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What's Wrong With The EB-5 Program?

by Carolyn S. Lee

The interest in EB-5 immigrant investor cases has not waned with either harsh economic times or the looming sunset (redux) of the EB-5 regional center pilot program on March 6, 2009. So the reasonably well-informed reader might question the appropriateness of my offering's title.

Alas, dear reader, your eyes have been clouded by "green sugar plum fairies." These are what my friend Angelo Paparelli has called the dollar signs dancing before immigration lawyers seeking greener pastures among high net worth foreign nationals. Who knew they existed in our hippie, feel-good practice of helping immigrants achieve the Great American Dream? These clients are not poor, tired, nor huddled - except maybe in a Hermès boutique to snatch a Birken bag.

There are many key things wrong with the EB-5 program, particularly as USCIS administers it. The Pilot Program authorizes the creation of regional centers, through which approximately 90% of EB-5 petitions are currently filed. We have the expansive law created in furtherance of "economic growth," whose few faults include an internal sunset provision. We then have decent regulations that fairly clearly separate the standard program rules from the Pilot Program. Then things start to go terribly wrong - both at the FTIRCP level and among the adjudicators at the Service Centers. The Foreign Trader, Investor and Regional Center Program (FTIRCP) is the unit within USCIS HQ having jurisdiction over the EB-5 program. California Service Center is, as of January of this year, the regional service center having sole jurisdiction over EB-5 filings.

The primary problem - and I only have time this episode for one, kids -- is FTIRCP's standard for job counting in regional center cases. It has freely imposed the separately existing standard EB-5 program's rules onto the Pilot Program. The standard program requires at the I-526 phase a showing that the required 10 jobs will be created within two years, as shown in the comprehensive business plan. In the same vein, the I-829 regulations governing removal of conditions require proof of actual job creation, such as I-9s and payroll records. This makes sense. For the standard program, the investor must actually create 10 jobs for known, qualified employees. The investor must produce documentation showing that Mary, Jim, Bob and Helen now have full time jobs as a result of the petitioner's investment.

In contrast, the Pilot Program has a broader mission. The law creating the Pilot Program sought to promote "regional productivity" and foster "positive economic effects." Accordingly, under the statute, job creation may be satisfied by both direct and indirect means. In other words, investors don't need to prove that Mary, Jim, Bob, Helen and their 6 co-workers were hired "directly" as a result of the EB-5 investment. Rather, under the regulations, the petition must prove job creation by including "valid economic methodologies" projecting required job creation, direct or indirect. By allowing the job creation requirement to be satisfied by indirect means, Congress and the regulations are saying that job creation may be reasonably inferred from capital infusion, as long as statistically valid forecasting tools support that inference.

The problem is that rather than auditing the validity of the economic methodology used at the I-526 phase, USCIS is demanding I-9s and payroll records - evidence of what it calls direct jobs, upon which the projection of indirect jobs is based.

USCIS doesn't buy the well-reasoned arguments put forth elsewhere, notably by Lincoln Stone, that when economists use the term "direct jobs" in their reports, they don't mean direct jobs in the Mary, Jim, Bob sense. Rather, the "direct jobs" themselves are projections forecast from capital infusion and other input factors. So to ask for I-9s and payroll records for employees who were never intended to be identifiable in the first place is idiotic on my impatient days and stubbornly unreasonable on my more contemplative days.

So what's wrong with the EB-5 program? In a word: USCIS. Wrong on the law, wrong in its approach (to make it clear - focus on the methodology, guys, not I-9s), and wrong in its understanding of what "direct jobs" mean to economists. Someone needs to remind USCIS to doff their cop hats when dealing with the EB-5 Pilot Program. It's good for America, Gentlemen. It brings capital into our country when we're experiencing a suffocating capital and debt squeeze in the nation. It creates jobs when we're hitting historic and devastating unemployment rates. Not asking for favors. Just apply the law and regulations as they stand. Is that too much to ask? Not a rhetorical question.

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