7/12/16 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 obtained 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.” 1
7/12/16 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. 2
7/12/16 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 of 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. 3
7/12/16 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. 4
7/12/16 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 of 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. 5
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