AILA & IIUSA oppose USCIS redeployment ‘clarification’

  • Written by GCBI Team Posted on September 1, 2020 | Updated on September 1, 2020 | 13 min read

The American Immigration Lawyers Association and IIUSA, the EB-5 national not-for-profit association, have issued a 30-page formal response to the recently published U.S. Citizenship and Immigration Services policy “clarification.”  AILA and IIUSA staunchly oppose the policy and say it constitutes new and substantive requirements, and that retroactive application is unfair and damaging to the program.

Previous USCIS policy guidance on redeployment

Redeployment of investor capital was an unforeseen situation when the regional center EB-5 program was first created in 1992. However, by 2015, for many Chinese investors, the concept of reinvesting their capital became a reality. 

Formal guidance wasn’t available, however, until 2017 when USCIS dictated that an investor’s capital must be “at risk” for the whole of their conditional permanent residency period. Thus, for EB-5 investors in backlogged countries, if their New Commercial Enterprise (NCE) receives investor capital back from the Job Creating Enterprise (JCE) before the completion of the investors’ sustainment period, the capital must be reinvested, or redeployed.

While the industry has been operating on limited guidance from USCIS since 2015, questions have remained. And now with the immigration agency having just published an update of their Policy Manual regarding redeployment, that supposed “clarification” has drawn a lengthy — and critical — response from the American Immigration Lawyers Association (AILA) and Invest In the USA (IIUSA), the EB-5 industry’s not-for-profit trade association.

This response from the two organizations, following USCIS’s invitation for the public to comment on the new policy, comprises a 30-page document that analyzes the new policy and offers concrete direction on how it must be changed.

The fundamental focus of the AILA/IIUSA response is predicated on the fact that nothing in the previous USCIS guidance on redeployment spoke to geographic requirements.

2017 ‘at risk’ guidance after job creation

The June 2017 USCIS policy update (the most recent one prior to this July 24, 2020 update) spoke to the issue of the “at risk” requirement after job creation had been fulfilled — a situation that would apply to redeployment. That 2017 policy stated that after job creation, capital can be at risk if reinvestment was…

  • Consistent with the scope of the NCE’s business
  • At risk for the purpose of creating a return
  • Open to a risk of loss and opportunity for gain
  • In the course of business activity

Of note, there was no reference in the 2015 Draft Memorandum, or the June 2017 Policy Manual update, that said after the job creation requirement is satisfied redeployment must happen inside the geographic boundaries of the regional center. 

Recent USCIS statements have not addressed geography requirements of redeployment

Further, multiple times after official publications, such as during stakeholder meetings, USCIS admitted that they had not considered the issue of geographic requirements for redeployment. October 5, 2018,  former agency director Francis Cissna stated, “We’re all bedeviled by this…. Congress needs to fix the laws that underlie the program.” 

On a stakeholder call a month later in November of 2018, Investor Program (IPO) director Sarah Kendall responded to a question about whether redeployment had to be within the scope a regional center. She declared that after job creation, “the following requirements continue to apply: (1) the immigrant investor must have placed the required amount of capital at risk for the purpose of generating a return on that capital, (2) both a risk of loss and chance for gain must be present for the investment; and (3) business activity must actually􏰃 be undertaken.􏰁”

‘At risk’ requirements are almost ‘identical’ before and after job creation

Again, there was no mention of geographic parameters being a requirement for redeployment. Kendall reiterated in an AILA & IIUSA Forum that the “at risk” requirements are identical before and after job creation” with a logical exception of the condition that prior to job creation, all investor capital must be available to the business responsible for job creation.

AILA and IIUSA use this statement to argue that USCIS sees the only difference in requirement between initial deployment of investor capital and future redeployment is that the initial capital deployed must go to the JCE within the regional centres jurisdiction as per Matter of Izummi, a precedent-setting case.

AILA & IIUSA: new redeployment policy has ‘abruptly’ changed requirements

The two organizations also argue in their 30-page response to USCIS that “after years of the EB-5 industry’􏰃􏰄s reasonable reliance upon the statements and guidance” of USCIS, the agency has “abruptly changed the requirements of redeployment investments and added significant new restrictions to the Policy Manual with retroactive effect.”

The response is broken down into six issues the organizations have with the latest redeployment policy.

Issue 1: the impact of the new policy is not ‘minimal’ but will substantially hurt thousands of people, as well as many regional centers

In the new redeployment policy update, USCIS casually describes the new “clarifications”as having “minimal” impact, if any at all. The agency also — incredulously — states that it is “not changing any substantive requirements.” 

50,000 immigrants and $14.8 billion of EB-5 capital at risk

AILA & IIUSA point out that, in fact, the new policy will impact more than 50,000 potential immigrants and $14.8 billion of potential EB-5 capital. The organizations declare that it’s “disingenuous” of USCIS to say the new policy will have minimal, if any, impact. 

Three investor groups will be substantially harmed by the new policy. 

  1. Investors with pending petitions who have already redeployed their capital. Though they may have followed precisely the guidelines that USCIS provided at the time of filing, they will be at risk of having their petitions denied. Further, as redeployment investments are most often not liquid and irrevocable, these impacted investors have no means to attempt to comply with the new policy that is retroactively applied.  
  1. Investors with pending petitions and whose NCE was in the process of redeploying capital at the time of the update. Even though many of these redeployment transactions were not finalized, many NCE’s are already committed and will be in breach of contract if they try to exit a deal to comply with the latest USCIS policy. These NCE’s are in a no-win position of either finalizing a redeployment investment that will not satisfy the new USCIS policy, or incurring the liability of breaking a contract.
  1. Investors who will require redeployment in the future, AILA and IIUSA point out that demanding a regional center to redeploy within their geographic boundaries is a severe restriction. Many regional centers have a limited geographic size and others may be in a bigger area but one that is mostly rural or limited in population; both these situations can make it very challenging or even impossible for an NCE to find an appropriate redeployment investment within 12 months.

The number of investors sponsored can present problems

NCE’s with a small investor pool may not have enough total capital to attract commercial interest. Conversely, those with very large investor pools will be challenged to redeploy potentially hundreds of millions of dollars while being confined to a very limited geographic area.

The new policy will hurt many regional centers — and go against the purpose of the EB-5 program

Regional Centers with jurisdictions comprising multiple states or in heavily populated areas will have a distinct advantage over others. AILA and IIUSA point out that this fact will lead to new EB-5 investors choosing such advantaged regional centers. “This will severely frustrate the original purpose of the EB-5 program: to stimulate the economy through foreign investment and create jobs in areas of the country that need it the most.”

Issue 2: retroactive application of the new policy is ‘impermissible’ & ‘disfavored in the law’

The second major issue that AILA and IIUSA find fault with is the retroactive application of such policy. It will apply to several thousand pending or approved  I-526 and I-829 petitions. 

AILA & IIUSA advocate that if the policy is to be implemented — even though those organizations find substantive faults with it — that at the very minimum, it should be effective at least six months after publication. This would allow a “fair opportunity” for EB-5 investors, regional centers, and stakeholders to try to comply.

As it stands, USCIS applying a retroactive application is contrary to a “well and long-established” position that “retroactivity…is disfavoured in the law.” We are reminded that courts often preclude agencies from retroactively applying new policies or interpretations. 

The D.C. Circuit’s 5 factors in judging retroactive policy application — USCIS’s new policy doesn’t pass the test

The federal appeals court with authority over USCIS uses a checklist of five factors when reviewing if a policy is allowed to be implemented retroactively:

  1. Whether first impression is involved — a case without controlling precedent (this only applies in disputes between parties involving a private litigant, and thus does not apply here)
  2. Is new policy and an abrupt change from well-established practice, or if it is only deciding a matter of unsettled law
  3. How much the party impacted by the policy has relied on former rule
  4. The amount of burden it places on a party
  5. Statutory interest in applying the new policy despite a party relying on the former rule

AILA, using these five factors, maintain that, “Taken together, these factors establish that it would be impermissible for USCIS to apply its new restrictions on capital redeployment retroactively.”

USCIS has not retroactively applied policy regrading regional center geography & job creation in the past

In addition, there exists the precedent that the immigration agency has implemented policies that concerned regional center location and job creation before — but never retroactively. Such cases had USCIS acknowledging the importance deferring to policy that existed at the time of filing.

Change regarding municipal bonds is an even more substantive policy departure

The organizations also, in their extensive response to USCIS, point out that the agency’s “break in prior policy􏰃 is even more 􏰀abrupt􏰁 􏰂with respect to the permissibilit􏰃y of municipal bonds as an acceptable form of investment.” In the language used in the July 24, 2020, Policy Manual, the agency acknowledges it has “superseded” its former policy.

USCIS ‘reasonable time’ requirement forced many NCE’s to make redeployment investments outside the regional centre’s area

Compounding the difficulty that NCE’s faced with redeployment was the fact that the USCIS required them to redeploy within a “commercially reasonable time” to maintain “at risk” status. Though we now have the new USCIS guideline of a one-year standard for such a timeline, this did not exist initially and this fact caused well-meaning NCE’s to redeploy as soon as they could. This time-sensitive pressure — and an urge to comply with USCIS requirements — often led to redeployment outside of a regional center’s area.

The human toll of retroactive application of the new redeployment policy

While the numbers and statistics may be deeply concerning, we should not forget that at stake are more than just business “entities”— namely human lives and family futures. Thousands of potentially impacted investors have sold their businesses, left behind their country of birth and their family and friend circles, and have begun new families, new careers, new lives in the U.S. All while believing they were following USCIS guidelines and could depend that compliance wouldlead to a permanent future in America.

If the retroactive implementation is not changed, the only way to make EB-5 work for many of these investors is to make a new filing, with a minimum $900,000 investment. For the limited few who could afford such a luxury, they would go to the back of the EB-5 line for their country. For Chinese investors, that line is now “measured in decades.” And for those who already have moved to the U.S. they would have to leave behind their newly started lives.

There is no compelling statutory interest in retroactive application

AILA and IIUSA remind USCIS that the statute that created the EB-5 regional center program does not have any mention of a requirement for capital that has been invested and returned to the NCE to be further invested in the area of the regional center. The statute only features a single instruction regarding eligibility in the regional center program, as opposed to non-regional center investments: the credit for indirect job creation.

Issue 3: new policy is not compliant with ‘Fairness and Surprise’ Executive Order 13892

Two executive orders were issued on October 9, 2019, that would impact the administration of federal agencies and prevent new policy that is given without fair notice: “When an agency takes an administrative enforcement action, engages in adjudication, or otherwise makes a determination that has legal consequence for a person, it may apply only standards of conduct that have been publicly stated in a manner that would not cause unfair surprise.”

Of course, USCIS took the EB-5 world by surprise with the new policy. And retroactive application — impacting thousands of investors and EB-5 stakeholders who never foresaw such policy being implemented, let alone retroactively — can hardly be considered fair.

Issue 4: deployment of capital after job creation

The new USCIS policy features three elements required for redeployment after job creation:

  1. With the same NCE
  2. With the same regional center
  3. Inside the geographic jurisdiction of the regional center, approved prior to redeployment; but not necessarily within the same Targeted Employment Area

Requirement of same NCE: issues and unfairness for victimized investors

The requirement that redeployment happen with the same NCE is problematic — and clearly unfair — for certain investors who have been victims of bad regional centers or NCE managers. In such cases, the NCE may be taken over by a court-appointed receiver, and later dissolved at the end of the receivership when the assets are given back to the investors. 

AILA and IIUSA point out that in the cases of most receiverships, it is impossible for investors to take control of the NCE and redeploy their capital in accordance with the requirement to sustain their investments. Thus, the new USCIS policy actually takes away the opportunity for such victimized investors to comply with the requirements needed to remove conditions of their permanent residency.

If initial job creation can happen outside a regional center’s boundaries, why can’t redeployment?

Additionally, regulations do not specify that all regional center job creation occur inside its geographic boundaries; indirect and induced job creation can happen anywhere. The AILA and IIUSA response reminds USCIS that the agency itself in written correspondence with Senator Leahy has said that there is no requirement for indirect job creation to be in a regional center’s jurisdiction. Thus, USCIS regulations acknowledge that some regional center economic activity may legitimately happen outside its boundaries. 

AILA and IIUSA sums it up with this compelling statement: “Additional economic activity resulting from a redeployment occurring outside of the geographic area of the regional center does not negate the improved regional productivity and job creation that happened through the initial deployment of capital, thereby satisfying Congressional intent and the regulations.”

New policy impacts practical considerations for redeployment

Another host of reasons why the new policy doesn’t make sense are rooted in practicality. If a regional center is in an extremely rural area, for example, there may be no financially viable investments for redeployment. And thus some investors with I-829 petitions may be at risk. AILA and IIUSA point out such a situation will probably mean more investors will not choose rural regional centers, once again defeating a core reason why the EB-5 regional center program exists.

In addition, the new redeployment policy would disqualify investment projects that have a location that is both inside and outside a regional center’s geographic boundaries. 

Issue 5: questions regarding deployment of capital before job creation

Regarding capital deployment before job creation requirements have been fulfilled, AILA and IIUSA have interpreted the new policy to seem to apply to any deployment of capital — both initial and then redeployment. To this end, the organizations request that USCIS confirm this point. 

If the policy does indeed apply to redeployment, the groups ask for clarification regarding some points: Can the NCE further deploy capital to a new JCE, or does the redeployment have to be with the same JCE?  AILA and IIUSA argue that redeployment should not have to be with the same JCE that is associated with investor petitions if that entity did not create the required jobs during the initial deployment. The groups also want confirmation that investors receive job creation credit from subsequent deployments

AILA and IIUSA also ask for clarification regarding geographic boundaries for redeployment before job creation is fulfilled. And the organizations submit that further deployment before job creation is satisfied should be shielded from the USCIS material change policy — the NCE should be allowed to redeploy to different JCE’s and investors should be able to get credit for subsequent job creation without USCIC viewing such actions as being a material change.

Also, AILA and IIUSA also submit that if an NCE make an initial or further deployment of capital that complies with at risk requirements, the NCE should be viewed as having conducted a business activity as per Matter of Ho.

Secondary market financial instruments: elimination of these options are unfair to redeploying investors

USCIS now disallows the “􏰁purchase of financial instruments traded on secondary” markets􏰀 for deploying capital as the agency says such purchases apparently do not “make capital available to the job-creating business.” As such policy is placed in the section “Deployment of Capital” in the Policy Manual, AILA and IISUA interpret the new policy as applying to deployment prior to job creation being fulfilled. 

AILA and IIUSA want this policy to be eliminated for two reasons. First, they argue it is “not well founded in the law.” And, second, they state that it is unfair to investors who have sustained a period of risk with the initial deployment of capital and created the required jobs — these investors should not be subjected to the lack of liquidity and diversification of a primary financial arrangement. Further, both investors and stakeholders “had no reason to expect this restriction, and many redeployments have been made innocently that do not comply with this new requirement, and innocent investors will unnecessarily and inappropriately suffer.” 

If this policy is not removed, at the very least it should only be implemented 180 days or more after publication. 

Issue 6: Q&A begs further questions about ‘interfiling’

The last issue that AILA and IIUSA have for USCIS regards the questions and answers the agency posted separately but at the same time of the Policy Manual update. This supposed guidance is, ironically, “unclear and confusing” and should be “withdrawn or clarified.”

AILA and IIUSA are most troubled by the second question that was addressed: For an investor with a pending I-526 whose capital must be redeployed, do they need to submit additional information to USCIS to demonstrate they are maintaining eligibility?

The agency’s response is “depending on your case, you may need to give us more information so that we can determine whether you are eligible. You may submit such information to us while your petition is pending (this is called interfiling).”

While USCIS seems to allow for, but not mandate interfiling, there is no mention of this term in the Policy Manual. AILA and IIUSA thus ask: Will USCIS provide a receipt when such additional information is then submitted? How will the agency make sure that unsolicited documents will be properly cataloged, updated electronically, and inserted into an actual physical file?

In closing: new policy is ‘capricious, deeply flawed,’ and will hurt both EB-5 investors and the U.S. economy

AILA and IIUSA maintain their firm opposition to the new USCIS policy of adding “substantive eligibility requirements, including geographical limitations” with retroactive implementation. The organizations decry such policy as being “deeply flawed as a matter of law,” and as ignoring the negative impacts to both immigrant investors and the American economy. In terms of action, they “request that USCIS immediately rescind the policy reflected in Issue #4 and #5 and clarify the effective date of the other policies announced in the Policy Alert.”

Upon publication of the new policy, the EB-5 industry was immediately upset, but the careful and thorough examination that AILA and IIUSA has conducted shows the “clarifying guidance” was in fact neither clarifying nor guiding according to rational thinking, fairness, and the law. We must hope that USCIS is open enough to see this, and make the required adjustments.

See the original 30-page AILA & IIUSA response