On May 30, United States Citizenship and Immigration Service (USCIS) released a long-awaited 27 page Policy Memorandum (PM) augmenting and clarifying its existing guidance for the adjudication by its officers of EB-5 applications and petitions. Given the continued and sustained interest on the part of international investors in relocating to the U.S., and the notoriously complex regulations which govern the EB-5 process, the PM has been keenly anticipated, and provides valuable insights into the EB-5 Program itself and the ways in which USCIS officers should apply the regulations in their EB-5 adjudications.
The new PM instructs USCIS adjudicators to use flexibility in evaluating EB-5 applications, to promote investment and encourage job creation in the U.S. The PM is a welcome, if belated, effort to help EB-5 adjudicators navigate the fiercely complex regulatory environment that has made this visa category so challenging to utilize, and should be studied carefully by attorneys with existing EB-5 practices or who are considering moving into this practice area, as well as by individual investors who are interested in relocating permanently to the U.S.
The purpose of the EB-5 program is to create jobs.
As USCIS makes clear to its adjudicators in the very first paragraph of the PM, the purpose of the EB-5 visa is to create jobs by facilitating the entry of entrepreneurs willing to invest their personal capital in the establishment of job creating entities in the U.S. EB-5 adjudications require the submission of documentation establishing that the immigrant investor is putting his own legally derived funds at risk by investing in a new commercial enterprise in the U.S. (defined as an enterprise that was established after the EB-5 program went into effect in 1990) and that the investment has resulted or will result in the creation ( or in certain instances, the preservation) of at least 10 new full-time jobs.
Potential investors often place too much importance on demonstrating their ability to make the minimum required investment--either 500,000 or 1 million USD, depending on where the enterprise will be located--rather than on the job creation aspects of their application. An EB-5 submission that fails to satisfactorily document job creation will fail, no matter what the size of the investment may be.
USCIS will use preponderance of the evidence to adjudicate EB-5 cases.
The PM instructs USCIS adjudicators to use "preponderance of the evidence" rather than the more strict "clear and convincing" and "beyond a reasonable doubt" evidentiary standards in adjudicating EB-5 applications. This standard requires the petitioner to show that what he or she claims in the EB-5 submission is "more likely than not" to be true in order for the application to be approvable. Significantly, USCIS cautions its adjudicators that the petitioner does not need to remove all doubt from the adjudication; the submission of "relevant, probative, and credible" evidence will support a conclusion that the petitioner has satisfied USCIS' standard of proof for approval.
What does USCIS consider to be the key components of a successful EB-5 case?
As set forth in the PM, USCIS considers the three principal issues for determination in adjudicating EB-5 cases to be:
1) Has the applicant invested the required amount of his own capital; 2) Is the capital invested in a new commercial enterprise; 3) Does the capital investment create the required number of jobs. Each of these seemingly straightforward issues becomes immensely complicated in the process of adjudicating an EB-5 application, and in this context, USCIS's PM is of particular utility for individuals and their attorneys who wish to maximize their chances of having their EB-5 petitions approved, as it provides valuable insight into the approach its adjudicators are being asked to take in handling these cases.
The required amount of capital must be invested.
USCIS adjudicators define "capital" broadly in EB-5 cases, based on regulatory language and precedent decisions, to include not only cash, equipment, and other tangible property, but also an investor's promissory note to pay for borrowed funds, so long as it is secured by assets owned by the investor that are not being used to set up or fund the company in which the immigrant is investing. Crucially, the investor must also be able to demonstrate by a "preponderance of the evidence" that the funds being invested were obtained by lawful means. This can be more challenging for some investors than others, especially if the documentation that is provided to confirm the source and movement of the funds is not extensive. USCIS EB-5 adjudicators, as with consular officers who adjudicated E1 and E-2 nonimmigrant visas, require credible evidence that the applicant's investment funds are "at risk" in order to sustain the EB-5 application.
The minimum amount of capital investment that must be documented in the EB-5 application is either $1,000,000 or $500,000, depending on the location of the commercial enterprise in which the applicant is investing. The lower investment amount is permitted in a "targeted employment area", which is either a rural area or an area that has experienced a rate of unemployment at least 150% above the national unemployment rate. USCIS adjudicators must conclude that the jobs being created by the investment are located in a targeted area in order for the investor to benefit from the lower capital requirement.
The investment must be in a new commercial enterprise.
USCIS seeks to define "commercial enterprise", in a manner consistent with the realities of the business world, to mean "for profit" activity engaged in lawful business in a variety of acceptable business forms. Under the regulations, a business established after November 29, 1990 qualifies as a new commercial enterprise for EB-5 purposes. EB-5 adjudicators can also consider a company established prior to this date to be a new commercial enterprise if the company will be restructured or expanded as a result of its receipt of the EB-5 investor's funds, resulting in a "substantial change" in the net worth or the numbers of employees. "Substantial" means a 40% increase either in the company's net worth or the number of its employees.
The investment must create at least 10 full-time jobs.
USCIS considers job creation to be the "critical element" of the EB-5 program, and will examine each EB-5 submission carefully to determine whether the requisite number of full time positions will be created as a result of the investment. It is not enough that an investor's money creates jobs-the jobs themselves must arise in the commercial enterprise in which the applicant's funds are being invested. A full time position is defined as one that requires a minimum of 35 working hours a week, and must be held by a qualified employee-either a U.S. citizen, legal permanent resident, or other immigrant lawfully authorized to work in the U.S., such as an asylee or refugee. Jobs held by the investor, his spouse, or children as well as any held by work-authorized nonimmigrants, cannot be used to satisfy the EB-5 requirements.
Commercial enterprises can be located within and associated with a Regional Center.
USCIS will accept EB-5 petitions based on qualifying investment in an individual commercial enterprise or as part of a commercial enterprise located within a Regional Center authorized to pool individual EB-5 capital investments in a larger commercial enterprise or group of enterprises under the terms of the Immigrant Investor Program. The principle advantage for EB-5 investors of a Regional Center investment is that they are able to rely on the indirect creation of jobs caused by their investment and that of other EB-5 investors in the Center, to meet the EB-5 requirements. Successful EB-5 Regional Centers use "reasonable economic methodologies" to demonstrate how their individual EB-5 investors' funds lead to the indirect creation of the requisite number of indirect jobs.
We expect this PM to provide welcome guidance for investors and attorneys alike as they continue to battle changing government adjudication standards in this important area. In our current economic climate, encouraging foreign investment and job creation is paramount to the U.S. economy's growth and sucess.