The U.S. Citizenship and Immigration Services’ Administrative Appeals Office has released a non-precedent decision regarding the Regional Center designation of South Dakota Regional Center. See Matter of S-D-R-C-, ID# 13768 (AAO Mar. 15, 2017). While a final decision was not issued, the AAO remanded the case to USCIS to “reconsider [the] decision and balance all the evidence of the positive and negative factors” to determine whether termination is warranted. This is an important development for the EB-5 industry, as the AAO appears to have created a new standard by which USCIS is to determine whether a Regional Center should be terminated.
The applicable regulation regarding a Regional Center termination states that “USCIS will issue a notice of intent to terminate the participation of a regional center in the pilot program if a regional center fails to submit the required information or upon a determination that the regional center no longer serves the purpose of promoting economic growth, including increased export sales, improved regional productivity, job creation, and increased domestic capital investment.” 8 C.F.R. § 204.6(m)(6). USCIS certified the case to the AAO to determine whether a Regional Center may be terminated, notwithstanding evidence of promoting of economic growth and the filing of annual Form I-924A updates to USCIS.
In particular, USCIS asked the AAO for clarification on various “bad acts within the EB-5 program” may subject a Regional Center to termination. The AAO looked to regulatory history and determined that USCIS (through the U.S. Department of Homeland Security (“DHS”)) mandates general oversight of the EB-5 Program’s integrity, including the requirement of a Regional Center to serve the purpose of the EB-5 Program. The AAO reasonably concluded that promotion of economic activity or economic growth is no longer sufficient to maintain Regional Center designation.
“[C]ommon sense dictates that DHS cannot be compelled to maintain a malfeasant entity in the EB-5 program indefinitely and regardless of how egregious its acts may be. It would be absurd to suggest, for example, that USCIS could not terminate a regional center’s designation due to clear evidence of widespread criminal activity.”
Accordingly, the AAO ruled that USCIS is to:
“[B]alance all the equities on a case-by-case basis to determine whether a regional center is continuing to promote economic growth. Where both positive and negative indications of the promotion of economic growth exist, we look at all relevant documentation to reach a conclusion regarding whether, on balance, the regional center is continuing to promote economic growth.”
Positive factors include:
- Job creation
- Capital investment
- Positive economic impact
- Prompt corrective action after learning of impropriety
Negative factors include:
- Mismanagement, theft, or fraud by the Regional Center or related entities
- Diversion of investors’ funds from job creation activities
- Lack of proper oversight or a failure of due diligence on the part of a Regional Center over related NCEs and JCEs
- Criminal activity by the Regional Center or related entities
- Negligent or reckless actions by the Regional Center or related entities (including turning a blind eye to illegal or fraudulent activities)
- Failure to comply with U.S. securities laws and regulations
Additionally, the AAO ruled that a Regional Center cannot immunize or absolve itself of responsibility for a third party company’s wrongdoing as management of the Regional Center through contract, concluding that the “implications of such a framework are plainly inconsistent with proper USCIS oversight of the EB-5 program.”
Moreover, the AAO found that the issues of diverted funds are not exclusive to adjudications of EB-5 investors’ Form I-526 and Form I-829 petitions. Instead, the actions related NCEs and JCEs are relevant to the examination of the Regional Center’s continued promotion of economic growth.
The new balancing test created by the AAO provides some additional arguments that Regional Centers may use in any pending or future termination action. With increased immigration enforcement and compliance occurring at all levels of DHS and the increasing number of designated Regional Centers to 880, as of March 6, 2017, there may be an increase of Notices of Intent to Terminate (“NOIT”) issued by USCIS. It is critical that Regional Centers hire experienced EB-5 immigration counsel to effectively respond to USCIS.