Regulations v. Legislation – On the Brink of EB-5 Reform

Regulations v. Legislation – On the Brink of EB-5 Reform

April 09, 2018

By:  Bernard Wolfsdorf and Joseph Barnett

 

Chinese Translation: 行政新规和立法改革 – EB-5 变革在即

Vietnamese Translation: Quy định và Pháp luật – Trên đường cải cách EB-5

Korean Translation: 이민규정 vs. 개정법안 – 눈 앞에 닥친 EB-5 투자이민법 개정

 

Recent tweets from U.S. Citizenship and Immigration Services (“USCIS”) indicate that administrative changes to the EB-5 Program are a priority in Fiscal Year 2018.  It now appears almost certain the proposed regulations from over one year ago will be finalized very soon.

The new USCIS Director Lee Francis Cissna (who previously was detailed to Senator Chuck Grassley’s staff on the Senate Judiciary Committee), has made it clear he wants new EB-5 regulations soon. Senator Grassley (R-IA) has attempted to reform the EB-5 Program with legislative changes, without success.  Last month, after legislative proposals to reform the EB-5 Program failed to reach consensus, Senator Grassley expressed his frustration at the “moneyed interests” proposals that blocked his reforms.

Last week, Senator Grassley sent a letter to the U.S. Department of Homeland Security (“DHS”) leadership, urging DHS to implement the regulations “without further delay.” Senator Grassley wrote:

We are writing to urge your Department to take immediate steps to finalize proposed regulations published in the Federal Register on January 13, 2017, entitled “EB-5 Immigrant Investor Program Modernization.”1 As the Chairmen and a former Chairman of the committees with jurisdiction over the fifth preference employment-based immigrant visa program (the “EB-5 program”), we believe these regulations advance the national interest and should be implemented without further delay.

EB-5 reform will now almost certainly come by regulations (Regs), not legislation (Legs).  This distinction is critical, as regulatory reforms may cause some adversely affected parties to litigate against the regulations and seek judicial review under the Administrative Procedures Act.

The following are three important EB-5 reforms included in the “EB-5 Immigrant Investor Program Modernization” proposal:

  1. Increased Minimum Investment Amount.  DHS proposes to increase the minimum investment amount from $500,000 to $1.35 million for investments in a Targeted Employment Area (“TEA”) or from $1M to $1.8M for investments not located in a TEA.  In addition, DHS is proposing to make regular Consumer Price Index-based adjustments in the minimum investment amount every 5 years.
Our Take: We believe an increase in the minimum investment level may be inevitable after 28 years with no change, however we are hopeful that DHS will not raise the amount this much suddenly as it may stifle the program. We need gradual staged price increases to give the market time to adapt.  On the other hand, an increase in the minimum investment amount may help shorten the waiting line for those already stuck, mainly Chinese investors. This will reduce the waiting line by ensuring unused visa can continue to be used by China. Rumor is the final amount will be something more moderate than that proposed.

 

  1. TEA Reforms. DHS proposes to eliminate state and local designation of high unemployment areas and to prevent TEA “gerrymandering” by only looking to the actual census tract or “directly adjacent” census tracts in which the new commercial enterprise is principally doing business.
Our Take: This proposal could dramatically shift where EB-5 capital will be used, as investors would likely prefer to pay less for the same immigration benefit, and the reforms will limit TEA designations.  We expect APA lawsuits on this proposal, although it does appear that 8 U.S.C. § 1153(b)(5) provides significant authority to DHS, through the U.S. Attorney General, to prescribe regulations in this regard.

 

  1. Priority Date Retention. DHS proposes to allow an EB-5 immigrant petitioner to use the priority date of an approved EB-5 immigrant petition for a subsequently filed EB-5 immigrant petition for which the petitioner qualifies.
Our Take: This is particularly important for applicants mainly from China who are waiting in the lengthy visa waiting line, as it provides some relief to those who may become ineligible for an EB-5 visa through circumstances beyond their control (e.g., the termination of a regional center or an underperforming or failing investment project). In the past manty could simply refile but now they must wait years for their EB-5 visa priority date to become current. Sadly, this does not appear to go far enough to protect derivative child beneficiaries, who could “age out” because of the long waiting times, but we can be hopeful. Chinese and Vietnamese applicants who may age-out should consider filing as principal applicants.

Hopefully, Congress will overcome its dysfunctional bi-partisanship and fix the EB-5 program that has generated at least $20 billion in investment in the last 3-4 years. Since EB-5 is often about 1/3 of the capital; stack, it is estimated that over $50 billion worth of projects have got off the ground because of EB-5. This has created thousands of jobs and continues to be a viable avenue for high net worth immigrants, that massively benefits job creation and the U.S. economy.

2018-05-16T00:29:01-08:00 April 9th, 2018|

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