20final%205-30-13%29.pdf).
attracted investors at a time when Canada was coming out of a recession in the late 1980s. Several other coun-
12.
Debt payments were originally considered accept-
tries currently have investor visa programs, including
able “capital,” but the Administrative Appeals Office
Australia and New Zealand.
reversed this policy in its 1998 precedent rulings. See page 8 of 2005 Citizen and Immigration Ombudsman
6.
Must be a “new commercial enterprise,” or have been
report for full discussion of these changes, https://
established after 1990. A business may also classify as
www.dhs.gov/xlibrary/assets/CIS_Ombudsman_EB-5_
“troubled,” triggering different requirements. See full
Recommendation_3_18_09.pdf.
requirements and definition of TEAs: http://www.uscis. gov/portal/site/uscis/menuitem.eb1d4c2a3e5b9ac8-
7.
13.
USCIS Policy Memorandum, May 2013. (http://
9243c6a7543f6d1a/?vgnextoid=facb83453d4a3210
www.uscis.gov/USCIS/Laws/Memoranda/2013/
VgnVCM100000b92ca60aRCRD&vgnextchannel=facb
May/EB-5%20Adjudications%20PM%20
83453d4a3210VgnVCM100000b92ca60aRCRD.
%28Approved%20as%20final%205-30-13%29.pdf).
See: James Kelleher, Karin Matz, and Melanie Lee,
14.
For more information on regional centers, see:
“Special Report: Overselling the American Dream
http://www.uscis.gov/portal/site/uscis/menuitem.
Overseas.” Reuters, December 22, 2010; and Walter F.
eb1d4c2a3e5b9ac89243c6a7543f6d1a/?vgnextoid=
Roche Jr., “Interbank Sent INS Fraudulent Documents,
2785a5f224a2e210VgnVCM100000082ca60aRCRD
Witnesses Say,” Baltimore Sun, April 4, 2001.
&vgnextchannel=2785a5f224a2e210VgnVCM100000 082ca60aRCRD.
8.
USCIS Policy Memorandum, May 2013. (http:// www.uscis.gov/USCIS/Laws/Memoranda/2013/
15.
All jobs created by a project can be attributed to each
May/EB-5%20Adjudications%20PM%20
individual investment; in this sense, the jobs created are
%28Approved%20as%20final%205-30-13%29.pdf).
also pooled and individual investments can satisfy the requirements more easily.
BROOKINGS-ROCKEFELLER | PROJECT ON STATE AND METROPOLITAN INNOVATION | February 2014
21
16.
There are three economic impact models used to analyze
26. GAO, “Immigrant Investors: Small Number of Participants
job creation and economic impact of EB-5 financing:
Attributed to Pending Regulations and Other Factors.”
RIMS-II (Regional Input-Output Modeling System);
p.3. April 2005.
IMPLAN (Impact Analysis for Planning); and REMI (Regional Economic Models, Inc.). For a good discus-
17.
27.
See, for example: The Florida Equity and Growth Fund
sion of the advantages and limitations of each model,
Regional Center website, http://www.eb5-visaprogram.
see: AKRF, “IMPLAN,RIMS-II and REMI Economic Impact
com and the American Liberty Regional Center,
Models: Comparisons in Context of EB-5 Analysis.” See:
http://www.americanlibertyeb5.com/the_eb5_
http://www.akrf.com/.
program/benefits/index.html.
See the I-924A form here: http://www.uscis.gov/portal/
28. In 2011, 65 percent of a total of 3,340 EB-5 visas went to
site/uscis/menuitem.5af9bb95919f35e66f614176543
immediate family members of investors. Among all other
f6d1a/?vgnextoid=256866fcd667c210VgnVCM10000
employment-based visas, 55 percent were allocated to
0082ca60aRCRD&vgnextchannel=db029c7755cb901
family members.
0VgnVCM10000045f3d6a1RCRD. 29. Lauren A.E. Schuker, “Courting the Chinese Buyer,” The 18.
See Form I-526: http://www.uscis.gov/files/form/i-526.
Wall Street Journal, June 21, 2012.
pdf.
(http://online.wsj.com/news/articles/SB10001424052 702304765304577478573004173212); “China’s Real
19.
For a complete review of the immigrant investor process,
Estate Bubble.” CBS News, 60 Minutes. August 11, 2013.
see: http://www.uscis.gov/portal/site/uscis/menuitem.
(http://www.cbsnews.com/news/chinas-real-estate-
eb1d4c2a3e5b9ac89243c6a7543f6d1a/?vgnextoid=
bubble-11-08-2013/); and Zheng Wang, “Why China’s
8bf89ea1c35be210VgnVCM100000082ca60aRCRD&
New Rich Want to Emigrate.” The Diplomat, November
vgnextchannel=8bf89ea1c35be210VgnVCM1000000
5, 2013. (http://thediplomat.com/2013/11/why-chinas-
82ca60aRCRD.
new-rich-want-to-emigrate/).
20. See Form I-829: http://www.uscis.gov/files/form/i-829.
30. USCIS Quarterly Statistics. June Preliminary 2012 data from Performance Analysis System (PAS). April 23,
pdf.
2012 (updated July 19, 2012) (http://www.uscis.gov/ 21.
See the USCIS website: http://www.uscis.gov/
sites/default/files/USCIS/Outreach/Upcoming%20
working-united-states/permanent-workers/employ-
National%20Engagements/Upcoming%20
ment-based-immigration-fifth-preference-eb-5/
National%20Engagement%20Pages/2012%20
immigrant-investor-regional-centers.
Events/July%202012/EB5_Statistics_Q3_2012.pdf).
22. Brookings analysis of USCIS regional center designation
31.
The investment threshold has remained steady through-
letters obtained through a FOIA request and independent
out the entire history of the program ($500,000 for
research. See appendix for further details.
projects located in a TEA and $1 million outside of TEAs). Whether the investment threshold should be adjusted for
23. Although we counted 223 unique regional centers by
inflation is another consideration. Half a million dollars
February 22, 2013, we were only able to gather designa-
in 1992 would be worth more than $830,000 in 2013. It
tion letters for 209 of these regional centers. Therefore,
could be argued that an adjustment would increase the
we recorded and mapped the geographic scope of 209 of
chance that jobs are created and could potentially infuse
223 regional centers.
more funds into local areas.
24. Alabama, California, Colorado, Florida, Georgia, Hawaii,
32. The EB-5 visa is different from other employment-based
Idaho, Illinois, Kansas, Louisiana, Massachusetts,
permanent residency visas in that the immigrant submits
Mississippi, Montana, Nevada, North Carolina, North
an application for the visa. All other employment-based
Dakota, Oregon, Pennsylvania, South Carolina,
visas are submitted by the employer on behalf of the
Tennessee, Texas, Utah, Vermont
immigrant.
25. Angelique Brunner and David M. Morris, “Realizing the Economic-Development Goals of EB-5 through
33. Antonio Olivo, “Fast Track to the American Dream,” Chicago Tribune, July 15, 2012.
an Integrated Targeted Employment Area Definition,” Bender’s Immigration Bulletin (2009): 1290-1294.
22
BROOKINGS-ROCKEFELLER | PROJECT ON STATE AND METROPOLITAN INNOVATION | February 2014
34. James Kelleher, Karin Matz, and Melanie Lee. “Reuters
44. GAO, “Immigrant Investors,” April 2005.
Special Report: Overselling the American Dream Overseas,” Dec. 22, 2010 (http://www.reuters.com/
45. See American Life Inc.’s Homeplate Center project:
article/2010/12/22/us-usa-immigration-business-
http://www.amlife.us/real-estate-portfolio/property/
idUSTRE6BL2KJ20101222).
homeplate-north1.
35. Ibid. In addition, websites tout regional center connec-
46. Letter from the Association to Invest in the U.S.A.
tions to former government officials as a selling point;
(IIUSA) to Senior Advisor to the President Valerie
see, for example: http://usfreedomcap.com/eb-5-visa/.
Jarrett, May 9, 2013, http://iiusablog.org/wp-content/ uploads/2013/05/IIUSA-ltr-to-WH-re-processing-
36. GAO, “Immigrant Investors: Small Number of Participants
backlog.pdf.
Attributed to Pending Regulations and Other Factors, pp. 12-13. April 2005.
47.
See: http://www.judiciary.senate.gov/legislation/immigration/amendments/Leahy/Leahy2-(MRW13335).pdf.
37.
Ibid. 48. See the Select USA website: http://selectusa.com-
38. See: http://www.sec.gov/litigation/litreleases/2013/
merce.gov.
lr22615.htm. 49. Select USA’s mission is to promote the United States as 39. See: http://www.eb5insights.com/2012/03/23/eb-
“the world’s premier business location and to provide
5-investors-file-suit-against-new-orleans-regional-
easy access to federal-level programs and services
center/.
related to business investment. SelectUSA is designed to complement the activities of our states—the primary
40. See: http://www.sec.gov/litigation/complaints/2013/
drivers of economic development in the United States.”
comp-pr2013-210.pdf. 41.
By economic development agencies (EDAs), we refer to
http://selectusa.commerce.gov/about-selectusa. 50. The Economic Development Administration is focused
all economic development entities, including regional
on fostering regional economic development efforts in
public-private partnerships, economic development
communities across the nation through strategic invest-
finance agencies, chambers of commerce, and other enti-
ments. http://www.eda.gov/about/.
ties that facilitate development, including foreign direct development.
51.
See: discussion of the advantages and limitations of three economic impact models that have been devel-
42. Distance traveled to work has been increasing in recent
oped: RIMS-II (Regional Input-Output Modeling System);
years, and close to 40 percent of workers commuted
IMPLAN (Impact Analysis for Planning); and REMI
outside their county of residence in 2010. See: Steve
(Regional Economic Models, Inc.); AKRF, “IMPLAN,RIMS-II
Polzin and Alan Pisarski, “Commuting in American 2013,
and REMI Economic Impact Models: Comparisons in
Brief #5 #15” (forthcoming) (Washington: American
Context of EB-5 Analysis.” http://www.akrf.com/.
Association of State Highway and Transportation Officials, 2014). www.traveltrends.transportation.org
52. See the DHS OIG audit of the EB-5 regional center
In addition, part of the definition of a metropolitan area
program: http://www.oig.dhs.gov/assets/Mgmt/2014/
includes commuting ties between counties. See: William
OIG_14-19_Dec13.pdf
H. Frey, Jill H. Wilson, Alan Berube, and Audrey Singer, “Tracking Metropolitan America into the 21st Century:
53. See: Umarji, Bharat, Scott Dyer, Alex Meyers, and
A Field Guide to the New Metropolitan and Micropolitan
Lizzy Shay, “EB-5 Investor Program and the State
Definitions” (Washington: Brookings Institution, 2004).
of Minnesota,” A study by the Carlson Consulting Enterprise, no date http://mn.gov/deed/images/EB-5_
43. The program requires that a minimum of 10 jobs be
Whitepaper.pdf.
created or preserved, and USCIS tracks only if that minimum requirement has been met. Furthermore, that calculation is really only a modeling exercise designed
54. See the City of Dallas Regional Center website: http:// cdrc.us/the-cdrc-advantage/.
to produce the 10 jobs. If more jobs are created, that information is not tracked.
BROOKINGS-ROCKEFELLER | PROJECT ON STATE AND METROPOLITAN INNOVATION | February 2014
23
55. See the CMB Export website: http://www.cmbeb5visa. com/about.
South Carolina) and Gulf Coast Funds Management (missing Louisiana). It is not clear to us whether this data is missing from the USCIS website, or if these regional
56. See the CanAm Enterprises website: https://www.cana-
centers no longer operate in certain states.
menterprises.com/about-us.html. 62. This excludes three defunct regional centers: Wave 57.
See City of Dallas Regional Center: http://cdrc.us.
House California Regional Center, Riverside PUMA Regional Center, and Mamtek Regional Center.
58. Angelique Brunner and David M. Morris, “Realizing the Economic-Development Goals of EB-5 through
63. See the USCIS website: http://www.uscis.gov/
an Integrated Targeted Employment Area Definition,”
working-united-states/permanent-workers/employ-
Bender’s Immigration Bulletin (2009): 1290-1294.
ment-based-immigration-fifth-preference-eb-5/ immigrant-investor-regional-centers.
59. IIUSA, “Economic Impacts of the EB-5 Immigration Program, 2010-2011,” prepared by MIG, Inc. 2013. 60. As a result of the DHS OIG audit of the EB-5 regional center program, there is also the possibility that administrative changes will occur more immediately. 61.
In order to derive the final count we had to resolve duplicates and name changes, and identify defunct regional centers. There were two regional centers that had duplicative entries on the USCIS website, but not because they operate in multiple states. American Life Ventures was considered two separate regional centers, but the designation letters indicate that it is one regional center with a geography spanning two cities in Washington State. California Greenhouse Farm Regional Center and California Farm Limited Partnership also appeared to be duplicative entries for a regional center which was originally designated as “California Greenhouse Farm Limited Partnership.” In some cases, regional centers had changed their names since first being established. Through secondary internet research we identified which regional centers had undergone name changes and associated them with the regional centers in the current USCIS list. For example, USA California was in our dataset but no longer on USCIS’ list; since it appears to be associated with USA Continental Regional Center (founded by the same person), we treated this as a name change. There were two regional centers from the designation letters that are no longer listed on USCIS’ list and which appear to no longer be in operation: Wave House California Regional Center and Riverside PUMA Regional Center. There were also three regional centers which had expanded their geography since our data was gathered: Northern California Regional Center (into Nevada), American Life Regional Center (into Oregon), and Chicagoland Regional Center (into Indiana and Wisconsin). However, there were two regional centers for which the geography was more limited on the USCIS website than was evident by the designation letters: Atlantic Regional Center of Foreign Investment (missing
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BROOKINGS-ROCKEFELLER | PROJECT ON STATE AND METROPOLITAN INNOVATION | February 2014
Acknowledgments The authors would like to thank the people who contributed to our understanding of the EB-5 investor visa program and offered comments on our paper along the way: Shyamali Choudhury, Lisa Roney, Kathy Lorr, Peter Joseph, Suzanne Lazicki, Katie Kramer, Toby Rittner, Jason Rittenberg, Sean Closkey, Angel Brunner, Tom Rosenfeld, Stephen Yale-Loehr, Chris Marlin, Karl Zavitkovsky, Dan Healy, Antonio Olivo, and Punyu Ho. Thanks to John Simanski for helping us with DHS statistics, and also to our Brookings colleagues, Alan Berube, Bruce Katz, Amy Liu, Brad McDearman, Mark Muro, Neil Ruiz, Phoebe Silag, Nicole Svajlenka, Jennifer Vey, and Jill Wilson. We are grateful for the editing provided by Brent Franklin and David Jackson. The Metropolitan Policy Program at Brookings would also like to thank the John D. and Catherine T. MacArthur Foundation, the Heinz Endowments, the F.B. Heron Foundation, and the George Gund Foundation who provide general support for the Program’s research and policy efforts. We would also like to thank the Metropolitan Leadership Council, a network of individual, corporate, and philanthropic investors that provide us financial support but, more importantly, are true intellectual and strategic partners.
The Brookings Institution is a private non-profit organization. Its mission is to conduct high quality, independent research and, based on that research, to provide innovative, practical recommendations for policymakers and the public. The conclusions and recommendations of any Brookings publication are solely those of its author(s), and do not reflect the views of the Institution, its management, or its other scholars. Brookings recognizes that the value it provides to any supporter is in its absolute commitment to quality, independence, and impact. Activities supported by its donors reflect this commitment and the analysis and recommendations are not determined by any donation.
BROOKINGS-ROCKEFELLER | PROJECT ON STATE AND METROPOLITAN INNOVATION | February 2014
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For More Information Audrey Singer Senior Fellow Metropolitan Policy Program at Brookings asinger@brookings.edu
For General Information Metropolitan Policy Program at Brookings 202.797.6139 www.brookings.edu/metro 1775 Massachusetts Avenue NW Washington D.C. 20036-2188 telephone 202.797.6139 fax 202.797.2965
Acknowledgments The Metropolitan Policy Program at Brookings would like to thank the Rockefeller Foundation for its support.
About the Brookings-Rockefeller Project on State and Metropolitan Innovation This brief is part of a series of papers being produced by the Brookings-Rockefeller Project on State and Metropolitan Innovation. States and metropolitan areas will be the hubs of policy innovation in the United States, and the places that lay the groundwork for the next economy. The project will present fiscally responsible ideas state leaders can use to create an economy that is driven by exports, powered by low carbon, fueled by innovation, rich with opportunity, and led by metropolitan areas.
About the Metropolitan Policy Program at the Brookings Institution Created in 1996, the Brookings Institution’s Metropolitan Policy Program provides decision makers with cuttingedge research and policy ideas for improving the health and prosperity of cities and metropolitan areas including their component cities, suburbs, and rural areas. To learn more visit: www.brookings.edu/metro.
In The Series
About The Rockefeller Foundation
•D elivering the Next Economy: The State Step Up •J ob Creation on a Budget: How Regional Industry Clusters Can Add Jobs, Bolster Entrepreneurship, and Spark Innovation •B oosting Exports, Delivering Jobs and Economic Growth •R evitalizing Manufacturing with State-Supported Manufacturing Centers •S tate Transportation Reform: Cut to Invest in Transportation to Deliver the Next Economy •R ecapturing Land for Economic and Fiscal Growth •C ommunity Colleges and Regional Recovery: Strategies for State Action •M oving Forward on Public Private Partnerships: U.S. and International Experience with PPP Units •L everaging State Clean Energy Funds for Economic Development •S tate Clean Energy Finance Banks: New Investment Facilities for Clean Energy Deployment •B anking on Infrastructure: Enhancing State Revolving Funds for Transportation
The Rockefeller Foundation fosters innovative solutions to many of the world’s most pressing challenges, affirming its mission, since 1913, to “promote the well-being” of humanity. Today, the Foundation works to ensure that more people can tap into the benefits of globalization while strengthening resilience to its risks. For more information, please visit www.rockefellerfoundation.org.
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