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EB-5 CLIENT ADVISORY: EB-5 Visa Quota Cap has been Reached! Implications for Future EB-5 Investors; EB-5 Prospective Investors; and Project Developers

August 29, 2014

Amin-Wassem-China-US-EB-5By Wassem Amin

According to a Senior Department of State Official, effective immediately and until the end of FY14, the no EB-5 visa left in the 10,000 annual allotment

Back in February, in a blog titled “EB-5 Chinese Quota Retrogression: Analysis and Potential Impact and Solutions,” I discussed the potential repercussion and immediate negative impact that would happen when EB-5 Investor Application application surging past the annual !0,000 numerical cap imposed by Congress.  Presciently, I stated that:

Absent Congressional action, the prospect of EB-5 petitions exceeding the annual 10,000 allotment is inevitable.  Once that quota is met, the per country limits will result in visa retrogression for Chinese investors, delaying their ability to obtain an immigrant visa by at least a year or more, in addition to the time it takes to process the I-526.

That statement was on February 4th, 2014 and a few days later, the possibility of the quota being reached became an absolute certainty, rather than a probability.  On February 12, 2014, the Canadian Government announce  that it is shutting down its Immigrant Investor Program, effective that same day, and an estimated 45,000 Chinese Investors will be denied and receive the funds they invested.

Potential Implications

In the long-term, the delay and complications of EB-5 processing will result in Chinese investors looking to other countries that actively compete for foreign investors, including Australia, Canada, and the United Kingdom.  Retrogression adds further strains on the EB-5 program which has already been plagued by extraordinarily slow processing times and delays by USCIS.  Faced with the prospect of waiting two or more years before being able to immigrate to the United States, a Chinese investor may decide to immigrate elsewhere.  Other countries will surely capitalize on visa retrogression to draw away potential investors.

In addition, the Chinese retrogression creates a significant conflict of interest between project developers, Chinese investors and immigration agents.  It also raises new ethical issues for an attorney representing the project developer or the Chinese investor.

From an investor’s perspective, an investor with children who are reaching the age of 21 may have incentives to delay the approval of the I-526 as long as possible.  Under the Child Status Protection Act (“CSPA”), commonly known as the “age-out provisions,” a child can immigrate as a beneficiary of a parent’s immigration application until he or she turns 21.  The CSPA freezes the age of children who are derivative beneficiaries of an I-526 petition while the petition is pending, but not once the petition is approved and awaiting the quota to become available for an immigrant visa.  This benefits a Chinese investor whose children are close to aging out.  Thus, it will be their benefit to delay the I-526 approval as long as possible.

From a Regional Center or project developer’s perspective, job creation projections and capital redemption timelines will be directly impacted by retrogression.  Capital redemption, or the investor’s exit strategy, is, essentially, the time period before which the investor can have his capital returned.  A protracted visa immigrant visa availability will tie up the investment money for a longer period of time.  Although that may seem like a benefit to the project developer, most current EB-5 investments provide for an exit strategy in which the developer sells or refinances the business, using the proceeds to repay investors.  A delay in visa availability will delay the developer’s ability to do so–since an investor cannot redeem capital before the approval of an I-829, which is the petition to remove conditions on investor’s permanent resident card.

Another potential implication is whether such a delay would impact the developer’s ability to access investor funds.  In a typical investment through a Regional Center, the investor’s capital is held in an escrow account until the approval of the I-526, at which point the funds are released to the developer.  Previously, an I-526 approval typically meant that the investor would be able to immigrate to the United States (or adjust their status) shortly thereafter because an immigrant visa was always available.  However, visa retrogression will delay that process by a significant period of time.  An investor, therefore, may dictate that the funds be held in escrow until a visa becomes available, not simply until the I-526 is approved.  Without alternate financing, this delay could essentially result in an inability to proceed with a project’s development and, ultimate failure.

From an attorney’s perspective, counsel for a Regional Center must recognize the additional securities disclosures that may result from visa retrogression.  Specifically, new risk factors for offering documents or Private Placement Memoranda would need to be disclosed.  Similarly, counsel for an investor would need to highlight the possible implications to their client.

Solutions and Proposals

Bridge Financing

However, the growth in EB-5 financing market has the creation of spurred specialized loan companies that address this very issue.  There are now several companies that provide specialized EB-5 bridge loans which allow a developer access to all or some of its anticipated capital.

Bridge or interim financing provides the opportunity for EB-5 project developers to take out short term financing to help construct and develop the project, then the EB-5 capital, as it is received, may replace that short term financing yet still receive credit for job creation by USCIS.

Moreover, in its latest Policy Memorandum, USCIS has specifically indicated that such financial arrangements are allowed in the EB-5 context.  In a May 20, 2013 Adjudications Policy Memorandum, USCIS stated, in pertinent part:

It is acceptable for the developer or the principal of the new commercial enterprise, either directly or through a separate job-creating entity, to utilize interim, temporary or bridge financing – in the form of either debt or equity – prior to receipt of EB-5 capital. If the project commences based on the bridge financing prior to the receipt of the EB-5 capital and subsequently replaces it with EB-5 capital, the new commercial enterprise still gets credit for the job creation [arguably the main requirement of the EB-5 program] under the regulations….Developers should not be precluded from using EB-5 capital as an alternative source to replace temporary financing simply because it was not contemplated prior to obtaining the bridge or temporary financing.

Tapping Alternative Markets – Tapping the Middle East Market

Prudent project developers and Regional Centers should hedge the risk of any impact a shortage in Chinese investors may cause.  Since over 80% of EB-5 investors are from China, even a small decrease in the number of investors may have an significant impact.  Creating an alternative pipeline of EB-5 investors from different regions is the key to ensuring continued and sustained growth in the EB-5 Program.  As a Firm with extensive experience in the Middle East. representing Institutional Investors, Private High Net Worth Investors, and advising on fiscal policy matter for government officials, we have the unique position to facilitate the expansion of an EB-5 Market throughout the Middle East,


[1] Wassem M. Amin, Esq., MBA is an Associate Attorney at Dhar Law LLP in Boston, MA and is the Vice Chairman of the Middle East Division of the American Bar Association.  Wassem has extensive experience in the Middle East region, having worked as a consultant in the area for over 9 years.  Wassem currently concentrates his practice on Corporate Law, Business Immigration and International Business Transactions.  He has advised countless Eb-5 Investors and assisted developers in structuring USCIS-compliant EB-5 Regional Centers as well as sourcing investors throughout the Middle East. 

Wassem is also the Vice-Chairman of the MIddle East Comittee of the ABA; Vice-Chairman of the International Commercial Transactions Division; as well as a Board Member on the Regent Board of the ABA’s Immigration Policy

For more information, please visit the About Us page or request more information on our Contact Us page.

Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice.  The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.

Doing Business in Saudi Arabia: Public Bidding on Lucrative Government Contracts

May 13, 2014

wassem.amin.saudi.arabia.business

By Wassem M. Amin, Esq., MBA

The record FY2013 and FY2014 budgets announced by the government of the Kingdom of Saudi Arabia have received much media attention. The FY2014 budget of Saudi Arabia, for example, sets a record U.S. $228 Billion (SAR 855 Billion) in government expenditures. Foreign companies and businesses who do business with the Saudi Government quickly discover a very rewarding and lucrative market.

Overview

Key expenditures, as announced in a press release by the Saudi Government, will focus on “infrastructure, education, health, social services, security services, municipal services, water and water treatment services, and roads and highways. Moreover, the budget gives particular emphasis to science and technology projects and e-government.”

Specifically, key expenditures have been allocated in the budget for the following major sectors:

  • Education: US $56 Billion – approximately 25% of the budget. This will be used to finance the construction of 539 new schools and 1,900 existing school-construction projects as well the refurbishment of thousands of present educational facilities.
  • Health and Social Affairs: US $28.8 Billion.       This will be used to finance the construction of dozens of new hospitals throughout the Kingdom.
  • Infrastructure and Transportation: US $17.8 Billion – Key planned projects in this sector include finishing work on existing projects, completing construction on highly publicized economic cities, and construction of new sea ports and a cross-country railway service.

U.S. and foreign based companies who are unfamiliar with doing business in Saudi Arabia generally are advised to seek the assistance of a legal advisor who is familiar with the region’s unique laws and culture. Moreover, companies wishing to do business with the Saudi Government should be aware that, as with any national government, it may be a complicated and time-consuming process.   However, with the right guidance, those willing to invest the time and effort will find that there are no shortage of very financially rewarding opportunities – in both the public and private sector.

Rules and Regulations Governing Saudi Public Contracts

Generally speaking, public or government contracts in Saudi Arabia are governed by the Government Tenders and Procurement Law and its implementing regulations (the “Law”). With few exceptions, the Law requires Saudi government entities to procure products and services through a public bidding process. A government agency is required to prepare and advertise a Request for Tenders (“RFT”) and advertise it in the Saudi Official Gazette and in at least two local newspapers for a minimum period of either 30 or 60 days–depending on the value of the project.

The exceptions to the public requirement are relatively few. Exempt from the public bidding requirement, direct procurement applies to the following sectors: military and defense equipment; consultancy services; unique products or services; and urgent medical supplies in a response to an epidemic.

To be eligible to enter the public bidding process, the bidder must post a bank guarantee equal to 1% of the project’s value. Within ten days of being awarded the project, the winning contractor must provide the respective government agency with an unconditional performance bond equal to 5% of the contract’s value. Usually, the performance is issued by a Saudi bank and must be valid for the duration of the project.

Who is Eligible to Submit Bids?

The Law indicates that any bidder licensed to do business in Saudi Arabia is eligible to participate in the process. At first glance, it may appear that a foreign company that has undergone the licensing process in Saudi Arabia (discussed in previous posts) is technically eligible to bid on public projects. However, a thorough reading of the Law and its implementing regulations proves otherwise. The Law and its implementing regulations require the bidder to hold a variety of certificates that can only be held by a Saudi business – such as, but not limited to, a commercial registration certificate, a classification certificate, a tax certificate, a Saudization certificate, and a foreign investment license if the bidder has any foreign capital. Many of those required licenses and certificates can only be obtained if the bidder is at least partially-owned by a Saudi national.

Selecting a Local Agent or Partner

Therefore, the most common, and effective, way for a foreign company to bid on public projects is by establishing a partnership or agency agreement with a local business. A key issue for foreign companies then becomes how to identify a local business partner that, not only adds value, but meets the various requirements of the Government Tenders and Procurement Law. In our experience, identifying the right partner is oftentimes detrimental to a foreign company’s success or failure in Saudi Arabia. Substantial due diligence and vetting is a critical component of this process. Generally speaking, a local partner should have prior experience and a successful track record working with the government agency that is awarding the contract.

The challenge is that public information on private businesses in Saudi Arabia is rare, if not impossible, to find. Therefore, utilizing a legal or advisory firm that has first-hand experience in the region is oftentimes critical. An experienced advisor would be able to identify, and vet, potential partners in the region and assist the foreign company with negotiations and legal registration requirements.

Saudi Arabia has pursued an open and liberal investment policy by welcoming and encouraging both domestic and foreign investment. The objective of Saudi Arabia’s policy is to achieve diversification by gradually reducing dependence on one source of income. The massive infrastructure and expenditure projects announced by the Saudi government present opportunities for foreign companies in virtually every major sector. However, the cultural, political, and legal landscape is complex and varies dramatically from that of countries such as the USA or in Europe. Unaccustomed foreign companies or investors should seek out advisory or legal firms who are proficient and have expertise in Saudi Arabia.

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Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice. The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.

Wassem M. Amin, Esq., MBA is an Associate Attorney at Dhar Law LLP in Boston, MA and is the Vice Chairman of the Middle East Committee as well as the Islamic Finance Committee of the American Bar Association’s International Law Section. Wassem has extensive experience in the Middle East region, having worked as a consultant in the area for over 10 years. Wassem currently focuses his practice on International Business Transactions and Business Immigration (EB-5 Regional Center and Investor Representation). For more information, please visit the About Us page or http://www.dharlawllp.com.

Doing Business in Saudi Arabia: Establishing Commercial Agency and Distribution Agreements

April 28, 2014

Amin - Doing Business in Saudi ArabiaBy Wassem M. Amin, Esq., MBA

Saudi Arabia is one of the largest importer of goods in the Middle East region and is, in fact, one of the largest per capita importers of goods in the world.  Saudi Arabia imports virtually all consumer and industrial goods that it uses.  It imports roughly triple the amount of goods that it exports.  For example, according to the Kingdom’s Central Department of Statistics and Information (Link in Arabic), in 2012, total imports were approximately 584 Billion Saudi Riyals (US $156 Billion) compared to non-petroleum related exports of 190 Billion Saudi Riyals (US $50 Billion).

With the recently-announced record 2014 national budget, demand for imported goods is expected to exponentially rise.  Most foreign companies seeking to establish a long-term presence in Saudi Arabia choose to do so via a commercial agency agreement with a local partner.  Commercial agency agreements in the Kingdom are governed by the Commercial Agency Act and associated regulations (the “Act”).  The law does not differentiate between a distributor or an agent and, therefore, the Act is applicable to both types of contractual relationships.  These two terms are used interchangeably in this Article.

The Act defines a commercial agency relationship as a contractual relationship between a Saudi company or individual and a foreign producer or their representative for the purpose of undertaking trading and commercial activities in the Kingdom.

Who Can Act as Agent/Distributor in Saudi Arabia?

The Act requires that the local agent or distributor be either a Saudi national (or 100% Saudi-owned company) or a citizen of the Gulf Cooperation Council (GCC).  The GCC’s members include the countries of: Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and the United Arab Emirates.  In addition, the entity or individual must register with the Ministry of Commerce and the chamber of commerce in the region where the majority of trading activities will be undertaken.

Legal Obligations of Agents & Distributors

The Act imposes stringent legal obligations that function as a “warranty” for any goods distributed by the local agent .  Among the most significant are the requirements that an agent provide spare parts at ‘reasonable prices’ as well provide maintenance and repair services.  This requirement is imposed for a period of one year even after the termination of the agency agreement with the producer or until the appointment of a new agent.  The agent is also required to maintain extensive documentation disclosing all customs/duties information and the country of origin of the product.

The Commercial Agency Agreement

In order to impose uniform rights and obligations on all local agents and their foreign principals, the Ministry of Commerce has a standardized model contract which serves as a guide for both parties.   Although the agent and principal are not required to use the model contract, the use of a contract with terms that substantially differ from the model will prevent that agency relationship from being registered with the Ministry of Commerce–essentially invalidating the contract.

The mandatory terms in a commercial agency agreement, as set out by the Ministry of Commerce, are the following:

  • Parties to the Agreement;
  • Territory covered by Agency;
  • Exclusivity, if any;
  • Duration of Agency;
  • Conditions for termination and renewal;
  • Rights and responsibilities of each party towards each other and the consumer–specifically who is responsible for the cost of maintenance and provision of spare parts;
  • The products and services that are covered by the Agreement;
  • Capacity of the local agent, i.e., whether the agent is a direct representative of the principal or is an independent distributor; and
  • The terms of payment or formula for remuneration.

Saudi Arabia is a lucrative market for foreign companies and investors. At a time when the market in the United Arab Emirates is beginning to get stagnant and saturated, Saudi Arabia remains ripe with opportunities. However, the cultural, political, and legal landscape is complex and varies dramatically from that of countries such as the USA or in Europe. Unaccustomed foreign companies or investors should seek out advisory or legal firms who are proficient and have expertise in Saudi Arabia.

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Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice. The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.

Wassem M. Amin, Esq., MBA is an Associate Attorney at Dhar Law LLP in Boston, MA and is the Vice Chairman of the Middle East Committee as well as the Islamic Finance Committee of the American Bar Association’s International Law Section. Wassem has extensive experience in the Middle East region, having worked as a consultant in the area for over 9 years. Wassem currently focuses his practice on Business Immigration (EB-5 Regional Center and Investor Representation) and International Business Transactions. For more information, please visit the About Us page or http://www.dharlawllp.com.

Doing Business in Saudi Arabia: Options and Overview for Foreign Investors and Companies

March 25, 2014

Wassem Amin SAUDI

(Note: This Article was originally published the American Bar Association, Section of International Law Quarterly Newsletter in March 2014.  For a downloadable copy of the newsletter, click here.)

By: Wassem M. Amin, Esq. MBA*

The Kingdom of Saudi Arabia is one of the fastest growing economies in the Middle East. In 2013, the government increased its budget by more than 20% than the previous year, to approximately 820 Billion Saudi Riyals ($219 Billion). Additionally, Saudi’s King Abdullah pledged more than $500 billion on social welfare and infrastructure projects over the next few years. Saudi Arabia’s increased spending is part of its policy to create economic diversification and reform, in turn decreasing their dependence on oil revenue and creating new jobs for the local population.

A large proportion of the Government’s spending, approximately 300 billion Riyals, has been allocated to capital expenditures on investment projects and social infrastructure. Ambitious plans include building 539 new schools and universities, as well as the development of several new cities in the sprawling desert kingdom.
The biggest beneficiary of this expansionary policy is the construction industry. Demand in the construction and associated sectors, such as residential and commercial real estate development, will increase exponentially, representing an excellent market opportunity for foreign investors and international corporations seeking to enter the Saudi market.

Applicability of Islamic Finance

Construction projects in Saudi Arabia are typically either public or private. The governing law which applies to all contracts, including construction, is Shari’a, or Islamic, law. General principles of Islamic Finance are applicable, such as the duty to act reasonably, in good faith, and to mitigate losses.

In the private sector, within the construction sector specifically, the Islamic Finance principle that applies is the “istisna’a” contract, which is a contract for the sale of an asset that is yet to be constructed or manufactured. Using this structure, the party providing capital, the financier, enters into a contract with the purchaser of the building to be constructed. Usually the financier, whether a bank or investor, will then enter into a back-to-back construction contract with a general contractor for the project. The financier realizes a profit from the spread between the cost of the construction contract and the price of the purchase contract.

Public Works Contracts

However, in the public sector, specific regulations and a complex legal framework govern bidding for public works, as well the interpretation and enforcement of underlying contracts. While still generally subject to Islamic Law principles, public works contracts are considered administrative contracts and are subject to the Government Bids and Procurement Law, implemented with associated regulations.

Establishing a Foreign Presence in Saudi Arabia

Recent amendments in the law and a shift in policy by the government to attract foreign direct investment have made it easier than ever for a foreign company or investor to establish business operations in Saudi Arabia. Although there are a variety of business organizations in Saudi Arabia, the most commonly used by foreign companies in undertaking construction projects are Limited Liability Companies (LLCs). That is due to the relative ease of incorporating an LLC (as opposed to, for example, a Joint Stock Company), minimal capitalization requirements, and the requirement of less corporate governance formalities.

The actual procedure of establishing an LLC in Saudi Arabia is typically a two-step process: (1) First, the foreign partner applies to the Saudi Arabian General Investment Authority (SAGIA) for a foreign investment license; (2) Second, once SAGIA issues the license, the partners in the proposed LLC apply to the Ministry of Commerce and Industry in order to incorporate the company. Once approved, the Ministry will certify the formation documents of the LLC and issue a commercial registration certificate–which permits the LLC to begin operating in the Kingdom legally.

Saudi Arabia’s Foreign Investment Regulations give foreign investors a variety of options in determining how to conduct business operations in the Kingdom. However, regardless of the option chosen, if a physical commercial presence is established, foreign investors must first obtain a foreign capital investment license from the Saudi Arabian General Investment Authority (SAGIA). The following section gives an overview of the other options that may be feasible

Overview of Saudi Arabian Business Entities and Markets

Investments in Saudi Arabia may be through the formation of a new business entity or through the acquisition of assets or equity in an existing company. Commercial enterprises by foreign companies may be structured as any of the following: (1) joint ventures, (2) wholly owned subsidiaries, (3) local branches of a foreign company; or (4) representative or agent offices.

The principal body of law governing commercial enterprises in Saudi Arabia is the Companies Regulation, which is enforced and regulated by the Ministry of Commerce and Industry. In some circumstances, an enterprise may be subject to the rules and regulations of additional regulatory bodies such as the Saudi Arabian Stock Exchange (Tadawul), the Saudi Arabian Monetary Agency (SAMA), or the Capital Market Authority (CMA).

In terms of the legal type of entity established, foreign investors have several options to consider–depending largely on the scope and type of the proposed enterprise as well as the investor’s exit strategy. The types of entities are: (1) Joint Stock Company; (2) Limited Liability Company; (3) Joint Venture; (4) Branches of foreign companies; and (5) Technical and Scientific offices of foreign companies.

Joint Stock Company (JSC): JSCs are the most analogous entity to a C-Corporation in the United States. They may be wholly foreign owned and are typically established with the intent towards a future public offering and listing on the Saudi Stock Exchange (Tadawul). A minimum of 5 shareholders and 3 directors on the board of directors is required. The minimum initial capitalization required is 2 Million Saudi Riyals (SR), which rises up to SR10 Million if the JSC will issue publicly traded shares.

Limited Liability Company (LLC): As with JSCs, Saudi law permits an LLC to be wholly foreign owned and managed. LLCs must have at least 2, but not more than 50, member-investors. Each member owns a pro-rata equity share equal to the uniform nominal value. Liability of individual members, under most circumstances, is limited to the member’s paid-in capital. Minimum initial capitalization for an LLC with any foreign members is typically SR500,000. However, for certain industries, such as agricultural or industrial projects, the minimum capital may be much higher. Unlike JSCs, LLCs do not issue shares and cannot be publicly traded on the Saudi Arabian Stock Exchange.

Joint Ventures – LLCs and JSCs may both be wholly owned or established with a Saudi business partner. The decision to establish a Saudi partner may be mandatory in some fields, such as establishing a branch of international law firm. However, in other cases, a foreign investor may benefit from a Saudi partner’s expertise and familiarity of the local market, customs, and traditions. The risks and benefits of doing so must be carefully analyzed after thorough due diligence is conducted.

Branches of Foreign Companies – Branch offices are set up to represent foreign companies in Saudi Arabia. Similarly to JSCs or LLCs, branch offices are allowed to engage in direct business activities. However, their scope of business is limited to that of the parent company.

Technical and Scientific Offices (TSOs) – TSOs are easily set up in Saudi Arabia and are usually established when a foreign company enters into long-term distribution or agency arrangements with local companies. However, their scope of allowed commercial activity is limited to providing technical support and assistance to local distributors, agents, and consumers. TSOs are prohibited from engaging in any direct business activities.

Other Commercial Arrangements – Distribution arrangements may be done through a joint venture with a Saudi partner or by appointing a local distributor or agent on your behalf. Other options, such as franchising or a direct international sale, may also be available, depending on the type of service or product the foreign company offers.

Saudi Arabia is a lucrative market for foreign companies and investors. At a time when the market in the United Arab Emirates is beginning to get stagnant and saturated, Saudi Arabia remains ripe with opportunities. However, the cultural, political, and legal landscape is complex and varies dramatically from that of countries such as the USA or in Europe. Unaccustomed foreign companies or investors should seek out advisory or legal firms who are proficient and have expertise in Saudi Arabia.
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Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice. The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.

Wassem M. Amin, Esq., MBA is an Associate Attorney at Dhar Law LLP in Boston, MA and is the Vice Chairman of the Middle East Committee as well as the Islamic Finance Committee of the American Bar Association’s International Law Section. Wassem has extensive experience in the Middle East region, having worked as a consultant in the area for over 9 years. Wassem currently focuses his practice on Business Immigration (EB-5 Regional Center and Investor Representation) and International Business Transactions. For more information, please visit the About Us page or http://www.dharlawllp.com.

USCIS to Reopen Unlawful Presence Waiver Applications Denied Due to Criminal Offenses

March 25, 2014

Provisional Unlawful Presence Waivers

In March of 2013 the United States Citizenship and Immigration Services (“USCIS”) implemented a program where relatives of U.S. citizens could apply for unlawful presence waivers if they met certain requirements. While the USCIS created these waivers, they also limited the applicants by listing circumstances that would render an individual ineligible for a provisional unlawful presence waiver. The USCIS can deny a waiver application if the USCIS has reason to believe that the individual is subject to another ground of inadmissibility, in addition to the unlawful presence ground that is the subject of the I-601A waiver application.

Prior to the USCIS release, waiver applications were being denied if an applicant had any criminal history. The sentence imposed was irrelevant and it was not controlling whether or not the offense was a crime involving moral turpitude. On January 24, the USCIS issued guidance relating to applicants who had a criminal record. The USCIS field guidance provided that if the applicant’s criminal offense fell within the petty offense or youthful offender exception then USCIS officers should not find a reason to believe that the individual may be subject to inadmissibility at the time of the immigrant visa interview solely on account of that criminal offense.

Reopening of previous applications

Starting on March 18, 2014, the USCIS began the process of reopening all I-601A waiver applications that were denied prior to January 24, 2014, solely because of a prior criminal offense, in order to determine whether there is reason to believe the prior criminal offense might render the applicant inadmissible. For more information, you can view the USCIS website here.

Client Advisory: Canada’s Shutdown of Immigrant Investor Program Will Impact U.S. EB-5 Quota

February 19, 2014

Amin-Wassem-China-US-EB-5

By Wassem M. Amin, Esq., MBA

The Canadian Government announced on February 12, 2014 that it is shutting down the Immigrant Investor Program, effective immediately, with all pending cases being rejected.  As reported in Forbes.com, an estimated 45,000 Chinese Immigrant Investors with applications pending will be affected by this decision.  With the increased popularity of the U.S. EB-5 Immigrant Investor Program in China, it is inevitable that some of those affected applicants will choose to divert their investments here.

Assuming that even a fraction of those 45,000 investors applied through the EB-5 Program, the impact on the EB-5 Quota will be substantial.  U.S. Immigrations Laws allot 10,000 annual visas to EB-5 Immigrant Investors.  The visas are awarded on a first-come, first-serve basis.  As discussed in prior posts, forecasts indicate that this quota will be met as early as June of 2014–effectively backlogging all Chinese Immigrant Investor applicants.

However, it is critical to note that prior forecasts did not account for the potential influx of rejected Chinese Immigrant Investors from Canada.  This poses immediate consequences for EB-5 applicants from China.  An unexpected increase in Chinese applicants will result in the EB-5 quota being met earlier than the deadline previously forecasted, perhaps as early as April of 2014.  That will cause applications processed by USCIS after the deadline to be backlogged, perhaps by a year or more, in addition to current processing times for an I-526 (Immigrant Investor Application).

Potential EB-5 Applicants, particularly those from China, are advised to contact a legal professional to discuss the potential impacts this may have on their applications.

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Wassem M. Amin, Esq., MBA is an Associate Attorney at Dhar Law LLP in Boston, MA and is the Vice Chairman of the Middle East Division of the American Bar Association.  Wassem has extensive experience in the Middle East, having worked as a consultant in the region for over a decade.  Wassem currently concentrates his practice on Corporate Law, Business Immigration and International Business Transactions.  He has advised countless Eb-5 Investors and assisted developers in structuring USCIS-compliant EB-5 Regional Centers as well as sourcing investors throughout the Middle East.  For more information, please visit the About Us page or request more information on our Contact Us page.

Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice.  The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.

EB-5 Chinese Quota Retrogression: Analysis of Potential Impact and Recommended Solutions

February 4, 2014

Amin-Wassem-China-US-EB-5By Wassem M. Amin, Esq., MBA

(Visit our Publications Page for a FREE PDF Download of this Article)

Over the past few years, the skyrocketing popularity of the EB-5 Immigrant Investor Visa program has fueled record demand from foreign investors.  The EB-5 Immigrant Visa allows foreign investors and their immediate family members to obtain permanent residency, providing an eventual path for citizenship, in exchange for a $500,000 to $1,000,000 investment in a job-creating enterprise.  The overwhelming majority of EB-5 foreign investors, over 80%, have come from China.  Allotted a maximum quota of 10,000 visas per year, the EB-5 Immigrant Visa is further subject to a numerical per country limit in the event that quota is met.   Known as “retrogression,” this limitation essentially works by creating a backlog in visa availability for immigrant investors from oversubscribed countries.

The U.S. Department of State cautioned in a December 2012 bulletin that projected demand of EB-5 Visas in that fiscal year may subject Chinese immigrant investors to retrogression.  Although that never came to fruition (not due to demand, but primarily caused by slow processing times), the Department of State renewed its caution alert again in December 2013.  Although the 10,000 visa-quota has never been met since the inception of the EB-5 Program, based on new statistics recently released by the United States Citizenship and Immigration Service (“USCIS”), it is now evident that the demand will surpass the available quota inevitably, perhaps as soon as this Fiscal Year 2015.  This no longer makes the likelihood of Chinese quota retrogression a question of “if,” but rather “when.”

The implications of Chinese quota retrogression are far-reaching and affect not only potential Chinese investors but the entire EB-5 industry, including Regional Centers, project developers, agents, and professional service providers such as attorneys.  This article will begin with a brief overview of the EB-5 program and how visa retrogression works.  It will then assess the potential ramifications of Chinese EB-5 visa retrogression for investors and the EB-5 industry.  Finally, it will propose solutions to alleviate the potential impact of Chinese quota retrogression on project developers and Regional Centers.

Background

In 1990, the U.S. Congress created the employment-based fifth preference (“EB-5”) immigrant visa category for immigrants who invest in and manage U.S. commercial enterprises that benefit the U.S. economy and create jobs. Allotted 10,000 immigrant visas annually, the EB-5 immigrant visa was designed to attract foreign direct investment into projects that would directly impact the economy, i.e., not merely passive investments.

Immigrant investors can apply for an EB-5 visa through two primary routes. The first route is through a direct investment into a qualifying “new commercial enterprise.” The second is through the Regional Center Pilot Program. The Regional Center Pilot Program allows USCIS to designate private or public entities as so-called Regional Centers to function as conduits or administrators of large or medium-scale projects funded, at least in part, by EB-5 investors. Regardless of which route is selected, the EB-5 Investor Visa allows foreign investors to obtain permanent residency in the United States conditioned upon an investment of a minimum of $1,000,000 (or $500,000 in a high unemployment or rural area) in a project which creates and sustains at least 10 full-time jobs for U.S. workers.

How Does Visa Retrogression Work?

Congress sets limits on the number of immigrant visas that can be issued each year. In order to adjust status to that of legal permanent resident, an immigrant visa must be available to the applicant both at the time of filing and at the time of adjudication. Visa retrogression occurs when more people apply for a visa in a particular category or country than there are visas available for that month. Retrogression typically occurs toward the end of the fiscal year as visa issuance approaches the annual category, or per-country limitations.  When an applicant files an immigrant petition, he or she is given a “priority date.”  The priority date is the date when the immigrant petition is properly filed with USCIS.  If, at the time of adjudication, an applicant’s priority date no longer meets the cut-off date published by the Department of State, due to retrogression, his or her case must be held in abeyance until a visa once again becomes available.

The EB-5 Program is allotted 10,000 annual immigrant visas.  However, that number is misleading because the quota counts an investor as well as  his beneficiaries, i.e.,if an average investor is married and has two children, the total number of visas counted towards the quota will be four.  In reality, the average number of actual EB-5 principal investors is around 3,000, substantially lower than the available quota.

Once that annual quota is met, the per country limitations on EB-5 visas will be imposed, creating a waitlist for applicants from oversubscribed countries.  Since Chinese applicants account for the substantial majority of EB-5 visas, they will be the ones directly impacted.  This backlog would essentially delay an investor’s ability to obtain an immigrant visa by a year or more, in addition to normal USCIS processing times for an I-526 (the Immigrant Investor Petition).  Therefore, if, for example, an I-526 petition normally takes 6-9 months, a backlog due to visa retrogression would extend processing times to an average of two years, if not more.

 What is the Likelihood of a Chinese Visa Retrogression?

In FY2013, 8,567 EB-5 visas were issued.  In the first two months of FY2014, over 6,700 EB-5 petitions are already pending with USCIS.  Absent Congressional action, the prospect of EB-5 petitions exceeding the annual 10,000 allotment is inevitable.  Once that quota is met, the per country limits will result in visa retrogression for Chinese investors, delaying their ability to obtain an immigrant visa by at least a year or more, in addition to the time it takes to process the I-526.

Potential Implications

In the long-term, the delay and complications of EB-5 processing will result in Chinese investors looking to other countries that actively compete for foreign investors, including Australia, Canada, and the United Kingdom.  Retrogression adds further strains on the EB-5 program which has already been plagued by extraordinarily slow processing times and delays by USCIS.  Faced with the prospect of waiting two or more years before being able to immigrate to the United States, a Chinese investor may decide to immigrate elsewhere.  Other countries will surely capitalize on visa retrogression to draw away potential investors.

In addition, the Chinese retrogression creates a significant conflict of interest between project developers, Chinese investors and immigration agents.  It also raises new ethical issues for an attorney representing the project developer or the Chinese investor.

From an investor’s perspective, an investor with children who are reaching the age of 21 may have incentives to delay the approval of the I-526 as long as possible.  Under the Child Status Protection Act (“CSPA”), commonly known as the “age-out provisions,” a child can immigrate as a beneficiary of a parent’s immigration application until he or she turns 21.  The CSPA freezes the age of children who are derivative beneficiaries of an I-526 petition while the petition is pending, but not once the petition is approved and awaiting the quota to become available for an immigrant visa.  This benefits a Chinese investor whose children are close to aging out.  Thus, it will be their benefit to delay the I-526 approval as long as possible.

From a Regional Center or project developer’s perspective, job creation projections and capital redemption timelines will be directly impacted by retrogression.  Capital redemption, or the investor’s exit strategy, is, essentially, the time period before which the investor can have his capital returned.  A protracted visa immigrant visa availability will tie up the investment money for a longer period of time.  Although that may seem like a benefit to the project developer, most current EB-5 investments provide for an exit strategy in which the developer sells or refinances the business, using the proceeds to repay investors.  A delay in visa availability will delay the developer’s ability to do so–since an investor cannot redeem capital before the approval of an I-829, which is the petition to remove conditions on investor’s permanent resident card.

Another potential implication is whether such a delay would impact the developer’s ability to access investor funds.  In a typical investment through a Regional Center, the investor’s capital is held in an escrow account until the approval of the I-526, at which point the funds are released to the developer.  Previously, an I-526 approval typically meant that the investor would be able to immigrate to the United States (or adjust their status) shortly thereafter because an immigrant visa was always available.  However, visa retrogression will delay that process by a significant period of time.  An investor, therefore, may dictate that the funds be held in escrow until a visa becomes available, not simply until the I-526 is approved.  Without alternate financing, this delay could essentially result in an inability to proceed with a project’s development and, ultimate failure.

From an attorney’s perspective, counsel for a Regional Center must recognize the additional securities disclosures that may result from visa retrogression.  Specifically, new risk factors for offering documents or Private Placement Memoranda would need to be disclosed.  Similarly, counsel for an investor would need to highlight the possible implications to their client.

Solutions and Proposals

Bridge Financing

However, the growth in EB-5 financing market has the creation of spurred specialized loan companies that address this very issue.  There are now several companies that provide specialized EB-5 bridge loans which allow a developer access to all or some of its anticipated capital.

Bridge or interim financing provides the opportunity for EB-5 project developers to take out short term financing to help construct and develop the project, then the EB-5 capital, as it is received, may replace that short term financing yet still receive credit for job creation by USCIS.

Moreover, in its latest Policy Memorandum, USCIS has specifically indicated that such financial arrangements are allowed in the EB-5 context.  In a May 20, 2013 Adjudications Policy Memorandum, USCIS stated, in pertinent part:

It is acceptable for the developer or the principal of the new commercial enterprise, either directly or through a separate job-creating entity, to utilize interim, temporary or bridge financing – in the form of either debt or equity – prior to receipt of EB-5 capital. If the project commences based on the bridge financing prior to the receipt of the EB-5 capital and subsequently replaces it with EB-5 capital, the new commercial enterprise still gets credit for the job creation [arguably the main requirement of the EB-5 program] under the regulations….Developers should not be precluded from using EB-5 capital as an alternative source to replace temporary financing simply because it was not contemplated prior to obtaining the bridge or temporary financing.

Tapping Alternative Markets

Prudent project developers and Regional Centers should hedge the risk of any impact a shortage in Chinese investors may cause.  Since over 80% of EB-5 investors are from China, even a small decrease in the number of investors may have an significant impact.  Creating an alternative pipeline of EB-5 investors from different regions is the key to ensuring continued and sustained growth in the EB-5 Program.


[1] Wassem M. Amin, Esq., MBA is an Associate Attorney at Dhar Law LLP in Boston, MA and is the Vice Chairman of the Middle East Division of the American Bar Association.  Wassem has extensive experience in the Middle East region, having worked as a consultant in the area for over 9 years.  Wassem currently concentrates his practice on Corporate Law, Business Immigration and International Business Transactions.  He has advised countless Eb-5 Investors and assisted developers in structuring USCIS-compliant EB-5 Regional Centers as well as sourcing investors throughout the Middle East.  For more information, please visit the About Us page or request more information on our Contact Us page.

Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice.  The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.

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