Jeff Campion's Impressions From the Policy Memorandum Dated May 30, 2013

(By Jeff Campion, Esq. Texas Urban Triangle Regional Center) On May 30, 2013, USCIS issued a Policy Memorandum addressing EB-5 adjudications policy.  Generally speaking, I am quite encouraged by the new memorandum. The purpose of this entry is to highlight some of the most major changes from my perspective.

Foreign Escrow Permitted.  Previously CIS had raised issues on the use of a foreign escrow and issued RFEs on such.  Now, CIS has stated that a foreign escrow is permitted.  The issue here, however, will be whether or not the currency when finally released from escrow and exchanged for dollars will equal $500,000 because of exchange rate changes.  Of course, this risk can be erased by having the foreign escrow account in dollar denominations. 

TEA Deference.  CIS has confirmed that it will continue to defer to state determinations of a TEA with the right to assess the underlying methodology and/or data.  More specifically, CIS may require state designations to provide the same transparent analysis that non-State TEA designations have previously been required to submit.  CIS also has noted that a proper Census Share methodology would utilize LAUS and Census data, and may opt to utilize American Community Survey data.      

Regional Center Geography.  CIS does not eliminate the right to apply for and receive large geographies for regional centers.  CIS states that it should be shown that the proposed regional center geographic boundaries will contribute “significantly to the supply chain, as well as the labor pool, of the proposed projects.”  The memorandum does not provide guidance on what evidence would be acceptable and thus leaves one wondering as to what geographic scope would be acceptable.

 

Bridge Financing Clarified.  CIS agrees that bridge financing (debt or equity) is acceptable prior to EB-5 capital being received and that the EB-5 capital can be used to replace the bridge financing.  Moreover, the memorandum goes on to say that if the bridge financing is replaced by EB-5 capital, “the new commercial enterprise may still receive credit for the job creation under the regulations.”  The issue for CIS is whether the financing being replaced by EB-5 capital was originally contemplated by the developer to be temporary.  If the financing being replaced by EB-5 capital was always contemplated to be “short-term” by the developer, then the project can seek to receive full credit for job creation. 

No Amendment Necessary for Additional NAICS Codes, New Geographical Boundaries, or Economic Methodologies.  Probably the most exciting news from CIS is that even if an existing center only has one NAICS code for job creation previously approved and the project is relying on a new NAICS code for job creation, no I-924 amendment is necessary.  The new NAICS code for job creation by the project will be adjudicated at the I-526 petition.  The same is true for enlarging the geographical boundaries and changing an economic methodology.  The author would, however, caution with respect to expanding the geographical scope without an amendment unless your CIS counsel has thoroughly examined the issue.  The geographical boundary analysis is more grey than a new NAICS code or a using a commonly used economic methodology in the EB-5 space.

If It’s Been Approved, Then It’s Approved.  Most regional centers and practitioners have been asking CIS for certainty over approved project documents.  CIS has stated that if it has issued a favorable decision on the project documents, it will not readjudicate the project documents but will consider the project documents that were approved as “properly decided.”  This applies to either an approval at the I-924 or I-526 stage.  There will, however, be a review of the investor’s source of funds and other investor specific eligibility requirements.  An important note about “properly decided” is that the favorable decision will be given deference unless there was “an objective mistake of fact or an objective mistake of law.”  Of course, the “mistake of fact” standard provides clarity whereas the “mistake of law” standard allows CIS some wiggle room with respect to not deferring to a previous favorable adjudication.  Nonetheless, progress has been made in this area.

Material Changes May Be Permitted.  Material changes may not be so material to an investor after all.  CIS has two specific time triggers when looking into material change for a business plan – (1) pre conditional residency issuance and (2) post conditional residency issuance.  If there are material changes after an I-526 has been filed but before the conditional residency is issued, then a new I-526 must be filed.  However, an investor who received his/her conditional residency may still be able to have the I-829 approved even if there are material changes to the business plan. The investor will be given the opportunity to submit evidence that the requirements for removal of conditions have been satisfied.  It should be noted that there still may be SEC issues that need to be addressed in the case of material change, and the issuer should speak with competent SEC counsel regarding that issue.

As can be seen above, CIS has sought to provide more certainty in the EB-5 adjudication process and has become more business friendly.  We applaud these changes and look for continued clarity on other EB-5 related issues.