Goodlatte EB-5 Reform Bill: Initial Analysis and Section-by-Section Summary
Executive Summary and Initial Analysis
This article provides an initial analysis and a section-by-section summary of a draft EB-5 reform bill released late on Friday, September 9, 2016, by U.S. Representative Bob Goodlatte, chair of the House Judiciary Committee. The 123-page bill has not been formally introduced yet. The Goodlatte bill has nine sections and is largely a reprisal of S. 1501, the main Senate EB-5 bill nearly enacted in late 2015. The Goodlatte bill, however, contains some key changes.
The draft Goodlatte bill follows on the heels of a September 8, 2016 letter from Senators Chuck Grassley and Patrick Leahy, chair and ranking member of the Senate Judiciary Committee, respectively. Senators Grassley and Leahy oppose a straight reauthorization of the EB-5 regional center program without any changes. According to the letter, the EB-5 regional center program “has become plagued with fraud and abuse, and if not reformed it should be allowed to expire on September 30th.” In light of the Grassley-Leahy letter, industry unity on regional center oversight measures will be essential to avoid program lapse after September 30.
The draft Goodlatte bill represents one effort to substantially reform the EB-5 regional center program. Key highlights include:
A five-year reauthorization of the EB-5 regional center program, until September 30, 2021.
Regional center oversight measures are at Section 3, “Reauthorization and Reform of the Regional Center Program,” mostly reproducing S. 1501’s oversight provisions. This section contains familiar extensive annual reporting requirements, securities law compliance certifications, background checks, project preapprovals, and sanctions. Section 3 also has a new section on account transparency calling for a more active role for escrow banks. The same
“Integrity Fund” provisions and amounts are reprised, along with a new $2,000 petition fee. These measures address some of the “minimum” reforms referenced in the Grassley-Leahy letter.
Most provisions in section 3 would take effect no later than 90 days after enactment, but many provisions would require regulations or more detailed guidance. As appears in Section 4, the industry may request regulations or other implementing guidance to be promulgated within 180 days after enactment. Further study is recommended to determine the practical impact of a 90- day effective date for Section 3 if some or all of these provisions will take effect ahead of other statutory changes.
Section 2 puts revocations, denials, and debarments for national security threats and fraud front and center along with restrictions on investor source of funds.
Section 4 of the Goodlatte bill contains many provisions, including:
· $1.2 million new threshold investment level for non-TEAs; $800,000 for TEAs as well as infrastructure and manufacturing projects
· 4,000 non-rolling visa set-asides for rural and “priority urban investment” areas to take effect October 1, 2016
· DHS will determine TEAs as well as designate infrastructure and manufacturing projects
· TEAs comprise of rural, priority urban investment, closed military bases, and high poverty areas
· Redesignation permitted to new TEA (may intend to include redesignation into set- asides)
· Effective upon enactment, with exception for pre-6/1/15 petitions. TEA rulemaking required within 180 days of enactment
Retroactive application of the new law is generally contemplated for petitions filed after June 1, 2015. There is limited grandfathering of petitions associated with exemplars filed before June 1, 2015 or approved before enactment. There is no provision for amending petitions to conform to the new law other than for TEA redesignations. Effective date provisions vary section to section. The dominant formula is an effective date any time within 90 days after enactment, with grandfathering for pre-6/1/15 petitions. Petitions filed from 6/1/15 to enactment will also be grandfathered if associated with an exemplar filed before 6/1/15 or approved before enactment.
Direct jobs minimum of 10% remains with modifications in Section 3 and should be reviewed along with the definition of “full-time employment” in Section 4. Notably, though drafting is unclear, construction jobs appear to be deemed direct jobs.
Investor fraud protections remain largely the same and are in the proposed new subparagraph
(O) in Section 3. Investors would have 180 days after a regional center is terminated or debarred to associate the new commercial enterprise (NCE) with a new regional center or to invest in a new NCE. There is no tolling in the event a regional center seeks appeals termination and no priority date retention. The Goodlatte bill may contain inadvertent omissions in drafting that may have contemplated additional amelioration.
Site visit references appear in disparate provisions and are required under Section 3. The bill adds a new requirement to review evidence of direct jobs. The effective date requires closer review but appears to be no later than two years after enactment per Section 5.
Beneficial provisions in the draft Goodlatte bill include:
· Premium processing regulations within 180 days and “timely processing” goals at
· Mandatory preapprovals but I-526 petitions may be filed upon preapproval filing (as opposed to after approval) at Section 3
· Concurrent adjustment applications with visa availability at Section 4
New and notably, investors must be at least 18 under the new law, effective prospectively after enactment per Section 6.
A section-by-section summary of the Goodlatte bill follows:
Section 1: Title (p. 2): The American Job Creation and Investment Promotion Reform Act of 2016
Section 2: New EB-5 General Provisions (starting on p. 2):
2(a): In general (starting on p. 2):
• Codifies many of the existing source of funds regulations into the statute.
• Makes numerous changes to source of funds procedures, including: (1) requiring an EB-5 investor’s tax returns for the last seven years; (2) identifying all persons who transfer funds into the United States on behalf of the investor; and (3) imposing restrictions on gifts and loans.
• DHS may deny or revoke an EB-5 petition or regional center (RC) designation based on threats to public safety or national security.
• DHS may debar an RC or investor from future participation in the EB-5 program if they were a knowing participant in the conduct that led to the project’s or RC’s termination. There is no judicial review of a debarment.
• DHS may deny or revoke an EB-5 petition or RC designation if it finds evidence of fraud, deceit, intentional material misrepresentation, or criminal misuse.
• Most denials of EB-5 petitions can be appealed to the U.S. Citizenship and Immigration Services (USCIS)’s Administrative Appeals Office.
2(b): Effective dates (starting on p. 12):
• Most provisions in § 2 of the bill take effect 90 days after enactment. The source of funds changes outlined above do not apply in one of three situations: (1) I-526 petitions before June 1, 2015; (2) I-526 filed between June 1, 2015 and the date of enactment if the investor invested in a project that had an exemplar filed before June 1, 2015 or approved any time before the date of enactment; or (3) an I-829 was filed and the underlying I-526 petition was filed before June 1, 2015 or approved before the date of enactment.
Section 3: Reauthorization and Reform of the Regional Center Program (starting on p. 14):
• Repeals the pilot RC program created in 1992.
3(b): Authorization of the RC program in the INA (starting on p. 14):
• Creates a new INA § 203(b)(5)(H) governing the RC program.
• Extends the EB-5 RC program for five years, until September 30, 2021.
• Sets forth the procedures for RC designations.
• Indirect jobs can constitute no more than 90% of the jobs created in an RC project. At least 10% of jobs must be directly created by the new commercial enterprise (NCE) or job-creating entity (JCE).
• Relocated jobs don’t count for EB-5 purposes.
• EB-5 money can’t be used to buy public bonds.
• Construction activity jobs that last less than two years can be aggregated. In such cases, construction activity jobs are considered direct jobs.
• A RC must usually give advance notice to DHS about significant proposed changes to is organizational structure, ownership, or administration.
• A RC must file an application with DHS for each project before any I-526 petitions can be filed for that project. The project application must include many details, including fees
paid to agents, due diligence procedures, and a certification that to the best of the certifier’s knowledge, all parties in the project are complying with applicable securities laws.
• USCIS approval of a project application is binding for all I-526 petitions filed for the project except for fraud, misrepresentation, criminal misuse, a threat to public safety or national security, a material change, other evidence that was not disclosed in the project application process, or a material mistake in law or fact.
• DHS must perform site visits to RCs and at least one site visit for each NCE and JCE. The site visits can occur any time between filing the project approval application and the first I-829.
• Regional centers must file annual reports with DHS. The reports must include, among other things: (1) a variety of certifications; (2) information about how much EB-5 money was collected and how it was used; (3) information about the number of jobs created; and
(4) information about monies the RC paid to other entities, including promoters and finders.
• DHS may require RCs to update or supplement their annual reports.
• DHS may sanction RCs that: (1) fail to file annual reports; (2) knowingly submit false statements; or conduct themselves in a manner inconsistent with their designation.
• Sanctions include: (1) a fine of up to 10% of the EB-5 capital raised; (2) temporary suspension from the EB-5 program; (3) a permanent bar for people associated with the RC, NCE or JCE; and (4) termination of the RC’s designation.
• The following people are barred from participating in an RC, NCE, or JCE if they: (1) have committed certain crimes or securities violations; (2) have engaged in money laundering, terrorist, human trafficking, or similar activities; or (3) been disciplined by a state bar association or the Justice Department.
• Only U.S. citizens, permanent residents, or U.S. nationals can participate in an RC. Foreign government agencies are barred from any direct or indirect involvement with an RC, NCE, or JCE. DHS may terminate RCs that knowingly involve a barred individual or foreign government entity.
• DHS must conduct background checks on all persons involved with an RC, NCE, or JCE.
• The bill defines “involved” with an RC, NCE, or JCE broadly. It includes anyone who is directly or indirectly in a position of substantive authority to accept, control, or release any EB-5 funding.
• The bill states that the United States has jurisdiction over EB-5 securities.
• A RC must certify that to the best of its knowledge, it and all parties associated with the RC are complying with applicable state and federal securities laws. An RC must update this certification annually. If an RC discovers that a party associated with the RC has not complied with relevant securities laws, it must fix the problem and notify DHS.
• DHS may suspend or terminate an RC that fails to comply with applicable securities laws.
• “Party associated with a regional center” means the RC, NCE, JCE, securities issuer, and the RC’s and NCE’s owners, agents, employees, promoters, and attorneys.
• The bill establishes an EB-5 integrity fund. Larger RCs must pay $25,000 a year to go into the fund. Regional centers that have 20 or fewer EB-5 investors must pay $10,000 annually. The I-526 petition filing fee also increases by $2,000 to go toward the integrity fund.
• DHS is to use at least 1/3 of the money in the EB-5 integrity fund to conduct site visits and audits. One-third of the money is for investigations outside the United States. The rest of the money is to be used to investigate fraud and other crimes; determine whether RCs, NCEs, JCEs and EB-5 investors are complying with applicable immigration laws; and interview people affiliated with RC projects.
• Direct and third party promoters of an RC, NCE, JCE, or securities issuer must register with USCIS. The registrations must include certain information, including their qualifications, guidelines for offering investment opportunities, and fee arrangements. DHS may suspend or bar violators.
• Every I-526 petitioner must sign a statement disclosing all the fees, ongoing interest, and other compensation paid to anyone in connection with the investment.
• If DHS terminates or bars an RC, NCE, or JCE, investors in affected projects remain authorized to remain in the United States unless DHS has reason to believe the investor was a knowing participant in the conduct that led to the project’s termination. Affected investors have 180 days to invest in a new EB-5 project; otherwise they will lose their status. Investors who make a second investment can file I-829 petitions two years later.
• NCEs must keep EB-5 investors’ money in a separate account. The NCE must notify the investor, the RC, and USCIS about the separate account. The NCE must track where the funds go. The NCE must verify that the money either went into the investment project for which they were intended or were returned to the investor.
3(c): Effective dates (starting on p. 68):
• Most provisions in § 3 of the bill take effect 90 days after enactment. The indirect job creation and economic methodology changes outlined above do not apply in one of three situations: (1) I-526 petitions before June 1, 2015; (2) I-526 filed between June 1, 2015
and the date of enactment if the investor invested in a project that had an exemplar filed before June 1, 2015 or approved any time before the date of enactment; or (3) an I-829 was filed and the underlying I-526 petition was filed before June 1, 2015 or approved before the date of enactment. The separate account requirements outlined above take effect one year after enactment.
Section 4: Other EB-5 Visa Reforms (starting on p. 70):
4(a): technical changes
4(b): Targeted employment areas (TEAs) (starting on p. 71):
• Creates set-aside of 2,000 EB-5 visas for immigrants who invest in rural areas and 2,000 EB-5 visas for immigrants who invest in priority urban investment areas.
• Any unused visas within the set-asides for one year remain available for the same category in subsequent years.
• DHS to determine TEAs, not states or other entities. DHS to set a fee for TEA designation adjudications.
• TEAs are valid for two years.
• DHS to establish a process by which RCs may request a TEA designation. Such designations are to be decided within 60 days.
• If an investor invests in a project in a TEA and the project subsequently loses its TEA designation, the investor does not have to invest more money.
4(c): Minimum investment amount increase (starting on p. 74):
• $800,000 for in an investment in an infrastructure project, a manufacturing project, or a project located in a TEA. Otherwise the minimum investment amount is $1.2 million.
• DHS to publish regulations to increase the minimum investment amounts. Public must be given at least 60 days’ notice of any increase.
• Minimum investment amount to automatically increase every five years starting on January 1, 2022 by the cumulative percentage change in the Consumer Price Index for the previous five years, rounded to the nearest $10,000.
4(d): Investors on the Treasury Department’s Office of Foreign Assets Control’s specially designated nationals list are barred from the EB-5 program.
4(e): Definitions (starting on p. 78):
• “Affiliated job-creating entity” means any job-creating entity that is directly or indirectly controlled, managed, or owned by any of the persons involved with the RC or new commercial enterprise.
• “Capital” means cash and all real, personal, or mixed tangible assets owned and controlled by the investor or held in trust for the benefit of the investor and to which the investor has unrestricted access. The definition excludes cash proceeds of indebtedness secured by the investor’s assets.
• “Certifier” means a person in a position of substantive authority for the management or operations of an RC, new commercial enterprise, affiliated job-creating entity, or issuer of securities, such as a principal executive officer or principal financial officer.
• “Full-time employment” means at least 35 hours/week for at least two years, regardless of who fills the position.
• “Infrastructure project” means a project that maintains, improves, or constructs a public works project. A federal, state, or local agency must administer the project.
• “ Job-creating entity”: no real changes.
• “Manufacturing project” means a project to improve, construct, or operate a plant, factory or mill that primarily exists to produce or assemble a product in the United States.
• “ New commercial enterprise”: no real changes.
• “Priority urban investment area” means one or more census tracts in an metropolitan statistical area (MSA) that meets one of the following three criteria: (1) an unemployment rate that is at least 150% of the national unemployment rate; (2) a poverty rate of at least 30%; or (3) a median family income that is less than 60% of the statewide or MSA median family income, whichever is higher.
• “Rural area” means an area that is outside a city with a population of 20,000 or more and which also meets one of the following three criteria: (1) outside of an MSA; (2) within an outlying county of an MSA; or (3) within a census tract of more than 100 square miles and which has a population density of fewer than 100 people per square mile.
• “Targeted employment area” means one of four things: (1) a priority urban investment area; (2) a rural area; (3) an area in a closed military base; or (4) a poverty area, defined as a census tract or contiguous census tracts that are not in an MSA and which each have a poverty rate of 20% or a median family income that is less than 80% of the statewide median family income.
4(f): Age determinations for children of EB-5 investors (starting on p. 85):
• An unmarried child who has been admitted as a conditional permanent resident (CPR) remains a child for EB-5 purposes after turning 21 if the principal investor’s status is terminated and the parent files a subsequent EB-5 petition within one year.
4(g): Higher pay for USCIS EB-5 employees (p. 86): self-explanatory.
4(h): Concurrent filings of EB-5 petitions and adjustment of status applications (starting on p. 86):
• INA § 245(k) is available for EB-5 investors.
• EB-5 investors can concurrently file an I-526 petition and an adjustment of status application if they are otherwise immediately eligible for adjustment.
4(i): Conforming changes (starting on p. 86):
• Amends INA § 201(d)(1) to reflect that unused EB-5 visas from the 4,000 set aside for rural and priority urban investment areas remain available within the same category in subsequent years.
4(j): Effective dates (starting on p. 87):
• Most provisions in § 4 of the bill take effect on the date of enactment. Changes to the minimum investment amounts and the definitional changes outlined above don’t apply to petitions filed in one of three situations: (1) before June 1, 2015; (2) filed between June 1, 2015 and the date of enactment if the investor invested in a project that had an exemplar filed before June 1, 2015 or approved any time before the date of enactment; or (3) an I- 829 was filed and the underlying I-526 petition was filed before June 1, 2015 or approved before the date of enactment.
• The 4,000 visas reserved for immigrants who invest in rural areas or in priority urban investment areas take effect October 1, 2016.
• Investors have until October 1, 2017 to amend their petitions to show that they are investing in a TEA as redefined by this law. If they do so, they keep their original priority date and they are not subject to the new higher minimum investment amounts.
Section 5: Conditional Resident Status for EB-5 Investors, Spouses, and Children (starting on p. 90):
5(a): Revisions to I-829 procedures (starting on p. 90):
• Makes technical changes to INA § 216A (e.g., changes “entrepreneur” to “investor”).
• Requires DHS to make a site visit to the NCE and JCE.
• Gives DHS discretion to provide one one-year extension of an investor’s conditional resident status.
• Gives DHS discretion to waive an interview at the I-829 stage, with certain exceptions.
• Provides relief for backlogged EB-5 investors by allowing them to immediately apply for permanent resident status if they have already created the required number of jobs at least 24 months before admission to the United States.
5(b): Effective dates (starting on p. 97):
• Most provisions in § 5 of the bill take effect on the date of enactment.
• The requirement for site visits would take effect two years after enactment.
• The bill’s changes to I-829 procedures would not apply to investors whose petitions filed pursuant to INA § 204(a)(1)(H) (discussed in § 6 below) were approved before the date of enactment.
Section 6: Procedure for Granting EB-5 Status (starting on p. 97):
6(a): I-526 filing procedure changes to INA § 204(a)(1)(H) (starting on p. 97):
• Investors under the age of 18 can’t file an I-526 petition.
• Investors must be eligible for EB-5 status at the time of filing. If a materially different set of facts occurs, the investor must file a new petition.
6(b): Effective dates (starting on p. 99):
• Section 6 takes effect on the date of enactment, except that the “materially different set of facts” provision described above applies retroactively to EB-5 petitions filed at any time.
Section 7: Timely Processing (starting on p. 100):
7(a): Fee study (starting on p. 100):
• USCIS must complete an EB-5 fee study within 180 days after enactment. 7(b): Adjustment in EB-5 fees (starting on p. 101):
• Requires USCIS to set EB-5 application fees such that average processing times are 120 days for I-924 applications, 150 days for I-526 petitions, and 180 days for I-829 petitions.
7(c): Additional fees (starting on p. 102):
• USCIS may charge additional fees to offset other applications (e.g., asylum) that are filed at no cost or at a reduced cost.
• USCIS may charge an additional 1% fee to improve its EB-5 information technology systems, including electronic filings.
7(d): EB-5 premium processing (starting on p. 102):
• USCIS may charge a premium processing fee to provide faster adjudications of I-924, I- 526, and I-829 petitions.
• The premium processing fee is to be set at an amount sufficient to adjudicate such petitions in one-half the average processing time.
• The premium processing fee is to start 180 days after enactment. 7(e): Adjudication delays (p. 105):
• DHS may suspend adjudication of an EB-5 petition pending the completion of a national security or law enforcement investigation.
7(f): Exemption from Paperwork Reduction Act (p. 105):
• The Paperwork Reduction Act does not apply for one year to changes made by this law. 7(g): Rule of construction (p. 106):
• Fee changes cannot occur before the fee study is completed and implementing regulations have been published.
Section 8: Transparency (starting on p. 106):
8(a): In general (p. 106):
• DHS employees cannot give preferential treatment to entity or individual in connection with the EB-5 program.
8(b): Improper activities (p. 107):
• Preferential treatment includes attempting to influence the standard processing for an EB- 5 benefit and meeting or communicating about an EB-5 matter that is not available to all other applicants.
8(c): Reporting of communications (starting on p. 108):
• DHS employees must keep copies of all case-specific EB-5 written communications.
• DHS employees must record any oral EB-5 related communications and summarize them in writing.
• Information from law enforcement or intelligence agencies is not to be included in the record of proceedings with that agency’s consent.
• Information from whistleblowers, confidential sources, and intelligence agencies must be kept confidential.
8(d): Consideration of evidence (starting on p. 110):
• No case-specific communications with non-DHS employees may be considered in an EB- 5 petition unless it is included in the record of proceeding.
8(e): Communication channels (starting on p. 111):
• USCIS must maintain an EB-5 email inquiry account.
• All EB-5 related inquiries must go through that EB-5 email account, the National Customer Service Center, the Office of Public Engagement, or the EB-5 stakeholder engagement branch.
• Anyone can still communicate with the USCIS ombudsman’s office about an EB-5 matter.
• USCIS must keep a log of all EB-5 related communications. The log must be publicly available through the Freedom of Information Act.
8(f): Penalties (p. 116):
• Within 90 days after enactment, USCIS must establish a graduated set of sanctions for people who violate the new ban on preferential treatment or reporting requirements.
8(g): Rule of construction (p. 116):
8(h): No private right of action (p. 116): self-explanatory.
Section 9: Reports (starting on p. 116):
9(a): GAO report (starting on p. 116):
• By December 31, 2019 the GAO must submit a report to Congress about numerous aspects of the EB-5 RC program.
9(b): Inspector General report (p. 119):
• By December 31, 2019 the inspector general of the intelligence community must submit a report to Congress about any national security or terrorist vulnerabilities in the EB-5 program.
9(c): Review of job creation methodologies (p. 120):
• One year after enactment DHS must publish regulations to determine job creation methodologies.
9(d): EB-5 report to Congress (starting on p. 120):
• Three years after enactment DHS must submit a report to Congress on various aspects of the EB-5 program, including: (1) the percentage of EB-5 projects in rural and priority urban investment areas; (2) the percentage of EB-5 infrastructure and manufacturing projects; and (3) whether commuting pattern data from high unemployment areas should be considered in designating TEAs.
Carolyn S. Lee (email@example.com) is the managing partner of the EB-5 practice group at Miller Mayer in Ithaca, NY. She has chaired, co-chaired, or been a member of the EB-5 committee of the American Immigration Lawyers Association since 2009. Her advocacy played a key role in in procuring important wins for EB-5 stakeholders in a 2013 EB-5 policy memorandum issued by the U.S. Citizenship and Immigration Services (USCIS). She also provided input on the Senate version of the EB-5 legislation that passed the Senate in 2013.
Stephen Yale-Loehr (firstname.lastname@example.org) is co-author of Immigration Law and Procedure, the leading immigration law treatise, published by LexisNexis. He also teaches immigration and asylum law at Cornell Law School, and is of counsel at Miller Mayer. He founded and was the first executive director of Invest in the USA, the trade association of EB-5 regional centers. He has testified several times before Congress, including a July 2009 U.S. Senate hearing about the EB-5 program.