In response to the USCIS invitation for public comments on the new forms created to address the requirements of the Reform and Integrity Act (comments accepted until until November 1, 2022), veteran immigration lawyer and former USCIS Acting Director Robert Divine has written the following.
[Editors note: bolded body text that is not a hyperlink indicates text that was highlighted for special attention by Divine in his original documents.]
Initial document 'Comments from Robert C. Divine for USCIS EB-5 Forms'
This constitutes comments to U.S. Citizenship & Immigration Services from Robert C. Divine in response to OMB Control Number 1615-NEW, Docket ID USCIS-2022-0010, as referenced at 87 FR 54233 on September 2, 2022.
The commenter, Robert C. Divine, is an attorney who has practiced immigration law for 36 years, authored of Immigration Practice (a well respected practical treatise on all aspects of U.S. immigration law) for 15 editions, served as Chief Counsel and Acting Deputy Director of USCIS (2004-2006), and been elected Vice President of IIUSA (the industry association of regional centers) for 7 years in the past. His full bio and contacts are available at www.bakerdonelson.com/robert-c-divine.
The comments are provided in reference to each form for which comments were solicited, plus two other closely related forms for which comment should be solicited on the same basis.
General Comments
The forms should be downloadable, fillable, and printable, with each checkbox accessible, with ample room in the fields to type answers. Format control should not be used at all, or at least very sparingly, as accurate answers in complex situations sometimes do not fit originally perceived restrictions.
I-956
Instructions are too vague about what is required, particularly for establishing geography. How much detail about plan to develop businesses is required? Surely not the level of Matter of Ho, but what? Are hypothetical projects acceptable?
What types of and how much evidence is needed to establish the geographic scope? Economic impact of the types of projects presented? What factors establish economic impact geographically?
Is it enough to describe the required policies and procedures without supplying them? Under what conditions are the actual procedures needed to be submitted?
I-956F
USCIS needs to clarify whether the mandatory waiver of fund administrator requirements due to annual audited financial statements can be applied to a project when the NCE obtains such audits but the separate JCE does not. INA 203(b)(5)(Q)(v)(II) states, “The Secretary of Homeland Security shall waive the requirements under clause (iv) for any new commercial enterprise that commissions an annual independent financial audit of such new commercial enterprise or job creating entity conducted in accordance with Generally Accepted Auditing Standards, which audit shall be provided to the Secretary and all investors in the new commercial enterprise.” It seems that “or” was used because of the possibility that an NCE subscribing multiple investors in a project and thus needing to use regional center sponsorship and compliance but not involving a separate JCE. In that instance, of course only the NCE would need audited financial statements, as there would be no separate JCE. But if there will be a separate JCE where the money will get used, then also the JCE should be required to be annually audited to enjoy the waiver. It would make no sense only to track the EB-5 capital going in and out of the NCE through an audit but then have no accountability as it goes into and through the JCE, where many fraudulent uses of EB-5 capital have occurred in the past. Congress meant to avoid fraud through fund administration or audit at all relevant points, and this interpretation is needed to accomplish such intent.
USCIS needs to clarify what a regional center needs to do if changes are made to the documents submitted with an I-956 filing. For instance:
The issuer realizes that mistakes were made in drafting the business plan or PPM.
Some minor aspect of the business plan actually changes (for instance, if a local government reviewing drawings require a design changes with implications for construction costs).
USCIS publications of new regulations, forms, or policies changes what needs to be explained as risks in the PPM.
Someone involved in the NCE or affiliated JCE could die or terminate employment and become replaced by someone else.
Owners of the NCE or JCE could change their ownership shares or their management roles, or people could roll off the board of directors and be replaced.
The fund administrator may retire or be terminated and become replaced.
The NCE or JCE may change banks and move “separate accounts.”
Policies and procedures may be changed based on changes in securities or immigration law or policy.
The first question is whether any amendment is necessary. It should not be necessary for the RC to amend the I-956F record to reflect minor changes that tend to occur regularly in business projects. USCIS should convey some reasonable limit on the types of changes that need to be made through amendment of the I-956F vs. being retained in files for periodic audit by USCIS. While Form I-956F contemplates its use for amendment, it does not indicate under what circumstances an amendment is required.
A technical problem is that leaving the I-956F record as filed, with investors filing I-526E certifying that they have subscribed to the documents contained in the I-956F, would result in a technical misrepresentation. USCIS needs to recognize that routine changes may be made without amendment to the I-956F. USCIS could clarify that it expects RCs to maintain up to date examples of documents submitted in the I-956F with clear accounting for changes made since I-956F filing so that USCIS auditors of RC records can quickly see what has changed. Form I-956G could be changed to require reporting of such changes, at least in a general sense, and subject to audit.
Even if USCIS refuses to relieve RCs of filing amendments for any change whatsoever to I-956F filings, USCIS needs to clarify how RCs may amend the I-956F while the I-956F is pending. Should the filing party submit changes through interfiling?
It is unreasonable to require RCs (and NCEs who will end up paying for most amendments and fees) to pay the full $17,795 filing fee for small changes to I-956F filings. USCIS should establish some modest fee or the lodging of modest amendments.
I-956G
Page 12 Attachment 1, item 18 needs to be rewritten to make sense and to follow the relevant statutes, as explained below:
INA 203(b)(5)(F)(IV)(dd) provides that a project application (I-956F) must include:
“(dd)(AA) any fees, ongoing interest, or other compensation paid, or to be paid by the regional center, the new commercial enterprise, or any issuer of securities intended to be offered to alien investors, to agents, finders, or broker dealers involved in the offering of securities to alien investors in connection with the investment;
“(BB) a description of the services performed, or that will be performed, by such person to entitle the person to such fees, interest, or compensation; and
“(CC) the name and contact information of any such person, if known at the time of filing;
INA 203(b)(5)(K)(iv) provides:
“(iv) DISCLOSURE.—Each petition filed under section 204(a)(1)(H) shall include a disclosure, signed by the investor, that reflects all fees, ongoing interest, and other compensation paid to any person that the regional center or new commercial enterprise knows has received, or will receive, in connection with the investment, including compensation to agents, finders, or broker dealers involved in the offering, to the extent not already specifically identified in the business plan filed under subparagraph (F).
Form I-956F at page 7 Part 6 item 6 appropriately asks:
Are there any fees, ongoing interest, or other compensation paid, or to be paid by the regional center, the NCE, or any issuer of securities intended to be offered to alien investors, to agents, finders, or broker dealers involved in the offering of securities to alien investors in connection with the investment?
Form I-956G, at page 12 Attachment 1, item 18 requires:
To the best of the regional center’s knowledge, for all fees, including administrative fees, loan monitoring fees, commissions and similar transaction- based compensation, collected from alien investors by the regional center, the new commercial enterprise, any affiliated job-creating entity, any affiliated issuer of securities intended to be offered to alien investors, or any promoter, finder, broker-dealer, or other entity engaged by any of the aforementioned entities to locate individual investors.
Item 18 should be rewritten to say:
To the best of the regional center’s knowledge, for all fees, including administrative fees loan-monitoring fees, commissions and similar transaction-based ongoing interest, or other compensation collected from alien investors by the regional center, the new commercial enterprise, any affiliated job-creating entity, or any affiliated issuer of securities intended to be offered to alien investors, or to any promoter, finder, broker-dealer, or other entity engaged by any of the aforementioned entities to locate individual investors involved in the offering of securities to alien investors.
USCIS needs to clarify what the statute and I-956G mean concerning required regional center compliance with federal labor laws. Regional centers as entities rarely employ more than a few people. Obviously, RCs fund NCEs and JCEs. NCEs also employ few people. The statute does not say that the RC needs to make sure that NCEs or especially JCEs comply with labor laws, but if USCIS will contend that such is required, USCIS needs to clarify that in Part 3 Question 3 or the instructions thereto and in regulations.
I applaud the approach to require accounting on an investor-specific level only as to the EB-5 capital flowing into the NCE, with accounting on expenditures, job creation, and fees being required only on an aggregate basis (all investors together). This is appropriate because NCEs are not and should not be required to track the downward flow and effects on a per investor level.
Like the instructions to Part 3 Item 1 (“since the date of regional center designation”), Attachment 1 Items 13, 17, and 18 and instructions should clarify that the question calls for aggregate (all EB-5 investors’ total) investment, job creation, and fees since the inception of the NCE. Without this clarification, the implication from the form’s coverage of an identified fiscal year in Part 1 Item 2 might be to provide only the aggregate numbers for each item during the particular fiscal year, as was the case with the prior I-924A. I agree with the approach to collect aggregate (all investors together) cumulative (all time) investment, job creation, and fees. The comparison of the amounts in a later fiscal year’s report to the prior year’s report will reveal incremental amounts.
The instructions should clarify, however, that the supporting evidence needs only relate to the fiscal year being reported on, so that voluminous evidence provided in prior year reports need not be re-submitted.
I-956H
The instructions require that “Each person must complete I-956H for each entity with which they are involved for submission with any related form, as applicable.” That seems to mean at the very least that an individual who holds a role in the NCE and in an affiliated JCE would need to submit two different forms, each reflecting the role in the respective entities.
$85 filing fees should not be required for an I-956H for an entity, whose biometrics cannot be taken. And only one $85 fee should be required for one person who has to fill out more than one I-956H in an I- 956 or I-956F because of involvement through multiple entities. The form’s instructions need to clarify this and the mailroom needs to be alerted to this to avoid improper rejections for lack of a fee for each I-956H form. I-956H should ask, “Has a biometrics fee already been paid for you in connection with Form I-956 or I-956F?” And if yes, it should ask the Form number, the filing party, and the biometrics receipt number, with instruction that no new $85 is required for such person.
I-956K
Promoter needs definition.
Direct promoter, third-party promoter, and migration agent need definition with the implications.
The form should clarify whether registration required for an employee or sub-agent who operates under a registrant. This is implied in Part 2 Item 20, but it should be stated more clearly, at least in the instructions. Agents will tend not to want to believe that all promoters interacting with the investor, including individual employees, are required to independently register. If they are so required, it should be clearly specified so that everyone will be “on the same page.”
What role of an employee or agent triggers obligation to register? (i.e., it would seem only those interacting with prospective investors)
How does a registrant complete Part 3 as to written agreement with RC, NCE, JCE as an employee or sub-agent of the promoter who has the agreement? Such registrant will not have a written agreement directly with the issuer. Should the employee or sub-agent identify the written agreement with the issuer entered by the primary broker/agent under whom they are operating?
Form I-956K should also require promoters to cooperate in complying with the written disclosure of fees, ongoing interest, and compensation to promoters as required by INA 203(b)(5)(K)(iv). Promoters are going to be very hesitant to follow this regulation, and it should be specifically mentioned.
The form should clarify whether I-956K (and 203(b)(5)(K)) applies to a promoter in selling to a stand alone investor (I-526, not I-526E).
I-526E
While the Federal Register notice did not call for comments to new Form I-526E, it should have, because it needs some fixes.
Most importantly, the instructions fail to include as required evidence the written disclosure of fees, ongoing interest, and compensation to promoters as required by INA 203(b)(5)(K)(iv). Promoters are going to be very hesitant to follow this regulation, and it should be specifically mentioned.
The instructions should also tell an investor what to do if the documents provided to the investor from the NCE reflect changes from what was submitted by the regional center with the I-956F. Periodic changes to business projects are inevitable, and it does not make sense to file formal amendments to I- 956F with $17,795 filing fee for every such change. Investors could be instructed to submit amendment changes, or side letters unique to them, in their I-526E submission. Once USCIS implements some kind of electronic system to allow regional centers to upload changes to I-956F project filings to reflect supplements to those documents, such supplemental documents would not be needed for I-526E filings.
I-526 for standalone investors
While the Federal Register notice did not call for comments to new Form I-956, it should have, because it needs some fixes.
Part 4 Item 14.I. should be renumbered as 15. 15 and 16 should become 16 and 17.
Most importantly, the form should clarify whether or not INA 203(b)(5)(H), (K), and (Q) apply to standalone investments. Even if they do not apply, this should be clarified because of the ambiguity in the phrasing of the statute. I don’t think they should apply, because the sections involved were written with pooling of investments in mind, and it makes no sense in the situation where the alien investor is in fact an organizer of the business. But if they do apply, then the form instructions at least should require inclusion in the require evidence, as applicable: Forms I-956(H) from those involved with NCE, written disclosure to investor of fees, ongoing interest, and other compensation to promoters, and identification of NCE separate account and fund administrator.
Thank you for your consideration. Respectfully,
Robert C. Divine
'Supplementary Comments of Robert Divine for I-956G and I-956K, as well as I-526E'
This constitutes supplementary comments to U.S. Citizenship & Immigration Services from Robert C. Divine in response to OMB Control Number 1615-NEW, Docket ID USCIS-2022-0010, as referenced at 87 FR 54233 on September 2, 2022. My initial comment was submitted on Sept. 7, 2022, and this supplements those comments.
The commenter, Robert C. Divine, is an attorney who has practiced immigration law for 36 years, authored of Immigration Practice (a well respected practical treatise on all aspects of U.S. immigration law) for 15 editions, served as Chief Counsel and Acting Deputy Director of USCIS (2004-2006), and been elected Vice President of IIUSA (the industry association of regional centers) for 7 years in the past. His full bio and contacts are available at www.bakerdonelson.com/robert-c-divine.
Following my initial comments, it has come to my attention that many agents selling EB-5 investments are refusing to register with USCIS and to provide written disclosures to investors of the amounts they will receive by virtue of the investor’s investment, and that some NCEs and sponsoring RCs are developing arrangements to funnel commissions and ongoing interest to promoters outside of the administrative fees in an effort to avoid the granular disclosures required by INA §§ 203(b)(5)(K)(iv) and 203(b)(5)(F)(i)(IV)(dd).
In addition to writing the attached articles that have been or are being published in various media, I wish to urge USCIS immediately to take all steps possible to clarify the requirements, including correcting several forms relating to this issue.
I-526E
First, as mentioned in my initial comments, Form I-526E should include a question such as, “Have you included with your petition a written disclosure of all fees, ongoing interest, and other compensation paid to any promoter by virtue of your investment?” This question would be to alert the petitioner to the requirement in the instructions, which erroneously do NOT include such written disclosure, clearly required by INA § 203(b)(5)(K)(iv), as required evidence for the I-526E submission.
It is important for USCIS to clarify exactly what that disclosure must require. INA §§ 203(b)(5)(K)(iv) states:
“(iv) DISCLOSURE.—Each petition filed under section 204(a)(1)(H) shall include a disclosure, signed by the investor, that reflects all fees, ongoing interest, and other compensation paid to any person that the regional center or new commercial enterprise knows has received, or will receive, in connection with the investment, including compensation to agents, finders, or broker dealers involved in the offering, to the extent not already specifically identified in the business plan filed under subparagraph (F).
Importantly, the statute does not limit the disclosure to any source; therefore, it covers compensation paid from any source, even if the source is not the RC, NCE, or other issuer of the security. The instructions should clarify that the required disclosure must cover payments from any and all sources, so that clever parties trying to get around the statute’s intent cannot arrange for payments to come from parties other than the RC, NCE, or other issuer of securities. The reference to “ongoing interest” is meant to capture the very common practice of paying promoters from the NCE manager’s share of profits of the NCE. All that is required to trigger the requirement of disclosure is that the RC or NCE knows about the compensation. Although this particular statute focuses on what must be in the investor’s petition, this is part of the RIA’s total package of integrity measures and falls under the set of statutes that the RC and the NCE are required to certify continual compliance with by all parties involved.
The I-526E instructions should clarify that the required disclosure must identify each person receiving compensation by virtue of the investor’s investment, especially including the individuals and entities interacting directly with the investors. It is obvious that such payments are the most important in the investor’s assessment of the conflicts of interest on the part of people persuading the investor to make a particular investment decision. The above statute’s words “paid to any person” can be read to mean that each person receiving such compensation should be identified. This interpretation is supported by the specificity in Subsections (F) (“the name and contact information of any such person, if known at the time of filing”) and (G) (“an accounting of the entities that received such fees”). Without such clarification, some industry players will set up global clearinghouses through which to funnel all fees and disclose the fees only to such clearinghouses, failing to disclose the promoters closer to the investor and the amounts those promoters receive, and thereby frustrating the purposes of the statute to disclose the most meaningful conflicts of interest of all.
USCIS needs to amend Form I-526E immediately to cure this glaring oversight in the original form and instructions, and in the process it should clarify the nature of the required disclosure.
If USCIS decides that the above interpretation is wrong, then it should publish that fact instead, stating that it is enough for issuers to disclose the total amount of the investor’s administrative fees.
I-956F and I-956G
It is curious that the statutes underlying these forms are worded a bit differently than the statute above concerning disclosure to the investor, and differently from each other:
203(b)(5)(F)
(dd)(AA) any fees, ongoing interest, or other compensation paid, or to be paid by the regional center, the new commercial enterprise, or any issuer of securities intended to be offered to alien investors, to agents, finders, or broker dealers involved in the offering of securities to alien investors in connection with the investment;
(BB) a description of the services performed, or that will be performed, by such person to entitle the person to such fees, interest, or compensation; and
(CC) the name and contact information of any such person, if known at the time of filing;
203(b)(5)(G)
(ff) to the best of the regional center's knowledge, for all fees, including administrative fees, loan monitoring fees, loan management fees, commissions and similar transaction-based compensation, collected from alien investors by the regional center, the new commercial enterprise, any affiliated job-creating entity, any affiliated issuer of securities intended to be offered to alien investors, or any promoter, finder, broker-dealer, or other entity engaged by any of the aforementioned entities to locate individual investors-
(AA) a description of all fees collected;
(BB) an accounting of the entities that received such fees; and (CC) the purpose for which such fees were collected;
(CC) the purpose for which such fees were collected;
Subsection (F) concerning project applications specifies three parties who would be paying the compensation: the RC, NCE, or any issuer of securities. Arguably this limitation arises from an appreciation of the situation, that the parties issuing the security might not know at that point about compensation that might be paid to promoters in the future. More importantly, in fact, parties rarely know for sure what promoters will be paid to originate investors in the future, and we expect most RCs to legitimately indicate in Form I-956F that they don’t yet have the information needed to answer that question fully.
Subsection (G) concerning annual reports goes a little further and limits the required information based on where the compensation for promoters came from: “collected from alien investors.” It makes some sense for Congress to have framed the annual report requirement in terms of an accounting of all of the capital and administrative fees paid in by investors, with a focus on what made its way to promoters.
As stated in my original comments, the word “or” in the first version of Form I-956G seems to be a mistake. What I did not realize in making that comment is that the nonsensical word “or” comes directly from the statute. Nevertheless, the agency can take note that Congress clearly made a “typo” error and can fix it in implementation. The word “to” makes much more sense and is consistent with the other statutory requirements generally on this topic as quoted above.
An industry colleague brought to my attention a permissible interpretation of Subsection (G) that gives effect to the “or” in a way that furthers Congressional purpose. That is, (G) elicits information regarding any fees “collected by” not only RCs, NCEs, affiliated JCEs, or issuers, but also “collected by” promoters, finders, and broker dealers. This would mean that the RC would need to report on any fees it knows have been received by promoters, whether from investors themselves or from any other source (such as a non-affiliated JCE who is not an issuer). This would be consistent with the “all encompassing” interpretation of subsection (K)(iv) above.
Nevertheless, the issue arises that RCs and NCEs could “hide behind” the Form I-956G reporting requirement and claim that they are required to disclose to investors and report to USCIS only compensation to promoters that originate from investors’ administrative fees. Even if USCIS limits the annual reports to what the statute requires (correcting “or” to “to”), USCIS should clarify and publicize that the critical required written disclosure to investors at time of subscription is not limited to payments arising from investor administrative fees and must identify the specific promoters receiving such compensation, including especially the people and entities directly engaging with the investor. Another option is for USCIS to broaden the annual report to include copies of all of the written disclosures given to investors for filing with their I-526 petitions or to summarize those disclosures that are required to be available for USCIS audit.
If not, and USCIS will allow RCs and NCEs to limit the investor disclosures and the annual reports to the payments made to global clearinghouses out of the administrative fees paid by investors, then USCIS should publicize that interpretation so that RCs and NCEs who otherwise might strive for compliance in the spirit of the RIA can join the tricker and craftier parties who are appealing to fee-thirsty agents who don’t want their own compensation disclosed to the investors they are soliciting.
