Comment: Red Herring Legislation

First an update on the EB5 Reg: The new EB-5 regulation remains pending at OMB. Some of our readers did reach out to the leadership of OMB. While the appeals to loss of jobs, and impact on real estate industry barely registered a response, the thought that this is a Obama-era regulation captured OMB's attention, which could derail the regulation. However, no one can really tell what will happen, the regulation still hangs like the Sword of Damocles over the EB-5 industry--with its proposed increase in investment amounts killing the market, and its centralization of TEA destroying 90% of projects currently in the market.

There is action on the legislative front: A bill has been written, and is likely to be introduced in the House in the next few weeks. We expect a companion bill to be introduced in the Senate later. Following the rules of the two chambers, the bills will be referred to the Judiciary Committees, the chairs of which, Representative Nadler (D) and Senator Graham (R), respectively, will likely hold hearings this spring.

The bill has been written 90% by urban interests and 10% by a minority of rural interests. The bill seeks to narrow the difference in investment between TEA and non-TEA and/or to continue a liberal definition of TEA, and will keep investor protection toothless. The biggest issue in the bill will be an increase in the EB-5 quota. The carrot of additional EB-5 visa numbers will be used to entice the EB5 industry to a circus especially when hearings commence.

No one should get their hopes up--EB5 players will not succeed in getting additional numbers, due to the 4 reasons in our email "Congress Will Not Stop New EB5 Regulation" (full text reproduced at the bottom):
"Reason 1: ...The leadership of both chambers view the immigration issue holistically, and EB-5 is a mere blip in the constellation of big immigration issues--there is no reason for them to use precious political capital to bring such a minor issue to the floor, nor will they take a chance to permit EB-5 language to be snookered into another bill.
Reason 2: Control of the legislature is split between Republicans and Democrats. We have an extremely partisan atmosphere especially going into an election year. Expecting that bipartisan legislation on a relatively minor issue will pass in such a charged atmosphere is unrealistic.
Reason 3: One of the principal lobbyists retained by the EB-5 industry has a 15+ years record of failure before Congress, with no ameliorating success on any immigration matter.
Reason 4: The elephant in the room is Dreamers. The Dreamer issue is the most politically important immigration issue for all parties--we are doubtful that anything on immigration can get done without resolving this issue."

Any change of immigration quota numbers has to go through the "Big Four" the leadership of the House and the Senate (Representative Pelosi, Representative McCarthy, Senator McConnell and Senator Schumer). If there is a bipartisan consensus in the leadership to raise of EB-5 numbers, we would be the biggest cheerleaders--but given the level of conflict between these four on issues of far greater importance to each of them, we do not see the possibility of such consensus developing in this Congress. Any attempt at legislation without consensus of the leadership is a Red Herring and should be ignored by all, because such a legislative attempt is doomed to fail and has no chance whatever.

The next six months till September is an ideal time for projects to raise money abroad--especially if the regulation sees the light of the day. It is not prudent to let the Circus on the Hill distract from the raising of capital.

Email to clients in late February 2019

Congress Will Not Stop New EB5 Regulation

The EB-5 Modernization Regulation has been sent to OIRA/OMB to be published as a Final Rule. It typically takes a few months for OMB's review to be complete. The regulation essentially does two things 1) A massive increase in investment amounts to $1.3 million/$1.8 million . 2) Centralized TEA designations. The first would kill the EB-5 market for 2-3 years and the second would wipe out 90% of projects currently in the market.

QUESTIONS:
There are widespread misconceptions in the EB-5 industry about 1) What is going to happen? 2) What to do about it?

EXECUTIVE SUMMARY:
Most of the EB-5 industry fantasizes that Congress will jump in and stop the regulation. Below we present how to stop the Reg.

DETAILS:
We have 20 years experience in the immigration law field following judicial, legislative and executive branches. Based on our experience, here is our detailed analysis.

Judicial Branch:
The only way we see the judiciary stepping in is if there is an APA (Administrative Procedural Act) violation. USCIS has followed the APA meticulously so far in this rule making. A court injunction appears to be a forlorn hope.

Legislative Branch:
The EB-5 industry seems to be counting on Congress to stop this regulation. Let's bring some reality into this unicorns and rainbows fantasy.

Industry lobbyists have made contact with Chairs of the Judiciary Committees in both chambers of Congress: Representative Nadler, Democrat, Chair of House Judiciary Committee, and Senator Graham, Republican, Chair of Senate Judiciary Committee, and both these gentlemen seem to be positively disposed to help the EB-5 industry. Despite this, Congress will not enact a bill to relieve the industry for the following four reasons.

Reason 1: Representative Nadler cannot bind Speaker Pelosi and/or the House Democratic leadership and/or the House Democratic Caucus. Senator Graham cannot bind Majority Leader McConnell and/or the Senate Republican leadership and/or the Senate Republican Conference. The leadership of both chambers view the immigration issue holistically, and EB-5 is a mere blip in the constellation of big immigration issues--there is no reason for them to use precious political capital to bring such a minor issue to the floor, nor will they take a chance to permit EB-5 language to be snookered into another bill.

Reason 2: Control of the legislature is split between Republicans and Democrats. We have an extremely partisan atmosphere especially going into an election year. Expecting that bipartisan legislation on a relatively minor issue will pass in such a charged atmosphere is unrealistic.

Reason 3: One of the principal lobbyists retained by the EB-5 industry has a 15+ years record of failure before Congress, with no ameliorating success on any immigration matter.

Reason 4: The elephant in the room is Dreamers. The Dreamer issue is the most politically important immigration issue for all parties--we are doubtful that anything on immigration can get done without resolving this issue.

Based on the above four reasons, it is a fool's errand to hope that Congress will reverse this regulation in 2019 or 2020.

Executive Branch:
There *is* a way of stopping this regulation. The fat lady has not yet begun to sing for this regulation. The Rule is at OMB for review. OMB -- the Office of Management and Budget is the principal means by which the President directs the entire federal bureaucracy. OMB is placed only 200 yards away from the Oval Office so that people from OMB can walk to the White House in a couple of minutes. OMB's review is not ministerial, but political--if OMB thinks that a regulationis against the priorities of the administration to create jobs and invest in America, and/or to assist the real estate industry, they can send the rule back to USCIS for modifications. If Mick Mulvaney, Chief of OMB, or one of his direct reports, or President Trump, or one of his senior advisers, think that this Final Rule will hurt the President's agenda, they can send this rule back to USCIS. Only

approximately 15 people close to the President have the ability to stop this rule at this late stage.

To Dos:
1) Give up the false illusion of Congress stopping the industry-destroying EB-5 Regulation, and prepare for the new regulation going into effect.
2) If anyone in the EB-5 industry has access to the approximately 15 people close to Mick Mulvaney and/or President Trump, they should point out this regulation's terrible impact on American jobs and investment in America, and urge them to send the regulation back to USCIS.

Article: “EB-5 Reform on the Horizon – If the Palm House Hotel Debacle Does Not Precipitate Congressional Action, What Will?” By Gary Friedland and Jeanne Calderon

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