New EB-5 Bill HR 5992 — Things I Like, and Things I Don’t Like So Much
On Monday, September 12, 2016, U.S. Representative Goodlatte, Chairman of the House Judiciary Committee introduced a new EB-5 bill HR 5992, the American Job Creation and Investment Promotion Reform Act. Discussion on this bill has been postponed, and it is likely we will get a short extension of the Regional Center program, with no changes, until December 9, 2016 via a Continuing Resolution. The proposed bill did not have the full support of even the Republicans and or the EB-5 industry because of negative reaction to retroactivity.
Two important senators, Senator Cornyn from Texas and Senator Grassley from Iowa, met this week to discuss the proposal. Senator Cornyn supports a clean extension, whereas Senator Grassley was seeking to pass a new law now.
During the short “lame duck” session starting the first Monday of December 2016, this bill, or some variation of it, might be introduced again. My guess is there is not enough time to pass a law this year, and we will likely get another short extension into 2017. In January 2017, when we have a new President and new Congress, the debate regarding this bill will continue.
Important Provisions for Investors
- Reauthorization and Extension of the Regional Center Program is for five (5) years.
- Increased investment amount with $1,200,000 million as the new threshold investment level for non-Targeted Employment Areas (TEAs); and $800,000 for TEAs, including rural, as well as certain priority urban area infrastructure and manufacturing projects, and certain closed military bases, as well as some single census tracts outside of metropolitan areas that have high poverty rates or low income rates.
- Retroactive application of the new law is being proposed for petitions filed after June 1, 2015. There is limited grandfathering of I-526 petitions associated with exemplars filed before June 1, 2015, or approved before the date of enactment. There is a lot of opposition to retroactivity as it would be unfair to investors with petitions filed after June 1, 2015 to expect them to increase their investment amount by another $700,000 as many of the existing projects would no longer meet the new TEA definition.
Provisions Impacting Agents & Brokers & Regional Centers
- Disclosure of fees – Promoters of Regional Centers and projects will need to register with USCIS for public listing and must provide details of qualifications, submit guidelines for offering investment opportunities, and provide details of the fee arrangements. Investors would have to sign off on these fee arrangements as well.
- Management and Ownership of Regional Centers – the New Commercial Enterprises (NCEs) and the Job Creating Enterprises (JCEs) must be owned and operated by U.S. citizens or lawful permanent residents. Also no foreign government can provide funding or own, directly or indirectly an interest in a Regional Center, New Commercial Enterprise or in a Job Creating Enterprise.
Here are parts of the bill I like, and other parts not so much.
- Reauthorization of the Regional Center Program for Five (5) Years. The numerous short-term extensions over the past year have caused massive uncertainty to the EB-5 industry. The reauthorization and five-year extension is a huge step forward.
- Regional Center Termination for Public Safety and National Security Concerns. USCIS has indicated it only has authority to terminate a Regional Center if it failed to file a Form I-924A each year or if USCIS determines it no longer serves the purpose of promoting economic growth. The proposal provides that EB-5 benefits can be denied or revoked if approval “is contrary to the national interest of the United States for reasons related to threats to public safety or national security” or for fraud, misrepresentation, or criminal misuse.
- Protection for Child “Age-Outs” if Conditional Lawful Permanent Residence (LPR) Status is Terminated. Children with conditional permanent residence status who have since reached 21 years old can maintain status as a “child” even in the event the conditional LPR status is terminated, if another I-526 petition is filed by the principal alien less than 1 year after termination.
- Concurrent Filing of Forms I-526 and I-485. Presently EB-5 investors have to wait for the I-526 petition to be approved before being able to file the I-485 application to adjust status in the U.S. (if eligible). The proposal would allow certain investors and their family members to file an I-485 adjustment application together with their I-526 if a visa number is available. This provides work authorization and travel authorization a few months after filing.
- Some Protection for Good Faith EB-5 Investors after Regional Center Termination. Even though the proposed protections do not go far enough, in my opinion, to protect bona fide investors associated with a terminated Regional Center, it is encouraging to see Congress think about real-life consequences of EB-5 fraud and mismanagement.
Changes That Could Improve the Program Depending on How Implemented
- Site Visits. USCIS would be required to perform site visits to Regional Centers and to EB-5 projects. Site visits conducted professionally and with advance notice to legal counsel and to affected persons could help increase the reputation and credibility of the EB-5 Immigrant Investor Program and could help Regional Centers boost the confidence of EB-5 investors.
- Additional Information Requirements in Annual I-924A Filings. The bill proposes extensive detailed financial and administrative updates from Regional Centers each year. The requirement that Regional Centers submit written agreements detailing any commissions or similar transaction-based compensation paid to any third parties locating individual investors as well as maintain records, data, and information relating to all offers, purchases, sales, and investment advice associated with an offering could be beneficial. However it must also be recognized that the success of the industry has been mainly because of the hard work of agents worldwide educating potential investors though expensive marketing endeavors. Realtors are critical to maintaining vibrant real estate markets, and insurance agents are critical to ensuring a robust economy. Automatically assuming that agents are not acting in good faith places these critical players in poor light.
- “One Size Fits All” EB-5 Integrity Fund Fee for Regional Centers. Starting January 1, 2017, the proposal requires all Regional Centers to pay an annual fee of $25,000 to USCIS to fund the “EB-5 Integrity Fund.” This amount is reduced to $10,000 if the Regional Center has 20 or fewer investors investing in the immediately preceding fiscal year in its new commercial enterprises. I like proposals that understand the business realities of companies who’ve entered, and want to enter, the EB-5 industry. Imposing another massive fee on Regional Centers without providing any explanation of what benefits will be provided is merely another unjustified tax. If, however, this fee is used to protect defrauded investors, or to ensure failed projects’ investors are protected, then this could be beneficial. Merely throwing vast sums of money at an issue, without defining how the funds will be used, is a formula for waste.
Thing I Don’t Like So Much
- Retroactive Application of Rules. Petitions filed after June 1, 2015 would be required to meet certain provisions in the new rule. Retroactive application of any law or regulation is fundamentally unfair as it materially disadvantages investors who acted in good faith and who relied on the law to make critical decisions. Why punish EB-5 investors, Regional Centers, and EB-5 projects that followed the rules as set at the time? How many of the I-526 petitions filed since June 1, 2015 will now be un-approvable, throwing the industry into chaos and barring the completion of countless projects? Lawsuits and bankruptcies will abound, and this is not how a civilized nation conducts business. The law must be transparent and this undermines confidence and trust in the laws of the U.S.
- Increased Minimum Investment Requirements with No Additional Visas. While expected, the new minimum investment level of $1,200,000 for non-TEA investments and $800,000 for TEA investments or investments in infrastructure and manufacturing projects, rural and other projects is unnecessary. While some programs may have higher thresholds, the U.S. program is one of the very few where the investment must be in an “at risk” venture, and for some, the risk has been high. So while the minimum investment amount has remained the same since 1990 and needs to be updated, an increase from $500,000 to $1,200,000, more than doubles the amount of investment, is unduly prohibitive, and will stifle the program. With almost 1,000,000 green cards issued annually, including 55,000 authorized for a random lottery, it appears this job creating capital providing program could easily have another 10,000 or 20,000 visas allocated.
- Massive TEA Changes. The bill proposes to overhaul the current TEA analysis to limit investments in high profile “desirable” locations. While there are some limited protections for some early projects that filed exemplars or have approved petitions, it is likely very few will meet the new rules for “re-designated” with the likelihood that many projects will be devastated. Also, now only the Department of Homeland Security, rather than individual states, have the authority to determine whether an area qualifies as a TEA. While the bill mandates the Administrative Procedures Act (APA) be followed, the delays presently experienced would put up an additional barrier from projects, whereas state agencies are most familiar with the needs of their local businesses and which areas may benefit most.
- Gift Restrictions. Gifted funds would only be counted towards the minimum capital investment requirement if gifted to the EB-5 investor by his or her spouse, parent, son, daughter, sibling, or grandparent. It is not clear why gifts from other family members such as aunts, uncles, or cousins should be prohibited. Moreover, in today’s modern society couples may choose not to get married and there is no logical reason to bar girlfriends or boyfriends from gifting to each other. Most perturbing would be the possible retroactive application of these rules to pending I-526 petitions.
- “Direct” Job Creation for Regional Center Investments. Regional centers and projects associated with Regional Centers will be required to demonstrate that ten percent (10%) of job creation is being fulfilled through direct job hires. This type of provision was originally included in Senators Leahy and Grassley’s senate bill 1501. This provision is not yet clear, and it’s not clear how this will be calculated or implemented. What will happen to projects that focused on indirect jobs exclusively – will they now be rejected?
- Unclear Provision on Use of Construction Jobs for Regional Center Projects. The proposal is not sufficiently clear regarding the use of “direct” construction jobs which last less than 24 months for Regional Center projects. Economists will most likely need better guidance to understand how the “length of full-time construction activity jobs that last shorter than 24 months” can be “aggregated” to satisfy the job creation requirements.
- “Reserved” EB-5 Visas. The bill sets aside 2,000 visa numbers to immigrants who invest in rural areas and an additional 2,000 to immigrants who invest in priority urban investment areas. For Chinese investors who have already committed their capital and whose capital has already been deployed in many instances, this is simply “switch & bait” trickery. With a three to four year waiting line and massive ageing out of Chinese investor children, almost doubling the waiting line by removing almost half the visas available is simply not right. At the time these investors made good faith commitments, there were 10,000 visas, and they could roughly calculate whether their children would be included. To retroactively disqualify hundreds of derivative children by subsequently altering the quota, is bad policy. Moreover, forcing investors to apply in rural or less than desirable higher risk areas is sneaky to say the least. It is well known that most workers commute to work and merely because the jobs are located in sometimes desirable areas is not a reason to discriminate against the current TEA areas. Moreover, the waiting line for many Chinese investors will go from bad to absurd.
- No EB-5 for Public Bonds. EB-5 capital would not be available to purchase municipal bonds or other bonds available to the general public, either as part of a primary offering or from a secondary market. Again, if job creation is the goal of the EB-5 Program, why restrict these types of investments, as long as job creation can be shown? There is no logic other than possible pandering to projects that feel these type of investments are too popular.
- EB-5 Integrity Fee for Regional Center Investors. The bill proposes an additional $2,000 fee for each I-526 petition filed through a Regional Center project. This appears to be on top of the $2,175 increase proposed by USCIS earlier this year for all I-526 petitions. While EB-5 filing fees are already one of the most expensive in the Federal government, the USCIS already plans to collect over $7,510 from each investor, and now an additional $2,000 puts the total at close to $10,000. This exorbitant fee appears to have little or no correlation to the cost of adjudication and is an unfair tax on investors.
- Source of Funds Needed for Administrative Fee and Costs. The law presently does not provide for documenting the source of funds for administrative fees or costs associated with the investment paid by EB-5 investors. It is not clear how this prevents fraud or improves the program and appears to be another gratuitous barrier.
- Publicly Available Information of Regional Center Changes. A Regional Center would need to provide advance notice to, and obtain approval from, USCIS regarding significant proposed changes to its organizational structure, ownership, or administration before any proposed changes take effect (unless exigent circumstances are present). While it may be helpful to provide transparency regarding changes, requiring this extra step will adversely impact the ability of Regional Centers and projects to manage and administer their business.
- Wasted “Reserved” EB-5 Visas. The bill sets aside 2,000 visa numbers to immigrants who invest in rural areas and an additional 2,000 to immigrants who invest in priority urban investment areas. These 4,000 visa numbers are likely to go unused at the end of the fiscal year since virtually no projects are geared up to accommodate these categories. The requirement that they are to “remain available within the same category for subsequent fiscal years” means that they will never be available to existing investors which is manifestly unfair and makes no sense. It’s like having food go to waste when others are starving. In effect those who already invested based on the current rules were sold “snake-oil” by the U.S. government. Less than 2% of investors have invested in direct projects and it’s unlikely that more than a few of these reserved visas will be allocated annually exacerbating the already critical waiting line problem. Picking on Chinese investors who have turned this failed program into a gigantic success, is plain wrong. Why treat Chinese investors so badly? This borders on deception. It is shameful that this is how Chinese investors who made the program successful are treated. Let’s fix this bill and do it right! America is a nation that leads by example and stands for fairness. This bill isn’t fair to existing investors.
This post originally appeared on Wolfsdorf Immigration Law Group. Copyright © 2016 Wolfsdorf Connect - All Rights Reserved. Reprinted with permission.
Bernard Wolfsdorf is the managing partner of the top-rated law firm, Wolfsdorf Rosenthal LLP (www.wolfsdorf.com), and the past national president of the 14,000-member American Immigration Lawyers Association (AILA). Established in 1986, Wolfsdorf Rosenthal LLP is known worldwide for providing exceptional quality legal services. With 19 lawyers and offices in Los Angles and New York, the firm was recently listed as a top-tier immigration practice by Chambers & Partners with several of the firm's attorneys listed in the 2015 International Who's Who Legal. Mr. Wolfsdorf specializes in EB-5 investment immigration in addition to the full range of global immigration matters.