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The Nature of the New Commercial Enterprise
By Joseph P. Whalen (September 4, 2013)
To be clear from the start, there are four basic avenues to explore when contemplating an EB-5 investment, plus one oddball approach that combines two (2) of them, for a total of five. In other words, EB-5 business ventures come in five (5) “possibilities”, “varieties”, or “flavors”, not just one (1), two (2), three (3), or even four (4), but five (5) “possibilities”, “varieties”, or “flavors”. So, if we compare EB-5 to ice cream, EB-5 is not limited to chocolate, or vanilla, or strawberry, no my friends, we are not even talking about “Neapolitan”, instead we are talking about “Rocky Road”! Sometimes a VERYRocky Road.
One can “create” a truly “new” commercial enterprise and “create new jobs”; “rescue” or “preserve” a “troubled business” and thus “preserve jobs”; “expand” an existing business that is ready to expand and increase the number of jobs so as to meet the minimum of ten (10) per EB-5 investor and nets an end result of expanding by 40% in terms of either number of jobs or net worth of that business; totally “restructure” or “reorganize” an existing business (which may be stable but has plateaued) such that something truly different and thereby “new” emerges; or combine a “rescue” operation with an “expansion” taking into account the combination of requirements (I know it can be done because it has been done). WOW! Where to start?
I suggest starting at the beginning. Learn all you can about the options available. Learn their differences. Learn how they might overlap. Learn how a combination might actually increase your statutory and regulatory requirements (not to worry, like I said, it has already been done successfully). Bottom line is: DO NOT proceed uninformed or “willy-nilly”; instead DO take the time to learn how EB-5 works in practical terms. The next step is to create a doable plan and try your darndest to stick to it! If you can poke holes in your own plan upfront before embarking on a pointless journey the better off you will be. If you can poke holes in your plan, USCIS can poke even more holes in it. Take the time to find and repair the flaws in a given plan. In other words, find and fix those holes yourself instead of running the risk of approaching USCIS with any petition based on a flawed Business Plan.
Per the AAO, from the non-precedent found at JUN122013_01K1610 as footnote #1:
The regulation at 8 C.F.R. § 204.6(g)(1) requires an individual investor to identify the sources of all capital invested and to demonstrate that all invested capital has been derived by lawful means when filing an I-526 petition for classification as an alien entrepreneur.
The same is true for the Matter of Ho-Compliant Business Plan, it too is truly only needed for an actual/real I-526 or an EXEMPLAR I-526 filed as an I-924 Amendment. So, just know that at some point whether it is a task left to a “Regional Center” or the individual “Direct” or “Stand-Alone” investor; or “Non-Regional Center group”; a Matter of Ho-Compliant Business Plan WILL usually be required.
Look directly to the implementing regulations at 8 CFR 204.6(j):
(4) Job creation
(i) General. To show that a new commercial enterprise will create not fewer than ten (10) full-time positions for qualifying employees, the petition must be accompanied by:
(A) Documentation consisting of photocopies of relevant tax records, Form I-9, or other similar documents for ten (10) qualifying employees, if such employees have already been hired following the establishment of the new commercial enterprise; or
(B) A copy of a comprehensive business plan showing that, due to the nature and projected size of the new commercial enterprise, the need for not fewer than ten (10) qualifying employees will result, including approximate dates, within the next two years, and when such employees will be hired.
(ii) Troubled business. To show that a new commercial enterprise which has been established through a capital investment in a troubled business meets the statutory employment creation requirement, the petition must be accompanied by evidence that the number of existing employees is being or will be maintained at no less than the pre-investment level for a period of at least two years. Photocopies of tax records, Forms I-9, or other relevant documents for the qualifying employees and a comprehensive business plan shall be submitted in support of the petition.
(iii) Immigrant Investor Pilot Program. To show that the new commercial enterprise located within a regional center approved for participation in the Immigrant Investor Pilot Program meets the statutory employment creation requirement, the petition must be accompanied by evidence that the investment will create full-time positions for not fewer than 10 persons either directly or indirectly through revenues generated from increased exportsresulting from the Pilot Program. Such evidence may be demonstrated by reasonable methodologies including those set forth in paragraph (m)(3) of this section.(Emphases added.)
In a 1998 Precedent Decision, AAO fully discussed and described a Business Plan (BP), its, usefulness, and it’s basic components. I know that many readers have seen this blurb before but for the uninitiated, I am going to toss it out there again.
All RC investors and MOST “Stand-Alone” investors will eventually need a compliant BP. Here is what Matter of Ho, 22 I&N Dec.206 (AAO 1998) has to say about the necessary part of the plan:
“.............................................................................To be “comprehensive,”
a business plan must be sufficiently detailed to permit the Service [now USCIS]
to draw reasonable inferences about the job-creation potential. Mere conclusory
assertions do not enable the Service to determine whether the job-creation
projections are any more reliable than hopeful speculation.
A comprehensive business plan as contemplated by the regulations
should contain, at a minimum, a description of the business, its products
and/or services, and its objectives. The plan should contain a market
analysis, including the names of competing businesses and their relative
strengths and weaknesses, a comparison of the competition’s products
and pricing structures, and a description of the target market/prospective
customers of the new commercial enterprise. The plan should list the
required permits and licenses obtained. If applicable, it should describe
the manufacturing or production process, the materials required, and the
supply sources. The plan should detail any contracts executed for the
supply of materials and/or the distribution of products. It should discuss
the marketing strategy of the business, including pricing, advertising, and
servicing. The plan should set forth the business’s organizational structure
and its personnel’s experience. It should explain the business’s
staffing requirements and contain a timetable for hiring, as well as job
descriptions for all positions. It should contain sales, cost, and income
projections and detail the bases therefor.FN4 Most importantly, the business
plan must be credible.
Certainly no astute investor would place half a million or a million
dollars into a business that he had not thoroughly researched.Creating a
comprehensive business plan as described above is normal practice for
any business[person] seeking to operate a viable business.”Ho at 213.
FN4 The Service recognizes that each business is different and will require
different information in its business plan. These guidelines, therefore, are not all-inclusive.
That’s my two-cents, for now.
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1. The export “requirement” was made optional by a statutory amendment, the regulations have not kept pace with change.
2. This now commonly referred to as an Economic Impact Report or Analysis. However, it too is based on a comprehensive Business Plan!
3. It is businessman in the original 1998 decision. I am just being PC here.
Updated 09-03-2013 at 10:23 PM by EB-5Blog
A Review of the Two Post-Policy Memo
Regional Center AAO Non-Precedent Decisions
By Joseph P. Whalen (September 1, 2013)
Just as Labor Day weekend was getting underway, I ran across some EB-5 AAO non-precedent decisions newly posted to www.uscis.gov and was happy to finally see how AAO was interpreting and applying the recent policy changes. In the B7 category for 2013, I found eleven (11) I-526 visa petition non-precedents. Only one of them involved a Regional Center, namely, Chicagoland’s Elgin, Il. assisted living project which also has a U.S. District Court decision to which I added a link. The point to keep in mind for this discussion is that all of the I-526 non-precedents are dated in April 2013, just prior to the May 30, 2013 EB-5 Adjudications Policy Memo. All of them resulted in their case, whether an appeal or motion, being dismissed.
In the K1 category for 2013, I found two (2) Regional Center non-precedents. They are dated in June and July 2013, dates that fall after the issuance of the May 30, 2013, EB-5 Adjudications Policy Memo. Both decisions make very specific references to that memo and both resulted in AAO overturning the CSC Denials and approving the Regional Center requests as “hypotheticals”.
AAO makes a point of stating in the June non-precedent that the issue of having to request an expansion amendment had been rendered moot as the Regional Center was no longer required to file any such amendment. However, since it had filed one and paid a hefty fee, AAO felt that the agency was obligated to address it under the new relaxed policy and subsequent legal re-interpretations. AAO found that the requested extensions as to industries and geography were supported in the context of the “hypothetical” projects realm and as such approved the amendment. AAO made a point to state upfront that this decision would receive no deference in connection with any I-526 filed for that project and the the first I-526 (or an exemplar I-526) would receive a full de novo review. Only upon success at that next stage would subsequent I-526s receive deference as to the shared project documents and methodologies, if materially unchanged from the originally submitted information upon which that deference would be based.
Here is a snippet from that decision:
For the reasons set forth below, the applicant has provided sufficient evidence of a general proposal based on general predictions to establish that the amendment request is approvable.
A. Requirement to File Regional Center Amendments
The regulation at 8 C.F.R. § 204.6(m)(3) provides the evidentiary requirements for regional centers wishing to participate in the Immigrant Investor Pilot Program. Page 23 of EB-5 Adjudications Policy, PM-602-0083 (May 30, 2013), discusses amendments to regional center designations and states:
Such formal amendments to the regional center designation, however, are not required when a regional center changes its industries of focus, its geographic boundaries, its business plans, or its economic methodologies. A regional center may elect to pursue an amendment if it seeks certainty in advance that such changes will be permissible to USCIS before they are adjudicated at the I-526 stage, but the regional center is not required to do so.
Thus, the applicant was not required to file the instant amendment request. While not required, the applicant has, in fact, filed the request. Therefore, the merits of that request are discussed below.
B. General Proposal and General Predictions
The applicant has not filed an exemplar or a request for approval of an actual investment project. Instead, the applicant has filed an amendment request for hypothetical projects, such as a coffee company that desires to branch out into the home and office delivery business. Page 14 of EB-5 Adjudications Policy, PM-602-0083 (May 30, 2013), provides:
The level of verifiable detail required for a [regional center proposal] to be approved and provided deference may vary depending on the nature of the [regional center proposal]. If the [regional center proposal] projects are "hypothetical" projects, general proposals and general predictions may be sufficient to determine that the proposed regional center will more likely than not promote economic growth, improved regional productivity, job creation, and increased domestic capital investment. Determinations based on hypothetical projects, however, will not receive deference and the actual projects on which the Form I-526 petitions will be based will receive de novo review during the subsequent filing (e.g., an amended [regional center proposal] including the actual project details or the first Form I-526 petition filed by an investor under the regional center project).
The record contains a general proposal based on Census Bureau and other data and general predictions concerning the kinds of commercial enterprises that will receive capital, the direct and indirect jobs that will be created as a result of such capital investments based on RIMS II data and multipliers, and other positive economic effects. Thus, the AAO withdraws the director's concerns.
As for the July non-precedent, it involved a request for initial designation based solely on “hypotheticals” that relied upon “general predictions” drawn from a “general proposal”. In its overzealous approach in demanding too high of a level of specifics, CSC denied the request. AAO applied the more realistic and business friendly approach set down as Policy in the May 30, 2013 Memo and reversed the onerous and draconian decision of the CSC adjudicators. The following excerpts serve to illustrate the change that I find most welcome.
The director determined that the applicant had not provided a business plan with verifiable detail regarding how the proposal will create sufficient jobs. The director denied the proposal accordingly and certified the matter to the AAO. The director afforded the applicant 30 days to supplement the record. The applicant's response is now part of the record. * * * * *III. ANALYSIS
The applicant seeks regional center designation based solely on a hypothetical project to establish [REDACTED] funds that will invest in the [REDACTED] and distribution of unidentified [REDACTED]. The applicant concedes on certification, through prior counsel, that the regional center proposal is not based on an actual project and does not include an exemplar I-526 petition. Page 14 of EB-5 Adjudications Policy, PM-602-0083 (May 30, 2013), provides:
The level of verifiable detail required for a [regional center proposal] to be approved and provided deference may vary depending on the nature of the [regional center proposal]. If the [regional center proposal] projects are "hypothetical" projects, general proposals and general predictions may be sufficient to determine that the proposed regional center will more likely than not promote economic growth, improved regional productivity, job creation, and increased domestic capital investment.
The record contains a general proposal based on general predictions concerning the kinds of commercial enterprises that will receive capital, the jobs that will be created as a result of such capital investments based on RIMS II data and multipliers, and other positive economic effects. As the record contains a general proposal, the applicant is not required to submit letters of intent or commitment from the prospective sources of matching funds for regional center designation.FN1 Thus, the AAO withdraws the director's determination.
FN1 The regulation at 8 C.F.R. § 204.6(g)(1) requires an individual investor to identify the sources of all capital invested and to demonstrate that all invested capital has been derived by lawful means when filing an I-526 petition for
classification as an alien entrepreneur.
While the proposal for designation as a regional center is approved, it is based on hypothetical projects. Determinations based on hypothetical projects will not receive deference, and the actual projects on which the Form I-526 petitions will be based will receive de novo review in a subsequent filing (e.g., an amended Form I -924 application including the actual project details or the first Form I-526 petition filed by an investor under the regional center project). See EB-5 Adjudications Policy, PM-602-0083, page 14 (May 30, 2013).
I, for one, am glad that CSC and AAO have finally come around in their thinking as to that onerous approach we disagreed about for years. When I trained the first batch of Regional Center adjudicators for CSC, I tried my best to get them to see that business plans tend to be fluid and that asking for too much detail upfront was futile and contraindicated to reality. Most of them seemed to “get it” but once left to the constant “Culture of NO!” mentality and environment within CSC at that time, the best and brightest either got turned around in their thinking or moved on to other positions or duties (and a few retired).
One last tidbit is that of all of these thirteen (13) non-precedents, only the July decision is actually labelled as a “NON-PRECEDENT DECISION” in the header beginning on the second page, and it is the first EB-5 non-precedent posted thus far that contains the new language on the first page as follows:
Enclosed please find the decision of the Administrative Appeals Office (AAO) in your case. This is a nonprecedent decision. The AAO does not announce new constructions of law nor establish agency policy through non-precedent decisions.
These changes were made official and mandatory with the AAO Policy Memo of July 2, 2013, PM-602-0086, entitled: “Precedent and Non-Precedent Decisions of the Administrative Appeals Office (AAO)”; which accompanied the other Memo of the same date, PM-602-0087, entitled: “Certification of Decisions to the Administrative Appeals Office (AAO)”. I certainly hope that eventually we will get a few more actual Precedents in EB-5. Naturally, we need some that post-date the policy change and the process of certification should be pursued but maybe we can wait and see what else comes along before jumping off the deep-end.
For more info on ALL of the 2013 EB-5 Decisions see the doc at the below link (it was too large to attach here).
USCIS Director Alejandro Mayorkas, President Obama's nominee to be deputy secretary of the Department of Homeland Security, is under investigation by the DHS Inspector General for allegedly helping a Chinese investor get an EB-5 immigrant investor visa after the investor's petition was denied and his appeal rejected.
According to the Associated Press, the matter came to light based upon information obtained from an FBI analyst in the counter-intelligence unit in Washington, D.C.
According to an email message sent by the IG, the complaint against Mayorkas is that he helped Anthony Rodham, the brother of former Secretary of State Hillary Rodham Clinton and the owner of a regional center named Gulf Coast Funds Management, L.L.C., of McLean, Va., to get approval for the Chinese investor's visa after the visa petition was denied and the investor's appeal was rejected.
Boyd F. Campbell has practiced immigration and nationality law in Montgomery, Alabama, since 1988. He is an active member of the American Immigration Lawyers Association (AILA), served on AILA's EB-5 Investors Committee, and has served as an AILA mentor for many years. He represents regional centers and is vice president and general counsel of America's Center for Foreign Investment, the largest regional center in the nation. He is included in The Best Lawyers in America in the field of immigration law and his law firm is listed in Best Lawyers / U.S. News & World Report Best Law Firms. His website, the Immigration Law Center on the Internet -- visaus.com -- provides free information about immigration and visas, has been active since 1994.
Investors Click Here - How the New JOBS Act Will Effect EB-5 Sponsors
On July 10th the SEC issued its final rules with respect to JOBS Act section 201(a), which “directs the SEC to remove the prohibition on general
solicitation or general advertising for securities offerings relying on Rule 506”. Rule 506 is the heavily relied upon, ‘private placement’ safe harbor
that pursuant to which “an issuer may raise an unlimited amount of capital from an unlimited number of "accredited investors" and up to 35 non-accredited
investors.” Accredited investors have a net worth (with their spouse) of $1 million, not including their primary residence, or an annual income of $300,000
($200,000 without a spouse) in each of the last two years and a reasonable expectation of at least that level of income for the current year.
The good news is that in 60 days (the rule is effective 60 days after publication in the Federal Register), it will be legal for EB-5 project sponsors and
Regional Centers to use general advertising to solicit accredited investors. That means many, if not most, of the larger Regional Centers that are all
violating the Securities Act by having an ‘Investor Click Here For Information’ button on their websites will be in a position to be compliant if they
follow the new rule. The new rule requires that:
The issuer takes reasonable steps to verify that the investors are accredited investors.
All purchasers of the securities fall within one of the categories of persons who are accredited investors under an existing rule (Rule 501 of
Regulation D) or the issuer reasonably believes that the investors fall within one of the categories at the time of the sale of the securities.
There are a couple of important things to note. Firstly, for issuers (aka Regional Centers and project sponsors) to take advantage of the new rule and use
the general solicitations they can only accept capital from accredited investors (or at least investors whom they think are accredited). This may create
issues for sponsors to accept the growing cohort of adult children, who receive their capital from their parents, as investors.
Secondly, this doesn’t necessarily help with the continuing securities laws issue of unregistered foreign agents’ practices. Based on the SEC-USCIS joint
conference call in April of this year, the SEC seems to be giving a pass to sponsors that use foreign agents, who technically need to be licensed as
registered representatives of a US Broker Dealer, if their activities are conducted off-shore, are fully disclosed to investors and are otherwise complaint
with the anti-fraud provisions of the Securities laws. It may be that the SEC is considering (without explicitly saying it) that these offerings come under
Regulation S, the safe harbor for totally off-shore offerings, despite their more narrow view on Regulation S contained in recent no-action letters.
The question remains on whether an issuer’s unregistered agents will be able to avail themselves of the ability to advertise and generally solicit. This
last point becomes amplified based on the first requirement that the issuer take ‘reasonable steps’ to verify investors’ accredited status as there have
been widely reported problems of being able to appropriately monitor and control agents’ behavior, in particular among some of the larger Chinese migration
At the very least, for project sponsors who can stick solely to accredited investors, the rule finally brings the legal regime (in this respect) into a
degree of conformity with the needs of the modern business world. This should greatly facilitate the EB-5 project sponsors’ ability to reach the (wealthy)
About The Author
Matt Gordon is a the Managing Director of E3 Investment Group. He is a finance professional whose vision and passion is to help realize extraordinary value through the flawless planning and execution of strategy, financings and transactions that foster aggressive sustainable growth. Mr. Gordon is a licensed attorney, having practiced law with some of the most prestigious Wall Street firms, including Fried Frank and Sullivan & Cromwell. He is a member of the New York State Bar and holds SEC securities licenses.
The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.
The USCIS just issued the much awaited final EB-5 Adjudications Policy memorandum on uscis.gov. While the Sheppard Mullin EB-5 team is busy analyzing the twenty-seven page memo, I wanted to share the following highlights with our readers immediately. For me the essence of memo offers compromise and renewed confidence in the EB-5 program. The memo emphasizes the importance of flexibility. The Service expressed its commitment to change, stability, predictability and program integrity.
Initial highlights include a reiteration of the purpose of the EB -5 Program, "... which is to promote the immigration of people who can help create jobs for U.S. workers through their investment of capital into the U.S. economy." To that end the USCIS states its intention to ensure "that the potential of the EB-5 Program, including the Immigrant Investor Program, is fully realized, and that the integrity of the EB-5 Program is protected."
More granular details include the USCIS acknowledging that the adjudication of EB-5 petitions and applications is based on a preponderance of evidence standard (in plain English this means the applicant must show that what he or she claims is more likely so than not so) rather than the higher standard of proof of "clear and convincing," and the even higher standard of "beyond a reasonable doubt" that typically applies to criminal cases. The memo offers that the "petitioner or applicant does not need to remove all doubt from our adjudication." The memo also softens the USCIS policy on requiring new I-526 filings for certain changes in the original business plans. Based on the updated guidance, once an investor is granted conditional permanent residence, there does not need to be a direct connection between the original business plan and what is provided at the time the request for removal of conditions (I-829) is filed. The memo notes that the "USCIS recognizes the fluidity of the business world and therefore allows for material changes to a petitioner's business plan made after the petitioner has obtained conditional lawful permanent resident status."
The final policy discusses deference to previous agency determinations. According to the memo, "where USCIS has previously concluded that an economic methodology satisfies the requirement of being a 'reasonable methodology' to project future job creation . . ., USCIS will continue to afford deference to this determination for all related adjudications, so long as the related adjudication is directly linked to the specific project for which the economic methodology was previously approved." In other words, the Service will allow for deference only in the same exact project, and not a similar one offered by the same regional center down the road. Regional Centers that stagger raises and phases in the same project will have to take this into consideration during the initial planning stages.
The USCIS states in the memo that an amendment is not required when a "regional center changes its industries of focus, its geographic boundaries, its business plans, or its economic methodologies.” However, the I-924 instructions remind Regional Centers that "changes to organizational structure or administration, capital investment projects (including changes in the economic analysis and underlying business plan used to estimate job creation for previously-approved investment opportunities), and an affiliated commercial enterprise's organizational structure, capital investment instruments or offering memoranda" DO require an amendment. Would be purchasers and those involved in the management of regional centers ought to remember those instructions carefully. I have been advising clients for some time that such changes could derail a Regional Center designation and accordingly I am interested to see how the Service will monitor and punish violators down the road.
As expected the memo liberalizes the previous stringent Matter of Ho (an AAO precedent decision) business plan requirements. This signals a welcome change to what adjudicators will require to be in a business plan. The memo offers (and also reminds USCIS Adjudicators/Economists) that a "business plan is not required to contain all of the detailed elements described above, but the more details the business plan contains, as described in Matter of Ho, the more likely it is that the plan will be considered comprehensive and credible."
The USCIS is moving towards keeping pace with the realities and demands of business faced by investors, developers, regional centers and entrepreneurs. It promises to recognize the "fluidity of the business world" and will certainly remain diligent in ensuring the integrity of the program. Watch for updated posts as the Sheppard Mullin EB-5 Team digests the full impact on the EB-5 policy memorandum.