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Matter of G- Inc.: Clarifying the Role of the Function Manager Under the L-1 Visa

By: Cyrus D. Mehta and Sophia Genovese

The Administrative Appeals Office (AAO) recently adopted a decision, Matter of G- Inc., Adopted Decision 2017-05 (AAO Nov. 8, 2017), providing important guidance to U.S. employers who transfer function managers under the L-1 intracompany visa. The L-1 visa allows a U.S. employer to transfer an executive or manager (L-1A) or a worker with specialized knowledge (L-1B) from a foreign subsidiary or affiliate.

As corporate structures are changing from hierarchical to flat in a globally interdependent world, the role of the function manager, who manages a function rather than people, has become increasingly relevant under L-A visa classification. A flat organization has few or no levels of management between management and staff level employees. The flat organization supervises employees less while promoting their increased involvement in the decision-making process. Building upon momentum gained from its decision in Matter of Z-A-, Adopted Decision 2016-02 (AAO Apr. 14, 2016), the AAO in Matter of G- held that:

(1) To support a claim that a beneficiary will manage an essential function, the petitioner must establish that the function is a clearly defined activity and is core to the organization.

(2) Once the petitioner demonstrates the essential function, it must establish that the beneficiary’s position meets all criteria for “managerial capacity” as defined in 101(a)(44)(A) of the Act. Specifically, it must show that the beneficiary will: primarily manage, as opposed to perform, the function; act at a senior level within the organizational hierarchy or with respect to the function managed; and exercise discretion over the function’s day-to-day operations.

Under its prior decision in Matter of Z-A-, the AAO held that an L-1A intra-company manager who primarily manages an essential function can also be supported by personnel outside the United States within an international organization who perform the day to day administrative and operational duties. This is possible in the internet age where communications can take place online and through Skype rather than face to face in a physical location. The foreign national manager seeking an L-1A visa extension in Matter of Z-A-, was the President and Chief Operating Officer of the U.S. Petitioner whose parent company was in Japan. The USCIS Service Center denied on the ground that only a small number of employees who worked in the U.S. would support the manager and relieve him from performing the duties of the function. The key issue on appeal was whether the Petitioner established that this manager would be employed in a qualifying “managerial capacity” pursuant to INA § 101(a)(44)(A). The AAO reversed the Service Center’s decision, noting that the Beneficiary would continue to rely on the support of eight staff abroad and two in the U.S. to relieve him of day-to-day operational and administrative activities. The AAO stated that despite the fact that the Beneficiary “may be required to perform some operational or administrative tasks from time to time, the Petitioner established by a preponderance of evidence that the Beneficiary will primarily manage an essential function, while day-to-day, non-managerial tasks will be performed by a combined staff of 10 employees of the Petitioner and its parent company, located in the United States and Japan, respectively.” Matter of Z-A-, at 7.

In its most recent decision in Matter of G-, the AAO further elaborates upon the contours of the “function manger.” Although Matter of G- was decided within the context of INA § 203(b)(1)(C) (where a U.S. employer can petition to permanently transfer a qualified foreign employee to the United States to work in an executive or managerial capacity), the AAO stated in its decision that the function manager analysis equally applies to L-1A function managers. Matter of G-, at 2, note 6.

The foreign manager seeking immigrant classification under INA § 203(b)(1)(C) in Matter of G- was the Director, Financial Planning and Analysis (FP&A) at a large multinational technology corporation. The company first transferred the Beneficiary to the U.S. on an L-1A visa to seek business opportunities and foster growth of the company in the U.S. markets. After a few years of success, the company decided to petition for the worker to permanently reside in the U.S. under INA § 203(b)(1)(C). The Petitioner explained in their I-140 petition that the Beneficiary would continue to direct and develop revenue forecasts and analysis for the entire company, lead mergers and acquisitions, and oversee strategic pricing analyses, among other managerial duties. However, the USCIS denied the Form I-140, finding that the Petitioner did not establish that the Beneficiary would be employed in a managerial role. It is not unusual for one Service Center of the USCIS to approve the L-1A visa and another Service Center to deny the I-140 petition.  Upon review, the AAO reversed, and sought to clarify the role of a function manager.

INA § 101(a)(44)(A) defines “managerial capacity” as:

[A]n assignment within an organization in which the employee primarily-

(i) manages the organization, or a department, subdivision, function, or component of the organization;

(ii) supervises and controls the work of other supervisory, professional, or managerial employees, or manages an essential function within the organization, or a department or subdivision of the organization;

(iii) if another employee or other employees are directly supervised, has the authority to hire and fire or recommend those as well as other personnel actions (such as promotion and leave authorization) or, if no other employee is directly supervised, functions at a senior level within the organizational hierarchy or with respect to the function managed; and

(iv) exercises discretion over the day- to-day operations of the activity or function for which the employee has authority. A first-line supervisor is not considered to be acting in a managerial capacity merely by virtue of the supervisor’s supervisory duties unless the employees supervised are professional.

(emphasis added).

In its decision, the AAO noted that “essential function” is not defined anywhere in the INA. Instead, it relied on the Merriam-Webster Dictionary definitions of “essential” and “function” in proceeding with their analysis, concluding that an essential function must be a core activity of a petitioning organization. Relying on these definition, the AAO first found that the Petitioner must “(1) describe with specificity the activity to be manage, and (2) establish that the function is core to the organization.” Matter of G-, at 3. The AAO further recognized that an organization could have more than one core activity “such as the manufacture or provision of an end product or service, and research and development into other products or services.” Matter of G-, at 3, note 11.

Once the Petitioner can establish this essential function, it must then prove that the Beneficiary meets all of the four criteria of “managerial capacity” under INA § 101(a)(44)(A). The AAO held that in addition to defining with particularity the activity to be managed and establishing that it is a core function of the organization, the Petitioner must also show that the Beneficiary will primarily manage (and not perform) the function, that the Beneficiary will hold a senior level at the organization or with respect to the function managed, and that the Beneficiary will exercise discretion with the function’s daily operations. Matter of G-, at 4.

In applying their new function manager analysis to the case at bar, the AAO found that the FP&A Director was clearly a function manager under INA §101(a)(44)(A). First, it found that “financial planning and analysis” qualified as a function within the organization as it was clearly defined with specificity and indicated a clear goal of generating data to assess the company’s revenue. Second, the AAO found that the FP&A function was essential to the company, where the Beneficiary’s work would be relied upon by the company’s executives and board of directors in making strategic decisions in mergers and acquisitions. Third, the AAO found that the Beneficiary would primarily manage the function where he would “develop and direct revenue forecasts and analysis for the worldwide organization, lead mergers and acquisitions, and oversee strategic pricing analysis.” Matter of G-, at 5. The AAO continues that the Beneficiary will be supported by six direct and three indirect reports who will “perform the routine duties associated with the FP&A function.” Id. Critically, the AAO finds that even though the Beneficiary directly supervises some of his subordinates, he still primarily manages the function. Fourthly, the AAO found that the Beneficiary will act at a senior level within the organization and with respect to the function, where he reported only to the CFO and CEO and worked closely with other senior executives and managers. Finally, the AAO found that the Petitioner clearly established that the Beneficiary will have discretionary authority over day-to-day operations where the Beneficiary will establish policies, goals, and oversee mergers and acquisitions.

Matter of G- helps to further define the contours of the function manager, and can be used as a guide to U.S. petitioners seeking to establish that the foreign worker meets the criteria under INA § 101(a)(44)(A). While Matter of G- involved a function manager, the AAO’s interpretation of what constitutes a function within an organization could arguably also be deployed to executives under INA 101(a)(44)(B) who can qualify for an L-1A visa by directing a “major component or function of the organization.”  The Petitioner in the instant matter was a large multinational corporation with over 8000 employees worldwide. The USCIS has historically been less receptive to function manager claims of smaller corporations. It may be more challenging for a smaller entity to establish that a function is a clearly defined activity and is core to the organization as well as to demonstrate that the manager is performing at a senior level. Still, petitioners should not fear making the argument that function managers of smaller corporations also meet the criteria. In Brazil Quality Stones, Inc. v. Chertoff, 531 F.3d 1063 (9th Cir. 2008), the Ninth Circuit Court of Appeals found that although size is a relevant factor in assessing whether a company’s operations are substantial enough to support a manager, “an organization’s small size, standing alone, cannot support a finding that its employee is not acting in a managerial capacity.” See also INA § 101(a)(44)(C) (“[i]f staffing levels are used as a factor in determining whether an individual is acting in a managerial or executive capacity, the Attorney General shall take into account the reasonable needs of the organization, component, or function in light of the overall purpose and stage of development of the organization, component, or function.”). Notwithstanding this acknowledgement, the Ninth Circuit in Brazil Quality Stones affirmed the USCIS’s denial of the L-1A petition by agreeing that the petitioner did not meet its burden in primarily managing the essential function rather than performing the day to day duties, and the small size of the entity probably undermined the manager’s ability to meet this burden. Subsequent to Brazil Quality Stones, though, the AAO issued Matter of Z-A- as an adopted decision, which has also been acknowledged in Matter of G-. It is now possible to demonstrate that the function manager is being supported by personnel in the foreign organization who perform the duties of the function, and this could be particularly helpful in a small organization with few staff in the U.S. The AAO took pains to note that INA 101(a)(44)(A)(iii) is worded in the disjunctive, requiring a function manager to occupy “a senior level within the organizational hierarchy or with respect to the function managed.” Matter of G-, at 6, note 15.  In a small organization, the function manager may establish seniority with respect to the function managed rather than within the organizational hierarchy. So long as petitioners clearly define the function, establish that the function is essential to the organization, explain how the beneficiary will primarily manage this function at either a senior level at the organization or with respect to the function managed, and that the beneficiary will act with wide discretion, the L-1A petition could stand a chance of being approved under Matter of G-.

Despite the economic benefits that accrue in fostering global corporate activities, the L-1 visa has been heavily criticized over the past few years, with opponents arguing that it threatens domestic employment and “floods the U.S with cheap foreign workers.” The Trump Administration has taken aim at the L-1 visa and has begun to publicly release data about companies who utilize the L-1 visa, increase site visits to companies that employ foreign workers, and has rescinded guidance instructing USCIS officers to give deference to previously approved petitions upon renewal.  Under President Trump’s Buy American and Hire American Executive Order, there is an emphasis on hiring American workers over foreign workers and for corporations to have their operations in America. But the reality is quite the opposite.  U.S. businesses can thrive, compete, prosper, create new jobs and benefit the American consumer through international operations, made that much easier with rapidly evolving internet technology and innovative organizational structures. It is thus refreshing that the AAO has recognized this reality by adopting Matter of G- and Matter of Z-A-. An adopted decision establishes policy guidance that applies to and binds all USCIS employees. USCIS personnel are directed to follow the reasoning in this decision in similar cases.

Matter of Z-A-, Inc.: Recognizing The Global Role Of The L-1A Manager In A Globalized World

Despite the shrill rejection of globalization in the current presidential election cycle, the Appeals Administrative Office (AAO) has thankfully bucked the trend. It recently designated Matter of Z-A- Inc. as an “Adopted Decision, “which means that such a decision “establishes policy guidance that applies to and binds all USCIS employees. USCIS directs its personnel to follow the reasoning in these decisions in similar cases.”

Under Matter of Z-A-, Inc., designated as an Adopted Decision since April 14, 2016, an L-1A intra-company manager who primarily manages an essential function can also be supported by personnel outside the United States within an international organization. A USCIS officer can no longer deny L-1A classification to such a manager because he or she is not supported by personnel within the United States.  This decision recognizes that we operate in a global world, and that an organization may rely on its resources outside the United States to produce products or provide services.

The foreign national manager seeking an L-1A visa extension in Matter of Z-A-, Inc. was the President and Chief Operating Officer of the US petitioning entity whose parent company was in Japan. His duties included: directing and managing the Petitioner’s financial, legal, trade, administrative, and sales activities; establishing financial and budgetary plans and goals; reviewing and monitoring sales activities performed by the Petitioner’s sales manager; liaising with the parent company; and interacting with customers and outside service providers. The Petitioner in the US only employed a sales manager and an administrative specialist. However, eight staff members within the parent company’s headquarters in Japan also exclusively supported the work of this manager.

The key issue is whether the Petitioner established that this manager would be employed in a qualifying “managerial capacity” pursuant to INA 101(a)(44)(A). The Petitioner asserted that this manager would manage an essential function of the organization, which is permitted under the statute, as opposed to managing other personnel. A functional manager under the L-1A visa classification must primarily manager as opposed to perform the essential function, and must also be senior in the organizational hierarchy. An employee who primarily performs the tasks necessary to produce a product or a service is not considered to be employed in primarily a managerial or executive capacity. See Brazil Quality Stones, Inc. v. Chertoff,  531 F.3d 1063 (9th Cir. 2008).

The L-1A visa classification does not require the organization to employ hundreds of people. Rather, the USCIS is required to take into account the reasonable needs of the organization as a whole, including any related entities within the organization, giving consideration to the organization’s overall purpose and stage of development. See INA 101(a)(44)(C). The AAO found that since Congress created the L-1A classification to “eliminate problems…..faced by American companies having offices abroad in transferring key personnel freely within the organization,” it was reasonable for a petitioner to assert that its organizational needs include those of its related foreign components.

In the instant case, the request to extend L-1A status was denied by USCIS Service Center Director on the ground that only a small number of employees worked in the United States, who would support the manager and relieve him from performing the duties of the function. It did not address the Petitioner’s substantial evidence relating to the staff that was located at the parent entity in Japan who also supported the manager in primarily managing the essential function of the organization. The AAO reversed the Service Center’s decision on this ground by noting:

“Here the record shows that the Beneficiary, in his role as Vice President, will continue to rely on the support of the eight staff members in Japan and two employees in the United States to accomplish non-managerial duties, and that the purpose of his transfer is to oversee the short-term and long-term expansion of the Petitioner’s presence in what is a new market. Given the overall purpose of the organization and the organization’s stage of development, the Petitioner has established a reasonable need for a senior-level employee to manage the essential function of developing its brands and presence in the United States, notwithstanding that the Petitioner employs directly only two other employees in the United States.

While the Beneficiary may be required to perform some operational or administrative tasks from time to time, the Petitioner has established by a preponderance of evidence that the Beneficiary will primarily manage an essential function, while day-to-day, non-managerial tasks will be performed by a combined staff of 10 employees of the Petitioner and its parent company, located in the United States and Japan, respectively.”

In a globalized world, where people are easily connected to each other by the internet, it is no longer necessary for a manager to rely on personnel in one location, namely in the United States. It is now common for teams of personnel within one organization to easily collaborate across different countries to produce a product or provide a service using cloud technology and even able to video conference on one’s smart phone through Skype or FaceTime.  The fact that the world is flat, as famously coined by Tom Friedman, is no longer a novelty but a given in a world that has become even more hyper connected since.  Despite unrealistic calls by politicians to have operations exclusively in America, the reality is that US businesses can thrive, compete, prosper, create new jobs and benefit the American consumer through international operations, made that much easier with rapidly evolving internet technology.

Until the AAO designated Matter of Z-A- , Inc. as an Adopted Decision, it was quite common to receive an objection from the USCIS that the persons supporting the L-1A manager were not in the United States, and would therefore not count in evaluating whether this individual would be performing in primarily a managerial capacity. This sort of reasoning was not consistent with the way businesses operate today, and  put the United States at a distinct competitive disadvantage if its corporations could not quickly bring in key personnel, who in turn would be supported by resources in foreign countries. Even if it was logical and commonsensical for a manager to qualify for an L-1A on this obvious basis, some USCIS officers obstructively still denied the L-1A petition. After Matter of Z-A- Inc.’s elevation to an Adopted Decision, it now firmly binds all employees of the USCIS even if their worldview may be colored by the clarion calls of politicians who reject globalization.  In the event that a USCIS employee still goes rogue and denies the L-1A petition on such a baseless ground, it certainly provides strong grounds for an appeal.

Framing a New Office L with Help From the Office of Inspector General

By Myriam Jaidi

An individual seeking to transfer to the United States as a manager or executive (specialized knowledge employees will not be addressed in this blog) comes to you for help.  She may be interested in opening a new office, or may be transferred to an existing company that has been operating for more than one year.  In either event, the business involved is a small one and your client may be the only employee or one of few employees.

In light of the August 2013 report from the Department of Homeland Security (“DHS”), Office of Inspector General (“OIG”) (OIG-13-107), you know you face an uphill battle, but one that may be winnable.  We note that the 2006 OIG report on the L nonimmigrant category was mandated by law (section 415 of the Consolidated Appropriations Act of 2005, Pub. L. 108-447), but the 2013 report was issued at the request of Senator Grassley, specifically to examine the potential for fraud or abuse in the L-1 category. Senator Grassley has been a well known critic of immigration and is more likely than not to suspect fraud as he done with other categories, such as the H-1B and B visas, among others.  Despite the potentially negative driving force behind the impetus for the report, it provides valuable insights and guidance on the L category, and some very important nuggets for practitioners filing for small businesses.

One important take-away of the OIG report, that we as practitioners have doubtless noticed, is that adjudication of L petitions has been inconsistent across various fields. “We reviewed L-1 petitions ranging from the restaurant industry to the information technology field, and concluded that adjudicators reach different decisions despite similar fact patterns.”  It is some comfort for practitioners, who sometimes stand amazed at the different outcomes for similar petitions, that the OIG has identified this reality and raised it as a problem.

The OIG conducted domestic and international field work, interviewing USCIS and CBP personnel, as well as consular officials, as well as managers within both the DHS and the Department of State, and found vulnerabilities in various areas, and here we focus on their critique of new office Ls and extensions.  The OIG states that new office petitions (and to some extent, extensions thereof) “are inherently susceptible to abuse because much of the information in the initial petition is forward-looking and speculative.”  Specific problems the OIG identified in its file reviews of new office petitions included the following:

  •  Lack of a realistic business plan or a plan that is so vague, the petitioner cannot present a viable path to meeting L-1 definitions at the end of the 1-year period;
  • Initial staffing structures that raise questions about the future need for an L-1A manager or executive. Common examples we reviewed included gas stations or convenience stores that list several “managers,” with few workers involved in the day-to-day functions of the business;
  • Managers who perform nonqualifying work as a central part of their job; and
  • Inconsistencies or vagueness in how the beneficiary’s managerial or executive job is described.

The report concludes that given the integrity risks and uncertainty at issue in new office petitions, they are “sometimes” approved erroneously.  As practitioners we know that such petitions are sometimes denied erroneously as well.  It is unclear how often erroneous approval occurs, or how widespread the problem is.  The way the OIG report frames the issue, emphasizing improper approvals without further information on actual numbers, may result in a backlash against approval of new office L-1As, even strong cases.  (The fact that the approval numbers declined drastically after the 2006 OIG report was issued (57,218 in 2007 to 33,301 in 2011) does raise the possibility that companies may face more difficulty in getting new office petitions approved after this particular report sinks in.)

In light of this bias, practitioners will need to use the information in the OIG report to strengthen new office petitions, as well as extensions, especially for small businesses. Initially, we should address what makes a business a “small” business.  The H-1B fraud indicators (less than 25 employees, less than $10 million in gross income, less than 10 years in existence) are not helpful in the L context because if they were applied, most small businesses would not be able to pass muster.  The L statute and regulations are structured such that a single person may open a new office in the United States pursuant to valid L-1 status.  However, as the excerpt from the OIG report above demonstrates, the smaller the company in terms of number of employees, and funding, the more suspect the application.  This is because the smaller the operation, the logic goes, the less likely the individual will be performing primarily qualifying duties, and the less likely the organization can support someone in a managerial or executive position. The statutory definitions specifically indicate that size may be taken into account in “determining whether an individual is acting in a managerial or executive capacity”, however, where this is done, the government must “take into account the reasonable needs of the organization, component, or function in light of the overall purpose and stage of development of the organization, component, or function.”  INA 101(a)(44)(C).

If the company will initially have only one or a small number of employees, it is important to present clearly what the beneficiary will be doing during the start-up or initial phases, and how his or her duties may change over time as the business develops.  Presenting a clear road map of development and duties will help you avoid the label of a fatally vague business plan.  Demonstrate that the beneficiary may initially set up the business, rent office space, hire subordinates and/or contract for services such as accounting, payroll, even marketing and public relations, but once these decisions are made and implemented and she has assured administrative and operational support, she will focus on managerial or executive duties. Explain what her duties will be and why, support that explanation with the relevant facts and figures from a detailed business plan, and present a reasonable projection of what her future duties will be based on the type of organization, its expected needs at the one-year mark (and beyond), and the position she is slated to fill.  Explain any non-qualifying duties to further distinguish the time spent on qualifying duties.  In addition, if the beneficiary receives support from abroad, explain how that support ensures the development and continuing operation of the company, and how it supports the argument that the beneficiary is serving in a managerial or executive role.  Finally, if during a first year some event beyond the petitioner’s or beneficiary’s control has significantly negatively impacted the petitioner’s business and therefore its business plan, such as a natural disaster like Hurricane Sandy, such an occurrence should be explained in an extension petition.  Under such circumstances, where the business has been negatively impacted, the petitioner may suggest to USCIS that if it is not inclined to approve the extension for two years under the circumstances, it could approve the petition for one year and have the petitioner make a stronger showing once it has regrouped after the event, at the next extension.

In some instances, such as in cases where the beneficiary will be serving as a “functional manager,” it may be arguable that hiring workers is crucial to managing the essential function. For example, where the beneficiary manages the sales function, an important part of doing so would be to ensure a sales team is in place to carry out the actual sales.  Though the OIG specifically lists hiring workers are a nonqualifying duties (see page 19), practitioners may still be able to demonstrate that in fact such a duty is a part and parcel of managing a specific function, and ensuring that the manager is not engaging in the function managed.  Of course, it is important, given the guidance, to ensure that the individual is not primarily hiring employees, but the fact of hiring employees need not be dismissed out of hand as nonqualifying.

In providing an overview of the qualifying duties, and in order to dispel the presumption of “nonqualifying work as a central part” of the position, it is recommended to provide an estimate of the percentage of time the beneficiary will spend on each duty.  Of course, this can be a painful exercise, particularly because a beneficiary’s broader duties may not be easily dissected into meaningful minute-by-minute tasks.  While attempting to trying to break up the duties, you may want to emphasize that these percentages are only an approximation as in the real world, especially involving a manager or executive with high level duties, it is often difficult to pinpoint the exact percentage of time devoted to each duty by the very nature of the high level position. Unlike a worker in a non-managerial clerical or factory job, where the employer assigns the duties in a precise manner, a top level manager who performs at the highest level within an organization must multi-task, and many of the duties may overlap. A successful manager or executive is also required to adapt to challenges and a changing business environment, in order to maximize growth for the organization. Given the discretionary role of a high level manager or executive, it would at times undermine that role if a strict percentage of time was assigned to each and every duty as it would prevent the manager or executive from innovating, adapting or taking risks. Risk-taking is vital for growth, innovation and job creation, which requires the qualities of flexibility, adaptability and the ability to change in the face of new business trends.  Nevertheless, it is important to elicit and sift through the beneficiary’s duties.  Have them assist you in developing as specifically as possible what tasks she does and the time she tends to allocate to each.  This will allow the beneficiary to present the clearest picture of the beneficiary’s work and credibly demonstrate that she spends the majority of her time on qualifying duties.  As an aside, it is not clear what percentage of managerial or executive duties meets the “primarily” threshold, though a general guideline, echoed in USCIS statements (specifically, R. Divine, “Comments on OIG Draft Report: A review of Vulnerabilities and Potential Abuses of the L-1 Visa Program,” (Jan. 10, 2006) (included as Exhibit E to the 2006 OIG report)), is that primarily means a “majority of the time.”  Use this as a guide, but keep in mind that the more qualifying duties the better, and the stronger the argument that each duty is a qualifying duty, the better.

In its list of suspect cases included above, the OIG specifically singled out “gas stations or convenience stores” as examples of cases where “initial staffing structures . . . raise questions about the future need for an L-1A manager or executive.”  There is nothing in the law that precludes the ability of Petitioners that run gas stations, convenience stores, or similar small businesses, to obtain approval for L-1 transferees.  This may not be possible for the average mom-and-pop gas station or single convenience store owner, but where the petitioner starts with one operation, such as a gas station or convenience store as an anchor investment, and demonstrates that it is expanding or intends to expand to further investments under the guidance of a function manager who is responsible for the essential function of business development, a sufficiently strong case can be made.  Under INA § 101(a)(44)(A)(ii) and (iii), a function manager does not need to be supervising other managerial or professional employees in order to qualify for L-1A visa classification.  Crucial in these cases is showing that the function manager is relieved from performing non-qualifying duties by subordinate staff, whether they are professional or not.  Moreover, the petition would have to demonstrate that additional investments are being planned and pursued by the beneficiary pursuant to his or her mandate of strategic management, growth and investment.  Again, specifics are very important – show the steps the beneficiary is taking to pursue investments (emails, letters of intent, etc.), the financing involved in such investments, explain why such action is properly taken by a function manager, someone with high level authority to commit the petitioner to a course of action or expenditure of funds.

A variety of types of small businesses can successfully petition for a transferring manager or executive (or specialized knowledge) employee.  Successful cases may involve varying amounts of capitalization, salaries, numbers and types of employees, and various levels of interaction and support by the foreign entity, whether administrative, operational, or financial.  The key appears to be the level of detail provided, the fact that such detail is borne out in a well diversified set of supporting documents illustrating each point made the petition, and that all issues, including elements of a position that may be nonqualifying, are clearly explained.  Such detail can help to overcome the suspicion the OIG has with regard to smaller companies, or companies that are family owned and operated.  In the case of family businesses, the petitioner should explain the family relationships involved and make clear the role each family member will play in the business, and their qualifications for such roles.  The OIG has indicated that family based operations have been a vehicle for fraud, so a cautious practitioner will need to disabuse them of this presumption by hitting the issue head on and demonstrating the validity of the managerial or executive employment.

Practitioners and petitioners should also be aware that beginning in the first quarter of 2014, USCIS’s Fraud Detection and National Security Directorate (FDNS) expects to conduct post-adjudication domestic L-1 compliance site visits.  The OIG recommended that “USCIS make a site visit a requirement before extending 1-year new office petitions.”  The USCIS concurred and plans to being doing such site visits prior to granting an extension in a new office. Beneficiaries should be advised of the potential for a site visit to ensure that if an FDNS representative comes by, that everyone at the business knows who the beneficiary is and direct the FDNS officer to the person who will answer questions about the petition most accurately.

That the OIG report demonstrates that the government may view petitions filed by small businesses unfavorably is helpful to petitioners in illustrating how they need to improve petitions they file, and where they need to provide explanations and documentation to further demonstrate the credibility of a petition.  Petitioners should also highlight that small businesses are a recognized engine of a recovering economy, as borne out by reports published by organizations like the November 2009 report by the Ewing Marion Kauffman Foundation, and articles by Thomas Friedman, and other reputable writers addressing economic issues.  The statutes and regulations governing the L category themselves recognize the importance of new and small businesses, despite the government suspicion of them.  As discussed on numerous occasions on this blog, USCIS has also recognized the importance of entrepreneurs and small business in the context of its “Entrepreneurs in Residence” initiative.  In addition to presenting a strong, well-documented petition, practitioners can balance the negatives presented by the OIG against the positives presented by the USCIS in the context of its support of entrepreneurs, and include a short discussion of the significance of small businesses, even family businesses, in the context of economic recovery and growth.

The OIG reports from 2013 and 2006, along with the USCIS memoranda responding to each report, are required reading for practitioners representing petitioners filing new office Ls and extensions thereof.  In addition to the regulations, these documents provide essential guidance on how to strengthen cases for new and/or small businesses.

Stop the Assault on Employment Immigration to the USA

At the behest of Senator Grassley (R-IA), the DHS Office of Inspector General recently issue a controversial report, The Effects of USCIS Adjudication Procedures and Policies on Fraud Detection by Immigration Service Officers. I wonder about the intentions of Senator Grassley who put a hold on the Fairness For High Skilled Immigrants Act, which passed the Republican controlled House of Representatives by a landslide on November 29, 2011. More recently, Senator Grassley also put a hold on the Startup Visa Act, which has also received bipartisan support. Is he truly concerned about the integrity of the system or is there a deeper hidden agenda. Mind you, he has also been a foe of immigration from India with his recent opposition to the use of the H-1B and B-1 visas by Indian IT professionals. It is amazing how one Senator, who has only one vote among 100 Senators, can have so much influence over immigration policy. It is time to speak out.The report stems from a pet concern of Senator Grassley, as expressed by Judiciary Committee Chairman Lamar Smith in a February 15, 2012 hearing  before the House Subcommittee on Immigration, about whether “senior [USCIS] leaders are putting pressure on employees to approve more visa applications, even if the applications might be fraudulent or the applicant is ineligible.”

The Inspector General interviewed 147 managers and staff, received 256 responses to an online survey, and reviewed USCIS policies related to the effort to detect benefit fraud. The report was based on testimonials, not empirical data. The report recommended process improvements, such as instituting more training and collaboration to improve the fraud referral process; developing additional quality assurance or supervisory review procedures to strengthen identification of names and aliases of those seeking an immigration benefit; performing nationwide onsite outreach efforts to discuss the performance management system with Immigration Service Officers (ISOs); developing standards to permit more time for an ISO’s review of case files; revising policy on requests for evidence (RFEs) to clarify the role that the requests play in the adjudication process; and developing a policy to “establish limitations for [USCIS] managers and attorneys when they intervene in the adjudication of specific cases.” The report stated that “special treatment of complainants fosters a sense among ISOs that USCIS inappropriately grants benefits in certain cases.”

The report noted that “[t]here may be a basis for clarifying adjudication policy for O visa petitions. A low approval rate is not one of them.” The Inspector General found that O visa petitions are granted at a high rate. “Quality assurance information we examined demonstrates that excessive O visa approvals are more likely than denials.” The report stated, “From January 2008 through March 2011, the California and Vermont service centers approved 40,719 of 44,386 O visa petitions (91.7%). This approval rate exceeds the approval rate for many other nonimmigrant worker petitions. During the same time period, the two centers approved 78.5% of H-1B (specialty occupations) and 76.1% of L-1B (specialized knowledge worker) petitions.”

The Inspector General’s report noted, however, that: (1) the testimonial evidence shared by interviewees may not represent views shared by other employees; (2) USCIS has taken action to diminish threats to the immigration benefits system; (3) general employee concerns about the impact of production pressure in the quality of ISO decisions “do not mean that systemic problems compromise the ability of USCIS to detect fraud and security threats; (4) “[n]o ISOs presented us with cases where benefits were granted to those who pose terrorist or national security threats”; and (5) “[e]ven those employees who criticized management expressed confidence that USCIS would never compromise national security on a given case.”

The report concluded, however, that “[e]ven with the additional security checks and process improvements USCIS has made in the past several years, national security and fraud concerns may require more thorough review of immigration applications and petitions.” The OIG noted that “[a]dditional documentation, or further insight gained through more interview questions, would ensure that ISOs have greater confidence before making a decision.” Also, the report suggests that “Congress may wish to raise the standard of proof for some or all USCIS benefit issuance decisions.”

As an immigration practitioner, the Inspector General’s conclusions about applications being granted  too easily have no bearing with reality.  A filing of an H-1B or L petition, especially in certain industries such as IT consulting, results in a lengthy and detailed RFE asking for every aspect of the job duties, elaborate itineraries and unrealistic work schedules (such as the percentage of time performing each duty)  and other unnecessarily and trivial information about the employer and the employment. This is true even if the USCIS has been approving an H-1B petition previously on the exact facts for the very same worker who must be now be on his 10th year in H-1B status. Also, in the case of an H-1B worker in an IT consulting company who is placed at a third party client, the employer has to repeatedly demonstrate that it has a right of control  under the Neufeld Memo over this worker’s employment even if the employer demonstrated this in great detail when it last filed a request for an H-1B extension.

Senator Grassley, I ask you to put yourself in the shoes of this H-1B worker who has an approved I-140 immigrant visa petition for the green card, but is still waiting endlessly for it, along with his family, only because of the long waits in the EB-2 or EB-3 for India. If you did not put a hold on the Fairness for High Skilled Immigrants Act, this H-1B worker may have received a green card by now or close to receiving one. He now needs to wait nervously each year for an approval, with the fear that the H-1B may be denied this time around even though it got approved under the same facts the year before and the year before that. If the H-1B gets denied this time under some arbitrarily invented heightened scrutiny standard,  he and his family will fall out of status and will have to most likely need to leave the US after working in the US legally for 10 years, paying taxes and otherwise contributing to the productivity of his employer and clients. He will also be forced to yank his brilliant children out of school disrupting their lives and causing great turmoil in their young  impressionable minds.

If the OIG report becomes USCIS policy, it will kill and stifle a US employer’s ability to bring in skilled foreign national workers on H-1B, L-1 and O-1 visas. Despite Senator Grassley placing a hold on the Startup Visa Act, the DHS in August 2011 announced initiatives for entrepreneurs who founded their own startups to be able to have the company file for an H-1B visa on their behalf. This initiative too will get killed because if the government wants to look for fraud for the sake of satisfying certain statistical requirements, it will find it by shifting the goal posts. Look how many times over the past 10 years the USCIS has redefined what it means by the US equivalent of an Indian bachelor’s degree or equivalent education, thus blowing apart I-140 petitions approved after the employer meticulously but unsuccessfully tested the US labor market. Or look how the Neufeld Memo has been aimed against a very successful business model that has served the needs of Fortune 500 US corporations. If we see stricter adjudications, the US will be deprived of the talents and vision of foreign entrepreneurs who have a burning desire to set up startups in the US even in the absence of the Startup Visa Act, which have the potential to do brilliantly well like Google, E-bay or Yahoo.

At the February 15, 2012 Congressional hearing, the testimony of Bo Cooper, former General Counsel of the Immigration and Naturalization Service, is worth noting. Summaries of other witnesses at this Congressional hearing can be found in our forthcoming March 2012 Immigration Update.  Mr. Cooper said that USCIS has released official data since the report came out. He noted that recent analysis shows that the data refute concerns “that USCIS may be institutionally biased toward unjustified approvals and that the agency observes policies that would suppress RFE issuance.” The data tell the opposite story, he said: “Particularly with respect to the key nonimmigrant categories for foreign professionals, denial rates and RFE rates have risen very sharply in recent years.”

The “most startling example,” Mr.Cooper said, appears in the L-1 program, which is used by multinational corporations to transfer managers, executives, and specialists into the United States. Noting that such visas “are an essential component of a huge range of productive economic activity in this country,” he said that L-1 visas are critical to attracting foreign investment that supports the creation of jobs for U.S. workers and are critical when U.S. companies acquire companies based oversees and need to have the acquired company’s specialists come to the United States to integrate their expertise and processes. L-1 visas are also critical to companies who need to bring specialists from their overseas affiliates into their research centers and operations in the United States, he noted. “Without predictable, reliable access to these visas, employers find themselves having to move jobs and projects to other countries.”

The data for employees with specialized knowledge in the L-1B program “shows a steep rise in denials and requests for evidence beginning in 2008,” he said, noting that the denial rate for L-1B petitions more than tripled in 2008 and is now at nearly quadruple the pre-2008 rate, at 27 percent in 2011. The RFE rate change is even starker, he said. From 2005 to 2011, the rate soared from 9 percent to 63 percent of L-1B cases.

He also noted that in the L-1A program for managers and executives being transferred within multinational corporations, the RFE rate rose from 10 percent in 2005 to 51 percent in 2011. Denial rates rose 75 percent over five years, from 8 percent in 2007 to 14 percent in 2011. In the H-1B program for professionals in specialty occupations, the denial rate increased from 11 percent in 2007 to 17 percent in 2011. Over a quarter of all H-1B filings generated an RFE in 2011.

Seen in the light of this data, Mr. Cooper said “there is no basis for the concern expressed in the OIG report that USCIS has an institutional bias in favor of approvals or against RFEs.” In fact, he said, the data show the opposite trend. Noting that USCIS said in its response to the OIG report that it is reviewing its RFE policy and aims to issue new RFE guidance this year, Mr. Cooper recommended that the new policy reflect “the needs of today’s business environment and the innovation economy,” and that it be monitored carefully once put into practice.

Finally, the Inspector General’s report asks that the standard for adjudicating visa petitions be raised from the “preponderance of evidence standard” to something higher, such as the “clear and convincing evidence” standard or the even higher standard used in criminal proceedings, which is “beyond a reasonable doubt.” Under the preponderance of evidence standard, applicants have to demonstrate that the facts in their case are slightly more true than not true. Even though the preponderance of evidence standard requires a lesser degree of proof than the clear and convincing standard, this does not mean that it provides an invitation for fraud. The preponderance of evidence is the common standard used in civil proceedings, and allows the USCIS examiner to fairly evaluate very nebulous criteria while giving the benefit of doubt to the application, for instance, whether an O-1 visa applicant is extraordinary or not or whether an L-1B worker has specialized knowledge. If the applicant provided patently fraudulent documentation, he or she can be charged with the fraud ground of inadmissibility under INA § 212(a)(c)(6) and there also exist tough criminal sanctions.  In any event, it does not seem that the USCIS is faithfully adhering to the preponderance of evidence standard even today, and officially raising the bar will surely serve as an invitation for USCIS officials to arbitrarily deny even more case without fairly weighing the evidence. This would further undermine the ability of US employers to use our employment-based immigration system in an effective and rational manner to benefit them and simultaneously make the US prosper.

VISA OPTIONS FOR FOREIGN ENTREPRENEURS IN THE US – WHILE KEEPING AN EYE ON THE POTENTIAL TRAPS AND PITFALLS

By Cyrus D. Mehta

On paper, there are many attractive options for foreign entrepreneurs to live and work in the US temporarily without investing large sums of money. This blog takes the reader through these options, but will also make one aware about the many traps that may befall him or her on the way to achieving fame and fortune in the land of opportunity. This may sound a bit cliché as the US economy remains sluggish and the unemployment rate hovers over 9%, along with the fact that immigration bureaucrats have been tending to restrictively apply the rules. Yet the Administration, at the highest levels, has welcomed entrepreneurs and investors. On August 2, 2011, the Department of Homeland Security Secretary Napolitano Secretary Napolitano and United States Citizenship and Immigrant Services Director Mayorkas made dramatic announcements advising that foreign entrepreneurs could take advantage of the existing non-immigrant and immigrant visa system to gain status and permanent residency. According to the DHS press release, these administrative tweaks within the existing legal framework would “fuel the nation’s economy and stimulate investment by attracting foreign entrepreneurial talent of exceptional ability.” Many were left wondering whether this was simply hot air or whether it represented an attitudinal shift to encourage a surge of entrepreneurs into the US.

H-1B Visa

The DHS announcement acknowledged that the H-1B visa, which is the workhorse nonimmigrant work visa, could be used by entrepreneurs who formed their own entities and were even the owners of these entities.The H-1B visa requires the employer to demonstrate that the position normally requires a bachelor’s degree is a specialized field, regardless of the size of the company or the investment. Prior decisions have recognized the existence of the separate corporate entity as being able to petition for the beneficiary, even though it may be solely owned by him or her. However, in recent times, this concept got somewhat muddied by the insistence that the sponsoring entity also control the H-1B worker’s employment, and such a sponsorship could not be possible when the H-1B worker owned the sponsoring entity. In the H-1B Question and Answers accompanying the August 2, 2011 announcement, the USCIS appears to still hold the line about the need to demonstrate an employer-employee relationship, but has conceded that this can nevertheless be demonstrated even when the owner of the company is being sponsored on an H-1B visa. This may be established by creating a separate board of directors, which has the ability to hire, fire, pay supervise and otherwise control.There is nothing preventing such a board constituting foreign nationals or family members of the beneficiary.

Yet, despite this announcement, USCIS officers in the field still appear to display an anti-small business attitude. Take the example of Amit Aharoni, an Israeli citizen who graduated with an MBA from Stanford University. He founded a hot startup, www.cruisewise.com, and received over $1.65 million in venture capital funding. The H-1B visa that was filed on his behalf by the company got denied and he was forced to leave the US and run his company from Canada. It was only after ABC news reported the story that the USCIS changed its mind and reversed the denial.Since the H-1B visa requires a bachelor’s degree in a specialized field, be aware that when one is managing a small company as its CEO, the USCIS may absurdly view the position based on old administrative decisions as too generalized and not requiring a specialized bachelor’s degree. See Matter of Caron International Inc., 19 I&N Dec. 791 (Comm. 1988). While Mr. Aharoni was fortunate that the USCIS relented because the media shone a bright light on his case, one wonders how many similar deserving cases that have not received media attention have been denied, resulting in the loss of so many jobs here. The H-1B visa is also subject to a 65,000 annual cap, which gets exhausted well within the fiscal year.

L-1A Visa

If the entrepreneur has been running a company in his or her home country as a manager or executive, the L-1A visa also readily lends itself to a foreign national who wishes to open a branch, subsidiary or affiliate in the US, but it is important that the beneficiary must still be able to establish that he or she will work in an executive or managerial capacity. The source of the salary can come from the foreign entity. Matter of Pozzoli, 14 I&N Dec. 569 (RC 1974). A sole proprietorship can also qualify as a qualifying entity for L purposes. Johnson-Laid v INS, 537 F.Supp. 52 (D. Or. 1981). If the beneficiary is a major stockholder or owner, then “the petition must be accompanied by evidence that the beneficiary’s services are to be used for a temporary period and evidence that the beneficiary will be transferred to an assignment abroad upon the completion of the temporary services in the United States.” 8 CFR § 214.2(l)(3)(vii). The purpose of this regulation is to ensure that the beneficiary will maintain the qualifying foreign entity, which is a pre-requisite for the L visa. The entity in the US must generally be the subsidiary, parent or affiliate of the foreign entity.

Yet, in recent years, the USCIS has come down on L-1A petitions by small businesses with a heavy hand. Denial decisions often argue, albeit erroneously, that the manager in a small business would also be involved in day to day operations, which are considered disqualifying activities. Despite the salutary amendment to the L-1A definition by the Immigration Act of 1990 to also include one who manages an essential function, INA § 101(a)(44)(A)(2), as opposed to people, the USCIS appears to have read this provision out of the INA by insisting that such a manager still cannot perform the duties of the function. There have also been credible reports that the US Consulates in India have been denying L visa applications in what is thought to be an unofficial trade war against India, although these also include employees of established global companies who are applying for L-1B specialized knowledge visas.

E-1 and E-2 Visas

The E-1 and E-2 visa categories lend themselves readily to foreign entrepreneurs, but they are only limited to nationals of countries that have treaties with the US. This category thus disqualifies entrepreneurs from dynamic BRIC countries – Brazil, Russia, India and China. For the E-1 visa, the applicant must show substantial trade principally between the US and the foreign state. For the E-2 visa, the applicant must demonstrate that he or she has made a substantial investment in a US enterprise. While there is no bright line amount as to what constitutes a substantial investment, it must be weighed against the total cost of purchasing the enterprise and whether the investment will lead to the successful operation of the enterprise. However, based upon the proportionality test in the Foreign Affairs Manual,the lower the cost of the enterprise, the investor under the E-2 will be expected to make a higher proportion of investment. 9 FAM 41.51 N.10. Note that the E-2 visa will be denied if the enterprise is marginal – if it does not have the present or future capacity to generate more than a minimal living for the investor and family.

Conclusion: The Importance of Foreign Entrepreneurs

These three options, if applied consistent with the true intent under their respective statutory statute provisions, provide wonderful opportunities for foreign entrepreneurs, including students graduating out of a US university, to implement their business ideas in the US. Unfortunately, in recent times, immigration adjudicators have become the self-appointed guardians of US economic well being by assuming that the entry of foreign nationals in the US would eliminate US jobs. In fact, it is quite the opposite as such individuals through their innovations will generate more jobs for Americans. New York City Mayor Bloomberg has categorically called the failure to bring in foreign entrepreneurs and skilled workers as being akin to committing “national suicide.”There also exists the Employment-based Fifth Preference (EB-5) pursuant to INA §203(b)(5) resulting in permanent residency, which is specifically designed for investors, but this involves an investment of $1 million (or $500,000 in targeted areas with high unemployment or that are rural) and the creation of 10 jobs. Investments in designated regional growth centers allow the showing of the indirect creation of 10 jobs and also allow passive investment. The H-1B, L and E categories can offer speed and flexibility to a foreign entrepreneur who may not be able to afford a $ 1 million or $500,000 investment, and the need to immediately create 10 jobs. Also, the EB-5 option is fraught with risks if the investor cannot show his or her own source of funds and if the 10 jobs are not created directly or indirectly at the end of the two year conditional residency period. Another important bill, the Startup Visa Act, remains stuck in Congress as a result of partisan stalemate, which would allow the investor to demonstrate that he or she has obtained funding or created jobs to a lesser degree than the EB-5. While we wait for the Startup Visa, an enlightened interpretation of the already existing H-1B, L and E visa categories for entrepreneurs will surely benefit the US at this point of time and be consistent with the Administration’s August 2, 2011 announcement.