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[HOT] Background on the "revival" of Regional Center EB-5 Program

The Regional Center Pilot Program was created around 1993, and from 1993 to around 1997, Regional Center Program took off based on aggressive marketing of a few Regional Centers who purposely began pushing the EB-5 law to its limit (with the implicit consent of USCIS, many would argue); but subsequently, the Regional Center Program encountered various problems and litigations with USCIS. It was not until after 2002 that the Regional Center Programs started making a come-back, and the growth has continued up to the present, although the current EB-5 market has been limited due to the lousy world economy. Why has the Regional Center Program made a sudden come-back after 2002?

Why the downfall in the first place?

Around 1997, the Regional Center took a downfall and has meandered for many years and almost died until the resurgence after 2002.

The causes for the downfall vary depending on whom you talk to, but we believe most EB-5 experts will agree that one definite cause was the failure by the USCIS to set clear guidelines for EB-5 Program, and the second cause was the overly aggressive actions taken by some regional centers who tried to exploit or push the unsettled EB-5 law or unclear guidelines over the slippery slope of common sense. Basically, most popular Regional Centers did not have their EB-5 investors truly invest the entire amount of requisite fund, and did not really create all that many jobs within the geographic region. In other words, the Regional Centers were more interested in making their Regional Centers easy to market, rather than focusing on safeguarding the integrity of the EB-5 Regional Center Program, which really was to use the EB-5 investors' funds to help create some jobs. USCIS and Dept of State, upon seeing the common sense defying structures of some Regional Centers that failed to even pass the "laugh test", began to counter-attack, by issuing guidelines that went overboard and severely limited any regional center activities for many years to come.

The rise from the ashes

Basically, USCIS's counter-attack led to a slow demise of Regional Center Program, so much so, that Congress passed statutory amendments (perhaps urged on by USCIS itself) in an effort to "revive" the Regional Center EB-5 Program. In short, the Congress asked the USCIS "How come there is no activity in the Regional Center Program? What's wrong? What can we do to get the RC Program going?" This led to several statutory and regulatory amendments around 2002 that pulled the Regional Center Program from the pits to a workable Program.

The USCIS was led in this effort to revive the Regional Center EB-5 Program by Mr. Morrie Berez, supported by Mr. Bill Yates, who really did a wonderful job in "reviving" the EB-5 Regional Center Program by establishing open communication channels and setting reasonable adjudication policies to effectuate these amendments. We don't know what happened, but Mr. Morrie Berez is no longer in the EB-5 Program Unit. The strict scrutiny applied to the lawful source requirement became more reasonable. In addition, after the below-described amendments were effectuated, USCIS held an Open Meeting (akin to a religious revival meeting) in Washington, DC in September 2004 to effectively become a cheerleader for the Regional Center Program and to convince many unbelievers and skeptics of the Regional Center Program to give it a chance, because at the time, many EB-5 experts and attorneys were very skeptical that USCIS would be willing to devote the necessary time and effort to set up reasonable standards for the EB-5 Program and to back off from the harsh positions echoed in the four precedent AAO decisions. Many of the same EB-5 experts believed that USCIS' changing their positions and not providing clear and reasonable guidelines were the root of the problems, but after the Open Meeting, in which USCIS officials spoke, primarily articulated by Mr. Morrie Berez, the Regional Center principals and EB-5 experts came away pretty impressed and began to have a growing hope for the revival of the Regional Center Program. See regarding this Open Meeting announcement and agendas.

The amendments that helped the Regional Center rise from the ashes

Without the changes in the EB-5 law, we believe the Regional Centers would have continued to meander and never have taken off. What were the important statutory amendments? They were:

  • Doing away with the job-creation requirement that were related to export activities of the region, and allowing the job-creation from any investment activities in the region;
  • Doing away with the establishment of new commercial enterprise requirement by the investor, and allowing third-parties rather than investors to first create a new commercial enterprise, i.e., limited partnerships first and then attract investors -- per real-world commercial demands;
  • Reaffirming that a limited partnership is included in the definition of "new commercial enterprise"; and
  • Defining full-time positions as the positions that require 35 hours per week any time (rather than all the time) regardless of who fills the positions.

The above amendments (aided by a more reasonable adjudications by USCIS) in one swoop made the Regional Center Program comport with the real-world commercial requirements. Without these amendments (and subsequently by various policy changes), there is no way Regional Center Program would have taken off. Therefore, people who refer to "regional centers" as still being some sort of "shady schemes" have not kept up with these developments that have been taking place over the past 5 years, and are not aware of the very problems that initially caused the regional centers to become "schemes" and then the subsequent amendments that allowed Regional Centers to carry on as bona-fide businesses to attract foreign investors' funds.

EB-5 practitioners really have to understand the checkered history of the Regional Center Program and the reasons for the problems, before they can understand that there have been definite improvements that helped revive the Regional Center into a more practical and reasonable EB-5 Program that can comport with the real-world, commercial requirements. Granted, old prejudices formed by actual events are hard to shake off -- and said author is not saying the Regional Center has reached a perfection -- but no EB-5 experts will disagree that there has been definite improvements due to laudable efforts of USCIS. In fact, the USCIS EB-5 Headquarters announced that they are working on various guidelines to clarify some key EB-5 issues. In the absence of Congressional actions, the USCIS can only issue clarification guidances and regulations.

What remains to be seen

It remains to be seen whether USCIS HQ and CSC, now the sold adjudicating body of EB-5 related petitions and applications, can tackle the issues that arise in a prompt and reasonable manner that serve the underlying goal of the EB-5 Regional Center which is to benefit the regional economy by creating jobs. There are a myriad of I-829 issues that never have been addressed in the past and lie dormant to raise their ugly heads; but USCIS HQ and CSC need to tackle these issues swiftly, by setting clear standards -- while at the same time, realize that regional centers and USCIS have never encountered some of the I-829 issues. If USCIS HQ and CSC cannot succeed in what they encouraged in 2003, then the EB-5 Regional Center Program will always be a program that never fulfilled its promise.

In conclusion, we are not saying the Regional Center Program is perfect or is even close to reaching its potential. We do not think USCIS believes that either, but in the recent years, there has been a development of mutual cooperation between Regional Centers, EB-5 practitioners and USCIS to try to set more clear and practical standards for the Regional Center Program and make it comport with the commercial necessities while remaining true to the integrity of the EB-5 Program, which really was to create some jobs by attracting foreign investors to invest the requisite funds. However, how long this atmosphere of cooperation lasts remains to be seen, as it depends largely upon the leadership of USCIS officials in charge of EB-5 area. It is our belief that the EB-5 Program needs an active involvement or guidance of a "hands-on" USCIS leadership, as there are too many issues that are unclear and undecided.