IMMIGRANT INVESTMENT IN LOCAL CLUSTERS

Interpreter Releases Vol. 80, No. 24 • June 16, 2003
PART I*
by Lincoln Stone **

This is the first part of a two-part article concerning U.S. immigration law on foreign investment, in particular, the “immigrant investor program” that was launched when Congress created an immigrant visa category for investors under the Immigration Act of 1990 (1990 Act).[1] In 1992, Congress modified the immigrant investor program by introducing a Pilot Program, representing a second major legislative effort to spur foreign investment in the U.S. economy. Acting during recessionary times of high unemployment, sponsors in Congress acclaimed these statutes as catalysts for billions of dollars in future investment capital and thousands of new jobs for the U.S. economy. The experience of the past decade with the immigrant investor program, however, has been disappointing; although interest in the program appears to remain steady, the program has been ineffective in attracting significant amounts of foreign capital for investment and job creation in the U.S.

While recognizing the enormous challenges the government faces in administering the nation’s immigration laws and resources, this article focuses primarily on a few shortcomings in the administration of the immigrant investor program. Rather than attempting to wrestle with all suspected root causes for frustrated expectations, this article advances the view that the immigration bureaucracy has neglected an essential element of Congress’s wishes concerning foreign investment in the U.S.—that is, the Pilot Program represents Congress’s desire to test whether immigrant investor capital can be a significant source of capital for “cluster” economic development, characterized by the concentration of massive amounts of capital in close proximity for the purpose of creating an attractive economic environment for interrelated enterprises, innovation, and sustainable job creation.

Part I of this article focuses on the Pilot Program by presenting a sampling of the extensive economic development literature that heralds cluster economic development initiatives as dynamic engines of innovation and qualitative job growth. Part I suggests that the reorganized immigration bureaucracy within the new Department of Homeland Security (DHS)[2] revise its policy toward the Pilot Program in order to foster immigrant investment consistent with the cluster economic development model.

Part II of this article will focus on certain standards for adjudication of individual investor petitions that function as formidable deterrents to job-creating investment. Part II recommends modifying those standards in a manner that is consistent with the objective of attracting job-creating investment, without jeopardizing interests in national security and fraud prevention. The article concludes that a reformulated policy and modified adjudication standards should permit an actual test of whether the Pilot Program can facilitate the kind of interconnected businesses that are characteristic of the cluster economic development model.

By allocating unprecedented numbers of immigrant visas to investors, scientists, and other businesspersons, the 1990 Act represented Congress’s determination to respond to the challenges of economic globalization with an immigration scheme that would further, for the first time, national economic policy.[3] Viewing the new immigrant investor visa category as a measure to help the U.S. compete for foreign investment and to reverse the debilitating effects of growing unemployment, Congress set aside 10,000 immigrant visas annually for foreign nationals who invest in a U.S. business and create 10 new jobs. The purpose of the immigrant investor law, in short, is to stimulate job-creating investment by holding out to investor immigrants the benefit of U.S. permanent residence.[4] Congress also intended to attract job-creating investment to areas of need by lowering the required minimum investment amount from $1 million to $500,000 for investments made in high unemployment areas and rural areas.[5] Responding to concerns about fraud, Congress provided that permanent residence would be conditional for the first two years.[6]

Through the rulemaking power and its authority over individual case adjudications, the INS (and its successor)[7] obviously has a major role in the success or failure of the immigrant investor program. The INS issued regulations implementing the immigrant investor law in 1991[8] and another set of regulations concerning removal of the conditions on resident status in 1994.[9]

Since its inception, the immigrant investor program never has functioned well. The INS provided its own list of reasons for lackluster results: investor uncertainty over removal of conditions, U.S. taxation of worldwide income, other

U.S.

visa alternatives, less expensive investor programs in other countries, and limited program information and outreach.[10] Outside the agency, many observers anticipated from the start that there would be underwhelming results, blamed Congress for exaggerating the appeal of the law to foreign investors,[11] and criticized the INS for ignoring the legislative mandate by writing regulations that too narrowly restricted the forms of investment that would comply with the law,[12] and for resisting rather than embracing the duality of the statute, which features both an “investor” model that stresses capital investment and an “entrepreneur” model that emphasizes job creation.[13] Commentators also cited the INS’s confusing memoranda and opinions concerning case adjudication that may have conflicted with its own regulations and appeared to complicate issues of compliance.[14] The incoherence more than likely stymied some job-creating investment, and also allowed conditions for incubating investment structures that probed the outer limits of INS rulings and interpretations by including contract features that tended to minimize investor risk. Ultimately, and abruptly, the INS reversed earlier instructions and opinions to conclude that these investment structures did not comply with the immigrant investor law. To effect this latter change the INS widely circulated a comprehensive legal opinion,[15] and then issued binding case adjudications that effectively implemented sweeping changes in the adjudication standards for individual investor petitions filed under the immigrant investor program.[16] Aggrieved parties, in turn, challenged these actions in court with mixed results.[17] The legal wrangling of the past five years consumed substantial INS resources, further derailing efforts directed at collaboration and improving the record of the immigrant investor program.[18]

For its part, Congress recently amended the investor statute, just a small piece of the massive 21st Century Department of Justice Appropriations Authorization Act (DOJ Act),[19] which became law on November 2, 2002. Most of the investor-related amendments in the DOJ Act relate to fashioning a form of interim relief for the relatively small group of existing investors affected by the program changes implemented by the AAO precedent decisions in 1998. But perhaps more significantly, the DOJ Act also includes amendments to the investor statute and the Pilot Program that should improve the record of the immigrant investor program in the long term.

When Congress first introduced the investor Pilot Program in 1992, it intended to catalyze immigrant investment in defined geographic areas.[20] The Pilot Program is designed to amass and pool capital for targeted investment, i.e., it contemplates “pooling investments in a region of the United States in order to develop interrelated enterprises which would increase the employment base and economic productivity of that region.”[21] These “regional center” areas may be identified with city or county boundaries, a redevelopment area, an enterprise zone, or any similar geographic area with definite boundaries.

A “regional center” is designated by the immigration agency on the basis of a proposal for economic growth in the particular geographic area.[22] The applicant for regional center designation may be a private or public economic development agency, or a for-profit private entity, that advances a general plan to use immigrant investor capital to fuel economic growth within the defined geographic area.[23]

Investors in so-called “regional center” areas are not required to rely on proof of direct job creation, but instead may include in their petitions seeking permanent residence proof of indirect job creation based on “reasonable methodologies.”[24] This feature of the Pilot Program is perceived as the critical motivating benefit to investors, insofar as it is a relaxation of the evidentiary standards for job creation that otherwise govern in the cases of immigrant investor petitions.[25]

Congress extended the Pilot Program twice, most recently in 2000. Congress increased the number of visas available under the Pilot Program from 300 to 3,000 visas annually, and amended the statute to clarify that investors may rely upon evidence of indirect job creation in their individual petitions regardless of whether their investment increased export sales, so long as there exists other evidence of economic growth.[26] The intent of the amendment was to correct the INS in its insistence that use of the indirect employment methodologies of the Pilot Program required evidence of increased export sales.[27]

By including immigrant investor provisions in the DOJ Act, Congress again reinforced its commitment to investment immigration and to the Pilot Program in particular. In the DOJ Act, Congress directed the immigration agency to designate regional centers based on a “general proposal” for promotion of economic growth that contains “general predictions” concerning the businesses that would receive investor capital and the jobs that would be created. Applicants for regional center designation had encountered stiff INS resistance, finding it exceedingly difficult to satisfy both the INS insistence on proof that the eventual investors in regional center areas would qualify for permanent residence, and the INS requirement of documentation concerning the identities of the specific companies and the specific jobs that would be impacted by the investment capital.[28] Congress intended to topple these barriers to regional center designation. Congress also included in the DOJ Act specific language to emphasize that the goal of the Pilot Program is to amass and pool large amounts of investment capital and to concentrate that capital in specific, limited geographic areas so as to promote economic growth and job creation in those areas.[29]

In 1992, when Congress conceived of the Pilot Program as a vehicle for attracting investment capital to specific regional areas, Congress anchored the investor Pilot Program to a theory of cluster economic development, at the time a relatively new microeconomic theory of local and state competitiveness in a global economy.[30] The linkage between the Pilot Program and the cluster economic development model is evident from the legislative statements of Congress, the circumstances surrounding enactment of the Pilot Program, and the recent statutory changes to the Pilot Program.

Congress used the language of cluster economic development theory when it initially declared its vision of the Pilot Program as the pooling of immigrant investor capital in order to develop “interrelated enterprises”[31] that would enhance the economic productivity of a region. The centerpiece of cluster economic development theory, in comparison, is the concept of clusters as “geographic concentrations of interconnected companies.”[32]

The circumstances of the Pilot Program’s enactment also reveal the link between the Pilot Program and the cluster economic development model. The Pilot Program statute, in fact, was based on a cluster economic development proposal that had been presented to Congress prior to enactment of the law. The proposal, by the World Trade Center of Greenville-Spartanburg (GSP), consisted of a general plan for attracting and using immigrant investor capital to help finance a broad range of development activities in collaboration with Clemson University , South Carolina ’s Port Authority, and other institutions and private firms located in the region.[33] The GSP proposal led not only to enactment of the Pilot Program, but also to the INS’s approval of GSP as the first “regional center” under the Pilot Program.

Certain commentary in the INS’s regulatory process suggests the agency understood well that it was delegated the responsibility of ascertaining whether the cluster development model could work in the immigrant investor realm.[34] Indeed, the INS correctly captured the concept of targeted regional economic development when it promulgated Pilot Program regulations that require the proposal for regional center designation to describe how the regional center will promote economic growth within a particular region.[35]

More recently, in the DOJ Act, Congress reemphasized the regional economic development objectives of the Pilot Program by amending the Pilot Program statute to clarify that the objectives of the Pilot Program are not to be equated narrowly with promotion of export sales, but instead are geared toward “concentrating pooled investment in defined economic zones.”[36] The DOJ Act sent a clear message that Congress wants the immigrant investor program to feature a cluster economic development model.

Clustering is recognized widely in economic development literature and among state and local government agencies as the energizing force in modern economic development and job creation. In the words of renowned Harvard Business School Professor Michael Porter: “Clusters are a striking feature of virtually every national, regional, state, and even metropolitan economy, especially in more advanced nations.”[37] Cluster-based economic development is considered a vital response to major forces that are adversely affecting large swaths of the U.S. economy, the forces of globalization, rapidly changing technology, and declining living standards.[38] In the view of state and local government agencies, cluster initiatives do not simply create or “purchase jobs” for their residents but rather impact regional economic fundamentals that are more likely to ensure that the jobs are long-lasting, quality jobs.[39] The National Governors Association advocates cluster-based economic development initiatives as essential for enabling regional areas to compete in the global economy.[40]

The common features of economic clustering include geographic proximity of interrelated businesses, concentration of capital, and involvement of local government and educational institutions. A cluster may include a broad array of linked industries and other entities important to competition. Cluster economic development theory rests on a superstructure that includes at least the following two pillars: (1) in advanced economies as in the U.S., regional clusters of private firms (rather than individual companies or single industries) are the single most significant source of quality, sustainable jobs; and (2) the public sector’s role in promoting cluster economic development is to improve the circumstances that impinge on competitiveness, requiring the shaping of economic foundations (such as labor pools, knowledge, financing, physical infrastructure, and regulations) to cluster needs.[41] In other words, cluster economic development requires growing dynamic industry networks of private firms, and investment in infrastructure and other fundamental assets.[42] Real estate is one of those fundamental assets, and shaping real estate assets in suitable forms for cluster businesses can be critical to business attraction and retention.[43]

Examples of the role of universities in cluster economic development include the University of California at San Diego in the bioscience economy of northern San Diego county, the University of Texas in the high-tech economy of Austin , and the University of Akron in the polymer synthetics industry of the Akron area.[44] The Silicon Valley, California (closely linked to Stanford University ), perhaps, is one of the country’s best known economic clusters.[45] But not all successful economic clusters are world famous or tied to large universities; support from the state Department of Community and Economic Development kicked off Connecticut ’s computer software cluster,[46] and links to community colleges have been critical to cluster-based rural economies in North Carolina and Minnesota .

Economic clusters are important to enhanced economic development and job creation because they tend to enhance the microeconomic business environment, resulting in increased company productivity. In the words of Dr. Porter:

[T]he sophistication of how companies compete in a location is strongly influenced by the quality of the microeconomic business environment. Some aspects of the business environment (e.g., the road system, corporate tax rates, the legal system) cut across all industries. These economy-wide (or “horizontal”) aspects are important and often represent the binding constraints to competitiveness in developing economies. In more advanced economies and increasingly elsewhere, however, the more decisive aspects of the business environment for competitiveness often are cluster specific (e.g., the presence of particular types of suppliers, skills, or university departments).[47]

Vigorous local rivalry that shifts from low wages to low total cost, requiring improved efficiencies in manufacturing and service delivery, characterizes an advanced economy. Ultimately, rivalry also must evolve from cost to include differentiation. Competition must shift from imitation to innovation and from low investment to high investment not only in physical assets but also in intangibles such as employee skills and technology.[48]

Economic clusters affect competition by increasing the current productivity of constituent firms or industries and by increasing the capacity of cluster participants for innovation. The concentration of innovation, knowledge, and know-how is the greatest advantage of a cluster.[49] Firms within a cluster often are able to perceive more clearly and rapidly new buyer needs, and new technological, operating, and delivery possibilities. “The similarity of basic circumstances (e.g., labor and utility costs) combined with the presence of multiple rivals, forces firms to seek creative ways in which to distinguish themselves. Pressure to innovate is elevated.”[50]

Dr. Porter observes that foreign investors may perceive the risks of investment in an established economic cluster as significantly lower:

The presence of an established cluster not only lowers the barriers to entry to a location facing outside firms but also reduces the perceived risk (particularly if other “foreign” cluster participants already are present). There also are numerous examples of firms that have relocated entire business units to cluster locations or designated their subsidiaries located there as the regional or world headquarters for lines of business.[51]

Cluster economic development theory, in sum, is an investment and economic development model that has considerable currency among economic development experts, including the city, state, and regional planners who devise strategies for attracting investment capital and job-creating businesses. The cluster model is favored as an effective strategy for enhancing innovation and for improving the quality of jobs in the difficult competitive environment of globalization and ever-changing technology. Immigration policy and practice should recognize that cluster economic development theory is not only the underlying driving force of the Pilot Program, but is also a blueprint for impacting the regional economic fundamentals that are essential for creating quality, sustainable jobs.

The Bureau of Citizenship and Immigration Services (BCIS) should adopt new policy and adjudication standards recognizing that the cluster economic development model is the centerpiece of the Pilot Program and that the BCIS is its steward. Congress intended the INS to administer the Pilot Program to encourage mass investment by foreign investors desiring U.S. permanent residence, so that the INS could test the feasibility of immigrant capital as a stimulus to cluster economic development. While the INS initially may have recognized that it was tasked with testing the effectiveness of the model,[52] in practice the INS role in the Pilot Program has appeared to be one of a reluctant overseer that holds the view that the Pilot Program is little more than a liberalized path to permanent residence, for which a petitioner must pay the “cost” of presenting evidence of jobs created through increased export sales. That reluctance (along with the severe disruption in the program since 1998 when the INS issued new precedent decisions and faced off against investors and their sponsors in the courts), has muddled the administration of the Pilot Program such that the only reasonable conclusion to be reached is that there has not been a sufficient test of the Pilot Program model thus. Consequently, to assess whether immigrant investor capital in fact can stimulate cluster economic development, changes in policy and adjudication standards are needed.

Specifically, once the BCIS adopts policy changes that reflect a strong commitment to the Pilot Program’s success, the agency should modify standards so that regional center designation can be expedited; it should seek out and welcome the participation of local and state economic development agencies that are likely to be interested in the benefits of the Pilot Program; and it should reexamine legal standards applicable to review of individual investor petitions in order to ensure prompt approval of meritorious petitions filed by individual investors.

There ought to be a genuine test of the cluster economic development model. There is no guarantee, however, that adoption of the changes recommended herein would translate into mass investment and job creation. Substantial doubt, in fact, lingers in the mind of this author: It is possible that investors never bring their investment capital to regional center areas in significant mass on the terms that a rational immigrant investor program requires. Demonstrable results, if any, are not likely to appear for several years after the program changes are implemented, investments are made, businesses mature, and new jobs appear in the regional economy. Absent program changes of the kind recommended herein, however, it is unlikely the cluster economic development model for immigrant investors ever could be genuinely tested.

The first task for the BCIS is to facilitate regional center designation among entities that have current plans to use the Pilot Program. Although the INS designated approximately 20 regional centers in the early 1990s, due to a variety of reasons the vast majority of the entities are not active as regional centers and are not likely to be active as regional centers in the future. Unless a sufficient number of viable regional centers is designated, there cannot be an adequate test of whether the Pilot Program can attract immigrant capital to the economic clusters that breed interconnected businesses, innovation, and quality jobs.

Regional center designation is just a preliminary, small step in the Pilot Program experiment. The Pilot Program requires that a sponsor of economic development in a particular geographic region file an application for “regional center” designation.[53] The regional center designation may be awarded to any entity “public or private, which is involved with the promotion of economic growth.”[54] Thus, approved regional centers include public entities such as the Economic Development Department of Pueblo, Colorado , and the State of Vermont Agency of Commerce and Community Development, as well as private entities such as CMB Export LLC, which had focused on military base redevelopment in the state of California . The regional center designation does not confer any particular monetary or other benefits on the regional center entity per se. Rather, the benefit of the designation is reserved for the immigrant investors who invest capital within the boundaries and scope of the regional center, as they can use multiplier tables and other employment methodologies and forecasts to measure the job creation that is an essential element of their individual petitions for immigration status.

Consistent with its mission as steward of the Pilot Program, the BCIS should adopt flexible criteria for regional center designation based on general proposals for investment of capital, economic development, and job creation. Inflexible criteria, in the past, have hindered the designation of regional centers. For at least a four-year period ranging from 1998 to 2002, the INS erected exceedingly high hurdles for obtaining regional center designation. The INS required an applicant for regional center designation to present exacting details concerning the specific companies that would be created as a result of investment within the proposed regional center, the specific jobs that would result, evidence of the application of multiplier tables to the specific businesses and investments, and unusually detailed information concerning the export sales that would result from investment in the proposed regional center area.[55] The INS required exacting details, although the proposal for regional center designation by nature involves considerable estimation and forecasting of events that involve hundreds of uncontrollable variables that occur two, three, and four years into the future. By insisting on exacting details and by focusing exclusively on export sales, the INS denied several applications for regional center designation,[56] and more than likely deterred many other applicants from pursuing the applications they had filed.

Congress enacted legislation to curb the INS’s insistence on exacting details. In the DOJ Act, Congress further clarified that the Pilot Program law does not require an emphasis on export sales in an application for regional center designation,[57] and directed the INS to designate regional centers based on a “general proposal” for promotion of economic growth that contains “general predictions” concerning the businesses that would receive investor capital and the jobs that would be created.[58] The DOJ Act also emphasized that the goal of the Pilot Program is to amass and pool large amounts of investment capital and to concentrate that capital in specific, limited geographic areas so as to promote economic growth in those areas. The BCIS should faithfully interpret this legislation by welcoming applications for regional center designation and revising its regulations as needed.[59]

The BCIS also should act promptly to review and decide on applications for regional center designation. The experience to date is that an application may languish without decision by the INS for years. The typical profile of a regional center sponsor is a local government agency or a group of local business people who anticipate that a regional center designation may be attractive to foreign investors who would consider investment in a particular area. These agencies and local business people invest substantial resources toward planning a regional center, preparing an application for regional center designation, and promoting the regional center as an investment opportunity. This considerable investment in time, effort, goodwill, and money typically is made well in advance of locating actual immigrant prospects who may want to invest capital in the particular area. Not only do the applicants deserve a prompt adjudication, but also, the economic factors are not stagnant. Investment opportunities may be short-lived. Any application for regional center designation is in jeopardy of becoming moot if it is not attended to promptly. For the Pilot Program to function properly, the review process should be compacted. A thorough review of an application should be conducted within 90 days.

To test the effectiveness of immigrant capital as a contributor to the success of cluster economic development, the BCIS should encourage the participation of local and state economic development agencies. Although a few such agencies have been involved in the Pilot Program of the past, the BCIS should involve even more of these agencies in the Pilot Program of the future. Specifically, the BCIS should conduct a publicity campaign directed at local and state agencies to encourage their various enterprise zone, empowerment zone, redevelopment agency, rural development and other economic development entities—both public and private—to examine the immigrant investor Pilot Program as a possible source of capital for creating jobs and economic benefits within their jurisdictions. The BCIS’s campaign message would include information on immigrant capital as a potential source of capital for businesses and new jobs, and information on how agencies can serve as a regional center sponsor entity, or as a coordinator and supporter of regional center activities sponsored by private entities. The INS has previously cited the absence of any significant outreach efforts as one of several likely causes of the investor program’s failure to date.[60]

By taking aggressive steps to involve local and state agencies more fully in the Pilot Program, the BCIS would be increasing the likelihood that immigrant capital will have a role in cluster economic development and the attendant innovation, company formation and job creation. Local and state economic development agencies, both public and private, have public benefit goals—e.g., to create jobs, eliminate blight, increase the tax base, and target economic development in a particular area either because of poverty and need or because of an area’s relative economic advantages—that coincide neatly with Pilot Program goals, or at least complement those goals. Hundreds of local and state agencies across the country already are in operation, with financial, infrastructure, and professional resources dedicated to economic development and job creation, all of which can be leveraged by those agencies to promote the Pilot Program with little added cost.

The local and state government role as a facilitator of economic development is well understood and documented in the literature concerning the cluster economic development model:

By grouping together firms, suppliers, related industries, service providers and institutions, government initiatives and investments address problems common to many firms and industries without threatening competition. A government role in cluster upgrading, then, will encourage the building of public or quasi-public goods that significantly affect many linked businesses. Government investments focused on improving the business environment in clusters, other things being equal, might well earn a higher return than those aimed at individual firms or industries or at the broad economy.[61]

The local development entities likely to be interested in, and likely to be effective in directing, the capital that flows from the Pilot Program are local city government agencies that preside over redevelopment districts[62] and enterprise zones,[63] as well as private nonprofit entities that focus on local development activities. The city of Los Angeles, for example, has five state-designated enterprise zones (Central City, Mid-Alameda Corridor, Eastside, Harbor Area, and Northeast San Fernando Valley) covering the most impoverished areas of the city. The successful private nonprofit entities include Joint Venture: Silicon Valley Network[64] and the San Diego Regional Economic Development Corporation,[65] among many other organizations with proven track records of helping to direct capital in the public interest.

At the state government level, the state of California Technology, Trade and Commerce Agency, for example, awards designations for Local Agency Military Base Recovery Area (LAMBRA) to alleviate the hardships resulting from closure of 29 military installations and from 187,000 displaced workers throughout the state.[66] The LAMBRA designation functions like an enterprise zone designed to attract capital investment and businesses to the sites of the closed or downsized military bases. Other state agencies promoting business development include Hawaii ’s Department of Business, Economic Development & Tourism.[67]

Entities likely to be interested in the benefits of investor capital that could flow from the Pilot Program include county governments or county-wide nonprofit entities that direct rural empowerment zones, enterprise communities, and renewal communities.[68] In order to administer its empowerment zone program, for instance, Riverside County , California , arranged a partnership between a nonprofit corporation (The Desert Alliance for Community Empowerment) and the Riverside County Economic Development Agency.[69]

The specific agendas of these agencies vary, of course, but most espouse the promotion of economic development activities that at least complement the activities that are characteristic of the cluster economic development model. The U.S. Department of Housing and Urban Development’s description of its “Community Renewal Initiative” illustrates the point. It describes the Initiative as the melding of four key principles: strategic vision for change; community-based partnerships; economic opportunity; and sustainable community development:

Economic opportunity includes creating jobs within the designated RC/EZ/EC communities and linking residents to jobs throughout the region; providing entrepreneurs with technical assistance; providing greater access to capital and credit for businesses so they can expand and create job opportunities for residents; and providing residents with access to job training and job placement services, including those associated with Welfare-to-Work and school-to-work initiatives....The first priority in revitalizing distressed communities is to create economic opportunities—jobs for residents. The creation of jobs, both within the community and throughout the region, provides the foundation on which residents can become economically self-sufficient.[70]

Rural areas also could benefit tremendously from an effective investor Pilot Program. Economic development experts contend that cluster-based strategies must be pursued to overcome the many economic challenges faced by rural communities.[71] Following a cluster development model, some 150 hosiery manufacturers in rural North Carolina formed a Hosiery Technology Center to collaborate in research, worker training, prototype creation, and website development. And in Minnesota “rural knowledge clusters” have sprouted in rural locations, with specialties in wireless technology, automation technologies, and recreational equipment such as snowmobiles.[72] The development office of the Wichita County Enterprise Community (of Kansas) is an example of the kind of rural-based entity that could view the Pilot Program as a critical source of capital for its economic and community development projects. According to its website,[73] the office strives to channel grant funds to infrastructure needs (such as water, sewer, roads, and airports), housing for low-income residents and first-time home buyers, health care needs (including recruitment of physicians and other medical personnel), education initiatives (vocational training, adult education, and an entrepreneurship incubator), and environmental concerns (including a county recycling center). The area has suffered from severe depopulation as a consequence of the restructuring of the local farm economy, in turn resulting in a drastically lower tax base, fewer businesses that provide jobs, and a strain on social services. With respect to economic development, the Wichita County strategic plan proposed to channel funds for business training for new and existing businesses; a revolving loan fund to assist new and expanding businesses; an Agricultural Technology Center to facilitate processing of agricultural products; an industrial park; and a local investment corporation to invest in new business developments. Federal grant funds, of course, amount to only the start-up money. Wichita County actively pursues additional outside funding sources.

The BCIS should find ready, willing, and able allies among local and state government agencies and their collaborating private nonprofit agencies that focus on economic development. These agencies may apply for a regional center designation directly, or instead may advise a private entity seeking regional center designation and then consult that private entity throughout the course of its involvement in the Pilot Program. The agency’s assistance may include sourcing the best available businesses as investment targets, performing due diligence, serving as a reference for local businesses, providing business plan advice, consulting on business growth and additional financial resources, and qualifying the investments and petitioners for immigration benefits in terms of providing unemployment statistics and job creation forecasts and results.

These local and state agencies, furthermore, typically are democratic and transparent. The agencies usually conduct business in meetings open to the public, where all financial information concerning business and activities must be disclosed and significant projects and initiatives must be submitted to a public vote. The added transparency that comes with more involvement by local and state agencies in the Pilot Program aids the BCIS in law enforcement responsibilities and in assessing the job-creation potential of investment plans. An incidental but not insignificant benefit is that increased participation by such agencies also may enhance the appeal of immigrant investment in the view of prospective investors.

This article in no way argues that government must participate in private sector job creation. Rather, on balance, the more coordinated participation in the Pilot Program by local and state economic development agencies, public and private, the better.[74]

The BCIS’s legal standards relative to measuring job creation in the cases of individual investor petitions should embrace the underlying Pilot Program model for job creation. The model attempts to recognize the broadest possible range of economic impacts.

In the standard investor case, a petition that is not based on the Pilot Program, the petitioner may claim credit for workers the business hires as “employees”—those who provide services for the commercial enterprise and who are compensated directly by the commercial enterprise.[75] Conversely, job creation in the case of a petition that is based on the Pilot Program may consist of workers who are not employees of the commercial enterprise in which the petitioner has invested. Thus, at least in terms of the immigrant investor program, there is a simplified distinction between “direct” and “indirect” employment, the latter category reserved for Pilot Program cases. This distinction varies somewhat from an economist’s use of the terms, “direct” impacts, “indirect” impacts, and “induced” impacts. Investment in an auto manufacturer, for example, may cause increased employment in the auto manufacturer (“direct”), in the company that supplies the rubber tires (“indirect”), and in the economy generally when the increased earnings are spent again in the economy (“induced”). The induced employment impacts are calculated according to multiplier tables and other statistical methodologies. The Pilot Program model for job creation recognizes all three forms of employment creation.

Pilot Program regulations provide that the reasonable methodologies for measuring indirect job creation “may include multiplier tables, feasibility studies, analyses of foreign and domestic markets for the goods or services to be exported, and other economically or statistically valid forecasting devices.”[76] Forecasting methodologies, such as “RIMS II,” are widely used in the public and private sectors as a systematic analysis of the economic impacts of state and local programs on affected regions.[77] The Department of Defense uses RIMS II to estimate the regional impacts of military base closings. State departments of transportation use RIMS II to estimate regional impacts of airport construction and expansion. In the private sector, analysts, consultants, and economic development practitioners use RIMS II to estimate the regional impacts of a variety of projects, such as the development of theme parks and shopping malls. RIMS II, of course, is just one among many types of economic analysis that can be used in support of an immigrant investor petition. A survey-based input-output model, such as the one in use in the state of Washington , may be even more reliable than RIMS II as a forecasting tool.[78] Many forecasting tools are based on an accounting framework called an input-output table that is industry-specific, indicating the distribution of the inputs purchased and the outputs sold. Use of the input-output table requires providing detailed geographic and industrial information on the initial changes in output, earnings, or employment that are associated with the project under study. The multipliers then can be used to estimate the total impact of the project on regional output, earnings, or employment. These forecasting tools are widely accepted as a systematic analysis of economic impacts, which attempt to account for the interindustry relationships within regions that largely determine how regional economies are likely to respond to project and program changes.

The BCIS should accept that petitions based on the Pilot Program may be based on business plans and methodologies that forecast job creation throughout what could be a very broad geographic area,[79] and that a job forecast may not precisely identify the jobs that will be created, when they will be created, and in which companies the jobs will be created.[80] One of the consequences of accepting methodologies for forecasting jobs is that the business plans submitted in support of investor petitions may include forecasting that lacks specificity. These plans and projections should be welcomed so long as they are based on “reasonable methodologies” for identifying the number of jobs that will be created as a result of the investment.[81]

Multiplier tables, feasibility studies, and other statistically based methodologies are not guarantees of what jobs may be created in the future. Nor are these methodologies necessarily accurate concerning their estimations of the jobs already created. The evaluation of economic development outcomes remains very much an inexact science.[82] Nonetheless, the statutory intent is for the BCIS to defer to the economics professionals on the question of job creation, just as the public and private sectors do in other economic development endeavors. Beyond confirming that a recognized methodology is employed in support of claims of induced employment impacts, the BCIS should not substitute its own judgment concerning job creation for that of a credible professional who has rendered a forecast of job creation.

The policy rationale supporting a BCIS practice that defers to sometimes-unspecified employment forecasts is that the Pilot Program has at least the potential to substantially benefit the U.S. By providing an investment-for-jobs model that relieves the immigrant investor from having to open a business that directly employs 10 workers, and instead allowing the investor to pool capital along with the capital of other investors for concentrated investment in a particular area, the Pilot Program adopts a central tenet of the cluster economic development model. The Pilot Program endorses amassing capital for substantial, concentrated investment that breeds innovation, advances in technology, and the higher-skilled jobs that are sustainable in our sophisticated international economy. If the INS indeed disfavored investor petitions based on regional center designation under the Pilot Program, it is not exactly clear why.[83] In its policy-making concerning the Pilot Program, the BCIS should consider the program’s potential for creating higher-quality jobs. Using a cluster economic development model, for example, the state of Arizona shaped a workforce development plan designed to move workers from construction, retail, and tourism sectors to higher-skilled, higher-wage occupations in certain industry clusters such as optics, software, and environmental technology.[84] It is widely believed that effective economic clusters nationwide cultivate a higher-skilled, specialized workforce due to the higher propensity for vocational education and customized training in businesses located in clusters.[85]

In sum, in fashioning standards for job creation, the BCIS should heed the statutory provision for reasonable methodologies to identify job creation in the Pilot Program. In so doing, the BCIS would be appropriately featuring the underlying cluster economic development model that could be an engine for substantial growth in quality, sustainable jobs. 

On June 5, 2003, the Senate Committee on Governmental
Affairs held a hearing to examine the nominations of C. Stewart Verdery, Jr. and Michael J. Garcia. Mr. Verdery was nominated by President George W. Bush to be the Assistant Secretary for Policy and Planning with the Border and Transportation Security (BTS) Directorate within the Department of Homeland Security (DHS).[86] Mr. Garcia, who was Acting Commissioner of the INS from December 2002 until February 2003,[87] was nominated by President Bush to be Assistant Secretary for the Bureau of Immigration and Customs Enforcement (BICE) within the DHS, and is currently serving in that position as Acting Assistant Secretary.

Part I of this two-part article, which was published in 80 Interpreter Releases 837 (June 16, 2003), focused on the immigrant investor Pilot Program, surveyed the literature concerning cluster economic development, and recommended that the Bureau of Citizenship and Immigration Services (BCIS) adopt a new policy that would facilitate a test of whether the Pilot Program can be effective in attracting mass investment to regional areas with the result of creating quality, sustainable jobs in the U.S. economy.

Part II of this article identifies certain standards for adjudication of individual investor petitions that loom large as deterrents to job-creating investment, and recommends that the BCIS modify these standards in a manner consistent with the objective of job creation as well as considerations of national security and fraud prevention. The article concludes that a reformulated policy and modified adjudication standards should permit an actual test of whether the Pilot Program can be a facilitator of the kind of interconnected businesses that are characteristic of the cluster economic development model.

The law and procedure concerning immigration based on investment are among the more enigmatic areas of immigration law practice. Above and beyond what practitioners perceive as a hostile government attitude toward investment immigration generally, the specific legal standards that have evolved out of individual case adjudications leave many practitioners at a loss for discerning exactly what combination of facts is likely to qualify for the immigrant investor classification. Experience in actual cases and a review of hundreds of other decided cases reveal that certain adjudication standards should be modified consistent with the goals of the immigrant investor program, without jeopardizing the government’s interests in national security and fraud prevention.

A core assumption of the immigrant investor Pilot Program concerns investor motivation. Immigrants will invest within the designated regional center areas if they can obtain U.S. permanent residence as one of the benefits of making the investment. Indeed, the INS observed that the Pilot Program is a consequence of Congress’s intent to “increase interest” in the investor program, which it hoped to accomplish by providing to petitioners additional tools for proving job creation.[98] Permanent residence, therefore, is a key motivation for the kind of investor that the Pilot Program “targets.”

Adjudication standards should accommodate program objectives. In crafting legal standards and processing times for review of individual investor petitions, the BCIS not only should accept as fact that the underlying motivation of the investor is to obtain permanent residence, but also should recognize that in order to “increase interest” in the investor program, there must be predictability in the adjudication process. Specifically, legal standards and processing times should reflect the essential bargain that is at the heart of the immigrant investor legislation: if the required amount of capital is invested and the immigrant petition includes evidence of forecasted job creation, the petition should be approved and the investor should obtain U.S. residence promptly. Without some degree of predictability about the outcome in adjudication of individual investor petitions, those prospective immigrants who might invest for the sake of the permanent residence benefit in fact will not invest. Whereas investors understand well the nature of “investment risk”—how quickly invested capital can vanish when put to work in a for-profit venture—presumably they will not invest if the “immigration risk” is uncertain and unmanageable. Predictability about the adjudication of individual investor petitions, therefore, is critical to conducting the test of whether the Pilot Program is effective in creating jobs in economic clusters.

Adjudications of individual investor petitions to date more than likely deter rather than encourage investment from prospective investors. Although nothing more than anecdotal evidence is available, it is likely that would-be investors who are interested in permanent residence have elected not to invest in the U.S. in view of the difficulty of obtaining approval of an investor petition.^{^[99]} Very few petitions have been approved. Adverse decisions can be attributable to misunderstandings about legal requirements on the part of investor-petitioners and/or incompetence on the part of attorneys who represent those investor-petitioners, just as well as certain case denials appear to be attributable to unrealistic, arbitrary and/or ultra vires legal standards. A review of the denied cases that have made it to the INS’s Administrative Appeals Office (AAO) reveals that all of the above factors have been in play. The fact remains, though, that qualifying for permanent residence under the immigrant investor law is perceived universally as very difficult, even where the investor has invested in cash all the capital the law requires and has presented a credible business plan for creating jobs. In such hostile circumstances for adjudication of individual investor petitions, it is likely that prospective immigrant investors are electing not to invest.

In these times, all matters of immigration are viewed first through a national security lens.^{^[100]} While the immigration law already provides for the exclusion of terrorists and other national security risks,^{^[101]} the legal barriers were insufficient to shield the U.S. from terrorists masquerading as law-abiding students and visitors. Vast national resources have been committed to increasing intelligence, detection, and law enforcement, and to reshaping U.S. immigration laws and procedures. Do immigrant investors and the petitions they file present unique national security threats? Considering the question only from an immigration practice point of view, as no claim is made to national security expertise, it would appear unlikely that investors present unique threats. There is no reported case of an investor threatening national security. Investor-petitioners, to a degree unlike any other category of immigrant, are required to disclose substantial amounts of personal and financial information in the course of the petition process. It is unlikely that a terrorist or a group of conspirators would expose such information and attempt to utilize the cumbersome multi-stage immigrant investor law to gain a foothold in the U.S. It is doubtful, therefore, that the stringent standards for adjudication of individual investor petitions are necessary to maintain national security.

Rather than citing national security, those in the INS and in Congress who have disfavored the immigrant investor program occasionally cited concerns about fraud and/or abuse. They advocated either repeal of the law or at least severely restricting the immigration of investors by pushing even higher the difficult standards for adjudication of individual investor petitions.^{^[102]}

A comprehensive analysis of fraud and abuse in the immigrant investor program is beyond the scope of this article, but it is worth pondering whether the petitions filed by investor immigrants pose unique risks for fraud and/or abuse. Already, the investor statute provides a conditional two-year resident status as a mechanism for deterring fraud. Are the risks for fraud in an investor petition so much greater than the risks for fraud in any other type of immigrant petition that the conditional two-year period is inadequate to deter fraud in investor cases? History suggests there are petitioners who materially misrepresent facts in all kinds of immigrant petitions; petitioners in very large numbers apparently have lied about their former military service, their work in agriculture, and their marriage bona fides. Just as an investor-petitioner could present false employment documents in alleging that certain jobs were created, so may an applicant for labor certification present fraudulent documents concerning the available job.^{^[103]} The readily available evidence suggests that the risk for fraud in an investor petition appears to be similar to, not substantially greater than, the risk for fraud in other categories of immigration petitions.[104]

As for abuse (i.e., legal conduct that produces results inconsistent with program objectives), it appears to thrive in circumstances of confused policy objectives, imprecise legal standards, aggressive petitioners and attorneys, and lax oversight. In the view of some observers, abuse exists in the H–1B, L–1, and other business-oriented visa categories.^{^[105]} With respect to immigrant investors, the two-year conditional residence period is designed to deter fraud and abuse. But experience teaches that most critical to furthering program objectives is increased engagement by the agency. Since the time of the AAO precedent decisions in 1998, the INS moved boldly to eliminate the investment schemes that the INS eventually deemed an abuse.[106] A heightened level of involvement by the BCIS in the immigrant investor program of the future, including equally bold moves by the BCIS to address the restrictive adjudication standards that are highlighted in this article, should be adequate to deter fraud and abuse in the immigrant investor program.

In sum, in crafting legal standards for individual investor petitions, the BCIS should recognize that it advances program objectives when there is predictability in the adjudication process. If the BCIS is to test whether the Pilot Program can be an effective creator of jobs in the U.S. economy, then prospective investors must perceive the prevailing legal standards as firm, fair, and feasible. Otherwise, “immigration risk” will stifle investment. Accordingly, the BCIS should adopt legal standards that are sensible in the context of the Pilot Program objectives of facilitating cluster economic development and job creation, and are sensitive to the agency’s other law enforcement responsibilities. The following are recommended changes in adjudication standards.

To further job-creation objectives, the BCIS should promptly revise regulations to implement recent legislation that eliminated the requirement that the investor “established” the commercial enterprise.^{^[107]} This legislation was necessary to correct a set of legal standards appearing in INS case adjudications that significantly limited the utility of the investor program. Although the INS championed the “established” requirement as necessary to ensure that investors truly are “entrepreneurs” rather than passive investors, the DOJ Act clearly eliminated consideration of whether the investor established the enterprise.

Prior law required the investor to base the initial petition on investment in a new commercial enterprise “which the alien has established.”^{^[108]} The INS regulations set forth three alternatives for satisfying the “established” requirement: either (1) the investor created an original business, (2) the petitioner invested in an existing business and restructured or reorganized the business such that a new commercial enterprise resulted, or (3) the petitioner invested in and expanded an existing business, causing a 40 percent increase in its net worth or employment levels.^{^[109]}

In practice, the regulation proved exceedingly difficult to satisfy because the INS seemed to add layer upon layer of requirements. With reference to the “original business” alternative, Matter of Izumii^{^[110]} held that an investor must “have a hand” in the formation of the enterprise and must be “present at inception” of the business in order to have established the enterprise. Since then, the INS denied cases, for example, on the grounds that the petitioner was not the person who signed and filed the business’s incorporation papers with the particular state incorporation agency.^{^[111]}

According to recent interim guidance from the BCIS, because the amended statute continues to require the petitioner to invest in a “new” commercial enterprise (i.e., one that was formed after November 29, 1990),[112] the BCIS will continue to apply the “restructured,” “reorganized,” and “expansion” concepts in assessing whether an enterprise formed prior to November 29, 1990, is “new” in terms of business changes occurring since that date.[113] The utility of these concepts in promoting investment and job creation in older businesses will require further clarifications from the BCIS. Matter of Soffici,^{^[114]} for instance, held that purchasing the assets and business of an existing hotel does not qualify for the “restructured” or “reorganized” alternative. Thereafter, the AAO issued numerous nonprecedent cases that found insufficient restructuring and reorganizing of an existing business.^{^[115]} There is only one known case where the AAO agreed the business was sufficiently restructured or reorganized.^{^[116]} Furthermore, with respect to the “expansion” alternative, the INS has insisted that proof of expansion of the company requires audited financial statements concerning the company’s former net worth at the time of investment.^{^[117]}

Elimination of the “established” requirement should prove to be a large step toward sparking more capital investment by immigrants, particularly in existing businesses, and in turn should enhance the prospects for creating the circumstances for cluster economic development. Proven business models, and companies that have survived the infant stage of company life, in many instances are relatively safer investment targets and are better bets for creating and sustaining at least 10 more jobs in the U.S. economy. Permitting investment in existing businesses should encourage more foreign investment in the U.S. and should advance the cluster economic development and job-creation objectives of the Pilot Program.

The BCIS also should modify its standards for determining that a petitioner actually has “invested” or is “in the process of investing” the required capital. According to the INS regulation, the petitioner has not “invested” capital unless the capital is placed at risk of loss. It may not be enough, in other words, for the investor to file the I–526 petition on the basis of depositing the required amount of capital into a business and then commencing business activities. In recent case decisions the INS has appeared to set the bar higher than is reasonable, stating that the full amount of the required capital must be expended by the enterprise directly toward job creation; otherwise that capital is not at risk of loss.^{^[118]} This is a restrictive and onerous standard that clouds the planning for compliance with the law and consequently may have a chilling effect on job-creating investment. The BCIS should modify its standard for assessing whether an investor’s capital is at risk, consistent with the Pilot Program objective of amassing investment capital for job creation in regional areas.

A search of the potential sources of law for the requirement that capital must be fully deployed toward job-creating activities reveals, notably, that the investor statute merely requires proof that the petitioner “has invested,” or is “in the process of investing,” the required capital.^{^[119]} The investor statute, clearly, does not require that the petitioner invested all the required capital before filing the I–526 petition. Nor does the investor statute require that the invested capital be expended toward only “job-creating” uses. Significantly, too, the statute for removal of conditions on permanent residence—which contemplates that the investor still may be “in the process of investing” at the end of the two-year conditional period—does not require that all capital be invested prior to removal of the conditions on permanent residence.^{^[120]} In fact it is the INS regulation, not the statute, that is the source of the rule that invested capital is counted toward the minimum capital requirement of the law only if at the time of filing the I–526 petition, the “petitioner has placed the required amount of capital at risk for the purpose of generating a return on the capital placed at risk.”^{^[121]} The current confusion in the immigrant investor program concerning what exactly will qualify as “at risk” capital stems from the recent decisions issued by the INS in restrictively interpreting its regulation.

As a starting point for analysis, the INS regulation is based on the standards used in adjudication of applications for the E–2 treaty investor visa, as the INS noted in its comments to the final regulation.^{^[122]} As with the immigrant investor status, the E–2 treaty investor visa may be granted on either of two bases: (a) the investor already invested the required capital, or (b) the investor is in the process of investing the required capital. With respect to the former alternative (i.e., the investor already “invested” the required capital) the source of law for E–2 visas, the Foreign Affairs Manual, emphasizes that whether the investor already made a complying “investment” depends on risk of loss: “If the funds are not subject to partial or total loss if business fortunes reverse, then it is not an “investment” in the sense intended by INA § 101(a)(15)(E)(ii).”^{^[123]} Conversely, therefore, if the invested capital is subject to risk of loss, then the investor has made a qualifying investment.

With respect to the latter alternative (i.e., the investor is “in the process of investing” the required capital), the Foreign Affairs Manual emphasizes that the funds must be irrevocably committed to the business: “To be ‘in the process of investing’ for E–2 visa purposes, the funds or assets to be invested must be committed to the investment, and the commitment must be real and irrevocable.”^{^[124]} In this latter case, the investor has not yet deposited the capital in the enterprise but is in the process of doing so, and typically the issue arises because the investor maintains control over the funds either in a sole proprietor or close corporation form of business. The Foreign Affairs Manual elaborates: “Moreover, for the alien to be ‘in the process of investing,’ the alien must be close to the start of actual business operations, not simply in the stage of signing contracts (which may be broken) or scouting for suitable locations and property. Mere intent to invest, or possession of uncommitted funds in a bank account, or even prospective investment arrangements entailing no present commitment, will not suffice.”^{^[125]} Thus, to be “in the process of investing” means that the investor has irrevocably committed the funds to the business, such as in the case of an escrow that releases funds to the business without further action by the investor upon approval of the I–526 petition.

The brief overview of the standards applicable to E–2 visas is critical not only because the INS acknowledged from the outset of the immigrant investor program that the intent of the immigrant investor law is to incorporate legal standards that echo the E–2 visa standards. The overview also illustrates just how far the INS has drifted from the moorings of the E–2 visa standards. For one, the INS has collapsed the two alternatives (the “invested” alternative and the “in the process of investing” alternative) into just one very restrictive standard. In recent nonprecedent cases the INS formulated the very restrictive standard by juggling components of the two alternatives such that it eliminated any concept of being “in the process of investing” and then determined that a petitioner has not “invested” the required capital unless the deposited capital has been irrevocably committed by the business to certain expenditures. In rearranging these standards, the INS also eliminated the consideration of whether the capital is at risk, which up to that point had been the sole factor for determining whether the investor had invested the required capital. The INS, in effect, transformed the “at risk” issue into a consideration of how the business would expend its capital, and specifically, whether the capital would be expended toward job-creating activities. Whereas, arguably, the AAO may have reached the correct result on the “invested” capital issue in the Ho and Izumii precedent cases, the recent nonprecedent decisions that purport to follow Ho and Izumii in fact articulate standards for “invested” capital that look nothing like the standards applicable in E–2 visa cases.^{^[126]}

In the Ho case,^{^[127]} the AAO held that where the petitioner controls the business and its accounts, the mere deposit of the required amount of capital in a bank account and the signing of a lease agreement do not place that capital at risk. Rather, according to the AAO, the regulation requires the petitioner to present evidence of “meaningful concrete action” and the “actual undertaking of business activity” in order to provide sufficient assurance to the INS that the deposited capital would be used during the two-year conditional period to carry out the business objectives of the enterprise. This decision appears not only reasonable but also warranted by the E–2 visa standard that requires an adjudication to discern whether the capital is at risk of loss.

The other relevant AAO precedent decision, the Izumii case,^{^[128]} involved a limited partnership that used capital from its limited partner investors to fund a subsidiary credit company that extended loans to exporter businesses. The limited partner entered into an investment agreement that included a promissory note with a payment schedule that exceeded the two-year conditional period; a provision for the limited partnership to pay guaranteed returns to the investor; a sell option that the investor could exercise to redeem the limited partner ownership interest; and a provision for reserve funds that could be used by the partnership to fund the redemption to the investor. The AAO held that this combination of investment features all but eliminated the risk of loss and therefore the capital had not been invested. Also, the AAO held that the portion of capital used to pay the partnership’s administrative expenses prior to the partnership’s transfer of invested capital to the credit company was not at risk. The AAO stated: “The full amount of money must be made available to the business(es) most closely responsible for creating the employment upon which the petition is based.”^{^[129]} Similarly, with respect to the partnership’s maintaining reserve funds that might be used to fund a redemption, the AAO declared that “these reserve funds are, by agreement, not available for purposes of job creation and therefore cannot be considered capital placed at risk for the purpose of generating a return on the capital being placed at risk.”^{^[130]}

Read in a reasonable light, the latter references to the Izumii decision, which refer to a requirement that capital must be made available for job creation, should be interpreted narrowly given the unusual facts of that case. In Izumii the capital set aside as reserves and the funds used to pay administrative expenses did not constitute an investment under the law because, according to the AAO, the capital was never invested into the actual business. In ascertaining which level of the investment structure (limited partnership, subsidiary credit company, or borrower company) would be the analytical focus appropriate in the determination of whether the petitioner actually has invested in the entity, the AAO observed that the “job-creating” entity must receive the investor’s capital. Insofar as the fund for reserves and the administrative expenses were established at the level of the limited partnership, before the remaining capital was transferred to the level of the credit company that was in the business of extending loans, it was enough in the Izumii case for the AAO to decide that the limited partnership was not the job creator.^{^[131]} Thus, the investor could not have “invested” the capital set aside to fund reserves and to pay administrative expenses because that capital would never be at risk of loss in the underlying credit company business.

Unfortunately, later cases have interpreted incorrectly the catchy dicta of the Izumii decision as “precedent” for defining capital “at risk” as capital that is used in employment-creating activities prior to the time the I–526 petition is filed. In recent nonprecedent cases, for instance, the AAO declared that INS regulations require that “at the time of filing, the petitioner must already have placed the full requisite amount of capital at risk in profit-generating, employment-creating activities.”^{^[132]} The AAO has remarked: “Simply making money available to a business is not the same as placing that money at risk in employment-creating activities.”^{^[133]} With a different spin, the AAO also has attacked what it perceives as idle capital by rejecting petitions that are based on “overcapitalizing” a business: “Money deposited with a grossly overcapitalized business cannot be said to be at risk.”^{^[134]} Whether a business is overcapitalized, in the view of the AAO, depends on an assessment of what capital is used toward job creation.^{^[135]} In other words, according to these decisions, invested capital is not to be credited as capital at risk unless the full required amount (at a minimum $500,000), is irrevocably committed to job-creating uses.

But this latter string of case decisions—based on the dicta in Izumii indicating “[t]he full amount of money must be made available to the business(es) most closely responsible for creating the employment”—lack any sound basis in the law. The decisions are not based on a determination of whether the capital is at risk of loss, which is the applicable standard set forth in the regulation. It is impossible, moreover, to square the requirement that prior to filing the I–526 petition the investor place the “full requisite amount of capital at risk in profit-generating, employment-creating activities,” with the subject investor statute that permits an investor to be “in the process of investing.”^{^[136]} Furthermore, such a requirement is inconsistent with the legal authority for filing the I–829 petition to remove the conditions on residence after two years of conditional resident status at which time (and not before that time) the petitioner is required to prove that he has “in good faith, substantially met” the capital investment requirement, i.e., that he had “invested or was actively in the process of investing the requisite capital.”^{^[137]} This onerous pre-filing requirement also is patently inconsistent with the well-accepted legal authority for depositing as much as 100 percent of the capital in an escrow pending immigrant visa approval,^{^[138]} in which case a petitioner could not possibly have engaged yet in any employment-creating activities. Finally, the requirement also is not easily reconciled with the regulatory authority for submitting a comprehensive business plan whereby a petitioner has up to two years to create the required employment.^{^[139]}

Apart from recognizing that there is no legal foundation for the adjudication standard that would require deploying all capital toward job-creating uses prior to filing the I–526 petition, there also are no persuasive reasons for imposing such an adjudication standard. Put succinctly, the standard is entirely unreasonable in the context of the immigration motivations of the investors and the objectives of the immigrant investor program. This standard requires the petitioner’s business to expend the full amount of the required capital toward job creation, or at least enter into binding commitments to do so, prior to filing a I–526 petition.^{^[140]} While it may be reasonable to require an investor’s business to expend some capital before obtaining conditional residence (as suggested by the Ho case), it is clearly unreasonable to require an investor’s business to expend, or enter into binding commitments to expend, the full amount of the required capital prior to obtaining conditional residence. What policy is advanced by requiring such extensive activities? Why is the two-year conditional period and review mechanism not sufficient for advancing the interests in facilitating investment that will create jobs? For the BCIS to require the investor to meet the higher standard—to cause the investor’s business to enter into binding commitments, prior to filing the I–526 petition, to expend the full amount of the required capital on job-creating activities—is to impose an extremely heavy burden on petitioners for immigrant visa classification. The consequence is that many would-be investors would balk at such a requirement, and instead would forego investment in the U.S. For one, the extremely lengthy processing times for adjudication of I–526 petitions (beyond 12 months) render this approach infeasible. Assuming, again, that the immigrant investor program attracts investors who are motivated by the U.S. immigration benefit, few investors would cause their businesses to expend the full amount of the required capital prior to filing the I–526 petition in the hope that more than one year later the BCIS would approve the I–526 petition. If the investor’s funds are to be in escrow until the I–526 petition is approved, recall that it is the desire to minimize “immigration risk” that makes the escrow approach so appealing. But if the BCIS also requires all funds in escrow to be irrevocably committed for certain identified business expenditures immediately upon approval of the I–526 petition, then the extended processing times for adjudication of I–526 petitions also renders unappealing the escrow alternative. Certain business expenditures that appear feasible prior to filing the I–526 petition are not necessarily going to be sound business decisions more than one year later. Business environments change, sometimes very rapidly. Business people, investors, understand that reality. The consequence, again, is that few investors would enter into such binding commitments, meaning many potential investors instead forego investment in the U.S. Besides, if the very purpose of the two-year conditional status is to enable the immigrant to oversee and manage the investment, and given the requirement that at the end of the two-year conditional period the investor must file the I–829 petition and document how capital was expended, it appears exceedingly unreasonable to require the investor’s business to have expended the full amount of the required capital prior to filing the I–526 petition.

A related, but different, rationale supports rejection of the disputed adjudication standard: The “employment-creating activities” standard is hopelessly ambiguous. Presumably, it would include expenditures for payroll. But would it include payments for rent, utilities, fire insurance, equipment leasing, promotion, travel, and professional fees? As there is no guide to knowing what activities are included, the adjudication standard is likely to produce arbitrary and capricious results in adjudication of I–526 petitions. Uncertainties in adjudication standards more than likely have a chilling effect on job-creating investment.

The recent decisions that object to “overcapitalizing” businesses also tend to deter job-creating investment. If, for instance, in the best judgment of the BCIS the investor could have created at least 10 jobs in the business with an investment of $295,000, why should an investor who invests $500,000 in such a business be disqualified from the benefit of the immigrant investor program just because in the BCIS’s judgment some $205,000 of the investment will not be spent directly on job creation? Judged by the appropriate “risk of loss” standard that should apply in the case of all I–526 petitions, if the full $500,000 is deposited in an entity that commences business activities by leasing premises, entering contracts, employing and training staff, investing in equipment and purchasing inventory, then that full $500,000 continues to be at risk of loss regardless of whether the business has expended the entire amount. The entire $500,000 could be lost if the company is a losing business. The “at risk” standard therefore is satisfied. If, on the other hand, for some reason the “undeployed” portion of the capital is not at risk of loss (either because in fact it was never transferred into the business, or because it was transferred into the business but then in fact it was transferred out), then it is not at risk of loss because that portion of the capital actually has not been invested in the business. In short, the “at risk” analysis does not require linking each dollar of the invested capital to specific instances of the business spending money on job creation.^{^[141]}

Due to the heightened level of activity that the disputed adjudication standard would require of the investor prior to filing the I–526 petition, the possibility that the disputed adjudication standard is deterring prospective investors, the fact that actual business activity will be reviewed at the end of the two-year conditional period, and the ambiguity of the disputed adjudication standard, the BCIS should abandon any efforts at the I–526 petition stage to assess whether an investor has “overcapitalized” the business or has irrevocably committed all the required capital to employment-creating activities. The BCIS should recognize that it is unreasonable at the I–526 petition stage to require the investor to pinpoint each use of every single dollar that will be invested and to link the use of all invested capital directly to the creation of jobs. Such a requirement is clearly an obstacle to creating jobs because it is an unreasonable standard that actually discourages future job-creating investment.

A reconsideration of the adjudication standard for investment of capital may lead to formulating a feasible standard that has the following component parts. First, the BCIS should require the investor to deposit all required capital in the enterprise (or deposit that capital in an irrevocable escrow) prior to filing the I–526 petition.^{^[142]} If some of the required capital is in the form of a promissory note, then the promissory note must meet current adjudication standards.^{^[143]} Next, the BCIS should require the investor’s business to engage in some concrete initial business activity as indicated in the Ho case. If the capital is in escrow, however, at least some but not all of the capital must be committed to specific business uses immediately upon approval of the I–526 petition. Finally, the BCIS should require the investor to submit a comprehensive business plan that, in addition to including the factors described in the Ho case, also would describe planned business activities that compel a conclusion that the required amount of capital is at risk of loss.^{^[144]}

By clarifying in its adjudication standards that the BCIS requires the I–526 petition to include evidence of concrete business activity and a credible business plan—as a matter of assurance that the enterprise will be progressing on its plan to create jobs—the BCIS sufficiently balances the interests in amassing capital for job creation and confirming that the investor has invested capital that will be used for job creation during the two-year conditional period.

To amass capital for job creation, the BCIS also should adopt a feasible standard for determining the source of the petitioner’s invested capital. The INS regulations introduced the concept that capital should not include assets acquired by unlawful means, and the requirement that the petitioner prove the invested capital originated from a lawful source. The underlying rationale of the regulations is that the immigrant investor program should not be a conduit for laundering the proceeds of drug trafficking. The objective is unassailable, and therefore criticisms of the regulations and prevailing practices in this article are made with the utmost respect for the challenges faced by law enforcement. In brief, the regulations and the adjudication standards the INS has applied recently in specific cases are not tailored to concerns the agency may have about drug traffickers, and more than likely, deter investment in the U.S. without significantly furthering any other policy objectives. The BCIS should adopt a legal standard that advances the goals of the Pilot Program to amass large amounts of capital for job creation without forsaking the needs of national security and law enforcement.

As an initial observation, the immigrant investor statute does not require the investor to prove that the invested capital originated from a lawful source. In legislative deliberations concerning the immigrant investor law, members of Congress did remark that the investor category should not be a conduit for criminal organizations to launder the proceeds of their drug trafficking and visa processing should be terminated if such criminal activity “becomes known” to an examiner.^{^[145]} But in specifying the requirements for qualifying as an immigrant investor, Congress required proof of investment of “capital” and did not designate proof of lawful source of capital as a requirement of the petitioner’s case in chief.^{^[146]} And this choice of language is not surprising, because the model for the immigrant investor statute, the E–2 treaty investor visa, also does not require an applicant to submit proof of lawful source of capital.^{^[147]}

In its regulations, the INS stipulated that “[a]ssets acquired, directly or indirectly, by unlawful means (such as criminal activities) shall not be considered capital for the purposes of section 203(b)(5) of the Act.”[148] To the extent “unlawful means” is interpreted consistently with Congress’s concern about laundering the proceeds of drug trafficking, the regulatory definition of capital is legal and unobjectionable. Nonprecedent decisions of the AAO, however, interpret “unlawful means” very expansively to include any form of unlawful activity and thus the regulation is subject to legal challenge.

Furthermore, the regulations impose on an investor the affirmative obligation to present evidence in the petitioner’s case in chief to prove that it is an investment of “capital obtained through lawful means.”^{^[149]} Insofar as Congress contemplated only that visa processing would be terminated if it “becomes known” the money invested was obtained through illegal means such as drug trafficking, and Congress elected not to require such evidence as part of a petitioner’s case in chief, the regulation appears to contravene legislative intent and could be voided if directly challenged in court.[150]

The same regulation also provides certain categories of proof that an investor may rely upon for purposes of proving lawful source of capital; most notably, the regulation provides that the investor should present five years of tax returns.^{^[151]} The regulation at least implies that such evidence will suffice. But experience in specific cases teaches that strict compliance with the regulation (i.e., submitting all the indicated documentation), unfortunately, does not translate into satisfactory proof of lawful source of funds. The INS has required additional evidence, such as proof of “level of income” that would yield the funds necessary to invest. Courts have held that where an agency’s interpretation of the law is inconsistent with its own regulations, the agency’s interpretation is not controlling.[152] And, inasmuch as the regulation is not a specific, immutable standard, but is in effect a moving target, it is an arbitrary and capricious standard that should be set aside as illegal.[153]

In 1998, the AAO precedent decisions sparked heightened scrutiny of the petitioner’s source of funds and marked the beginning of a sharp departure from reasonable standards. The decision in Soffici^{^[154]} concerned a petitioner who contended that the funds invested had come from the sales of a house and a business, but the petition omitted any documentation concerning the house or business. The decision in Ho^{^[155]} involved a medical doctor who contended that he had substantial liquid assets in the form of bank accounts and stock holdings and had earned a substantial living from his medical practice in Taiwan . The AAO found the evidence insufficient because the petition lacked supporting evidence of the petitioner’s medical degree, his medical practice, and his level of income. The decision in Izumii^{^[156]} involved a 30-year-old petitioner who contended that he invested his savings earned from a successful jeans trading business in Japan , but he failed to present evidence of his level of income beyond two years of corporate income tax returns.

While each of the cases appeared to lack evidence that is required by regulation, on the other hand the cases introduced the additional obligation that a petitioner should prove a level of income that would yield sufficient funds for investment.

Following the publication of the AAO precedent decisions, in recent cases the INS routinely denied investor petitions for lack of evidence of lawful source of funds, particularly level of income. In doing so the INS ignored basic rules of evidence, declaring that a petitioner’s “self-serving” declaration, without more, is insufficient, effectively applying a de facto presumption that all capital from an investor-petitioner is unlawful.^{^[157]} Thus, not only has the INS interpreted “unlawful means” too expansively, imposed a burden of proof on petitioners where none should exist, and erected arbitrary and capricious standards that include requirements not found in its regulations, but it also erroneously has credited little if any evidentiary value to the declarations of petitioners.

A review of recent case adjudications reveals that the INS has strayed far afield from statutory, even regulatory, standards and has required petitioners to present a level of evidence of source of capital that may be exceedingly difficult if not impossible to obtain.^{^[158]} The cases reveal a preoccupation with the investor’s level of income, coupled with speculation that a petitioner’s reporting of meager income may indicate a violation of foreign tax and other foreign laws. The cases also impose the burden of proving lawful source on the petitioner and essentially credit insignificant weight to the petitioner’s sworn assertions. Thus, the INS has held that the claim that the source of funds was a gift must be supported by evidence of the tax returns of the donor due to the concern that the petitioner may have received funds that should have been paid in taxes due to a foreign government,^{^[159]} that the contention that the source of funds was an inheritance must be supported by evidence of a probated estate,^{^[160]} that the statement that the source of funds was from the sale of a business must be backed by overwhelming evidence of the sale transaction, including certified documentation from overseas authorities,^{^[161]} and that the assertion that the investor-petitioner has accumulated wealth over time must be supported by evidence of a level of income that adds up to such wealth regardless of how dated the circumstances.^{^[162]} If the petitioner has been present in the U.S. and may have earned funds from unauthorized work, the petitioner must dispel the suspicion that the invested capital was so obtained.^{^[163]} Even where there appears to be substantial evidence of accumulated wealth and income that identifies the source of the investor’s capital, the INS has denied petitions for failure to include five years of income tax returns, concluding: “Money owed in taxes to a foreign government cannot be considered lawfully obtained.”^{^[164]}

The intent of this article is not to examine fully the legal arguments that counsel might advance on behalf of an individual petitioner who disagrees with the agency’s adjudication standard for lawful source of capital.^{^[165]} Nor is the intent to minimize the law enforcement concerns about money laundering and related crime. Instead a bright light must be focused on the question of how properly to balance the objectives of amassing capital for job creation with the interests of national security and law enforcement. The BCIS should recognize that a balanced approach to the subject of the source of an investor’s capital is of critical importance to amassing immigrant capital for job creation. Too strict a standard, or one that is a moving target, stifles investment and thwarts the job-creation objectives of the Pilot Program

Considering, first, the BCIS’s interests in national security and law enforcement, it is not immediately clear how the immigrant investor program could be used as a conduit for breaching national security or laundering the proceeds of drug trafficking.^{^[166]} More precisely, it is not clear that the immigrant investor program presents any more of an opportunity for such criminal activity than any other visa category available to foreign nationals. All immigrants must present police certificates and are subject to criminal background checks during the immigration process. Immigration may be denied to any applicant “who the consular officer or the Attorney General knows or has reason to believe is or has been an illicit trafficker in any controlled substance...”^{^[167]} Similarly, immigration may be withheld from any applicant suspected of seeking to enter the U.S. to engage in subversive, terrorist or any other unlawful activity.^{^[168]} Officers of the BCIS, as well as consular officers, have at their disposal—separate and apart from speculations about the source of the investor’s capital—the seemingly effective option of referring any suspect matter to a law enforcement organization that is expert at detecting criminal activity such as money laundering.^{^[169]} As it stands, investors are the only category of immigrants who are required to disclose the considerable amount of personal and financial information that an investor now must produce in order to obtain petition approval. Investor petitions typically include hundreds of pages of business certificates and documents, banking and securities account statements, personal and business income tax records, and other sensitive and private information. Indeed, the immigrant investor program appears to be the worst choice for an immigrant intending to commit a crime in the process.

Nonetheless, denying program benefits to criminals who invest the proceeds of drug trafficking is an important institutional objective. It is reasonable, therefore, for the BCIS to insist on documentation that links invested funds to the petitioner, for the purpose of confirming the identity of the actual investor. By tracing the funds invested in the U.S. entity back to an account of the investor, the BCIS can satisfy this need.[170] The BCIS, of course, also will run national security and criminal record checks on the petitioner.

Beyond the tasks of confirming that the invested capital is the petitioner’s capital (regardless of whether it was earned through labor and investment, or received as a gift or an inheritance), and checking records for national security risks and criminal history, the BCIS should be wary that its pressing for more private, and typically difficult-to-obtain, financial documentation would not be furthering law enforcement or national security interests but instead would be stifling job-creating investment. Insisting on such information also unnecessarily bogs down the adjudication process.

Where there is no reliable record of conviction involving behavior that would suggest the capital is the ill-gotten proceeds of crime, the BCIS should not hold up visa processing as it speculates about the petitioner’s compliance with other laws. Whether, for example, an investor has complied with the money exchange laws of China , Korea , or some other home country should not be a focus of the U.S. immigrant investor program. Similarly, the BCIS should not speculate about the investor’s compliance with home-country tax laws. The BCIS has no expertise with such foreign laws and their obligations, and more than likely is incapable of fairly making a conclusive determination that a petitioner violated a particular foreign law. Nor has the Congress ever indicated that the immigrant investor category is unavailable to petitioners who have not been charged with a crime but who in fact may have violated foreign tax and exchange laws.

Furthermore, in view of the fact that many investors have capital to invest that has accumulated over many years, even decades, and possibly generations, the BCIS should not task the investor-petitioner to prove a history of income that would add up to sufficient assets for investment. Congress did not intend that the agency should conduct an audit of the petitioner’s financial background. In many deserving cases, such an evidentiary burden is too formidable for an investor to carry.

To remove these considerations from the responsibility of an officer of the BCIS who adjudicates I–526 petitions is not to condone uncharged violations of such foreign tax and exchange laws, if any in fact have occurred. Rather, relieving officers of such responsibility is a consequence of recognizing that the law does not require the information, that insistence on the information could have a chilling effect on investment in job-creating businesses, and that efficient adjudication of I–526 petitions requires confining the scope of what officers adjudicate to a limited set of factors that are within the BCIS’s expertise.

The BCIS should amend its regulations to conform to the intent of Congress. First, the definition of “unlawful means” at 8 CFR § 204.6(e) should be synonymous with criminal activity such as drug trafficking, rather than illegal activity of all kinds. Second, the regulation at 8 CFR § 204.6(j)(3) should be revised to state that the itemized documentation is required as evidence of the source of the investor’s capital. The BCIS should delete that part of the regulation that purports to require a petitioner to prove that the capital was “obtained through lawful means.” Put another way, the petitioner bears the burden of proving the source of capital but not that it is a “lawful” source.

The BCIS also should modify its procedures for reviewing the source of the investor’s capital to incorporate an appropriate order for producing evidence. Procedurally, the investor-petitioner would be required by regulation to present the itemized set of documentation. The BCIS would welcome, also, the petitioner’s declaration to elaborate on the details of the documentation and personal circumstances. Having satisfied the regulation by presenting the specified documentation and some plausible explanation, the petitioner would not be required to do more. Suspect information can be referred to the ICE for further investigation, but visa processing should not be delayed unless and until it “becomes known” to the BCIS examiner that the source of invested capital is the proceeds of criminal activity such as drug trafficking. Absent that, the investor-petitioner will have sustained the burden of proof.[171]

Finally, the BCIS should eliminate the insistence on proof of the source of capital invested by other investors who have invested in the same entity as the petitioner. The production of this type of evidence is always burdensome. The reasonable interpretation of the regulation concerning other investors in the same entity is that the petitioner is required only to identify them.[172]

The BCIS can promote the objectives of the Pilot Program, and the immigrant investor program generally, without neglecting law enforcement interests. By recognizing that unreasonable standards concerning source of funds deter would-be investors, and by modifying those standards consistent with the objectives of the immigrant investor program, the BCIS would be making long strides toward fostering job-creating immigrant investment in the U.S.

The BCIS also must impose prompt processing guidelines for adjudication of individual investor petitions. Without prompt processing, the immigrant investor program has little if any chance for success.

Built into the immigrant investor statute is a two-year conditional period for all investors. In addition to that two-year period of uncertainty—when the investor’s business could fail, imperiling the U.S. immigration benefit entirely—the investor also must survive lengthy periods for processing the I–526 petition and an immigrant visa at the front end, and the I–829 petition at the back end. Current processing times for adjudication of I–526 petitions and visa issuance exceed 12 months, and current processing times for adjudication of I–829 petitions range from two to four years. Considering the waiting periods together, an investor is likely to be applying for the U.S. immigration benefit based on investment for well more than five years.[173] This is immigration uncertainty, immigration risk, at its worst. Few investors would participate knowingly in an application process that involves such a lengthy period of uncertainty. The processing times are a strong deterrent to immigrant investment that otherwise could be helping to create quality, sustainable jobs in the U.S. economy.

Given the fraud prevention mechanism that already is built into the statutory scheme in the form of the two-year conditional period, the BCIS should streamline adjudication and reduce processing time for I–526 petitions to less than 60 days. One way of streamlining the adjudication process, for example, is to make better use of the I–526 petition form by expanding it and revising it to a “yes” and “no” format^{^[174]} that is typical of other application forms such as the I–485 application for adjustment of status.

Prompt processing times are essential to creating and maintaining universal confidence in the immigrant investor program. The BCIS should remove this barrier to testing whether the Pilot Program can stimulate mass investment in regional areas.

Congress enacted the Pilot Program for the purpose of stimulating foreign investment in regional areas with the objective of amassing and pooling capital that would contribute to cluster economic development. The Pilot Program is intended to foster the kind of job creation, innovation, and new company formation that can be sustained in a modern, sophisticated global economy. As the new BCIS takes the reins of the immigrant investor program, it would do well to acknowledge the merits of cluster economic development and to implement the changes needed to test whether foreign investment by way of the Pilot Program can facilitate the development of economic clusters.

[1] Pub. L. No. 101–649, § 121, 104 Stat. 4978, enacting INA § 203(b)(5).

[2] The INS’s functions were transferred on March 1, 2003, to the DHS, as mandated by the Homeland Security Act (HSA), Pub. L. No. 107–296, 116 Stat. 2135. The INS’s administrative, service, and enforcement functions are now performed by various bureaus within the DHS. See 80 Interpreter Releases 305 (Mar. 3, 2003) (reporting on and reproducing final rule facilitating the transfer); 79 Interpreter Releases 1733 (Nov. 25, 2002) (section-by-section summary of the HSA).

[3] S. Rep. 55, 101^st Cong., 1^st Sess. 2, 3 (1989); see also Endelman and Hardy, “Uncle Sam Wants You: Foreign Investment and the Immigration Act of 1990,” 25 San Diego L. Rev. 671 (1991).

[4] The 1981 Select Committee on Immigration overwhelmingly supported a new immigrant visa category for investors. Select Commission on Immigration and Refugee Policy, “ U.S. Immigration Policy and the National Interest,” 97^th Cong., 2^d Sess., Final Report (Comm. Print 1981). An investor proposal appeared in a 1982 bill, but that bill was defeated in response to the argument that a visa allocation for investors would have reduced the visa allocation for the backlogged family-based categories. That objection was overcome when the 1990 Act substantially increased visa allocations in all categories. INA § 203(b)(5) was first introduced as Senate Bill No. 258 in 1989. According to the legislative history, the goals of the law are to create jobs, see 136 Cong. Rec. S7622, 7626 (daily ed. July 11, 1989), and to attract foreign investor capital to the U.S. See S. Rep. No. 55, 101^st Cong., 1^st Sess. 21 (1989).

[5] INA § 203(b)(5)(C).

[6] INA § 216A; see S. Rep. No. 55, 101^st Cong., 1^st Sess. 22 (1989).

[7] In accordance with recent legislation, the INS was eliminated as of March 1, 2003, and its investor visa responsibilities have been assumed by the new Bureau of Citizenship and Immigration Services (BCIS) within the new Department of Homeland Security.

[8] 56 Fed. Reg. 60897 (Nov. 29, 1991), codified at 8 CFR § 204.6, reported on and reproduced in 68 Interpreter Releases 1720 (Dec. 9, 1991).

[9] 59 Fed. Reg. 26587 (May 23, 1994), codified at 8 CFR § 216.6, reported on and reproduced in 71 Interpreter Releases 679 (May 23, 1994).

[10] INS Report to Congress on the EB–5 Investor Visa Program, under cover letter dated March 4, 1999 of Stephen R. Colgate, Assistant Attorney General, to Rep. Harold Rogers (R–Ky.), Chairman, House Appropriations Subcommittee. The report also included statistics on immigrant investor petitions for fiscal years (FYs) 1992 through 1998. The INS approved few cases, ranging from a low of 240 petitions in FY 1992 to a high of 1,110 petitions in FY 1997, and a precipitous drop to 358 petitions in FY 1998.

[11] See, e.g., Rose, “Fixing the Wheel: A Critical Analysis of the Immigrant Investor Visa,” 29 San Diego L. Rev. 615 (1992), stressing that U.S. taxation of an immigrant’s worldwide income is a major deterrent to foreign investment. See also Lee, “Hot Dog Stands or High Tech? The Fate of Taiwanese Investors and the Immigration Act of 1990,” 14 U. Pa. J. Int’l Bus. L. 63 (1993), calculating that most well-heeled Taiwanese would prefer the economic opportunities in Taiwan’s dynamic high-tech sector over a fast-food franchise or other similar labor-intensive business in the U.S. that might provide a vehicle for complying with the immigrant investor statute.

[12] See, e.g., Endelman and Hardy, supra note 3, at 673–74, contending that INS regulations actually inhibit rather than encourage job creation. See Rose, supra note 11, observing that INS regulations concerning investor source of funds are not only ultra vires but also discourage potential investors who are concerned about the adverse consequences of the U.S. government publicizing confidential financial information.

[13] Lee, “The ‘Immigrant Entrepreneur’ Provision of the Immigration Act of 1990: Is a Single Entrepreneur Category Sufficient?,” 12 J. Law & Commerce 147 (1992), observing that job creation and capital infusion may be inconsistent goals and recommending that there should be two separate investor categories (one for “investor” and one for “entrepreneur”) as in the case of Canada. Nearly a decade into administering the investor program, the INS continued to struggle with the dual characteristics: “The current statutory authority is broad enough to encompass both passive investors and entrepreneurs directly involved in the operations of the business…. Passive investments have made the program more difficult for the INS to administer.” See INS Report to Congress, supra note 10, at 4.

[14] See, e.g., Vazquez-Azpiri, “The Role of Commercial Organizations in the EB–5 Employment Creation Process,” 2 Bender’s Immigr. Bull. 813 (Oct. 15, 1997). Some of the earlier legal opinions are reproduced in 73 Interpreter Releases 1617 (Nov. 18, 1996), and 72 Interpreter Releases 1191 (Sept. 1, 1995).

[15] Memorandum of Michael D. Cronin, INS Acting Assoc. Comm’r (Mar. 11, 1998), forwarding legal memorandum to INS field offices, placing a hold on adjudication of petitions, and instructing INS service centers to certify petitions to the Administrative Appeals Office (AAO). The legal opinion is reproduced in 75 Interpreter Releases 1323 (Mar. 9, 1998).

[16] See the precedent decisions in Matter of Soffici, 22 I&N Dec. 158, 19 Immigr. Rep. B2–25 (Int. Dec. 3359, AAO June 25, 1998); Matter of Izumii, 22 I&N Dec.169, 19 Immigr. Rep. B2–32 (Int. Dec. 3360, AAO June 13, 1998); Matter of Hsiung, 22 I&N Dec. 201, 19 Immigr. Rep. B2–106 (Int. Dec. 3361, AAO July 31, 1998); Matter of Ho, 22 I&N Dec. 206, 19 Immigr. Rep. B2–99 (Int. Dec. 3362, AAO July 31, 1998). The AAO decides appealed and certified cases. “Precedent decisions” by the AAO are binding on all officers of the immigration agency. Certain “nonprecedent decisions” of the AAO, which are not binding, also are cited in this article with the names of the petitioners redacted.

[17] See, e.g., Chang v. United States, 237 F.3d 911 (9th Cir. 2003), holding that the INS cannot apply the AAO precedent decisions to conditional resident investors who are petitioning to remove the conditions on residence. But see Spencer Enterprises v. United States, 229 F. Supp. 2d 1025 (E.D. Cal. 2001), finding that the AAO precedent decisions provided interpretive guidance rather than rule changes and can be applied to deny initial investor petitions.

[18] Statistics reveal even lower visa usage in most recent years. Of the 40,000 visas available over a recent four-year period, only 820 were issued—252 visas in FY 1999; 231 visas in FY 2000; 189 visas in FY 2001; and just 148 visas in FY 2002. These totals include all principal investors and dependents, in both consular visa and adjustment of status cases. Barely two percent of the total visa allocation was used.

[19] Pub. L. No. 107–273, 116 Stat. 1758, tit. I, subtit. B, ch. 1 § 11031 et seq. (2002). For a summary of the EB–5 Provision, see 79 Interpreter Releases 1573, 1574 (Oct. 21, 2002).

[20] Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act of 1993 (Appropriations Act), Pub. L. No. 102–395, § 610, 106 Stat. 1828; S. Rep. No. 102–918 (1992).

[21] See U.S. Senate Report 102–331, 102^d Congress 2^d Sess., July 23, 1992; see also Immigrant Investor Pilot Program, Final Rule, 59 Fed. Reg. 17920–21 (Apr. 14, 1994), reported on and reproduced in 71 Interpreter Releases 531 (Apr. 18, 1994).

[22] See 8 CFR § 204.6(m) for the requirements of regional center designation.

[23] According to the regulations, “[r]egional center means any economic unit, public or private, which is involved with the promotion of economic growth, including increased export sales, improved regional productivity, job creation, and increased domestic capital investment.” 8 CFR § 204.6(e).

[24] See the Appropriations Act, supra note 20, § 610(c), and 8 CFR § 204.6(m)(3)(v).

[25] The investor files an initial Immigrant Petition by Alien Entrepreneur (Form I–526) based on evidence of investment of capital and a plan for job creation. If the petition is approved, the investor may become a conditional permanent resident. Prior to the second anniversary of obtaining conditional permanent residence, the investor must file the Petition by Entrepreneur to Remove Conditions (Form I–829) requesting removal of the conditions on permanent residence based on evidence of the investment and the jobs created. This article assumes a basic understanding of the requirements of the immigrant investor law. For an overview, see Yale-Loehr, “EB–5 Immigrant Investors,” 2 American Immigration Lawyers Association, 2002–03 Immigration & Nationality Law Handbook 163 (Auerbach et al. eds., 2002).

[26] Visa Waiver Permanent Program Act, Pub. L. No. 106–396, § 402(a), 114 Stat. 1637, 1647 (2000), extending the Pilot Program for three years to September 30.

[27] The INS maintained a narrow view of the applicability of the Pilot Program: “The pilot program includes a modified job-creation requirement that enables investors in regional centers to credit their investment with indirect job-creation through revenue generated from increased exports.” INS Report to Congress, supra note 10. See, e.g., Matter of [name redacted], WAC–99–055–50009 (AAO Aug. 14, 2002), a nonprecedent decision of the AAO holding that petitioner could not rely on indirect employment methodologies because a brew pub/restaurant on the island of Kauai did not involve “exports” within the meaning of restrictive INS regulations at 8 CFR § 204.6(m), dismissing a letter from the Hawaii Department of Business, Economic Development and Tourism that contended restaurants are part of the tourism trade that the island “exports.” See Stone, “INS Decisions Cloud Future of Investor Pilot Program,” 6 Bender’s Immigr. Bull. 233 (Mar. 1, 2001), and discussion of emphasis on export sales.

[28] See Stone, supra note 27, for a detailed discussion of the statutory and regulatory requirements and the INS’s restrictive interpretation of the requirements in the cases of five applications for regional center designation.

[29] See DOJ Act, supra note 19, § 11037 (“Amendments to Pilot Immigration Program for Regional Centers to Promote Economic Growth”).

[30] One of the earliest articulations of the cluster theory is found in Porter, The Competitive Advantage of Nations (The Free Press, 1990).

[31] See legislative history and INS publication of regulations, supra note 21.

[32] Porter, “Location, Competition, and Economic Development: Local Clusters in a Global Economy,” 14 Economic Development Quarterly, No. 1 (Feb. 2000), at 15.

[33] The author obtained a copy of slightly redacted materials concerning the GSP proposal and other regional centers designated by the INS, all available to requesters under the Freedom of Information Act. The memorandum from Jacquelyn A. Bednarz, INS Acting Ass’t. Comm’r, “Designation of Regional Centers Under the Immigrant Investor Pilot Program,” HQ70//6.2.5 (July 31, 1998), lists the approved regional centers.

[34] See 58 Fed. Reg. 44606 (Aug. 24, 1993), Interim Rule with Request for Comments (“the purpose in enacting 610(a)—to obtain empirical evidence of the effectiveness of the regional center concept in promoting economic growth...”)

[35] 8 CFR § 204.6(m)(3).

[36] See recent statutory amendments, supra note 19, § 11037.

[37] See Porter, supra note 32, at 15.

[38] Waits, “The Added Value of the Industry Cluster Approach to Economic Analysis, Strategy Development, and Service Delivery,” 14 Economic Development Quarterly, No. 1 (Feb. 2000), at 36.

[39] Id. , noting that in addition to the problem of unemployment, declining living standards result in part from poor quality, low-paying jobs.

[40] National Governors Association, A Governor’s Guide to Cluster-Based Economic Development (2002) (available at http://www.nga.org).

[41] Waits, supra note 38, at 37.

[42] Weiss, State Policy Approaches to Promote Metropolitan Economic Strategy, National Governors Association Center for Best Practices (Oct. 2002), at 23 (available at http://www.nga.org/Center). The City of San Jose, California, for example, in its decades-long drive to become capital of the Silicon Valley, invested $117 million in infrastructure improvements such as bridges, roads, street improvements, water wells, sanitary systems and storm sewers. Introduction to Redevelopment, California Redevelopment Association (1^st ed. 1996), at 81.

[43] Walcott, “Analyzing an Innovative Environment: San Diego as a Bioscience Beachhead,” 16 Economic Development Quarterly, No. 2 (May 2002), at 99–114. Golden Rainbow Freedom Fund, an existing Pilot Program regional center in Seattle , Washington , appears to be engaged in this variety of cluster development.

[44] Walcott, supra note 43, at 99; Weiss, supra note 42, at 12–14.

[45] Perhaps less known is the critical role of immigrant entrepreneurship in the Silicon Valley ’s success. Saxenian, “ Silicon Valley ’s New Immigrant High-Growth Entrepreneurs,” 16 Economic Development Quarterly, No. 1 (Feb. 2002), at 20–31.

[46] The “Software and Information Services Cluster” refers to the state of Connecticut ’s more than 1,000 software and information technology companies. See http://www.ct.org. See also National Governors Association Center for Best Practices, Innovative State Policy Options to Promote Rural Economic Development (Feb. 2003) (available at http://www.nga.org).

[47] Porter, supra note 32, at 19.

[48] Id. at 20.

[49] A Governor’s Guide to Cluster-Based Economic Development, supra note 40, at 9.

[50] Porter, supra note 32, at 24.

[51] Porter, supra note 32, at 25.

[52] Interim Rule with Request for Comments, supra note 34. See also INS Report to Congress, supra note 10, at 7: “The Immigrant Investor Pilot Program is intended to assess whether immigrant investor capital can stimulate job-creation, economic growth, export trade, and domestic capital investment in approved regional centers.”

[53] 8 CFR § 204.6(m)(4).

[54] 8 CFR § 204.6(e), defining “regional center.”

[55] See, e.g., Matter of Envirotek International, Incorporated (Ass’t Comm’r Adj., May 3, 2000); Matter of Redevelopment Agency of the City of Vernon (Ass’t Comm’r Adj., July 14, 2000).

[56] See cases reviewed in Stone, supra note 27.

[57] Congress made a technical amendment, changing “and” to “or” in subparagraph 610(c) when it extended the Pilot Program in the year 2000, see Appropriations Act, supra note 20, and then in the DOJ Act, Congress closed the loop by making the same technical amendment to subparagraph 610(a) as it concerns applications for regional center designation.

[58] See DOJ Act, supra note 19, § 11037 (“Amendments to Pilot Immigration Program for Regional Centers to Promote Economic Growth”). The Pilot Program statute, section 610(a), now reads:

SEC. 610. PILOT IMMIGRATION PROGRAM.—(a) Of the visas otherwise available under section 203(b)(5) of the Immigration and Nationality Act (8 U.S.C. 1153(b)(5)), the Secretary of State, together with the Attorney General, shall set aside visas for a pilot program to implement the provisions of such section. Such pilot program shall involve a regional center in the United States , designated by the Attorney General on the basis of a general proposal, for the promotion of economic growth, including increased export sales, improved regional productivity, job creation, or increased domestic capital investment. A regional center shall have jurisdiction over a limited geographic area, which shall be described in the proposal and consistent with the purpose of concentrating pooled investment in defined economic zones. The establishment of a regional center may be based on general predictions, contained in the proposal, concerning the kinds of commercial enterprises that will receive capital from aliens, the jobs that will be created directly or indirectly as result of such capital investments, and the other positive economic effects such capital will have. [New language in italics.]

[59] Perhaps signaling the start of a welcome trend, the INS recently approved two applications for regional center designation filed by private entities, the first focused on investment in agricultural areas of Central California (see California Consortium for Agricultural Export, http://www.ccax.com), and the second focused on investment in the City of Philadelphia (see Philadelphia Industrial Development Corporation, http://www.pidc-pa.org).

[60] See INS Report to Congress, supra note 10, at 4.

[61] Porter, supra note 32, at 27. The appropriate role of a particular local development agency at any point in time is likely to vary, depending on such factors as cluster maturity and sources of competitive advantage. Roles include organizing relevant government departments around clusters; focusing efforts to attract foreign investment around clusters; focusing export promotion around clusters; eliminating barriers to local competition; sponsoring streamlined, pro-innovation regulatory standards affecting the cluster; creating specialized education and training programs; establishing local university research efforts in cluster-related technologies; enhancing specialized transportation, communications, and other infrastructure; mounting cluster-specific efforts to attract suppliers and service providers from other locations; and establishing cluster-oriented free trade zones, industrial zones, or supplier parks. See also Walcott, supra note 43, emphasizing role of advocacy and political groups in San Diego’s cluster success; Weiss, supra note 42, at 16, observing that it is “absolutely essential” that state and local development agencies be involved in metropolitan economic strategy.

[62] A local government body in most states can pass an ordinance establishing a redevelopment area based on a redevelopment plan for the improvement of infrastructure within city limits. The plan focuses on revitalizing blighted properties. The state permits the local government to pursue redevelopment activities financed at least in part with the increased tax receipts that come from enhanced property assessments in the redevelopment area. See Introduction to Redevelopment, California Redevelopment Association (1st ed. 1996).

[63] Enterprise zone programs typically target economically distressed areas by offering tax incentives to attract businesses that provide employment. Tax benefits include loss carry-forwards, state tax credits for employees hired, sales tax credits, accelerated depreciation, and incentives for lenders that loan money to businesses located in the enterprise zone.

[64] See http://www.jointventure.org.

[65] See http://www.sandiegobusiness.org.

[66] See http://www.commerce.ca.gov. One of the existing regional centers under the Pilot Program, CMB Export LLC, was designed to attract investment to closed military base areas.

[67] See http://www.dbedt.hawaii.gov. The agency is designated as a regional center under the Pilot Program.

[68] Empowerment zones, enterprise communities, and renewal communities are designated under federal grant and tax incentive programs designed to aid both urban and rural areas such as Shannon County, South Dakota, which demonstrated high rates of poverty, and the areas of Lake Aggasiz, North Dakota, and Wichita County, Kansas, which demonstrated unusually high population “emigration.” The designations entitle the regions to federal grant funds, administered by the U.S. Department of Agriculture and the U.S. Department of Housing and Urban Development. See “EZ/EC” website, http://www.ezec.gov.

[69] See http://www.dcez.org.

[70] See http://www.hud.gov (“Community Renewal Initiative”).

[71] See, e.g., Rosenfeld, Federal Reserve Bank of Kansas City, Networks and Clusters: The Yin and Yang of Rural Development (May 2001); National Governors Association Center for Best Practices, Innovative State Policy Options to Promote Rural Economic Development (Feb. 2003) (available at http://www.nga.org).

[72] Munnich, Jr. et al., Rural Knowledge Clusters: The Challenge of Rural Economic Prosperity, U.S. Economic Development Administration (Aug. 2002).

[73] See http://www.wichitacounty.org.

[74] Cf. for views against government involvement in economic development, see Murray , “Cluster-Based Development Strategies: Lessons From the Plastics Industry in North Central Massachusetts,” 13 Economic Development Quarterly, No. 3 (Aug. 1999), at 266–280, finding little or no government role in the 200 year history of the plastics industry. See also Bates, “Government as Venture Capital Catalyst: Pitfalls and Promising Approaches,” 16 Economic Development Quarterly, No. 1 (Feb. 2002), at 49–59, for a discussion of the Small Business Administration’s (mis)handling of the SBIC program.

[75] 8 CFR § 204.6(e).

[76] 8 CFR § 204.6(m)(7)(ii).

[77] The INS has recognized that the Regional Input-Output Modeling System (RIMS II) of the U.S. Department of Commerce, Bureau of Economic Analysis, is a credible methodology. Matter of [name redacted] (AAO Dec. 15, 2000). See http://www.bea.doc.gov/bea/regional/rims. Regional Multipliers: A User Handbook for the Regional Input-Output Modeling System (RIMS II), U.S. Department of Commerce, Bureau of Economic Analysis, (3d ed. Mar. 1997).

[78] Sommers et al., Revitalizing the Tim ber Dependent Regions of Washington, Northwest Policy Center for the Washington Department of Trade and Economic Development (Feb. 1991); Beyers and Nelson, The Economic Impact of Technology-Based Industries in Washington State, Report for the Technology Alliance, University of Washington (Aug. 1998).

[79] Although Matter of Izumii, supra, note 16, declared that the job-creating activity of the enterprise must occur within the geographic boundary of the regional center, the petitioner nonetheless should be able to claim credit for the induced employment impacts that are reasonably forecasted to occur both within and beyond the geographic boundary of the regional center.

[80] Thus, for example, a petition based on the Pilot Program might not meet the requirement that a business plan include a hiring timetable. See Matter of Ho, supra note 16.

[81] Appropriations Act, supra note 19, § 610(c). The provision for “reasonable methodologies” should not preclude an investor in the Pilot Program from presenting a business plan that forecasts job creation in the petitioner’s company (“direct” employment) and in the companies that do business directly with petitioner’s company (“indirect” employment), without the aid of an economist’s multiplier analysis, because such a forecast does not require multiplier tables.

[82] Some analysts believe that much more complex analytical tools and methodologies are required to measure accurately the benefits from economic development efforts. Tao and Feiock, “Distributing Benefits to Need: Evaluating the Distributive Consequences of Urban Economic Development,” 13 Economic Development Quarterly, No. 1 (Feb. 1999), at 55–65. For discussion of the difficulty in measuring results, see Wallace, “A Case Study of the Enterprise Zone Program: ‘EZ’ Avenue to Minority Economic Development?,” 13 Economic Development Quarterly, No. 3 (Aug. 1999), at 259–65; Boarnet, “Enterprise Zones and Job Creation: Linking Evaluation and Practice,” 15 Economic Development Quarterly, No. 3 (Aug. 2001), at 242–54.

[83] Of the 148 immigrant investor visas issued in FY 2002, only one of the visas is reported as a Pilot Program visa. The INS attributed extraordinary delay in Pilot Program processing to indecision on how to count jobs created indirectly, citing “significant administrative challenges,” and recommended to Congress a “full evaluation” of the Pilot Program. See INS Report to Congress, supra note 10; see also Minutes of INS Policy Council Meetings, March 17, 1999, and April 14, 1999. Closer scrutiny reveals nothing particularly problematic with the Pilot Program per se, however. Instead, the oversight challenges the INS encountered in the immigrant investor program generally during the 1990s influenced the INS’s views about the Pilot Program. The INS issued four precedent decisions in 1998, supra note 16, describing recurring problems in the immigrant investor program, including investment of debt rather than equity, investment features that too aggressively minimized investor risk, insufficient business plans, and the lawful source of investor capital. A review of AAO decisions reveals that similar investment plans of insufficient risk existed in investor petitions of all kinds, some of the Pilot Program variety and some not. Now that the INS has acted to eliminate investment plans that involve insufficient risk, the conditions appear ripe for the BCIS to test whether the Pilot Program can be an effective vehicle for cluster economic development.

[84] Waits, supra note 38, at 48.

[85] National Governors Association, A Governor’s Guide to Cluster-Based Economic Development, supra note 40, at 30; see also, National Governor’s Association, A Governor’s Guide to Creating a 21^st-Century Workforce, available at http://www.nga.gov, asserting that the competitive advantage enjoyed worldwide by U.S. firms depends on continuing investment in workforce.

[86] On March 1, 2003, the INS’s administrative, service, and enforcement functions were transferred to the new Department of Homeland Security (DHS). The Bureau of Citizenship and Immigration Services (BCIS) assumed all immigration service functions previously performed by the INS, including the adjudication of immigrant visa petitions, naturalization petitions, asylum and refugee applications, and adjudications performed at INS Service Centers. The Bureau of Customs and Border Protection (BCBP) conducts inspections, and is responsible for border protection. The Bureau of Immigration and Customs Enforcement (BICE) assumed the INS’s enforcement and investigative functions. The reorganization was required by the Homeland Security Act, Pub. L. No. 107–296, 116 Stat. 2135, codified primarily at 6 USC § 101 et seq. See 80 Interpreter Releases 305 (Mar. 3, 2003) (reporting on and reproducing final rule facilitating the transfer); 68 Fed. Reg. 9824–46 (Feb. 28, 2003) (implementing the transfer).

[87] For more on Acting Assistant Secretary Garcia, see 80 Interpreter Releases 149, 150 (Feb. 3, 2003) (nomination to current position); 79 Interpreter Releases 1748 (Nov. 25, 2002) (designation as Acting Commissioner of the INS).

[88] Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism ( USA PATRIOT) Act of 2001. Pub. L. No. 107–56, 115 Stat. 272. For a summary, see 78 Interpreter Releases 1703 (Nov. 5, 2001).

[89] Aviation and Transportation Security Act (ATSA). Pub. L. No. 107–71, 115 Stat. 597. For a discussion of the ATSA’s immigration-related provisions, see 78 Interpreter Releases 1822 (Dec. 3, 2001).

[90] This is a reference to the investigation following the discovery of 17 bodies inside a trailer truck apparently used to smuggle the victims into U.S. The truck was found in Victoria , Texas , and the victims died of the stifling heat. It is reportedly the highest death toll ever from a suspected case of immigrant smuggling by truck, and is also among the largest loss of life in any immigrant smuggling incident. At the start of its journey, the truck had 100 people from Mexico , El Salvador and Guatemala . For more on this story, see The New York Tim es, May 15, 2003, at A1.

[91] For a discussion of the IG’s report, see 80 Interpreter Releases 805 (June 9, 2003).

[92] For more on the U.S. VISIT system, see 80 Interpreter Releases 743 (May 23, 2003); 80 Interpreter Releases 690 (May 12, 2003).

[93] For coverage of the various laws requiring the INS, now part of the DHS, to implement an entry-exit system, see 79 Interpreter Releases 945 (June 24, 2002); 79 Interpreter Releases 899 (June 10, 2002); 79 Interpreter Releases 769 (May 20, 2002); 77 Interpreter Releases 828 (June 26, 2000); 77 Interpreter Releases 689 (May 26, 2000).

[94] 149 Cong. Rec. H5043 (June 5, 2003).

[95] 149 Cong. Rec. H5185 (June 11, 2003).

[96] The TANF program, a part of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (Welfare Reform Act), initially expired in September 2002, but was extended via the various continuing resolutions used by the 107th and 108th Congresses to keep the federal government funded, and was most recently extended until June 30, 2003, by the “Consolidated Appropriations Resolution, 2003” (H.J. Res. 2), which became Pub. L. No. 108–7, 117 Stat. 11, on Feb. 20.

[97] 149 Cong. Rec. H5043 (June 5, 2003).

** Lincoln Stone is a Certified Specialist in Immigration and Nationality Law, State Bar of California Board of Legal Specialization. He serves as Chair of the American Immigration Lawyers Association’s Investors Committee. Mr. Stone was a law clerk for U.S. Judge Robert A. Grant and an attorney with the INS.

[98] See Interim Rule, supra note 34, Part I.

[99] One of the reasons the INS cited for low participation in the program was uncertainty about removal of conditions. See INS Report to Congress, supra note 10, Part I. A significant part of that uncertainty is due to confusion about legal standards. Many practitioners conclude it is impossible to satisfy all the legal requirements spawned by the INS. As the AAO precedent decisions issued in 1998 ushered in new, stiffer adjudication standards, the case approval rates dropped sharply. See visa statistics, supra notes 10 and 18, Part I.

[100] Note, for example, enactment of the “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001,” Pub. L. No. 107–56, 115 Stat. 272 (2001), requiring more border personnel, enhanced technology, an entry-exit control system, and foreign student and exchange visitor tracking; the “Enhanced Border Security and Visa Entry Reform Act,” Pub. L. No. 107–173, 116 Stat. 543 (2002), mandating use of tamper-resistant documents and biometrics, and visa restrictions for citizens of “terrorist states”; and legislation creating the Department of Homeland Security, which has absorbed the entire INS and many other federal agencies. Pub. L. No. 107–296, 116 Stat. 2135 (2002).

[101] INA § 212(a)(3)(A)(iii).

[102] Prior to enactment of the immigrant investor program, in Senate floor debate, former Sen. Dale Bumpers (D–Ark.) vehemently opposed enactment of the immigrant investor law, arguing that it was an offensive “fat-cat provision” for the wealthy to “buy their way” into the U.S. See 136 Cong. Rec. S7768–9 (daily ed. July 12, 1989). Nearly a decade later, Sen. Bumpers again took the floor in passionate opposition to the immigrant investor law, offering an amendment to repeal the law, arguing that it was unpatriotic and that it was subject to fraud and abuse. Sens. John D. Rockefeller (D–W. Va.) and Edward M. Kennedy (D–Mass.) countered that the immigration law includes many categories that favor the privileged and wealthy and that there is fraud and abuse in many federal programs, but that those facts did not warrant eliminating the particular federal programs, and that in the larger scheme of immigration, the immigrant investor program is just a modest measure devised to bring jobs to areas of need. The repeal amendment was defeated. See 144 Cong. Rec. S5026 (daily ed. May 18, 1998).

[103] “Department of State Office of the Inspector General Announces Sentencing in Immigration Fraud Case” (Press Release, Mar. 7, 2003), conviction of attorney and associates in connection with labor certification fraud; In the Matter of Tadeusz Kucharski, U.S. Department of Labor, Board of Alien Labor Certification Appeals (Sept. 18, 2002), citing fraudulent applications for labor certification.

[104] See, e.g., Matter of [name redacted], EAC–98–075–51137 (AAO Mar. 19, 2003), reviewing the facts of the criminal prosecution, United States v. O’Connor, 158 F. Supp. 2d 697 (E.D. Va. 2001), where the court found promoters of the immigrant investor program guilty of immigration fraud on the basis of a “sham loan transaction” that involved presenting false bank documentation to the INS.

[105] See, e.g., “A Visa Loophole as Big as a Mainframe: More Companies are Using L–1 Visas to Bring in Low-Wage Foreign IT Workers—and Replace Americans, Business Week (Mar. 10, 2003) citing abuse of the L–1 visa category; H–1B Foreign Workers: Better Controls Needed to Help Employers and Protect Workers, U.S. General Accounting Office (Sept. 2000), citing abuse in H–1B visa program; see also Memorandum of Thomas E. Cook, BCIS Acting Ass’t Comm’r (Mar. 13, 2003), declaring certain entities ineligible for the H–1B visa program due to past willful violations or material misrepresentations.

[106] See AAO precedent decisions and background material, supra notes 16 and 17, Part I.

[107] See DOJ Act, supra note 19, Part I, § 11036 (“Eliminating Enterprise Establishment Requirement for Alien Entrepreneurs”). For a summary of the DOJ Act, see 79 Interpreter Releases 1573 (Oct. 21, 2002).

[108] INA § 203(b)(5)(i).

[109]8 CFR § 204.6(h).

[110] Matter of Izumii, supra note 16, Part I.

[111] See nonprecedent cases of the AAO, such as Matter of [name redacted], A77 852 732 (AAO May 30, 2001), a “founding shareholder” of a bank financed by public offering was not one of the original promoters and shareholders; Matter of [name redacted], WAC–98–167–52786 (AAO Mar. 20, 2000), petitioner invested one month after formation of partnership and thus business not “original”; Matter of [name redacted] (AAO Dec. 15, 2000), investor in partnership did not establish the enterprise if the underlying venture investment business already existed; see also Matter of [name redacted] (AAO Aug. 3, 2002), concluding that a petition must prove that a business did not previously exist. Matter of [name redacted], LIN–98–064–51851 (AAO Dec. 21, 2000), allegation that former business was a “defunct operation” must be supported by substantial evidence of how long meat processing plant had been idle. Cf. Matter of [name redacted] (AAO, April 13, 2001), approving case as an “original business” based on plan, including evidence of significant renovations already made, to operate a resort and dude ranch for dialysis patients on unoccupied property that had previously served as home to a family of cows.

[112] 8 CFR § 204.6(e) defines a “new” commercial enterprise as one established after November 29, 1990. To avoid confusion, it should be revised to clarify that the commercial enterprise is new if “formed” after November 29, 1990. Also, 8 CFR § 204.6(j)(1) should be amended to shift emphasis to petitioner’s investment in a new commercial enterprise rather than on petitioner’s establishment of an enterprise.

[113] Memorandum of William R. Yates , BCIS Acting Assoc. Director for Operations (June 10, 2003), reproduced in Appendix I of this Release.

[114] Matter of Soffici, supra note 16, Part I, observing: “A few cosmetic changes to the decor and a new marketing strategy for success do not constitute the kind of restructuring contemplated by the regulations, nor does a simple change in ownership.”

[115] Matter of [name redacted] (AAO Aug. 2, 2002); Matter of [name redacted], WAC–98–194–50913 (AAO Aug. 16, 2002), faulting “mere change in ownership” of existing businesses.

[116] Matter of [name redacted], (AAO July 11, 2001), approved case involved the “restructuring” of a horse breeding business into a new business for horse breeding and training.

[117] Matter of [name redacted], WAC–99–010–50117 (AAO Dec. 15, 2000).

[118] See, e.g., Matter of [name redacted], WAC–98–194–50913 (AAO Aug. 16, 2002).

[119] INA § 203(b)(5)(A)(ii).

[120] INA § 216A(d)(1)(B).

[121] 8 CFR § 204.6(j)(2).

[122] Final Rule, supra note 8, Part I, at 60904: “The evidentiary showing necessary to establish that the petitioner either has invested or is in the process of investing the required amount of capital is modeled after requirements used by the Department of State for nonimmigrant ‘treaty investors.’ As with that program, the concept of investment here connotes the placing of funds or other capital assets at risk for purpose of generating a return on the funds placed at risk.”

[123] 9 FAM 41.51 n.7.1–2 (note entitled “Investment Connotes Risk”).

[124] 9 FAM 41.51 n. 7.1–3 (note entitled “Funds Must be Irrevocably Committed”).

[125] Id.

[126] Of course, the E–2 visa is distinct from the immigrant investor category in many respects. The immigrant investor statute, for starters, requires a minimum amount of capital ($500,000 or $1 million), whereas the E–2 visa requires only a “substantial” investment. Also, the E–2 visa typically can be issued within just a few days of making application, and is not subject to the exceedingly lengthy processing times that exist for adjudication of I–526 petitions.

[127] Matter of Ho, supra note 16, Part I.

[128] Matter of Izumii, supra note 16, Part I.

[129] Id. at 12.

[130] Id. at 24. In its report to Congress, the INS summarized these holdings: “Only capital placed at risk for purposes of job creation within the 2-year period will be counted as part of the investment funds; accordingly, fees and expenses paid to attorneys and funds in reserve funds or corporate accounts will not be counted as investment capital.” INS Report to Congress, supra note 10, Part I.

[131] The AAO also decided that where capital is placed in reserves to fund a redemption, it is clear the investor has loaned money to the enterprise in violation of the requirement to invest equity capital.

[132] See, e.g., Matter of [name redacted] (AAO Feb. 4, 2000), and Matter of [name redacted], WAC–99–244–51464 (AAO Nov. 25, 2002), denying similar petitions where $2.65 million of the total capital was already expended, and the remaining $1.85 million of the capital for nine investors held in reserve for future investment.

[133] Matter of [name redacted], LIN–98–198–52940 (AAO Feb. 12, 2001); see also Matter of [name redacted], WAC–98–194–50913 (AAO Aug. 16, 2002), funds in account of enterprise must be used “for the purpose of employment creation.”

[134] Matter of [name redacted], WAC–00–049–50402 (AAO Oct. 12, 2002). See also Matter of [name redacted], WAC–00–105–50880 (AAO May 20, 2002): “While business reserve accounts are reasonable in some cases, where well over half of the ‘investment’ is not used for start-up costs or other capital expenses to which the petitioner was committed at the time of filing, those funds cannot be considered at risk.” Matter of [name redacted] (AAO Jan. 15, 2003): “Funds ‘invested’ into an overcapitalized business are not sufficiently at risk.”

[135] Matter of [name redacted], A79 512 017 (AAO Mar. 13, 2003), reciting that “[a] petition cannot meet the investment and employment requirements separately.” Matter of [name redacted] (AAO Aug. 16, 2002), denying a petition based on use of some capital for purchase of real estate, and only some of the capital for “employment.” Matter of [name redacted] (AAO Mar. 12, 2001), denying petition based on plan to open five ice cream stores; construction commenced on the first location, but funds set aside for remaining locations not yet determined are not at risk.

[136] The INS, in fact, recommended that Congress repeal the statutory language that permits an investor to be “in the process of investing.” INS Report to Congress, supra note 10, Part I.

[137] 8 CFR § 216.6(a)(4).

[138] See, e.g., Memorandum of Robert L. Bach, INS Exec. Assoc. Comm’r (Aug. 28, 1998), confirming acceptance of use of escrow in I–526 petition context; see also 9 FAM 41.51 n.7.1–3, approving use of escrow in E–2 visa context. But the peril for petitioners using an escrow is evident in recent cases such as Matter of [name redacted], WAC–98–201–52237 (AAO May 22, 2002), where the AAO decided that the capital in escrow was not at risk because, although immediately on I–526 petition approval some of the capital would be used to purchase real estate and the remaining capital would be set aside in a construction account, a significant portion of capital would not be spent on construction activities until some indefinite time in the future. Petitioners are not likely to gain much comfort either from another nonprecedent case that resulted in a dismissal of the investor’s appeal. Responding to the appellant’s argument concerning acceptance of escrows, the AAO stated without commitment: “As long as the enterprise’s business activity meets the requirements in Matter of Ho, an irrevocable escrow agreement might demonstrate that the petitioner is actively in the process of investing the funds in that account depending on the facts of the case.” Matter of [name redacted] (AAO Aug. 16, 2002) (italics added).

[139] 8 CFR § 204.6(j)(4)(i)(B); and see 8 CFR § 216.6(a)(4), allowing a petitioner to prove after two years of conditional residence that he “can be expected to create within a reasonable time ten full-time jobs for qualifying employees.”

[140] See legislative history for a strong statement by one of the investor law’s sponsors, Sen. Paul Simon (D–Ill.), favoring an INS adjudication that would not involve the INS in second-guessing businesses on how capital will be expended or held in reserves. 136 Cong. Rec. S17, 106–112 (Oct. 26, 1990).

[141] Of course, there must be some identifiable, general nexus between the petitioner’s investment and job creation. But the investor should not be required to go to extraordinary lengths to prove a proximate cause between every dollar of invested capital and job creation.

[142] Cases based on a deposit of some of the required capital and an unenforceable commitment to deposit the remaining balance at some time in the future still would not comply with the legal standard for being “in the process of investing” the required amount of capital because such cases are based on “mere intent to invest” the undeposited portion of capital. See, e.g., Matter of [name redacted] (AAO Jan. 15, 2003)

[143] Matter of Hsiung, supra note 16, Part I, sets forth the current standards for a promissory note.

[144] Matter of Ho, supra note 16, Part I, sets forth the requirements of a comprehensive business plan.

[145] “Finally, the committee intends that processing of an individual not continue under this section if it becomes known to the Government that the money invested was obtained by the alien through other than legal means (such as money received through the sale of illegal drugs).” S. Rep. 55, 101^st Cong. 1^st Sess. 21 (1989).

[146] Basic principles of statutory interpretation require the agency to give effect to the intent of Congress and not impose additional requirements not found in the statute. See, e.g., Coronado-Durazo v. INS, 123 F.3d 1322 (9^th Cir. 1997); Almero v. INS, 18 F.3d 757, 760 (9^th Cir. 1994).

[147] See, e.g., INA § 101(a)(15)(E)(ii), and 9 FAM 41.51 n.7.1; see also Item 13 to Optional Form 156E, Justification Attachment to Bureau of Consular Affairs, Visa Office, OMB Control Number 14050101 (Aug. 8, 1997), clarifying that the intent of the item on the visa application form is to confirm only that capital is investor’s personal risk capital.

[148] 8 CFR § 204.6(e).

[149] 8 CFR § 204.6(j)(3). The regulation is procedurally defective insofar as it was not preceded by notice and comment as required by the Administrative Procedure Act. 5 USC § 551–4. Rules made without compliance with the APA notice requirement have no force or effect. 5 USC § 706(2)(D).

[150] 5 USC § 706(C)(2); Ali v. Smith, 39 F. Supp. 2d 1254 (W.D. Wash. 1999); Tenacre Foundation v. INS, 829 F. Supp. 289 (D.D.C. 1995). Reading the statutory scheme as a whole, including the legislative history and regulations, the better view is that Congress intended to impose the initial burden of presenting a questionable issue concerning lawful source of funds on the agency.

[151] The AAO has stated that a petitioner must present all four of the types of evidence indicated by the regulation, unless petitioner demonstrates that a particular category is not relevant. Matter of [name redacted] (AAO Mar. 21, 2000). The regulation requires evidence of foreign business registration, business and individual tax returns filed within the past five years, “other source(s) of capital,” and any court proceedings within the past 15 years. 8 CFR § 204.6(j)(3).

[152] Ruangswang v. INS, 591 F.2d 39, 43 (9^th Cir. 1978).

[153] 5 USC § 706(2)(A). Agency action is arbitrary and capricious if it is not supported by reasonable and objective criteria. Camarena v. Meissner, 78 F. Supp. 2d 1044 (N.D. Cal. 1999).

[154] Matter of Soffici, supra note 16, Part I.

[155] Matter of Ho, supra note 16, Part I.

[156] Matter of Izumii, supra note 16, Part I.

[157] In nonprecedent decisions the AAO consistently cites Matter of Treasure Craft of California, 14 I&N Dec. 190 (BIA 1972), a case decided by the Board of Immigration Appeals 30 years ago concerning the evidentiary effect of taking administrative notice of commonly known facts, for the proposition that the burden of proof is not met by a petitioner’s self-serving statements. The reliance on Treasure Craft is misplaced because that case actually held that where a set of facts is commonly known, the agency can take administrative notice of such facts, and in such circumstances the petitioner cannot rely only on a self-serving statement to counter the administratively noticed facts. For the Treasure Craft case to have relevance in the adjudication of an investor petition, an examiner would be required to take administrative notice of some commonly known facts that relate to the issue of the investor’s source of funds. For example, all wealthy persons from country X are drug traffickers. The agency has never indicated it is taking administrative notice of certain country conditions that relate to lawful source of funds. Therefore, dismissing as irrelevant petitioner’s declaration concerning source of funds appears to violate the Federal Rules of Evidence and the regulation at 8 CFR § 103.2(b)(1).

[158] It is not uncommon to prepare hundreds of pages of exhibits directed at tracing the movement of an investor’s capital over the years, and to dedicate to the issue of source of funds far more than 50 percent of the total attorney time spent on preparing an investor petition.

[159] Matter of [name redacted], WAC–98–194–50913 (AAO Aug. 16, 2002), dismissing substantial evidence of a gift from petitioner’s wealthy uncle in Israel .

[160] See, e.g., Matter of [name redacted], WAC–00–162–52464 (AAO Aug. 3, 2002); Matter of [name redacted], WAC–99–244–51464 (AAO Nov. 25, 2002), dismissing evidence of inheritance presented by Japanese lawyer.

[161] Matter of [name redacted], WAC–00–162–52464 (AAO Aug. 3, 2002); Matter of [name redacted], (AAO Dec. 21, 2000).

[162] Matter of [name redacted] (AAO Jan. 15, 2003): “[I]t is the petitioner’s burden to establish his personal income, not simply the income of his business.” Matter of [name redacted], WAC–99–210–51155 (AAO May 17, 2001): “The petitioner’s income cannot clearly account for the accumulation of $500,000 beyond living expenses.” See also Matter of [name redacted], WAC–99–227–51910 (AAO May 16, 2001) finding that evidence of substantial assets in China was not supported by “historical evidence of the accumulation of wealth, such as five years of tax returns.”

[163] Matter of [name redacted], EAC–98–075–51705 (AAO Dec. 21, 2000). But see Matter of [name redacted], A79 512 017 (AAO Mar. 13, 2003), concluding that “income other than wages acquired while residing in the United States without status can be considered lawfully obtained.”

[164] Matter of [name redacted], WAC–98–194–50913 (AAO Aug. 16, 2002). See also Matter of [name redacted] (AAO Feb. 4, 2000), where the millions of dollars in income reported in just two years of income tax returns was more than sufficient to enable the petitioner to invest the required amount, but the AAO nonetheless required all five years of tax returns; Matter of [name redacted], WAC–00–105–50880 (AAO May 20, 2002), no Chinese income tax returns submitted; Matter of [name redacted], WAC–00–116–52673 (AAO Aug. 14, 2002), substantial evidence of owning taxi, auto sales, parts and service businesses in China and evidence of bonuses received, but case denied where there was no evidence of paying taxes on bonuses, and unresolved questions concerning path of funds; Matter of [name redacted], WAC–00–049–50402 (AAO Oct. 12, 2002), evidence from petitioner’s company and company’s attorney concerning several million dollars in income from company held insufficient without individual income tax returns and evidence of tax-paying obligation in China.

[165] The legal arguments are analyzed in an earlier article. See Stone and Yale-Loehr, “Evidence of Source of Capital in Immigrant Investor Cases,” 6 Bender’s Immigration Bulletin 972 (Oct. 1, 2001).

[166] United States v. O’Connor, supra note 92, involved the promoters of the immigrant investor program in laundering money through Caribbean accounts, to lend the appearance that the petitioners had invested a full $500,000 in cash (although in fact they had invested only $150,000 in cash); however, there was no evidence that the petitioners had used the proceeds of crime to invest in the U.S.

[167] INA § 212(a)(2)(C).

[168] INA § 212(a)(3).

[169] The new Bureau of Immigration and Customs Enforcement (ICE), within the Department of Homeland Security, is entrusted with enforcing customs laws against money laundering. See generally http://www.bice.immigration.gov. Also, in 1990, the U.S. Department of the Treasury established the Financial Crimes Enforcement Network (FinCEN) to link law enforcement, financial, and regulatory communities in their efforts to comply with the Bank Secrecy Act and provisions concerning criminal organizations and other money launderers. FinCEN issues advisories to banks and other institutions concerning deficiencies in the counter-money laundering systems of particular countries. See generally http://fincen.gov.

[170] The “sham loan transaction” featured in United States v. O’Connor, supra note 92, highlights the need for tracing funds from the investor to the enterprise.

[171] Where there is credible, uncontradicted evidence presented by petitioner, the burden of proof is sustained. Hong Kong T.V. Video Program v. Ilchert, 685 F. Supp. 712, 717 (N.D. Cal. 1988).

[172] See, e.g., Matter of [name redacted], A77 852 732 (AAO May 30, 2001); Matter of [name redacted], WAC–99–227–51910 (AAO May 16, 2001); Matter of [name redacted], LIN–98–064–51851 (AAO Dec. 21, 2000). These cases expansively interpret a regulation, 8 CFR § 204.6(g)(1), that should be interpreted narrowly to require only that petitioner identify other investors.

[173] Some investor-petitioners have been in the program for nearly 10 years, and still have not received final clearance in the form of a decision removing the conditions on permanent residence.

[174] Most of an adjudicator’s time spent in review of a Form
I–526 is probably devoted to gaining an understanding of the underlying investment plan and determining whether it contains no prohibited features. Sample questions might include: Does the investment plan include the right to receive a redemption of your capital? Does the investment plan include the right to receive a guaranteed return? Is the capital you invested in the commercial enterprise actually your capital? Was the capital you invested in the commercial enterprise loaned to you? In view of recent legislation, the Form I–526 is ripe for revision beyond the cosmetic changes appearing in the recently issued version dated May 9, 2003 (see article #4 in this Release).