By: Wolfsdorf Rosenthal LLP
On March 8, 2018, a draft of the EB-5 Immigrant Investor Visa and Regional Center Program Comprehensive Reform Act (the “EB-5 Reform Act”) was released. This new proposal is similar to earlier congressional reform attempts but also includes new provisions that would dramatically affect the EB-5 industry – both in the short-term and long-term. If passed, the Act would authorize the EB-5 Regional Center Program – currently set to expire on May 23, 2018 – until September 30, 2023. This longer-term extension is welcome news, as it would provide the certainty that the EB-5 industry has lacked during the past few years.
As of the publication of this blog, it does not appear that the EB-5 Reform Act has been formally introduced into Congress for debate or discussion. Nevertheless, it’s possible that the legislation will be attached to the Omnibus bill that would fund the federal government through the remainder of the fiscal year, which is expected to be released this week. It’s likely that if the EB-5 Reform Act is not passed in the next couple weeks, any legislative reform to the EB-5 Program before September 30, 2018 is unlikely. In summary, this may be the last chance for this year, as mid-term elections will undoubtedly freeze further action for the year.
Here are ten things to know about the EB-5 Reform Act.
- Increased Minimum Investment Levels. The EB-5 Reform Act would increase the minimum investment amount from $500,000/$1,000,000 to $925,000/$1,025,000, depending on the type and location of the immigrant investor’s capital investment project. The lower investment threshold is applicable primarily to capital investment projects located in rural or priority urban investment areas, or within a closed military installation; or through a small business investment fund. The qualifying investment amount would be adjusted every three years. Additionally, the EB-5 Reform Bill provides that USCIS may prescribe regulations to increase the qualifying capital investment amount.
- Reserved and Unused Visas. Also known as “set asides,” the EB-5 Reform Act provides that a portion of the annual number of EB-5 visas be reserved for immigrant investors who invest in rural areas (1,450), priority urban investment areas (1,450), or in infrastructure projects (200). Any of these visas which go unused in each year would be available for immigrant investors who invest in these types of projects in subsequent years.
- Job Creation. The EB-5 Program is a job creation program with a U.S. immigration benefit. The EB-5 Reform Act increases the job creation requirement to 12 U.S. employees. However, it reduces the job creation requirement to only 9 U.S. employees for capital investment projects located in rural or priority urban investment areas, or in a BRAC; or a small business investment fund.
Because of these three significant changes, and the potential for children to “age out” because of limited EB-5 visa availability, we expect many Regional Centers may seek projects which meet these criteria. However, anecdotal evidence is that many existing projects will qualify for the set-asides so the 4 benefit will largely be used up very quickly.
- More Stringent Source of Funds Requirements. Investors include needing to document the lawful source of the investment as well as for administrative costs and fees. It is now also specified in the definition of “capital” unsecured promissory notes or promissory notes secured by foreign property cannot be used as EB-5 capital. It is not clear whether this excludes mortgage loans obtained by foreign investors using their foreign properties as collateral.
- Moratorium on Filings and the Transition Period. Starting on the date of enactment, and continuing for 120 days thereafter, USCIS would not be authorized to accept or any new Form I-526 or Form I-924 application. During this time, USCIS would continue to adjudicate pending applications, and would work to revise and update its forms and systems to be able to implement each provision of the EB-5 Reform Act. Once the moratorium is lifted, there are separate rules for a “transition period” that begins on 121 days after the date of enactment until 365 days thereafter. Only petitions representing 7,000 foreign nationals (principal investor and their family members) will be accepted during the transition period and these petitions can be based on a minimum investment amount of $925,000. Petitions that are not accepted during the transition period after the 7,000-visa limit has been reached will be required to pay the investment amount depending on the type and location of the immigrant investor’s capital investment project.
- Exemplar Requirement. A Regional Center will be required to file a Form I-924 for each capital investment project through a new commercial enterprise, which must include any conflicts of interest which exist or may arise among the Regional Center, the new commercial enterprise, the job creating entity, and any principals/attorneys thereof; and any fees, ongoing interest, or other compensation to be paid to agents, finders, or broker dealers involved in the offering of capital investment project, along with each such persons name and contact information.
- Not Enough Relief for Potential “Age Out” Children. The EB-5 Reform Act provides that one child of a principal investor who has obtained conditional lawful permanent residency, and whose conditional lawful permanent residency is terminated may continue to be considered a derivative child of the principal alien, in the event a subsequent petition is filed within one year after such termination and if the child remains unmarried. Unfortunately, the EB-5 Reform Act provides no relief to immigrant investors with children who may “age out,” such as priority date retention for any subsequently filed Form I-526s. It does allow concurrent filing of I-485 Adjustment of Status applications if the visa number is current.
- Additional Fees; Premium Processing for Regional Centers. Under the EB-5 Reform Act, Regional Centers would be required to pay an annual fee of $20,000 into the “Employment Creation Visa Integrity, Fraud Prevention and Detection Fund,” though this amount is reduced to $10,000 for Regional Centers “with 20 or fewer total investors in the preceding fiscal year in its new commercial enterprises.” Regional Centers would also have the option to pay a premium processing fee of $5,000 for Form I-924 filings. Additionally, USCIS would have the authority to increase the Form I-526 filing fee to comply with the requirement of placing $1,000 of the current Form I-526 filing fee into the Employment Creation Visa Integrity, Fraud Prevention and Detection Fund.
- Regional Center Integrity Measures. Like prior reform attempts, the EB-5 Reform Act places additional record-keeping, background checks, and due diligence requirements on Regional Centers. Included in these requirements are new compliance measures for direct and third-party promoters, and for disclosures of conflict of interests paid to such promoters. The proposed bill also continues to provide additional government oversight on Regional Center activities, such as audits and site visits.
- Limited Judicial Review. Throughout the EB-5 Reform Act, there are numerous times in which USCIS’ determinations are limited, or even not subject to judicial review. This is particularly worrying due to the prevalence of litigation against USCIS for “arbitrary and capricious” decision-making in the EB-5 context.
While this bill is slightly better than the prior similar proposal, it does nothing to protect investors who have already committed capital to the program expecting to be able to immigrate within a reasonable time. The U.S. government’s change in the visa allocation places those investors from China and now Vietnam that is also backlogged, into a substantial disadvantage. These investors anticipated that approximately 10,000 visas were available at the time they invested, only to discover that the U.S. government has now retroactively cut the visa supply to favor a subset category. This is plainly bad policy and undermines the U.S. government’s credibility and the very basis for the program.