Released today is a letter from DHS Secretary Jeh Johnson dated April 27, 2015, to Senate Judiciary Committee Chairman Charles Grassley about the extension of the regional center EB-5 statute, which is set to expire September 30. He suggested a number of statutory changes, most notably:

• Increase the EB-5 minimum investment amount in TEAs and other areas. He says USCIS will do this administratively, but a statutory change would be beneficial. No amount is stated.

• Eliminate TEA gerrymandering and limit TEAs to a certain number of contiguous census tracts.

• Authorize USCIS to fine and temporarily suspend regional centers.

• Require all stakeholder communication with the case adjudicator and not senior USCIS leadership. (This is in response to the controversy around former USCIS Director Ali Mayorkas instructing staff to appropriately adjudicate certain Regional Center cases. See yesterday’s New York Times story: 

USCIS STAKEHOLDER CALL

USCIS held an EB-5 stakeholder call on April 22, 2015. USCIS announced important new policies regarding the lawful source of investors’ funds:

• Borrowed funds will only be considered up to the value of an investor’s collateral for the loan. Documentation of the value of the collateral will presumably be required. USCIS also seems to be applying rarely used rules that permit debt (a note) to be invested in the EB-5 project on investments of an asset (cash) derived from a loan. This new policy mirrors the regulations for investing debt. This raises a question of whether the new policy is illegal rule-making without proper notice and comment under The Administrative Procedure Act (APA). Many on the call objected to this new rule, but USCIS refused to discuss it.

• If the investor borrowed funds for a purpose other than an EB-5 investment, and the purpose is stated in the loan documents, (i.e. to remodel a house, or for construction materials for a particular project in China), and the borrowed funds are then used for an EB-5 investment, the funds will not be viewed as from a lawful source, but instead loan fraud. In the past, we have seen many such cases approved. We will be researching this matter.

I asked a question about what USCIS wants to see to verify a project is “shovel ready” for filing a pre-approved “exemplar” application. The answer I received was vague. USCIS is looking for evidence that the project can start soon. Division Chief John Lyons said for construction projects he looks for permits to be in place, contracts to build the project, and all financial documents in place, i.e. bank loans, commitment letters, etc.

USCIS reiterated that bridge financing can start a project and the jobs created by the bridge financing can count toward the 10 jobs per investor. However, USCIS also said short-term financing is usually “1 year or less,” but given the circumstances of the case, short-term financing could be longer. Often short-term construction financing loans are longer than one year and I believe this comment was not really responsive of USCIS policy.