Transferability of Designated Regional Centers and Its Designation
by Jeff Campion
There has been considerable debate as to what actions a regional center (RC) owner is permitted to take with his RC. May he sell the designation as an asset? May he admit projects into the RC? May he sell the entity that owns the license? This article will address the transferability of a designated RC by first looking at the laws that apply in this context, discussing whether approved RCs are transferrable, and then concluding.
The Laws Relating to Regional Centers
When analyzing a legal issue with a regulatory agency, there are many sources of law—statutes passed by Congress, regulations passed by the agency in charge of implementing the statutes (in this case USCIS), cases interpreting the statutes and the regulations, policy memoranda, and instructions to the forms used by USCIS.
EB-5 Regional Centers were established by the Immigrant Investor Pilot Program, created by Section 610 of Public Law 102-395 (October 6, 1992). The power of the Pilot Program is that projects associated with an economic unit known as an RC are permitted to have a less restrictive job creation requirement through the allowance of indirect job count. The statutes, however, are silent with respect to the transferability of a designated RC.
The regulations include the requirements to participate in the Pilot Program, the agency to which the submission to participate should be directed, an explanation of what occurs if the submission is denied, and instructions for how an RC can be terminated. Absent from the termination section is termination by transferring the designation or selling ownership in the RC.
No cases have been decided with respect to transferability. Thus, we turn to the instructions of Form I-924, which state that an amendment “may be filed to seek approval of changes to the Regional Center’s … organizational structure or administration, and that “Designated Regional Centers must notify USCIS within 30 days of a change of … principal(s), contracting agents or similar changes in the operation or administration of the Regional Center” (emphasis mine). Such notification is simply made via email, per the instructions.
Lastly, the most recent policy memorandum of May 30, 2013, was silent as to the transferability of a designated RC or the designation itself.
More on this topic…
Selling or Buying a Regional Center by Jor Law
The Risks and Rewards in Racing to Acquire Regional Center Status by Michael Harris
Sell a Regional Center by Reza Rahbaran
The author believes that one must address two specific scenarios: i) the transfer of the designation, and ii) the transfer of the ownership of the designated RC entity.
Transfer of the Regional Center Designation
The author notes that there is no specific prohibition in the law as it relates to the transferability of an RC or its designation. However, because USCIS has the absolute authority to designate an entity as a “Regional Center,” it would stand to reason that one could not sell the designation (the asset) between entities, as by doing so the seller would, in effect, be designating a new entity as an RC, which it does not have the authority to do. Correspondence between the author and USCIS, in respect to a specific attempt to transfer designation to another entity, supports this position:
The issue in this case is whether or not a regional center can sell its regional center designation as an asset to a separate entity … the regulations do not indicate or support that a regional center can sell its regional center designation as an asset to a separate entity.
After receiving such correspondence, the parties agreed to restructure the transaction and sell membership units in the entity originally designated as an RC. The membership purchase agreement was submitted to USCIS along with the canceled and rescinded original agreement to sell the RC designation. USCIS reviewed the new membership purchase agreement and stated that “an application shall be denied where evidence submitted in response to a request for evidence does not establish eligibility at the time the application is filed.” USCIS also stated that the “applicant submitted documents (Membership Interest Purchase Agreement) that did not exist at the time of filing the I-924 application in order to make an otherwise deficient application approvable under a new set of facts,” (emphasis mine). The author would note that the applicant in the case above was simply attempting to navigate a complex and unclear area of EB-5. The author would argue that USCIS should have given the applicant the right to make changes necessary to the application when dealing with an area of the law that lacks clarity. It would appear that not even USCIS had contemplated whether an RC designation could be sold—there is no regulatory or policy guidance on the issue. To punish an applicant in such a scenario seems unfair. Nonetheless, USCIS “determined that the regulations do not support that a regional center can sell its regional center designation as an asset to a separate entity.”
USCIS’s position is clear in that an RC designation (as an asset) cannot be sold. Whether such was contemplated under the regulations is, at best, not clear.
Transferring of Ownership of a Regional Center
Transferring ownership of an RC is permitted and is clearly contemplated in the instructions. In such a scenario, the seller is selling ownership in the entity that possesses the designation; the seller would not be “designating” a new entity as an RC. The author maintains that, since the law is silent and the instructions to the form contain a “may” as to an amendment, and a “must” as to the notification of such change within thirty days, only an email confirming such change is required. The author, in fact, has knowledge of an email exchange with USCIS, detailed below, regarding this issue in the sale of membership units of an already designated RC.
An owner of a designated RC sold a portion of its ownership. The seller notified CIS via email as required by the form. CIS insisted that an amendment was required. The seller disagreed citing the form used the word “may” with respect to the amendment procedure. After approximately one month of dialogue, USCIS noted that the RC already had an amendment pending for approximately two months to expand the NAICS Codes and geographic scope and simply asked the seller to send proof of the sale. Ultimately, an amendment was not sent with respect to the specific sale.
Admittedly, it can be argued that USCIS did not require a specific amendment since there was already one pending. Nonetheless, the author would again highlight that the instructions to the form contain “may” as it relates to the amendment process and a “must” as it relates to the notice provision. As such, we should abide by those distinctions, and so should USCIS, who created the instruction. Thus, if ownership of the designated RC entity is sold, only an email notification to USCIS within thirty days should be required.
It is clear that an RC designation is not freely alienable in that it cannot be sold as an asset separate and distinct from the entity with which it is associated. At the same time, the shares (or membership units) of a designated RC can be sold. The issue that remains unclear is whether—under the rules, not just because a USCIS officer advises—an amendment must be filed. The author believes that filing an amendment grants additional authority to USCIS that was not intended under the law, or even the instructions to the Form I-924. For that reason alone, the author would attempt to avoid an amendment.