With securities attorney John Tishler and immigration lawyer Robert Divine
There’s a lot of confusion amongst EB5 stakeholders about how long permanent jobs that are created by EB5 investors need to last.
A major risk to non-construction job creation is whether jobs need to last two years to qualify EB-5 investors as having met their job creation requirement. So how long do these operational jobs actually need to last? The answer may surprise you.
John Tishler: Take a company that’s going to use EB-5 capital to develop a business and hire people. There have not been a lot of EB-5 projects that fit into that category, and the perception out there is that a project like that is unduly risky, from a job creation standpoint, and therefore from an immigration standpoint.
Now it may also be risky from a capital return standpoint, but that’s not what this question is about. The perception in much of the industry is that it’s very risky to invest in a project that relies on operational jobs because the jobs may not be sustained for a sufficient period of time; and I think that period of time is two years.
Additionally it’s a little bit confusing how the two years duration is measured.
Robert Divine: There are two sources of support for the argument that if the jobs were in fact created but then they went away, that they still count. There’s a strong argument that the operational jobs can count if they were created in good faith and supported by a good-faith business plan and market study that showed that it was reasonable to hire that number of employees.
The USCIS policy memo itself is pretty clear about this and it’s in the policy manual; volume 6 – Immigrants; Part G – Investors; Chapter two – Eligibility Requirements; Section B – Creation of Jobs; and then Subsection 3 – Full time positions for qualifying employees.
Full-Time Positions for Qualifying Employees
The investment into a new commercial enterprise must create full-time positions for not fewer than 10 qualifying employees. An employee is defined as a person who provides services or labor for the new commercial enterprise and who receives wages or other remuneration directly from the new commercial enterprise. In the case of the Regional Center Program, an employee also means a person who provides services or labor in a job that has been created indirectly through investment in the new commercial enterprise.
The crucial language is in the last paragraph, in this subsection: “Jobs that are intermittent, temporary, seasonal or transient in nature do not qualify as permanent full time jobs. However, jobs that are expected to last at least two years are generally not considered intermittent, temporary, seasonal or transient in nature.” [emphasis added]
So the key words are “expected to.” Jobs that are expected to last at least two years is what captures the concept where the jobs are created with a reasonable plan, and supported by a market study that suggests there will be demand for the work that those jobs would perform, and if the employer employs those people, they should count — even if less than two years after the jobs were created they fall away because the business performs worse than expected.
I think this language could be a little clearer in that regard. And specifically say that (and I don’t know why it doesn’t say it) but the agency [USCIS], when it proposed language like this section originally actually did say it.
They made a draft policy memo that also supports this. It was in an August, 2015 memo. And the subject is Guidance on the job creation requirement and sustainment of the investment for EB-5 adjudication of form I-526 and form I-829.
And this is the document where they kind of forecasted how they were going to handle the sustainment-of-investment issue that led to the whole idea of redeployment. But it also included a discussion about job creation.
It says after the immigrant investor files a form I-829 petition, USCIS reviews the petition to determine whether or not the petitioner created, or can be expected to create within a reasonable time, at least 10 full-time jobs to qualify an employee.
In making the determination as to whether or not the petitioner has created the requisite number of jobs, USCIS will not require that the jobs still be in existence at the time of the form I-829 adjudication in order to be credited to the petitioner. Rather, the job creation requirement is met if the partitioner can show that at least 10 full-time jobs for qualified employees were created by the new commercial enterprise as a result of this investment, and such jobs were considered to be permanent jobs when created.
So that language is what they paired down to be in the policy memo that jobs that are expected to last at least two years can count. They didn’t go into the details of what that “expected to last” means but in this draft memo, it had another paragraph that did tease it out some.
Consistent with prior policy, jobs that are expected to last for at least two years generally are not considered intermittent, temporary, seasonal, or transient in nature. So that language made it exactly into the policy manual.
Kurt Reuss: So if a project intends to create the jobs, but then ultimately fails…
Robert Divine: There is a discussion about failed businesses. If the investment shows that all of the EB-5 invested funds were lost as a result of the investment, the investor may still meet the sustainment requirement for the form I-829 adjudication. The investor must demonstrate that full amount of capital was invested in the new commercial enterprise, and establish the loss of funds as direct result of the investment.
So that is consistent with the idea that if the jobs were intended to be permanent, to last at least two years, when they were created, and then, subsequently and unexpectedly, the business fails and even goes bankrupt, then the investor could be found to have met the sustainment requirement and the job creation requirement, even though the money’s gone, by the time of I-829 filing.
I think the policy manual on its face is pretty clear: jobs can be considered permanent if they were expected to last at least two years.
John Tishler: I know somewhere in the lore there was a notion of what the two-year period is, that the jobs were supposed to have been expected to be created.
Robert Divine: There are two different concepts of a two-year period. So I can’t tell you exactly where does the immigration service get the idea that in order to be permanent, the jobs needed to have been intended to last two years.
Maybe it comes from looking at the structure of the program under the Act and the period of conditional residence that absolutely had to be met was two years — that once somebody became a conditional resident they had to come back two years later and show that the jobs had been created.
Maybe they kind of get the idea that Congress thought that “permanent” was two years, but they don’t really articulate that, I don’t think. The two-year Green Card one gets is always issued for exactly two years after the person is admitted. That is a different technical issue although it may be theoretically connected to the question of what constitutes a full-time job.
John Tishler: Sofor an investment that happens today, does that mean that the business plan should be projecting jobs that are going to be sustained for a two-year period that ends at the end of the two year conditional residency? And that, of course, is many years out, right? Depending on the country, six, eight, to 12 years out would be the end of that two-year period.
I don’t think it means that, but I’m hoping you can confirm that. In other words, the two-year period when I’m supposed to be expected to have these jobs in place, is it that two-year period ending when conditional permanent residency ends, is it the two-year period right after they cash my check? Is it somewhere in the middle — or does it even matter?
Robert Divine: Well, the policy manual also says the business plan filed with the immigrant petition should reasonably demonstrate that the requisite number of jobs will be created by the end of this two-year period. They’re basically saying when you file an I-526 petition, you need to show to us that by the time you get to the end of that two years of conditional residence, the jobs will be created. There has to be a plan that the jobs will be created by that time.
Kurt Reuss: So if I’m born in a country that is in retrogression, and I filed my I-526 today, and let’s assume the jobs get created, then another few years go by before my I-526 petition is actually approved and my visa is available, my conditional residency period starts… But none of that matters because the jobs have already been created — so long as they were created prior to the expiration of my conditional residence, I’m fine?
Robert Divine: Right.
We know that the law specifically says that an I-829 can actually be approved even if those jobs can be shown to be expected to be created within a year, but, here they’re saying it may be true that you could get an I-829 approved with the jobs not yet even being created. But for us to approve an I-526, the plan has to be that they will be created already by the point of filing the I-829.
Most jobs that are operational don’t really have an end point. And most of the business plans would say, we expect to start this thing and the jobs will go on indefinitely. But all it has to really do is operate — or be intended to operate — for two years. And, ideally, to actually operate for at least two years. Does that makes sense?
John Tishler: Yeah, it does. And I think this raises sort of a practical issue that I had raised with Kurt when we talked privately. I think we’re specifically thinking of these businesses that you don’t usually see in EB-5 — start-ups that are gonna hire skilled people to make the next great technology play. And it drafts a business plan and projects that it’s going to hire these people — it’s credible and it’s in good faith.
What might we expect, let’s say, at the I-526 stage? Perhaps they haven’t yet hired the people because maybe they haven’t yet raised all the money they want. And then, let’s say, by the I-829 stage, the business failed. It never did hire the people because it never raised enough money.
Robert Divine: Well, if it never raised enough money to actually hire the people, that would be a problem.
I think that for this, they actually would need to have employed the people for some period of time; you would need to have all the people whose operational jobs are needed to count to be employed. And there was every reasonable expectation that that was going to go on indefinitely, or at least for two years.
And if it turns out not to be successful, if the technology that was to be developed didn’t work as well as hoped or wasn’t received in the market as well as hoped, then maybe revenues don’t come to sustain the continued employment. And therefore they can’t be employed. Even if that happens before the employees have been employed for two years, then that should be good enough.
The problem, I think, on the front end would be potentially whether the agency picks at the standard of proof. If it’s a truly a kind of speculative technology for which there can’t really be a typical market study. Then the agency might say, you haven’t met your burden of proof, to show that you have the reasonable expectation of employing these people for two years. That would be potentially the biggest problem with a project like that.
John Tishler: Ah, okay. that’s actually really helpful guidance. I’m almost hearing that it’s an advantage for business plans that are sort of more common — if it’s a business plan to open a bakery and they understand what a bakery is. And so if you say, I’m going to hire bakers and we’ll keep them employed, they go, okay, yeah, we get that. It may or may not work out.
Robert Divine: But at the I-526 stage, the agency might say, well, show us that you have surveyed the demand for bakeries in that area and that there is a market for the introduction of another bakery, and it’s more probable than not that these jobs will be created and sustained.
John Tishler: I think most technology companies could do something that is at least thematically similar. They’re always coming from somewhere. If you’re Zoom, whenever they started, you know, eight years ago, I mean, that didn’t come out of nowhere, right? There was a market for telecommunication that was probably some market for video communication, right? So they could have projected, “we’re going to fill this space in the market”; but it would have been very speculative.
Robert Divine: I think the biggest problem, in terms of actually putting something together that investors might rationally invest in instead of other more kind of traditional EB-5 investments, would be showing that the capital stack is there to actually launch the business and employ all the people.
Often the businesses are trying to get enough money, and keep getting more money, to get to a point of proving out the business. And they may not be able to raise enough capital before they have actually employed all the people that they would need to support the EB-5 investors. That would be the problem.
John Tishler: Yeah. I hear you. And so that’s why I was thinking in terms of I were to structure one of these, and if I were thinking about it from the investor’s standpoint, I’d probably want to require in my investment documents that you actually hire the 10 people plus my cushion from my $500,000. Because I don’t want to be subject to the risk that you’re looking for money from a venture capitalist to hire those people.
Robert Divine: Or you say, you have to use my $500,000 and/or other money that you already have lined up just as in a construction project. There’s other money that it takes to create the construction jobs that the EB-5 investors can take credit for. But you want to make sure that they have their capital stack lined up before you commit to put it in your EB-5 money.
John Tishler: Thank you. Yeah, that’s a great, that’s a great clarification.
John Tishler: I’d love to sort of sum up what, what I’m hearing. I’ve frequently, over the years, gotten this question — entrepreneurs calling me saying, “I’m trying to raise growth capital. And hey, I’ve heard about this EB-5 thing, and it sounds like a good way for me to raise growth capital. Is it?”
And candidly, I’ve been a little bit pessimistic on that. And there’ve been two risks that I’ve said that investors have to get over in order to make that investment. One is the nature of the investment itself and the risk associated with that type of investment, which historically hasn’t been the risk that EB-5 investors have been interested in. They’ve been interested in capital security rather than growth. So that has nothing to do with immigration, that piece of it.
And then the other one is this additional job creation risk or perceived additional job creation risk.
Let me just say, after this hour of discussion, and my experience that perceived additional job creation risk was kind of the final nail in the coffin because it was like a non-diversification risk in a portfolio: you don’t get paid for taking it. So that’s long been the perception.
And I take a lot of comfort from what Robert said here, that, that operational job creation risk may be more myth than reality. That there really is probably no more job creation risk in one of these business plans, with just some prudent covenants around things which are really no different than the covenants that we would put in a construction project. They’re written a little differently, but fundamentally, they’re not any different. With some prudent covenants about the use of the money in job creation, you could make this no more risky from a job creation standpoint.
That then leaves just simply the overall risk profile: are EB-5 investors interested in taking a growth capital risk? And that’s just a completely different question. Those are just things that I would think about when evaluating one of these business plans after hearing this discussion.
Kurt Reuss: Does that seem reasonable to you, Robert?
Robert Divine: Yes. I think that we don’t have that many examples of the immigration success of a business plan for operational jobs that doesn’t pan out because such a high percentage of the EB-5 projects have involved construction that took care of all of the EB-5 jobs that were needed. Once that happens, then I think we’ll start having more empirical evidence that this can work.
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