by Phil Cohen
Anyone who is familiar with the EB-5 program knows that one of the bigger challenges faced in the process of getting United States Citizenship and Immigration Services approval for a regional center or project comes from dealing with RFEs. An RFE, or a Request for Further Evidence, is the official name of the document that USCIS will issue to an applicant in the event that an adjudicator needs more information or wishes to question what has previously been presented to them. When an applicant receives an RFE there are several implications, including the delay of the final approval, the possible additional cost of finding or developing the information that is required (including possible additional fees to the professionals on the team) and, most importantly, a delay in getting EB-5 investors’ money into the project.
The best way to deal with an RFE is preventatively. By following the steps listed below, one can pre-empt challenges or requests for further detail from USCIS. The following are among some of the most effective preventative measures as they pertain to the business plan, which is one of the most subjective elements of an EB-5 application.
Consider the Adjudicator
The adjudicator’s function is to ensure that all of the necessary requirements are being met in any given EB-5 application. It stands to reason, given the current volume of EB-5 applications, that an adjudicator will not necessarily study every business plan in great detail. Rather, it is likely that they will review an entire plan to get an initial feel for the business before taking a deeper look at the parts which address the specific requirements they are looking for, to ensure that those requirements are being properly met. Because most adjudicators are not experts in any given business, applicants should seek to strike a balance between providing sufficient detail and explanation on the one hand, and making it easy for an adjudicator to quickly and simply grasp the key concepts and find key information on the other.
Striking this balance can be done in several ways:
Present both Summary and Detailed Information
One should not compromise on detail in an EB-5 business plan. While there are some in the industry who believe that a shorter plan is best, experience dictates that providing as much relevant detail as possible ensures that any questions that adjudicators may have can be minimized --or eliminated entirely-- if the detail they seek is already in the plan. One should not fear submitting a longer business plan to USCIS, as long as the adjudicator can quickly and simply find the summary information needed and it is clear that additional detail is available should the adjudicator wish to take a ‘deep dive’ into the details. One of the best ways to make it easy for adjudicators is to properly organize the plan from the adjudicator’s perspective and make good use of headings and subheadings, so that they do not have to dig to find the information they are looking for.
Minimize Contentious Issues
Another way to keep adjudicators happy is to avoid issues that are considered to be contentious, either because the related requirements are not yet clearly defined by USCIS or because they simply do not come up that often. Some examples of today’s contentious issues include tenant occupancy job claims (i.e. where EB-5 jobs are being created by tenants of a project’s facility) and using guest expenditures as inputs into the economic impact model (i.e. using an estimated amount of expenditures by guests of the project, such as hotel guests).
There is no evidence to suggest that USCIS gives deference in any way to a petition prepared by experienced professionals in the industry. However, as in any field, one can get accustomed to how certain professionals present information because those professionals are more knowledgeable about the details and subtleties of the program. Working with a team that has good experience and a good track record can only help, while working with unknown professionals could conceivably cause an adjudicator to proceed more cautiously.
Thoroughly Justify Your Financial Projections and Other Key Assumptions
One of the most consistently challenging situations in putting together an EB-5 business plan is satisfying the need to present sufficient support and justification for the financial projections and any other key assumptions that underpin the success of a given business.
More and more, professionals in the EB-5 industry are challenged by USCIS asking for more thorough justifications of financial projections. These justifications are often requested in relation to revenue projections; however, they may also be requested in relation to some key expenses. Certain businesses and industries are luckier in that they have readily available industry benchmarks, while in other cases (e.g. where somebody is creating a new market or new product), justifying assumptions can be far more challenging. There are several ways to justify projections and assumptions in a business plan, however, the following are four key forms of justification, in order of preference:
Third Party Verification
A custom market study or feasibility study created by an independent third party is the most effective method of justifying financial assumptions. The main reason for its effectiveness is that these studies analyze the product offering relative to the existing market and anticipate changes to that market, including competitors (both current and future), overall market demand, market supply, and how key business elements may improve or mitigate a given project’s prospects for success. Furthermore, a good feasibility study will present its own financial projections for the business. A strong feasibility study, developed by a knowledgeable specialist leaves little room for questions or challenges. Feasibility studies are becoming more common for almost all business types in the EB-5 realm.
In cases where a new business is being formed as a wholly-owned subsidiary of an existing business in the same field, or where an EB-5 project is defined as an expansion of an existing business, there is a case to be made for using historical performance as a basis for the projections for the new business or expansion. The more that is similar between the two entities (e.g. leadership, products, brand leverage, or existing network of contacts in the industry), the more justifiable it can be to use this approach. When one uses historical performance as a form of justification, it should ideally be backed up with financial statements of the existing business and a clear explanation of differences moving forward and any other mitigating factors.
Industry Standards or Benchmarks
Some industries, like the transportation and logistics industries, for example, benefit from the availability of industry benchmarks published by independent third parties, such as an association or industry consultants. Industry benchmarks can be extremely valuable in helping to justify a given project’s projections for both costs and expenses. However, one of the challenges of using industry benchmarks is being able to explain how the EB-5 project in question will be able to attain performance levels akin to the benchmark level as a new entrant to the market.
Team Industry Expertise
In many cases, EB-5 projects are started by highly-experienced teams who have a considerable amount of industry expertise. While in a ‘normal’, non-EB-5 business plan, this expertise could be considered sufficient justification for projections, in EB-5 this is not always the case. In the eyes of USCIS, team members who are employed (or will be employed) by the company in question have a vested interest in portraying a strong view of the viability and potential success of the business and are therefore not always accepted as a valid basis for assumptions. If one is going to rely on the expertise of members of their team to justify projections and key assumptions, the expertise of these team members should be validated with an explanation of their experience in the industry.
Think Beyond Matter of Ho
Anybody who is researching the EB-5 industry will quickly come across reference to the “Matter of Ho” case, which is considered to contain the official guidance on what is required for an EB-5 business plan. Simply put, Matter of Ho pertains to an RFE that was issued in response to a petition in 1998. In this RFE, USCIS enumerated several points that must be addressed in the business plan. While Matter of Ho is the basis for the de facto standard by which EB-5 business plans are written today, it should be noted that several memos, RFEs and informal recommendations have been issued since that time which further clarify or add to the business plan standards that must be met. Additionally, USCIS representatives have also stated that not all Matter of Ho requirements need to be addressed in every case.
Ideally, anyone preparing an EB-5 business plan will have had the benefit of working with many EB-5 attorneys, economists and other practitioners and as a result, will have been exposed to a wide breadth of knowledge, interpretations of the law and RFE information in order to save the headaches that may arise from missing important details.
Avoiding the Compounded RFE
Several professionals in the EB-5 industry have observed with some degree of consistency the phenomenon that we will refer to here as the compounded RFE (also known in some circles as the ‘Kitchen Sink RFE’). A compounded RFE refers to an RFE issued by USCIS that seems to go beyond a few simple requests to fill in gaps or to provide additional information. Many industry experts agree that this kind of RFE seems to occur in instances where a business plan is lacking in more than just a few important areas (or even if some things just don't seem right).
Getting a compounded RFE from USCIS will present more than its fair share of challenges because it may challenge the business plan at a deeper level, meaning that the applicant may need to rebuild several parts of their business case in order to convince USCIS that the business is indeed credible and feasible.
For these reasons, one should take a holistic approach to the development of an EB-5 business plan. Consider that presenting a thoroughly developed and well-justified business case will lessen the likelihood and/or intensity of an RFE and will help to avoid the kinds of pitfalls that can cause an undue amount of trouble, expense, and delay in getting an EB-5 project off the ground.
 See: http://www.justice.gov/eoir/vll/intdec/vol22/3362.pdf