Prepared BY DAVID HIRSON on May 14, 2022
Why become an EB-5 Regional Center?
There are many advantages to receiving EB-5 Regional Center designation from USCIS for your business. Becoming a Regional Center is an attractive way for a business project to raise low interest debt, and, in some situations, equity. Raising capital via the EB-5 Immigrant Investor Program is quite unique compared to traditional sources of funding and EB-5 is an exciting and ever-evolving industry. The EB-5 program became more popular beginning in 2007 as traditional lending became tougher to obtain during the Great Recession. The program sunset on June 2021.
On Monday March 14, 2022, the President signed an omnibus spending package that included an EB-5 bill that provides, effective immediately, for a 5-year reauthorization of the Regional Center Program and other program changes. Several updates are to replace and/or amend the existing law and regulations promulgated thereunder. Section 203(b)(5) of the Immigration and Nationality Act (8 U.S.C. 1153(b)(5)). The EB-5 Regional Center industry has been waiting many years for these changes.
Those cases filed prior to June 30, 2021 are grandfathered and may be adjudicated to final conclusion. There are two ways of funding a project with EB-5 capital: through a direct investment or through a Regional Center. The Regional Center option can be more attractive to both project developers and investors, as the designation makes some USCIS requirements less stringent for EB-5 visa applicants. Regional centers are held to more favorable job creation requirements than direct EB-5 investment, which focuses on direct job creation. Rather than being required to create 10 direct full-time jobs, Regional Centers can satisfy EB-5 job creation requirements by creating 10 direct, indirect, or induced full-time jobs. Under RIA one in ten jobs must be a direct hire job for the nine other indirect jobs to qualify. The Regional Center is afforded the benefit of using economic multipliers to demonstrate the creation of these jobs. However, a particular organization’s specific needs will always determine whether or not Regional Center designation is most advantageous.
During the last two decades, many larger U.S. developers have utilized EB-5 financing as part of the project capital stack.
USCIS has currently interpreted Ria as cancelling all Regional Center designations and will require redesignation utilizing the new Form I-956, Application for Regional Center Designation issued on May 13, 2022. The redesignation interpretation is subject to litigation in Northern California requesting the court to find that the USCIS interpretation is not correct and that it does not reflect the clear intent of congress which is to keep the Regional Center program running.
A bipartisan letter dated May 9, 2022 from select congressional leaders suggests that some members of Congress did not intend to deauthorize all existing Regional Centers by passing RIA.
How to become an EB-5 Regional Center
Not everyone can apply for Regional Center designation—no special licenses are required. However, there is a list of excluded owners and operators including foreign governments and US nonresidents. The term Regional Center refers to any economic 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 within the EB-5 program. The business models that are eligible to become EB-5 Regional Centers include governmental agencies, partnerships, corporations and any other existing U.S. commercial entity.
Each Regional Center must obtain its designation from USCIS. USCIS Regional Center designation entails a multi-step process that requires the input of various experts. The cost of obtaining Regional Center approval is highly variable. The actual application itself is to be filed on the new Form I-956 with a filing fee of $17,795. However, the overall cost of the application is substantially more and largely dependent on the fees charged by various EB-5 professionals, including, transactional, securities, tax and immigration lawyers, economists, and business plan writers. Many immigration law firms will take the central point of control of the case by coordinating with all the service providers and then reviewing and compiling all the documents to file the petition with USCIS.
A list of changes that impact all offerings
- Investment amount in equity
- base amount $1,050,000 up from $1 million/$1,800,000
- targeted employment amount (TEA) $800,000 changed from $500,000/$900,000
- These amounts will be adjusted every 5 years from January 1, 2027
- The new investment amounts and TEA definitions have an effective date immediately “on the date of enactment of this Act.” Investment amount and TEA changes apply prospectively
- The law enacts that “a petitioner shall establish eligibility at the time that he or she files a [I-526]. A petitioner who was eligible for such classification at the time of such filing shall be deemed eligible for such classification at the time such petition is adjudicated.”
- I-526 provision changes
- At the I-526 stage the investor may be “in the process of investing,”
- However, upon admission as a conditional resident the investor must already have invested and may not still be in the process of investing
- Annual reserved visa categories
- 20% for investments in rural areas. About 2,000 visas
- 10% for investments in areas designated by the secretary of homeland security as high employment unemployment areas. About 1,000 visas
- investment into infrastructure projects. About 200 visas. It appears that this may be restricted to government infrastructure.
- Number of employees
- At least 10 qualified full-time employees are required for each EB-5 investment
- Only 90% of jobs may be created indirectly
- Construction jobs for projects that take less than 2 years to complete may only qualify up to 75% of the jobs determined by the valid methodology
- Tenant occupancy can count towards the total required number of employees if the employees are new hires and not transferred to the project
- Preenactment cases will be decided under law at time of filing, not the new law
- The ending of the Regional Center Program on June 30, 2021 shall not impact those cases that were timely filed and pending on that date. They are grandfathered for completion.
- No increased investment or new TEA rules will apply to those pending cases
- If there is a Regional Center program sunset in the future, investors will not suffer uncertainty and gaps in processing
- Cases timely filed before the new sunset date of September 30, 2027, will be grandfathered to completion, notwithstanding program expiration
- Source of funds (SOF)
- SOF rules are mostly intact but stricter in some regards
- Gifted and loaned investment funds must
- be made in good faith
- not be gifted to circumvent any limitations in law
- only come from lawful sources
- not be proceeds of illegal activity
- Unless the loan comes from a bank, lawful sources of funds must be proved.
- Seven (7) years of tax returns must be submitted as a part of the SOF report. It was often difficult if not impossible to get to the previous level of five (5) years. Carefully crafted filing information and full explanations for any deficiency if credible were most times acceptable to USCIS.
- Prohibited redemption and debt arrangements
- Numerous USCIS interpretations under prior law are locked in by statute, including prohibited redemption and debt. arrangements, and gifted and loaned investment funds
- Any right granted to the investor to redeem the investment at a fixed amount is not valid
- Any authorization to the New Commercial Enterprise (NCE) or Job Creating Enterprise (JCE) to acquire the interest of the investor is binding and permissible
- There is no change in the prohibition of the investor being permitted the return of his or her investment secured by the assets of the enterprise (NCE/JCE/project)
- Purchase of publicly available bonds (municipal or for profit) no longer can qualify
- Direct hire investments and pooled investing
- Single individual investments may not utilize regional center employment creation provisions
- Pooled investment of two or more investors requires a regional center even if all 10 employees per investor are directly hired on payroll by the project (NCE and/or JCE)
- Material Change
- Changes to regional center and project plans must be filed 120 days in advance of proposed change
- Regional Centers must report material changes to projects in their annual report including any disclosures to investors about them
- The bill reinforces USCIS policy that a “material change” to business plans can require denial or revocation of investor petitions, without defining what is a material change
- Investors should look for regional center projects developers who have a clear project plan, solid capital stack, and track record of completing projects as planned
- Innocent investor protection
- The bill adds some protection for innocent investors who suffer termination or debarment of their RC, NCE, or JCE
- As long as
- their investment arrangements were generally qualified, within 180 days of such adverse action (and notice)
- they can associate with replacement entities and even make additional investment (which may include proceeds from claims or recoveries) to meet investment and job creation requirements without losing priority date or child status protection
- children of investors who gained conditional residence and then lost it by entity termination or debarment or got I-829 denied may keep their child status in connection with a second petition filed by the parents within one year
- EB-5 Integrity Fund
- Annual fees for regional centers $20,000 or $10,000 annual fee for programs with 20 investors or fewer
- A special fund is established to collect the annual fee every October 1 c.
- The Secretary may increase the amounts to help fund program enforcement activities
- In addition, the investors must pay $1,000 for the fund with the filing of each I-526 case
- It is unlikely that above provisions will apply to existing projects on historic findings.
- The new rules will most likely only apply to every case going forward
- Fund Administration
- In the absence of audited financial statements shared with investors, NCEs must maintain EB-5 capital in “insured” separate accounts and retain a third-party fund administrator to ensure that the capital properly flows to the job creating activity.
- AAO and judicial review
- Except for national security and public safety denials, there is judicial review of most adverse EB-5 decisions, but only after exhaustion of appeal to the USCIS Administrative Appeals Office (AAO).
- It appears that I-829 denials remain subject only to motion to reopen or reconsider, and appeals are only in the context of removal proceedings in Immigration Court.
- Site visits, audits and reporting
- USCIS must perform a site visit to each project, giving at least 24 hours’ notice.
- The Secretary of Homeland Security is tasked with auditing each Regional Center at least once every five years
- The Secretary may terminate the designation of a Regional Center that does not consent to an audit or deliberately attempts to impede an audit
- Each Regional Center must also submit an annual statement to Homeland Security
- Failure to submit an annual statement will result in a sanction including the termination of Regional Centers for failure to report or failure of projects
- The bill specifically recognizes “redeployment” of capital that gets paid back to the new commercial enterprise (NCE) before the end of the investor’s conditional residence
- It continues some existing policy requirements (all the required jobs were initially created, and redeployment is at risk in commercial activity), relaxes one requirement (allow redeployment throughout the U.S. rather than in approved RC area), and sets some new demanding requirements (that the original project was implemented without material change, and the job creating entity has repaid the capital)
- Shockingly, the bill requires USCIS to terminate a regional center if one of its NCEs violates the above redeployment. Redeployment can be outside the original regional center geography if all the jobs are created, and the business plan has been executed without material change
- Regulations will eventually be published by USCIS
- These should clarify some of the open issues that currently exist when reading the RIA Act at this time
- Regulations must be published within 270 days of enactment
- Based on the historic performance of USCIS it is questionable whether the regulations will be completed within this mandated time frame.
Steps to Become an EB-5 Regional Center
There are several steps that an organization must take to obtain EB-5 Regional Center approval from USCIS. The costs involved and the documents that need to be produced will depend on the readiness of the project. Each Regional Center filing should be accompanied by a request for a project approval that is sufficiently explained and documented as to become an exemplar for that project. This will be known as “application for approval of investment in a commercial enterprise.” Each subsequent project must file a plan for approval by USCIS. The sale of units for subsequent filing of the initial stage for the investor can only be filed once the Regional Center is formally designated as such AND an USCIS receipt is issued for the application for the approval of the project plan.
Below, we discuss the steps and additional documents required for each category.
- Determine the Scope of the Regional Center
Perhaps the most important step of the Regional Center approval process is for the business organization to determine the geographic scope and economic benefit of the projects for which the business organization is planning to use EB-5 financing. This includes determining the Regional Center geographic umbrella, corporate structure, operational business model, and required investment amount and the composition of the capital stack for the potential projects.
- Acquire the Services of Professionals Who Will be Integral to producing the documents required for Regional Center filing
- Set up and document all the steps to be utilized for the compliance of the new and stringent auditing, reporting, and certifying requirements now imposed on the Regional Centers by RIA.
- Create audit and management systems to operate the Regional Center and to file reports and pay the annual fees to USCIS. Funding includes the provision for fraud investigation including regular site visits.
At a minimum the following documents are required:
- Regional Center Operational Business Plan
- Corporate Structure agreements for ownership and management of the Regional Center
- Project business plan
- Economist report for the project
- Management agreement between the Regional Center and the project
- Transactional documents (typically an investor subscription agreement and private placement memorandum)
- Corporate documents (Corporation/LLC/LP) registration documents, Tax ID number, byelaws or Operating Agreement or Limited Partnership Agreement
- Sample Form I-526 Immigration Petition by Alien Entrepreneur, completed except for details about the EB-5 petitioner
This list is not comprehensive. Please consult with your professional advisors to tailor the requirements to the specific Regional Center and its projects.
- General duties and responsibilities of the various professional services:
- (a) A business plan writer with expertise in producing EB-5 compliant business plans should be consulted, as the business plan is one of the most important documents required for Regional Center filing. The AAO precedent decision Matter of Ho has articulated the standards by which USCIS will review a business plan: 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 therefore. Most importantly, the business plan must be credible.
- (b) An economist must be hired to prepare an economic impact and job creation report for each project. This is especially important for a Regional Center project, as Regional Centers are afforded the ability to use indirect and induced job creation numbers. Indirect jobs can qualify and be counted as jobs attributable to a Regional Center project, based on reasonable economic methodologies, even if they are located outside of the geographical boundaries of a Regional Center. For purposes of demonstrating indirect job creation, petitioners must employ reasonable economic methodologies to establish by a preponderance of the evidence that the required infusion of capital or creation of direct jobs will result in a certain number of indirect jobs. The economist must also determine whether or not the Regional Center will be located in a targeted employment area (TEA) and prepare the necessary unemployment data report to prove to USCIS that the project meets the new rules for a TEA designation. These steps are critical because with all things USCIS, the more dubious the standard, the better the expert in the field must be. Under RIA the number of employees for each investor of ten must be comprised of at least one direct hire, qualified employee, who will be on payroll.
- (c) Securities counsel with relevant experience in producing EB-5 compliant subscription agreements and private placement memorandums must be consulted. These documents must not only comply with federal and state securities laws and regulations, but also USCIS regulations, the most important of which being the “at risk” requirement: in order to qualify as an investment in the EB-5 Program, the immigrant investor must actually place his or her capital “at risk” for the purpose of generating a return, and the mere intent to invest is not sufficient. The foreign national must show actual commitment of the required amount of capital. This means that any clause providing a put, call, or redemption of investment funds prior to final adjudication of Form I-829 Petition by Entrepreneur to Remove Conditions, will result in possible denial of the investors application. There must be no guarantee of return of the investment. Good EB-5 securities counsel should also be comfortable with guiding clients on matters of redeployment, among other potential issues.
- Submit Form I-956 Petition
Finally, with all these documents in place, the Regional Center can now submit the Form I-956 petition to USCIS. The regulations provide that once the initial Form I-956 is filed with USCIS, and the receipt for the application for permission to develop a specific project is in hand, the Regional Center can go to market and advertise its’ project(s). Please note however, the Regional Center cannot allow any individual investor to file a Form I-526 petition for any of the Regional Center's projects until the Regional Center is designated as such by USCIS.
Persons involved with Regional Centers must submit biometrics and pass a background investigation. Identify all natural persons involved with the Regional Center. A person involved with the Regional Center entity includes any person in a position of substantive authority to make operational or managerial decisions over pooling, securitization, investment, release, acceptance, or control or use of any EB-5 capital from immigrant investors. Owners, officers, general partners, and other person in positions of “substantive authority” must be identified in the I-956 petition and must submit Form I-956H, Bona Fides of Persons Involved with Regional Center Program.
Form I-956 requires regional center applicants to have comprehensive policies and procedures for compliance with the strict new EB-5 program rules.
Applicants must describe the policies and procedures in place reasonably designed to monitor new commercial enterprises and any associated job-creating entity to seek to ensure compliance with all applicable laws, regulations, and Executive orders of the United States, including immigration, criminal, and securities laws, as well as all securities laws of the state where any securities offerings will be conducted, investment advice will be given, or the offerors or offerees reside.
Applicants for Regional Center designation must have a policies and procedures manual which explains how the Regional Center will comply with the EB-5 program new rules and requirements set forth in RIA.
- Submit Form I-526 Petitions
Once the Form I-956 is approved, the Regional Center can now permit submission of the EB-5 investors' Form I-526 petitions to USCIS. Form I-526 applications will outline the specific EB-5 project that the Regional Center will be sponsoring and will include either the documents outlined or will reference the documents so as to reduce the volume of paper submitted with each I-526 petition. While Form I-526 is a self-petition by an individual investor, it is critical to employ the services of experienced immigration counsel. Immigration counsel will shepherd investors through and review the Regional Center, the project, and assist the investor through each USCIS step of compliance. Approval of Form I-526 petitions enable individual EB-5 investors to start the process of obtaining their conditional green card so that they can live in the United States for two years. The investor will either proceed to do Consular Processing (CP) at a US Embassy or Consulate abroad or if the investor has not taken advantage of the newly created combined filing provisions under RIA, file for Adjustment of Status (AOS). RIA allows new I-526 filings and pending I-526 cases where a) the visa numbers for the country for filing the case are current; and b) where the investor is lawfully in the US, generally having been admitted in this lawful status at least 60 days prior to file for AOS.
- Administer Projects and Maintain USCIS Compliance
The Regional Center must have comprehensive policies and procedures for compliance with the new strict EB-5 program rules. It must continue to monitor its investors and track the job creation requirements for its projects. The Regional Center must also be sure to comply with the requirements of RIA all applicable reporting to USCIS in compliance, and Securities and Exchange Commission and other state and local agencies that regulate securities.
As part of the U.S. government’s efforts to combat fraud and ensure program integrity, USCIS also conducts site visits of EB-5 Regional Centers and EB-5-funded projects/businesses. Each Regional Center is responsible to provide all requested documentation and other information as requested by USCIS for each of these site visits.
- EB-5 Visa Applicants File I-829 Petitions
The final step of the EB-5 visa process for individual investor applicants is to file the Form I-829 Petition by Entrepreneur to Remove Conditions. This application demonstrates that the project and investor have met all the requirements of the EB-5 program. Once approved, Form I-829 enables the investors to obtain their lawful permanent resident status (permanent green card). Although the application is filed by the individual EB-5 visa applicants, the Regional Center and projects must provide evidence of meeting the job creation requirements as well as keeping the investor's funds "at risk" for the requisite time period”.
- RIA adds additional “clarity to the I-829.
- The provision changes are applicable only to investors who file I-526 after enactment
- The law makes changes to the standards and process for I-829 petitions to remove conditions
- The investor filing an I-829 may still be “actively in the process of creating the employment required,” but the investor must make an additional filing a year later showing that the jobs have been created
- Even “Acts of God” such as hurricanes and pandemic might not justify a longer delay in job creation.
Obtaining EB-5 Regional Center designation can be a daunting process possibly spanning a couple of years, but there are qualified and experienced EB-5 professionals who can help you through the process from a through z. They can and will advise you on your road to EB-5 success.
Do you want to create your own EB-5 regional center? Contact us today at [email protected]
Author’s note: This article is intended to give a general overview of the new EB-5 law under RIA. It is not meant to be a comprehensive treatise. Please consult with your appropriate professionals to get the full picture and any updates as the situation is currently very fluid and changes are anticipated frequently and soon. There will be clarifying and expanding regulations, forms, policy statements and court decisions over at least the next 12 months until the RIA new process settles down and becomes clearer on so many issues. There could even be additional legislation.