2016 New York EB-5 & Investment Immigration Convention EB-5 - - PDF document

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2016 New York EB-5 & Investment Immigration Convention

EB-5 Attorney Workshop

Putting Together a Successful EB-5 Petition Filing for Investor Clients

Catharine Yen, Sullivan, Krieger, Truong, Spagnola & Klausner, LLP Ignacio Donoso, I.A. Donoso & Associates, LLC Marjan Kasra, Law Office of Marjan Kasra LLC Moderated By: Brandon Meyer, Meyer Law Group

Overview of the U.S. Investor Program

• Better known as the EB-5 program, which gets its name from the section of law,

INA §203(b)(5) and because it is the fifth category of Employment Based

• immigration. Regulations found at 8 CFR §204.6.
• Created by the U.S. Congress and became effective on November 29, 1990.
• Basic requirement is that investor will place “at-risk” at least $1,000,000 of lawfully
• btained capital in a new commercial enterprise that will create at least 10 full-time

jobs for US workers.

• A “new commercial enterprise” is defined as any business created after November

29, 1990.

• Multiple EB-5 investors may seeking US immigration through the same business,

but each investor must invest the minimum amount of money and show they created the 10 jobs each. Otherwise known as ‘pooled investment” vehicles.

• The minimum investment may be reduced to $500,000 if the investment takes

place in a “targeted employment area.”

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Overview Continued

• A full-time job is defined as a position requiring at 35 hours of work per week.
• US workers are defined as US citizens, lawful permanent residents, asylees,

refugees, and certain people who are allowed to work while fighting deportation.

• Family members employed by the enterprise cannot be counted toward the 10-job

requirement, and neither can people holding temporary US work visas (E-1,E-2, H- 1B, etc).

• The law allocates up to 10,000 EB-5 visas to be issued annually, with “not less than”

3,000 of this amount to be allocated to successful Regional Center investors.

• US immigration has helpfully interpreted this “not less than” to mean they can

allocate more than 3,000 visas annually to Regional Center investors. In reality, all 10,000 EB-5 visas could go to Regional Center investors, and 95%+ do.

• Quota backlogs arrived in EB-5 for the first time in May 2015. Chinese applicants

can expect priority date backlogs between 2-3 years going forward.

Subcategories of EB-5

• Generally speaking, there are four categories of EB-5 petitions: 1) $

1,000,000; 2) Immigrant Investor Pilot Program (better known as the Regional Center program); 3) Troubled business; and, 4) Expanding an existing business.

• The standard EB-5 requires the investor to place at least $1,000,000 in lawfully obtained

capital “at-risk” in a new commercial enterprise that the investor must have a hand in creating and must actively manage.

• Although this $1,000,000 threshold amount has been operative since 1990, the government

has authority to raise this minimum at any time.

• This $1,000,000 must create at least 10 full-time jobs for US workers within two years of the

investor gaining conditional permanent residence on the basis of the investment. If the requisite jobs are not created within two years, the investor can theoretically gain full permanent residence by showing that the jobs will be created within a “reasonable time.”

• A troubled business must have been in existence for at least two years, have incurred a “net

loss for accounting purposes” during the 12 or 24-month period before the EB-5 petition is filed, and the loss is at least equal to 20% of business net worth. Investor must also show that the number of existing employees will be maintained for at least 2 years. Theoretically, do not need 10 jobs, only maintain existing jobs, reality is existing + 10.

• An existing business is a business creat

ed prior to November 29, 1990. To qualify, an investor must expand the net worth of the business by 40% OR increase the number of employees by 40%. F ew investors opt for the existing business approach.

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Overview of the Regional Center Program

• The Immigrant Investor Pilot Program (“Regional Center”) was created in 1992 for

the purpose of drawing larger scale investment projects to rural areas or areas of high unemployment.

• Initially, the Regional Center program required that projects have an export

component, but this requirement was later dropped.

• The Regional Center program cuts the minimum investment requirement to one-

half of the regular EB-5 program to $500,000. Thus, if $1,000,000 regular threshold ever raised, Regional Center investment amount must increase to one- half new amount.

• In order to accept investors at the $500,000 level, theRegional Center must operate

within a “Targeted Employment Area.”

• A “Targeted Employment Area,” better known as a TEA, is defined as either an

area of high unemployment (150% of the U.S. nationwide average), a rural area with less than 20,000 residents, or an area not within a so-called “Metropolitan Statistical Area.”

Regional Center Program (continued)

• Investors

prefer Regional Center program because

• f

lower investment requirement, and active management requirements in new commercial enterprise also relaxed.

• Although investor’s $500,000 must still create 10 new jobs, requirements relaxed, so

that some of the jobs can be “indirect” in nature.

• Example of an indirect job would be an ambulance company hiring new driver to

service new assisted living facility.

• Ratio of direct to indirect jobs that investment will need to create is set out by

USCIS when approving a Regional Center’s charter and is determined based on economic report submitted with Regional Center designation request.

• Therefore, with lower investment, relaxed management requirements, relaxed job

creation requirements, and with a greater number of Regional Center investments to choose, currently over 98%+ of EB-5 investors opt for a Regional Center investment over other choices.

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Regional Center Program (continued)

• Number of USCIS approved Regional Centers has grown

from 17 in October 2007 to 1,000+ today and set to grow further.

• Regional Center program currently set to expire on September

30, 2016.

• There is always a spike in usage in the year leading up to the

expiration of the program.

• Regional Center program has been extended several times by

the U.S. Congress in the past, so further extension is likely.

• The number of Regional Center’s is expected to plateau in the

next few years, as new Center’s are added and some close down.

Overview of other Regional Centers

• Rapid expansion of program means market place is more crowded and some

will fail in time.

• USCIS has instituted an annual reporting requirement to Regional Centers,

which requires Regional Centers to report annually on the number of investors, number of I-526/I-829 approvals/denials, capital raised, and other metrics. Annual compliance reporting to USCIS will mean that inactive or noncompliant Regional Centers likely to lose their charters in the next few years.

• USCIS has begun terminating Regional Centers for inactivity, “failure to

promote economic growth,”fraud, and forfailure to file the I-924A.

• Nature of Regional Center operators and the types of projects in the market

has rapidly evolved.

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Overview of History of EB-5 Program

• Poor regulatory oversight and lack of

understanding by U.S. immigration authorities lead to perceived abuses of program by investors.

• Schemes such as guaranteed buybacks of investor’s ownership (“redemption

agreements”), guaranteed annual returns, and investment mechanisms that only required investor to invest full amount AFTER lifting of conditional permanent residence were popular. Also popular were phantom projects that lacked a credible business basis.

• In attempt to regain controlover program, US immigration issued a series of policy

changes that nearly killed the program.

• A further blow hit the program in the form of four decisions: 1) Ho; 2) Izummi; 3)

Soffici; and 4) Hsiung, which all stand for the proposition that EB-5 projects must submit credible plans, investors must submit credible explanations for their source

• f funds, redemption agreements and guaranteed returns undermine the “at-risk”

requirement, capital invested in EB-5 must be valued at fair-market value, and that the creation of a new business requires more than mere cosmetic changes to an existing business.

EB-5 History Continued

• The administrative changes coupled with these four decisions had the impact of

creating a class of 800 investors who are still unable to complete the process since 1998.

• Approval rates fell to nearly 15%, cases were nearly impossible to get approved, few

people bothered with the hassle.

• The US Congress, disappointed with the EB-5 program’s underutilization, enacted

a series o f laws in 2000, 2003, and 2003 that had the effect of reviving the program.

• Some of the positive changes were the lifting the export requirement for Regional

Centers (2000), elimination of the requirement that the investor “establish” a new business, and allowing Limited Partnership arrangements to flourish (2002), modification of what a “new” business is to mean any business created after November 29, 1990, and allowing businesses established before this date to participate as troubled or expanded businesses (2002), relief for long-suffering investors (2002) and authorizing Regional Center program until September 30, 2008.

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Establishing a Regional Center

• Establishing a Regional Center is a time consuming process.
• Regional Center designation is requested from US immigration in a comprehensive

filing.

• A Regional Center designation request may include: 1) Proof that the geographic

area where the Regional Center will focus is in a TEA as certified by a State government; 2) A detailed economic report showing how the Regional Center’s projects will create jobs; 3) A sample private placement memorandum (“PPM”); 4) A discussion of the organizational structure of the Regional Center (LP, LLC) and sample documents; 5) a proposed escrow agreement to show how and when the investor’s money may be utilized by the Regional Center; 6) a comprehensive business plan describing the proposed projects and which “economic clusters” they will be, how they will create jobs and provide regional economic benefits; 7) Biographies of the Regional Center operators and their responsibilities; and 8) Discussion of how much capital the Regional Center intends to raise and the model to be used (debt, equity, hybrid, etc).

• Exemplar, actual and hypothetical projects.

Establishing a Regional Center (continued)

• This process for seeking certification often takes several months and often requires

extension discussion with US immigration.

• Once approved, US immigration will confirm its expectations for how the Regional

Center should operate, including:

– 1) Geographic scope of operation; – 2) Target industry economic clusters for which it can operate projects; – 3) Confirmation of the Regional Ce nter ’ s job creation re quirements by providing ratio of direct/indirect job creation per investor; – 4) Confirmation of what Regional Center documents must be include d in an investor’s subseque nt EB-5 petition.

• If the Regional Center wants to expand its geographic scope and/or expand its

target industry economic clusters, a petition requesting amendment of its Regional Center charter must be filed.

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Establishing a Regional Center (continued)

• US immigration allows Regional Centers to file so-called “exemplar filings,” that serve as a

preview of what an investor’s petition will look like for a particular Regional Center project.

• The exemplar filing process is designed to make the adjudication of real EB-5 petitions more

efficient. Already, investors in the marketplace are gravitating toward Regional Center projects with approved exemplar filings; having one thus becomes a marketing boost.

• Whenever a Regional Center anticipates a “material change” to its business plan, it should

also file an amendment of its charter. “Material change” has not been defined, so this will become an area of confusion and contention.

• Possible on-sit

e visits. Although immigration claims they do not have resources to conduct on- site visits of Regional Centers at this time, it is anticipated this will change in the future.

• A Regional Center can choose to either operate on an equity or a debt model. An equity

model envisions the investor’s owning shares in a Regional Center project, whereas a debt model involves the creation of a partnership which then lends investor funds to the Regional Center project.

• A Regional Center can also choose not to manage its own projects, but instead select and

supervise the activities of others within their geographic area and industry cluster.

Securities Law and Regional Center Marketing

• A Regional Center investment is considered a security under US law

, in the same way that shares of Apple stock are considered regulated securities.

• Under US securities law

, all securities sales must be registered with SEC unless exempt under Regulation D (“Reg D”).

• To be exempt under Reg D, a Regional Center: 1) cannot use general solicitation or

advertising to market the securities; 2) can sell the securities to an unlimited number of accredited investors and no more than 35 sophisticated investors; 3) must be available to answer investor questions on the security; 4) must provide comprehensive financial statements; and, 5) must give purchasers restricted securities, which cannot be freely traded on the market after the offering.

• There are eight different categories of “accredited investors.” The two most prevalent are: 1)

a person who has individual net worth, or joint net worth with spouse, exceeding $1,000,000 at the time of purchase; or 2) a person with income exceeding $200,000 in each of the last two years or joint income exceeding $300,000 in the last two years. These levels are likely to increase soon.

• Sophisticated investors are defined as having sufficient knowledge and experience in financial

and business matters in order to evaluate the merits and risks of the offering.

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The Immigration Process for the EB-5 Investor

• US immigration through the EB-5 program is a three-step process: 1)

I-526 petition, which functions as a request for the right to apply for permanent residence; 2) After I-526 approval, the investor then applies for an immigrant visa, either in the United States, if resident, or at a US Consulate in their home country; 3) Once the immigrant visa granted, the investor will receive Condition Permanent Residence for two years. No earlier than 90 days prior to the end of the two-year period, the investor must apply for full permanent residence on Form I-829. No late I-829 filings are accepted.

• If the investor is resident in the US, step two requires the filing of Form I-485. If
• utside the US, Form DS-230.
• Regional Center project must show its still within a TEA at time of I-526 filing or

when investor invests, whichever occurs first.

Immigration Process (continued)

• The investor must prove two primary points at the I-526 stage: 1) That they have or

are actively in the process of investing the $500,000 in an approved Regional Center project, and that the required capital was placed “at risk for the purpose of generating a return on the capital placed at risk” and, 2) They have obtained their capital through lawful means (“source of funds”).

• Possession and commitment of the requisite capital can be shown by providing: 1)

Bank and brokerage statements showing possession of funds; 2) Evidence of assets purchased for the US business; 3) Evidence of property transferred from abroad for use in the US business; 4) Evidence of money transferred from abroad or committed to the US enterprise; 5) Evidence of loans secured by personal assets of petitioner, excluding EB-5 business; 6) F

• reign business registration records; 7)

Personal tax returns for the previous five years. Property and business tax returns also advisable; and 7) Copies of court judgments both for and against investor.

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Immigration Process (continued)

• Source of funds issues are often problematic for investors, since underreporting of

income or outright evasion of tax is widespread.

• If tax returns do not show a stream o f income credible to support how the investor

accumulated sufficient funds to invest, then a “Plan B” must take place.

• Acceptable “Plan B’s” include selling an “aged asset,” such as a home that was

purchased more than five years ago. Of course this doesn’t eliminate the need to show where the money came from to buy house.

• Other “Plan B’s” include commercial property sales, sale of business, payment of a
• ne-time dividend by employer or company that would be large enough to support

EB-5. “Reasonableness” is the standard by which SOF is judged.

• Funds can be lawfully obtained through gift, but then focus of SOF becomes how

the gifter acquired funds.

• If investor evasive about how SOF obtained and/or cannot or will not provide

credible documentation, they will not make a good client.

• Investor does not need to prove that all wealth necessary lawfully obtained, just the

portion that will be invested in Regional Center.

The Immigrant Visa Stage

• It is always preferable for an investor to pursue the immigrant visa in the United

States by filing the I-485, if possible.

• However, the I-485 requires the investor to be physically present in the US in lawful

nonimmigrant status. If there is a problem in obtaining an immigrant visa for an investor, it is easier to fight in the US.

• Inadmissibility issues need to be flagged before the I-526 filed. These include prior

criminal convictions, previous immigration violations, certain communicable diseases/health issues, and Communist Party membership. Some inadmissibility issues can be waived at time of interview.

• A person must not have been a Communist Party member for previous five years.

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The I-829 Stage

• The investor must file Form I-829 no earlier than 90 days prior to the expiration of

their Conditional Permanent Residence. Late filings will not be accepted generally

• speaking. I-829 receipt notice can be used to travel internationally for one year.
• In theory, there are only three points of inquiry for I-829: 1) Did investor make

and sustain investment throughout the entire conditional period? 2) Did the project create the required jobs? 3) Did the I-526 contain any fraud or material misrepresentation?

• In reality, US immigration often attempts to readjudicate initial I-526 filing and
• therwise is confused about rules that govern lifting of conditions.
• Rules say jobs must be created within conditional residence period or in a

“reasonable time.” Immigration has advanced the notion that jobs must be created within 2 years and six months of I-526 approval, based on assumption that either I- 485 or DS-230 will take six months after I-526 approval. Legal challenge expected.

• US immigration will also look to see if same types of jobs envisioned in business

plan are jobs that actually exist.

I-829 Stage (Continued)

• US immigration will also verify if “US workers” are actually “US workers.”
• If there has been a “material change” in the investment from the I-526 stage, the I-

829 cannot be approved.

• It’s best to identify material changes as early in the process as possible. Investor can

withdraw initial approved I-526, abandon conditional permanent residence, and start over with new I-526 petition. This requires coordination whenever spouses and children involved or if investor would be unable to obtain a nonimmigrant status that would allow them to remain in US while new I-526 filed.

• Issues of job creation are quite technical, poorly understand by US immigration,

and the rules are subject to change. Litigation on job creation issues is highly likely in next few years.

• If the I-829 is denied, the investor and any derivative family members immediately

lose their lawful status in the United States and are expected to depart as soon as possible. While an appeal is not possible, there is redress either before an immigration judge or in federal court. This is time consuming and expensive and requires investor to remain in US indefinitely without legal status while fighting deportation.

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Other Immigration Issues

• There is no minimum or maximum age for a Regional Center investor.
• The person who made the money does not need to be principal applicant.
• The point of permanent residence is to live in the United States on a permanent

basis. Too much time outside US may cause investor to lose their permanent resident status.

• If investor anticipates this from beginning, they should have spouse or child be

principal applicant, then file as a derivative when they are ready.

• Otherwise, investor needs to strategize with attorney on ways to keep permanent

resident status while attending to issues overseas.

• Becoming a permanent resident may subject the investor to taxation on worldwide
• income. Investor should consult independent tax advisor for more information.
• After becoming a permanent residence, investor must file US tax returns every year

as a resident.

• Assuming residency, tax, and other requirements met, investor may be eligible to

apply for US citizenship after five years, but is not obligated to do so.

Disclaimer

This presentation outline and the presentation itself are for general education purposes only and are not intended to provide specific guidance or legal advice about what to do or not to do in any particular case. You should not rely on this general information to make decisions about specific immigration matters. If you are not yourself a lawyer, you should seek the assistance of an immigration lawyer to help you resolve these issues. Thank you.