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EB-5 Immigrant Investors (part 3 of 3)
Click for a Printable Version of this Article EB-5 Petitions: Theory vs. Reality The statutory and regulatory provisions discussed above are onerous.[1] For this reason, immigration through the EB-5 category has never approached the maximum of about 10,000 a year. Yet the legacy A complete discussion of the four precedent decisions is beyond the scope of this article. Below is a summary of the changes created by the four decisions.[3] The post-1998 requirements are listed first; prior law or policy is listed in italics.[4] Post-1998: Promissory note valued at fair market value. Pre-1998: Promissory note valued at face value. Post-1998: Promissory note must generally be paid after two years. Pre-1998: No limit on term of promissory note. Post-1998: Security for promissory note needs to be perfected under the UCC. Pre-1998: Security does not need to meet UCC perfected security interest requirements. Post-1998: Bank accounts cannot be used as security. Pre-1998: Bank accounts can be used as security. Post-1998: Reduce the fair market value of promissory note by “considerable expense and effort” to execute on foreign assets. Pre-1998: Promissory note valued at face value. Post-1998: No redemption provisions can be agreed to before end of conditional residence and before conclusion of payments on promissory note. Pre-1998: Redemption provisions can be agreed to so long as redemption does not occur until after promissory note has been paid in full. Post-1998: Third party guarantees to investor prohibited. Pre-1998: Third party guarantee allowed unless backed by government obligation. Post-1998: Amounts attributable to expenses to start new commercial enterprise must be deducted from capital contribution. Pre-1998: Start-up costs and expenses included in amount of capital contribution. Post-1998: New ownership and new corporation are not sufficient to establish new commercial enterprise. Pre-1998: Restructuring or reorganization sufficient to establish new commercial enterprise. Post-1998: All of the activities must benefit the targeted geographical area to count indirect employment. Pre-1998: The qualifying investment must be within the approved regional center; there is no separate requirement to prove benefit solely to the regional center. Below is a summary of additional restrictive interpretations created by the AAO in nonprecedent decisions: Post-1998: Money earned or assets acquired while in the Pre-1998: Drug smugglers or other criminals cannot use their ill-gotten gains to obtain permanent resident status in the Post-1998: All investors in the partnership must identify the source of their funds to prove that they were derived by lawful means. Pre-1998: Only the petitioning investor must identify the source of his or her funds in the partnership to prove that they were derived by lawful means. Post-1998: Merely injecting cash into the corporate account of a business does not show that the capital is “at risk” for the purpose of generating a return. Pre-1998: Injecting cash into a corporate account could show that the capital is “at risk” for the purpose of generating a return. Investors who were hurt by the changes the immigration agency made in 1998 lobbied Congress for relief. Eventually, in 2002 Congress enacted changes to the EB-5 program as part of a Justice Department authorization bill.[5] To qualify under the new law, an investor must have filed a petition for EB-5 classification (Form I-526) and had it approved between Section 11031(c) of the 2002 law sets forth procedures to determine whether investors can have their conditions removed. The government must decide three things: whether (1) the I-829 petition contains any material misrepresentations; (2) the investment created or saved 10 jobs; and (3) the investor has substantially complied with the investment requirement ($1 million or $500,000).[7] Investments in regional centers or in troubled businesses count.[8] The law gives investors a choice of three dates by which to measure their compliance: (1) the date the I-829 petition was filed; (2) six months after the I-829 petition was filed; or (3) the date the government makes its determination under the new law.[9] If the investor meets the jobs and investment requirements and has not made a material misrepresentation, the government will remove the conditional resident status and the investor and family members will become permanent residents as of the second anniversary of the date they became conditional residents.[10] If the government finds against an investor on any of the three grounds, the government must notify the investor, and provide the investor with an opportunity to submit evidence to rebut the adverse determination.[11] If the investor loses on the jobs or investment requirement, the government will continue the investor’s conditional resident status for additional two years.[12] During that time the investor can try to meet those requirements. If the government finds that the investor made a material misrepresentation, the government will terminate the investor’s conditional resident status.[13] The investor can appeal to the Board of Immigration Appeals and then seek judicial review.[14] During administrative or judicial review proceedings the investor and his or her family members remain in conditional resident status.[15] Most investors are unlikely to persuade the government that they fully met the capital investment and jobs creation requirement. The new law gives them an additional two years to make another investment. During that time they can combine investments made earlier with new investments to show that altogether they invested the total amount required.[16] This includes investments in limited partnerships.[17] An investor must file another I-829 during the 90 days preceding the new two-year anniversary.[18] Failure to file will normally terminate a conditional resident’s status.[19] There is a good cause exception.[20] Assuming an investor files another I-829 petition, the government has 90 days to decide three things: whether (1) the I-829 petition has any material misrepresentations; (2) the investment created or saved 10 jobs; and (3) the investor has substantially complied with the investment requirement ($1 million or $500,000).[21] The investor can aggregate money invested before and jobs created or saved from the initial investment.[22] Investments in regional centers or in troubled businesses count.[23] If the investor meets the job creation and investment requirements and has not made a material misrepresentation, the government will remove the conditional resident status of the investor and family members. They will become permanent residents as of the second anniversary of the date their conditional resident status was continued.[24] If the government finds against an investor on any of the three grounds, the government must notify the investor, who may attempt to rebut the adverse facts.[25] If the investor loses, the government will terminate the investor’s conditional resident status.[26] Section 11032 of the 2002 law provides similar procedures for EB-5 investors whose I-526 petitions were approved, but who never became conditional residents because the If The government was supposed to approve adjustment of status applications for eligible investors by Finally, the new law states that a noncitizen who was admitted on a conditional basis by virtue of being the child of an EB-5 investor shall still be considered a child for purposes of the new law, even if they turn 21 or marry.[35] ETHICAL CONSIDERATIONS[36] It is important for an attorney to consider the ethical considerations before beginning to represent a client in the complex EB-5 category. The American Bar Association’s ( If an attorney feels inadequate to represent a client in an EB-5 matter, she may comply with competence rules by consulting with an EB-5 expert or by bifurcating representation between EB-5 and non-EB-5 related counsel, such as adjustment. In a joint counsel scenario, most jurisdictions require that the client be made aware of any joint representation and that the fees be split to reflect the proportional amount of work that each law firm is providing. Finally, there is an ethical consideration concerning the referral fees that many regional centers offer to someone who recommends an investor to the regional center. Accepting such fees may involve a conflict of interest, since an attorney’s representation of a client may be materially impaired by the prospect of a pecuniary gain from a regional center. An attorney has a duty of undivided loyalty to a client. CONCLUSION Qualifying a person for EB-5 status is one of the most complicated subspecialties in immigration law. A sophisticated knowledge of corporate, tax, investment, and immigration law are all required. Moreover, the four 1998 precedent AAO decisions and subsequent nonprecedent decisions have made it even harder to obtain approvals of EB-5 petitions. Investors must discard normal investment opportunities in favor of investments structured to meet the unrealistic requirements of the precedent decisions. Attorneys, in turn, must proceed at their peril in advising clients. In many cases it may be more practicable for investors to come to the Nevertheless, things may be looking up for the EB-5 category. In January 2005 USCIS established a new Investor and Regional Center Unit (IRCU) at USCIS headquarters. The IRCU, since renamed the Foreign Trader, Investor and Regional Center Program, provides oversight for EB-5 policy and regulatory development, field guidance, and training. According to USCIS, establishing the IRCU will “strengthen and protect the integrity of the [EB-5] program while promoting the intent of Congress to encourage investment and increase employment within the These changes may mark a major leap forward in USCIS policy toward the EB-5 visa category.[40] The changes hold the promise of making the EB-5 process more user-friendly in terms of processing times and responsiveness to investors’ concerns. USCIS officials now say that they want to meet the needs of the business community so that the EB-5 category can be more effectively used. Many issues are still not resolved, however, and the sunset of the Pilot Program is quickly approaching. Hopefully, it will be renewed. Time will tell whether the EB-5 program continues with its current success. Appendix: Designated Regional Centers[41] Approved and Active Regional Centers
[1]Matter of Soffici, 22 I&N Dec. 158, 19 Immigr. Rep. B2-25 (Assoc. Comm’r, Examinations 1998); Matter of Izummi, 22 I&N Dec. 169, 19 Immigr. Rep. B2-32 (Assoc. Comm’r, Examinations 1998); Matter of Hsiung, 22 I&N Dec. 201, 19 Immigr. Rep. B2-106 (Assoc. Comm’r, Examinations 1998); Matter of Ho, 22 I&N Dec. 206, 19 Immigr. Rep. B2-99 (Assoc. Comm’r, Examinations 1998). See generally W. Cook, “Somewhere, Over the Rainbow…Lies the EB-5 Pot of Gold,” 3 Bender’s Immigration Bulletin 1205 (Dec. 1, 1998). [2] Note that the requirements established by these cases may be applied retroactively, even if they contravene practices established by earlier unpublished decisions or other guidance. See Golden Rainbow Freedom Fund v. Ashcroft, 24 Fed. Appx. 698, 2001 U.S. App. LEXIS 25482 (9th Cir. Nov. 26, 2001). See also R.L. Inv. Ltd. Partners v. [3] Thanks to H. Ronald Klasko, who drafted this list of changes and allowed them to be reprinted here. [4] 21st Century Department of Justice Appropriations Authorization Act, supra note 9, §§11031–37. See generally S. Yale-Loehr, “Congress Helps Stranded Immigrant Investors,” 7 Bender’s Immigration Bulletin 1306 (Nov. 1, 2002), and at www.millermayer.com/new/bibeb5bill.html (last visited Feb. 29, 2008). [5] 21st Century Department of Justice Appropriations Authorization Act, supra note 9, §§11031(b)(1), 11032(b). [6] [7] [8] [9] [10] [11] [12] [13] [14] Id.
[15] [16] Id.
[17] [18] [19] [20] [21] Id.
[22] Id.
[23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] See C. Lee, “Ethical and Practical Considerations in EB-5 Representation,” at www.ilw.com/articles/2007,1120-lee.shtm, and at www.millermayer.com/new/eb5ethics.html, reprinted in 13 Bender’s Immigration Bulletin 332 (Mar. 15, 2008).
[36] See generally Model Rules of Professional Conduct R. 1.1. The New York Disciplinary Rules of the Code of Professional Responsibility, the California Rules of Professional Conduct, and the Maine Code of Professional Responsibility are not based on the ABA Model Rules of Professional Conduct.
[37] USCIS Memorandum, William R. Yates, USCIS Assoc. Dir. for Operations, to all USCIS offices, “Establishment of an Investor and Regional Center Unit,” File No. HQPRD 70/6.2.8 (Jan. 19, 2005), published on AILA InfoNet at Doc. No. 05012663 (posted Jan. 26, 2005), reprinted in 10 Bender’s Immigration Bulletin 195 (Feb. 15, 2005).
[38] See 2006 Yearbook of Immigration Statistics, supra note 4, at 20 (Table 6).
[39] See generally S. Mailman & S. Yale-Loehr, “Immigrant Investor Green Cards: Rise of the [40] Memorandum from Jacquelyn A. Bednarz, Acting [41] Approved [42] Approved [43]Approved [44] Approved [45]Redesignation and amendment approved Feb. 16, 2007 (copy on file with authors).
[46] Approved [47] Approved [48] Redesignation and amendment approved Mar. 19, 2007 (copy on file with authors).
[49] Approved [50] Approved [51] Approved
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