The following provides a deeper analysis of the USCIS May 30, 2013 policy memorandum on EB-5 adjudications.

Regional center applications

USCIS has clarified that there are two types of Form I-924 regional center filings:

1. “Hypothetical” projects. These must contain general proposals and general predictions sufficient for USCIS 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. Approvals based on “hypothetical” projects, however, will not receive deference. Therefore, any I-526 petitions that are  subsequently filed through the regional center will receive de novo review.

A Matter of Ho-compliant (very detailed) business plan is not necessary to support a “hypothetical” project. Such a project may be real, but it is classified as “hypothetical” because of the reduced amount of detail and supporting documentation that is provided with it. All project documents, a detailed Matter of Ho-compliant business plan, and other details will be needed for the first investors’ I-526s.

1. “Actual” projects. An “actual project” refers to a specific project proposal with a site that is supported by a Matter of Ho-compliant business plan. It must be filed with an “exemplar” (sample) I-526 petition with full project documents, business plan and economic report. It must also contain copies of the commercial enterprise’s organizational and transactional documents, which USCIS will review to determine if they are in compliance with established EB-5 eligibility requirements.

The memo says USCIS will defer to an approval based on an “actual” project when it reviews subsequent I-526 submissions. Therefore, obtaining such an approval may be a means of accelerating USCIS’s adjudication of subsequent I-526 petitions.

I am skeptical USCIS will actually give deference to anything. USCIS has asked for amendments of old regional center documents and has even withdrawn I-526 approvals. We successfully litigated an I-829 in federal court a few years ago where USCIS failed to give deference to the I-526.

If an I-924 application based on an “actual” project lacks sufficient verifiable detail, then USCIS may still approve it as based on a “hypothetical” project as long as it contains the requisite general proposals and predictions. In such case the project will not receive deference.

Venture capital/portfolio investments

The USCIS memo recognizes the “venture capital” investment model in which a single commercial enterprise accepts the capital and then distributes it across multiple job-creating entities. Although this model is viewed as reducing risk in the United States, one Chinese immigration agent told me that in China it is viewed as adding risk since investors would have to worry about multiple investments instead of just one. We are in the process of filing a regional center application based on the “venture capital” model.

Bridge/interim financing

The memo discusses bridge loans or other forms of temporary financing, including temporary equity, and finds them permissible. EB-5 investors may still receive credit for job creation even if the project started with interim financing and then replaced this financing with EB-5 capital. However, there are caveats. The project must have contemplated the use of EB-5 capital to replace the interim financing before it acquired such financing. Therefore, the business plan should reflect this use of EB-5 capital and, if possible, the interim financing documents should as well.

USCIS leaves an escape clause, however. Even if the project did not intend to replace the financing with EB-5 capital, it may nonetheless do so if (1) the financing is short-term and temporary and (2) replacing the financing with EB-5 capital will still create jobs. The USCIS memo explicitly recognizes that projects should not fail merely because traditional financing becomes unavailable.

Targeted employment areas (TEAs)

The new memo confirms that USCIS itself can designate some types of TEAs without a state certification letter. As such, USCIS is confirming that it will not designate a single or group of census tracts, a city, or any other boundary as a high unemployment area unless the state issues a TEA certification letter.

USCIS has confirmed that it will defer to a state’s certification of a geographic or political subdivision, including a combination of census tracts. However, USCIS will not defer to a state’s calculations of the subdivision’s unemployment rate. The state may base its calculations on data from the U.S. Census Bureau (including the American Community Survey) and the Bureau of Labor Statistics (including local area unemployment statistics).

Changes in regional center geographic boundaries, industries, business plans and economic methodologies

My last newsletter described the major policy shift in this memo of USCIS no longer requiring an amendment to change a regional center’s geographic boundaries, industries, business plans, or economic methodologies. Under this new policy, for example, a regional center approved to build hotels may now build factories without an I-924 amendment. USCIS will approve or deny such changes when adjudicating I-526 petitions based on such changes, which must be supported by the documentation that is currently required. In addition, regional centers must continue to provide current information including those changes in their I-924A annual reports.

Although amendments are no longer required for the above changes, regional centers may want to consider filing them in the form of an exemplar I-526 in any event to assist with marketing. Some regional centers may want to consider marketing projects already approved by USCIS with exemplar I-526s. As noted in my last newsletter, such an approval may also accelerate USCIS’s adjudication of I-526 petitions.