EB-5 Updates

EB-5 Reform, Immigration Reform

Today, IIUSA and others published a letter to the Senate and House Judiciary Committees laying out “consensus reform concepts” recommended for new EB-5 legislation. I’m heartened to see effort toward reform and reauthorization, and saddened by the letter’s content. Ideally, a consensus will appear to balance the interests of a variety of groups. I don’t see that here. Two recommendations particularly deserve input from a broader base of stakeholders:

• Recommended investment amounts. The letter proposes $800,000 minimum for investment in a TEA, and $900,000 for investment outside a TEA – replacing the current 50% discount with a 12% discount. Competitive advantage requires that a feature be both rare and valuable. The letter offers a concession that TEAs can be more strictly defined so as to make them more rare than now, but then redefines the incentive to make TEA designation less valuable. The net result is clear for projects located in genuinely distressed areas that struggle to complete against prosperous urban areas. (I don’t see expedited processing being an effective additional incentive, considering USCIS’s likely inability to deliver such benefit, or visa set asides for reasons discussed below.) The recommended investment amounts don’t look like an attempt to compromise with interests outside big cities, and also don’t look like a compromise with reform advocates. How likely is Congress to accept a proposal that not only hardly increases but would actually lower the standard EB-5 investment amount set back in 1990? The recommended investment amounts have the advantage that they’re feasible and wouldn’t destroy the market, but are too-obviously the status quo.  Where’s the attempt to sell the recommendations to people who want to be seen voting for modernization and reform?
• Recommended visa set-asides. This is framed as an additional TEA incentive, but I am doubtful. The letter recommends setting aside 30% of visas annually for TEA investments, with the set-asides applying immediately to new I-526 filed after enactment, and not allowed to apply to petitions pending on the date of enactment. I foresee that this will act as a TEA incentive only for a short time, until the set-aside categories build up backlogs of their own. However, it would allow raising new capital by taking visas from backlogged investors and offering them to new investors. The tens of thousands of people already in line for a visa would see the pool of visas available to them reduced by 30%, for the sake of having 30% of visas set aside in a special category only open to future investors. I want the EB-5 program to remain viable as much as anyone, but I don’t see how this visa set-aside proposal can possibly be an honorable option, considering the size of the EB-5 backlog. To be fair, the letter also recommends substantial visa relief. It suggests eliminating derivatives from the visa allocation, which could counter-balance the 30% set-aside reduction with a 60% visa availability increase if Congress decided to take both suggestions. It also suggests giving pending applicants the opportunity to pay $50,000 each to “re-set the program,” whatever that may mean. But since Congress has entertained the visa set-aside idea in recent years, and hasn’t expressed remote willingness to increase visa numbers in any way, one struggles to see good faith to past investors in the recommendations. And there ought to be obvious good faith, considering that the associations signing the letter represent members that benefited from over $10 billion in past EB-5 investment. (FYI, this file gives a a summary estimate of the number of people already in line for a visa that could be diverted by the set-aside TEA proposal.)

It may be pointless to get upset, considering the low likelihood that Congress will heed these recommendations or act on EB-5 any time soon. But why can’t we, as an industry, do better than this letter? If you’re represented by an organization that signed this letter, and you do not agree with the consensus so far, make your voice heard in the on-going discussion.

Speaking of immigration proposals likely to be ignored, President Trump gave a speech yesterday to outline an immigration plan. In 2016, I wrote about candidate Trump’s vision “to choose immigrants based on merit, skill and proficiency,” and cribbed a chart from the New York Times that pictures visa allocation under our current system.

Yesterday’s speech enlarged on a “big, bold, beautiful” plan to reorient our immigration system so that it issues fewer visas based on “random” characteristics such as family relationship and humanitarian concerns, and more based on personal qualities, particularly economic position and potential. The plan sounds similar to the points-based system promoted by Senator Tom Cotton in the RAISE Act, though details have yet to be released.

One sentence from the President’s speech struck me particularly: “America’s immigration system should bring in people who will expand opportunity for striving, low-income Americans, not to compete with those low-income Americans.”

This sentiment could get some bi-partisan support, if anything received bi-partisan support anymore. And certainly, the EB-5 program deserves credit for already realizing this value. EB-5 can use the immigration incentive to expand opportunity in two ways: by creating jobs that are within reach of striving low-income Americans, and by providing capital for striving Americans who might otherwise not have been able to implement their business ideas.  How many small towns across the US now have their first flagged hotels thanks to local entrepreneurs matching with EB-5 investors to make the dream happen? How many local restaurant chains were able to expand their portfolios thanks to partnership with EB-5 investors? Such ventures don’t make the news, but I see them as a business plan writer working with small EB-5 projects.  They highlight an important feature of the EB-5 program: that it doesn’t only reward immigrants establishing their own businesses, but immigrants who support US citizen-owned businesses. I hope that any immigration reform debate will keep that EB-5 value in mind. Tom Cotton’s proposal, for example, though intending to reward economic contribution, would only have granted points for an immigrant’s investment in his or her own business.

Apparently the the administration’s plan has few friends and unlikely to go anywhere. But I’m interested as a citizen. What kind of immigration system would really accomplish a “Build America” goal? Here in Ogden Utah we just celebrated the sesquicentennial of a major nation-building milestone: the completion of the first transcontinental railroad. In his speech at the centennial celebration, then-transportation secretary John Volpe proudly asked “Who else but Americans could drill 10 tunnels in mountains 30 feet deep in snow? Who else but Americans could drill through miles of solid granite? Who else but Americans could have laid 10 miles of track in 12 hours?” As it happens, Americans did none of those things. There’s a railroad through the Sierra Nevadas thanks to Chinese workers.  What would have happened to America’s economic development without the incredible stamina and skill of those migrants from China, few of whom would’ve scored points in Tom Cotton’s system? Would Leland Stanford just have become less rich, having had to pay a naturalized workforce at least 30% more? Or is there a broader lesson about what builds America?

Updates (Redeployment, Material Change, India Retrogression, I-526 processing and RFEs)

Redeployment

Last year IPO asked industry stakeholders to offer suggestions regarding redeployment. IIUSA has now followed up with a Memo to USCIS on Redeployment Policy. The memo points out again why the redeployment policy should not even exist, since neither statute nor regulation nor precedent supports a requirement to redeploy EB-5 investment into additional business activity after the job creation requirement has already been met and funds have been returned to the NCE.  The memo goes on to make the case that if USCIS still persists in requiring redeployment, the options for redeployment investment should not be arbitrarily limited. I hope that IPO will, as promised, give serious consideration to this reasonable feedback.

Material Change

The redeployment problem is bound up with the material change problem, which is why I’m looking forward to a free Material Change Seminar to be hosted by Carolyn Lee on April 17^th, 2019 at 2:00 – 3:00PM Eastern. E-mail to reserve a spot and send advance questions.

India Retrogression

Based on a prediction by Charles Oppenheim in October 2018, we’ve been expecting India to reach its annual limit of available EB-5 visas this fiscal year, and get a cut-off date in the Visa Bulletin by July 2019 at latest. However, in a post on 4/2/2019, Matthew Galati shares quotes from AILA’s March 2019 “Check-in with DOS’s Charlie Oppenheim”: “Charlie previously expected EB-5 India to reach its per country limit by July 2019. However, he is no longer certain that will happen. He is watching the demand data and should have a better sense of the number usage within a few weeks. The decline in demand mentioned above, possibly resulting from reauthorization concerns, makes it difficult for Charlie to estimate how many additional numbers may be used by ‘high demand’ EB-5 countries.”

That “decline in demand” refers to “fewer applicants proceeding to final action on their cases at consular posts abroad and USCIS Offices.” The queue of applicants has not reduced in length (probably), but it has advanced to final action more slowly than expected – delayed by the government shutdown and lapse in regional center program authorization.  So what does this mean? For most Indians awaiting a visa number, possibly not much. The key question is not “in which month will retrogression occur” so much as “can I get my visa number before retrogression occurs?” That second question depends on the length of the queue in front of the petitioner (which probably hasn’t changed) more than the specific date for running out of visas (which may be later than expected due to slower-than-expected processing).  For Indians who will adjust status, a later Visa Bulletin could at least have the benefit of maximizing the window to at least file I-485 (thus opening the combo card option in advance of visa availability).

I-526 processing and RFEs

I created a model that divides inventory of pending I-526 petitions by completion rates, and concludes that processing times should be falling as inventory falls. However, the USCIS processing times report indicates that I-526 times are getting longer, even as IPO has fewer and fewer petitions to process. Why is this so? IPO’s secret, I gather, is to introduce an unofficial new step to the EB-5 process: the comprehensive I-526 RFE. Officially, Form I-526 foresees how funds will be spent and how jobs will be created, while Form I-829 demonstrates how funds were spent and how jobs were created. Officially, a Request for Evidence on the Form I-526 asks questions about the original submission and clarifies eligibility at the time of filing. In practice, IPO has been issuing I-526 RFEs that do not only or primarily question the original submission, but basically ask the petitioner to submit an updated collection of I-526 evidence plus prematurely provide I-829-stage evidence for actual past expenditures and job creation. IPO is adjudicating the I-526 one to two years after it was filed, and the adjudicator is naturally curious about the current status and progress of the project. I-526 business plans are dusty by the time adjudicators finally review them, while payroll records may be available by that time. But the adjudication delay is not the petitioner’s fault, and does not change I-526 eligibility or evidentiary requirements. It’s not right to make a habit of using RFEs as a surreptitious new “Form I-526-B” that calls on petitioners to redo and resubmit original I-526 documents with no fault but age, and prematurely satisfy I-829 requirements at the I-526 stage.

Washington Updates

Apparently there’s some discussion in Washington about visa numbers, and leadership upsets throughout DHS. We shall see what changes actually occur, and whether they affect EB-5.

FAQ for potential regulatory changes and visa bulletin updates

Nothing is changing at the moment. The EB-5 modernization regulation is still pending review at OMB, the Visa Bulletin is still current for India and moving forward for China and India, IPO remains silent, and there are no hints of EB-5 legislation.

But for the sake of being prepared, this post considers “what if” questions related to possible forthcoming changes.

To start with the Visa Bulletin, here are the most recent predictions I’ve heard (from the February 2019 Visa Bulletin and Charles Oppenheim’s presentation at IIUSA in October 2018):

• China: Final action date was expected to move about one week per month between January and May 2019. When the new fiscal year starts in October 2019, the final action date is expected to be October 22, 2014 (best case) or October 8, 2014 (worst case)
• Vietnam: Final action date was expected to move about three weeks per month between January and May 2019, and progress at least to September 2016 this fiscal year.
• India: Will get a final action date when visas available to India for the year have been used up, likely “no later than July 2019.” The final action date will initially be the same as for China, to effectively stop visa issuance to India-born for the fiscal year. When FY2020 starts in October 2019, the final action date for India will move forward enough to release enough Indian applicants to claim the new year’s visas. The final action date will likely be in 2017 at that time.

IIUSA recently announced that Charles Oppenheim of Department of State will speak at the Advocacy Conference on May 6. We look forward to hearing his updated projections.

Regarding regulations, the final rule for the EB-5 Modernization Regulation RIN: 1615-AC07 could be published as early as tomorrow or as late as never, and take effect 30 or so days after publication. We don’t yet know the content of the final rule, but there’s a fair chance that it will be similar to the proposed rule (NPRM) from January 2017 (full text here). If the regulation gets finalized with content that mirrors the NPRM, then here are some issues and considerations to keep in mind.

Investment Amount and TEA Changes:

• Proposed change: The minimum EB-5 investment will increase significantly for TEA and non-TEA investments (the NPRM proposed $1.8M and $1.35M). The incentive to invest in a TEA will likely be reduced (the NPRM proposed 25% discount instead of 50% discount from the standard investment amount). Many fewer urban areas will qualify as TEAs, due to limits on TEAs that combine census tracts. USCIS, rather than states, will become responsible for TEA designation.
• Effect: The NPRM says that “unless otherwise specified,” the investment amount and TEA changes will apply to “EB-5 immigrant petitions filed on or after [INSERT EFFECTIVE DATE OF FINAL RULE.]” i.e. changes will apply to all I-526 filed after the rule becomes effective. The NPRM mentions no exceptions, not even for capital raises in progress, or for projects that have filed or approved I-924 exemplars or other approved I-526. On the other hand, the NPRM specifically applies the investment amount and TEA changes to new I-526 filings – i.e., not to people at other stages in the process (not to I-526 pending, I-526 approved and waiting for a visa, conditional permanent residence, or I-829)
• Practical consequences: Considering the chance that we might need to deal soon with a Final Rule that looks like the NPRM,
  • Prospective investors: If I were planning an EB-5 investment, I’d make every effort to get I-526 filed soon under the current lower investment threshold. In vetting potential projects, I’d consider how much EB-5 money the project still needs to raise (the larger the EB-5 raise, the more exposure to risk from rules changing for future investors).
  • People past I-526 filing: I’d congratulate myself on being already in the system, so the investment amount and TEA changes do not affect my eligibility. If my project still hasn’t completed its EB-5 raise, I’d consider its ability to adapt to the changes for incoming investors. (If the project can still attract the investment, past investors will benefit from changes that mean fewer investors to claim the available job creation.)
  • Project companies and regional centers: If I were promoting an EB-5 investment, I’d try to complete the raise asap, before new rules constrict the market. Meanwhile, I’d strategize about what can work under the new rules. It seems likely that a dramatic investment amount increase, combined with reduced and restricted TEA incentive, will create an environment that privileges high-end projects with attractive ROI.  Some people can afford to write off $500,000, but an investor committing $1-$2 million of equity will likely care about it as an investment, not just an immigration opportunity.  The ideal project will offer security, a solid return, and be located in a distressed or rural area. Since economic reality makes such opportunities very rare, security and profitability will probably carry the day. Sadly, the NPRM proposed to make TEA status both more difficult to obtain and less valuable – not a recipe for competitive advantage for distressed and rural areas. But for what the revised TEA incentive is worth, it’s possible check whether a given project would qualify. The revised TEA designation rules in the NPRM are basically the same as the current rules, except when it comes to making a TEA from census tracts. Look at a mapping tool that shows unemployment rates by census tract (this one for example). A project can qualify under new rules if the census tract where it’s located (combined, if needed, in a weighted average with one or more of the immediately contiguous census tracts) has high unemployment. The difference from current practice is that a special TEA as defined in the NPRM can only include census tracts that touch the tract where the project is located, not larger and more extended groupings.

Priority Date Retention Change:

• Proposed change: An EB–5 immigrant petitioner may to use the priority date of an approved EB–5 immigrant petition for any subsequently filed EB–5 immigrant petition. This provision would provide some protection from material change, allowing the investor to keep her priority date even if changed circumstances require filing a new I-526 petition.
• Effect: The NPRM proposed that priority date retention would specifically apply to anyone in the stage between I-526 approval and conditional green card. The NPRM does not offer the protection to people with pending I-526, people whose I-526 was denied or revoked, or people who already have conditional permanent residence.
• Practical consequences:
  • Prospective investors: This change is promising – an additional future protection that’s particularly important to anyone from oversubscribed countries (China, Vietnam, India) who faces a long wait between I-526 approval and green card.
  • People with pending I-526: The change is no help yet, but a nice promise for the future
  • People with approved I-526 and still waiting for a green card: The priority date retention could be a game-changer. It means that so far as USCIS is concerned, you’re free and welcome to withdraw from one project and invest or reinvest in another. At this stage you’d still have to file a new I-526 for changed circumstances (and deal with the rules that apply to new I-526 filings), but could keep the original I-526 priority date, and original place in the visa wait line. Priority date retention removes some of the sting from material change, and opens the door for investor-lead redeployment.  USCIS can’t force terminated regional centers or under-performing projects give investor money back. But at least the regulation removes barriers on the immigration side to change and voluntary reinvestment.
  • People with conditional permanent residence: The priority date retention does not apply to them, in the NPRM. However, note that EB-5 policy already allows significant leeway for change during the CPR period without need to refile I-526.
  • Project companies and regional centers: For underperforming projects, priority date retention could lead to a rush of investors pushing to withdraw so that they can reinvest somewhere else. For attractive projects, priority date retention could open a new market: people with approved I-526 who need a new investment after the original one didn’t satisfy. Priority date protection could effectively create a secondary market in EB-5 investment, and entirely change the redeployment issue by giving investors power to reinvest their own funds. But there’s an important limiting factor: priority date is all that investors could retain from the original I-526 filing. The NPRM does not offer to let people reinvest under the same rules for minimum investment and TEAs that applied to the original I-526 filing. People who could invest $500,000 in Project A last year may be practically unable to invest $1.35 million in Project B this year, even if USCIS allows and facilitates withdrawing from Project A and reinvesting in Project B. But still, priority date protection could have significant implications for the EB-5 landscape.

I-829 Changes:

• So far as I can tell, the proposed I-829 changes are an unmixed good. The NPRM would make people more free to grow up, marry, divorce, and die, knowing that family members will still be able to file I-829 to remove conditions. CPR status would be automatically extended between I-829 receipt and adjudication, blunting the pain of long processing times. Interviews would be conducted within reason as to time, place, and content.

And now the waiting game, to see whether EB-5 regulations ever get finalized, and if so which provisions get included in the final rule. Congress, if only you would act instead, and provide the modernization that EB-5 really needs to protect integrity and incentivize economic development!

UPDATE: Frieldland & Calderon have published an article that explains the process behind the regulations and why they don’t believe that the EB-5 regs will ever be finalized. They also reiterate why EB-5 needs Congress to act, though Congressional action is also unlikely.  “EB-5 Reform on the Horizon – If the Palm House Hotel Debacle Does Not Precipitate Congressional Action, What Will?” (March 22, 2019)

EB-5 Modernization Regulation Advances

The Office of Management and Budget List of Regulatory Actions Currently Under Review shows that the EB-5 Modernization Regulation advanced on Friday to the OMB Review stage.

OMB Review is the last step in the rulemaking process before publication of a final rule.

How long does OMB review take? It usually takes many months, as evidenced by other DHS regulations currently listed on the OMB site with receipt dates as early as June 2018, and still with “Pending Review status.” Or it occasionally happens in as little as a month, I’ve noted in my time tracking the OMB site.

After OMB review, the Final Rule will be published in the Federal Register. How long after publication will the final rule become effective? Here’s the answer according to The Federal Register’s Guide to the Rulemaking Process: “When an agency publishes a final rule, generally the rule is effective no less than thirty days after the date of publication in the Federal Register. If the agency wants to make the rule effective sooner, it must cite “good cause” (persuasive reasons) as to why this is in the public interest. Significant rules (defined by Executive Order 12866) and major rules (defined by the Small Business Regulatory Enforcement Fairness Act) are required to have a 60 day delayed effective date.”

And the most burning question of all — what will be in the Final Rule? We know what was in the Notice of Proposed Rulemaking for RIN: 1615-AC07, but that was published in January 2017, and DHS has spent almost two years since making some kind of changes.  It’s unfortunately plausible that DHS just spent two years writing out why they’re not accepting any suggestions in public comments, but I’d like to think that they made some significant adjustments in response to public concerns and insights. I hope to see a different minimum investment amount in the final rule, considering that nearly every single commenter informed DHS that the NPRM proposal would be fatal.  But for what it’s worth, here’s a summary of provisions in the NPRM from 2017:

• Increase the standard minimum EB-5 investment amount to $1,800,000, or $1,350,000 in a TEA.
• A TEA is based on high unemployment and incentivized with 25% reduction to the investment amount (not other factors or incentives as proposed by Congress).
• A TEA can only be designated for a high-unemployment MSA, county, city, single census tract, or limited group of census tracts. DHS, not the states, is responsible for TEA designation.
• Give priority date protection (an investor with an approved I-526 could choose to file a new I-526 while keeping the original priority date, subject to certain restrictions)
• Spouse and children may be able to file I-829 even if not included on the principal investor’s petition.
• Other technical changes.

Approaching Feb 15

The regional center program authorization granted in 2018 is now active again, with another continuing resolution that extends previous funding and authorities for a few more weeks — through February 15, 2019. USCIS has updated its Regional Center program page to remove the language about lapse in authorization. My Washington Updates page has the detail on the legislation.

The shutdown from December 22 to January 25 turned out to be much gentler on EB-5 than it could’ve been, thanks to the USCIS decision to continue to accept regional center I-526 and I-485 filings during the lapse in RC program authorization. Adjudications were delayed, but not that much in the scheme of long processing times. So we survived the lapse and are reauthorized again, and the drama is just beginning.

Regional center program authorization got extended by default in the continuing resolution, and has to be included on purpose in a new funding bill for 2019. And immigration issues are at the center of appropriations negotiations. The White House says “Once the government is open and the immediate crisis is addressed, President Trump will hold weekly bipartisan meetings to reform our immigration system.” A group of 17 Congressional representatives has been appointed to work out a compromise on border security funding – a compromise that could implicate wider immigration issues and visa allocation. The White House statement mentioned these priority issues: “interior enforcement, asylum reform, worksite verification, the 11 million people living in the country unlawfully, and moving toward a merit-based immigration system.” If only someone would speak up in this negotiation for the EB-5 regional center program, and the need to put immigrant investment on a stable footing (ideally with more visas for these merit-full immigrants). But I’m not sure who in that group of 17 negotiators is a friend of EB-5. I hope that the group includes someone who knows positive stories to balance member Patrick Leahy, whose wounds from Vermont Regional Center disappointments are still fresh. Leahy used strong language to complain in 2018 that “The recently-passed omnibus spending bill included a clean extension of EB-5, and did not include any reforms to crack down on well-documented fraud, abuse and national security concerns.” The EB-5 regulations that Leahy called for then have still not been finalized (I keep checking the OMB site for evidence that they’re under review, but nothing yet). Will Leahy or others in Congress be motivated by DHS delay to address EB-5 again now? But then the border security negotiation is so large and EB-5 is such a tiny visa category. EB-5’s problems are dwarfed by the size of the program’s positive economic impact, and negligible in the big picture of immigration problems. When Congress can’t manage progress on a single major pressing issue – border security – how likely is it that the minor regional center program will earn a moment’s thought now, beyond the minimum necessary to keep the program going? We shall see.

IIUSA says that it is “active on Capitol Hill and will continue to visit offices and advocate on your behalf. As we learn more leading up to the next sunset date of February 15, we will keep you informed of progress made on a long-term reauthorization of the Program.” We certainly need such advocacy now.

In other news, a thank you to industry colleagues for recognizing me again this year as one of the Top 5 Business Plan Writers in EB-5. Blogging is a sideline but business plans are my profession, and I’m delighted to be honored by peers for excellence in my core work.

Approaching Dec 7->Dec 21

— 12/7 UPDATE ––

H.J.Res.143 – Making further continuing appropriations for fiscal year 2019, and for other purposes is a continuing resolution that replaces the previous 12/7 deadline for remaining government funding and authorizations with a new deadline: 12/21. IIUSA continues to press for longer-term regional center program authorization.

— ORIGINAL POST 11/26–

Washington has a deadline of December 7, 2018 to fully fund the government for FY2019, and to reauthorize programs (including the EB-5 regional center program) previously authorized by appropriations acts.

Those of us concerned with EB-5 wait with bated breath for language such as this, which may or may not get into legislation passed in the next few weeks:

1. Section 610(b) of the Departments of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1993 (8 U.S.C. 1153 note) shall be applied by substituting ‘[future date]’ for ‘September 30, 2015.’
2. Such amounts as may be necessary, at a rate for operations as provided in the applicable appropriations Acts for fiscal year 2018 and under the authority and conditions provided for in such Acts, for continuing projects or activities (including the costs of direct loans and loan guarantees) that are not otherwise specifically provided for in this Act, that were conducted in fiscal year 2018, and for which appropriations, funds, or other authority were made available in the following appropriations Acts: … title II of division M of Public Law 115-141
3. Section 202(a)(2) of the Immigration and Nationality Act (8 U.S.C. 1152(a)(2)) is amended – (1) In the paragraph heading, by striking “AND EMPLOYMENT-BASED”; (2) By striking “(3), (4), and (5),” and inserting “(3) and (4),”’ (3) By striking “subsections (a) and (b) of section 203” and inserting “section 203(a)”;

To translate each statement into common English:

1. The EB-5 regional center program is reauthorized to a future date past the current sunset date
2. The FY2018 authorization of the EB-5 regional center program is extended into FY2019
3. The EB-5 category will no longer have a per-country cap on visas (among other changes)

None of these statements are true yet; they may or may not be in forthcoming legislation. In order to reauthorize the regional center program past its current sunset date of December 7, 2018, either Statement #1 will need to appear in a funding bill for FY2019, or Statement #2 will need to appear in another continuing resolution extending part of FY2018 funding into FY2019.  In order to change the per-country visa cap, Congress would have to agree about Statement #3 (which was in the House version but not the Senate version of FY2019 DHS funding bills voted out of committee in June/July, as discussed here). Congress could potentially attach other EB-5 changes to the FY2019 spending bills, but I’ve heard zero chatter about any substantial EB-5 legislation in progress.

So what will happen? I guess that the next few weeks will be full of wall-funding arguments and shutdown threats, followed by another continuing resolution for DHS funding into January/February 2019, and finally a FY2019 appropriations act that will extend regional center program authorization to September 30, 2019, and will not change visa allocation. I guess this outcome because it’s most consistent with the assumption that Congress has no time right now for EB-5 or EB immigration generally, for good or ill. EB-5 is the least pressing of all immigration issues. I guess that few of our representatives can even parse Statement #1 or Statement #2, much less have motivation to block such statements from being included again, as per long-standing practice, in the next round of funding bills. Apparently, few people can interpret Statement #3 either, since even the House Appropriations Committee has it wrong on its website.  Statement #3 appeared in a controversial early version of the DHS funding bill that’s already in conflict with the Senate and won’t be loved overall by the incoming Democrat-controlled House either. I just can’t imagine partisans charged up to deal with border security and asylum and childhood arrivals having any interest in agreeing now, by the way, on a tweak to EB visa allocations.

I expect to hear no news about EB-5 concerns in connection with spending bills, but will update my Washington Updates page on the off chance of any reports, and when I see legislation. Note that the bottom of my Washington Updates page includes “what if” discussions for several scenarios, including what would happen in case of RC program sunset or government shutdown.

Meanwhile, I regularly check the OMB List of Regulatory Actions Currently Under Review, and have yet to see the EB-5 Modernization Regulation RIN 1615-AC07 progress to the OMB review stage. This makes me doubt the OMB Fall 2018 estimate that we’ll see a Final Rule by 11/00/2018.

PM Update (redemption agreements, debt arrangements)

USCIS has updated the USCIS Policy Manual immigrant investor section with a new subsection titled “Redemption Language” that clarifies policy on debt arrangements. This new language follows up on a flurry of denials in 2017/2018 based on  suspected debt arrangements, and subsequent successful litigation. I await analysis from experts, but the new Policy Manual language comes close to granting “okay, we were wrong and you were right.” Regarding redemption provisions only exercisable by the new commercial enterprise, the PM now states that “USCIS generally does not consider these arrangements to be impermissible debt arrangements,” and footnotes the Kurzban’s recent Chang v. USCIS case over call options. However, the PM language also adds several qualifications. We’ll see whether the lawyers now agree that the clarified policy is fully justified under the regulations and Matter of Izummi. (UPDATE: In her analysis of the New USICS EB-5 Redemption Policy Update, Carolyn Lee points out problematic language that could be interpreted to prohibit even denial-based repayments. She also notes that the PM update reinforces the flawed marriage analogy from Matter of Izummi.)

I’ve copied below the policy alert and the new policy language. As usual, I also made a new file for the current 6 USCIS PM G (saved in this folder), and performed document comparison with the previous version (dated August 24, 2018) to confirm that nothing changed besides the one new subsection under 6 USCIS PM G(2)A(2).

From: U.S. Citizenship and Immigration Services <uscis@public.govdelivery.com>
Sent: October 30, 2018 11:02 AM
Subject: USCIS Policy Manual Update

USCIS is revising guidance in the USCIS Policy Manual to clarify its policy on debt arrangements in Volume 6: Immigrants, Part G, Investors. Please see the Policy Alert for more detailed information:

• Policy Alert: Immigrant Investors and Debt Arrangements (Final date for comments: Nov. 12, 2018)

Visit the Policy Manual for Comment page for more information on stakeholder review and comment.

***

New language added to USCIS Policy Manual Volume 6 Part G Chapter 2 Section A(2)

Redemption Language

The regulatory definition of “invest” excludes capital contributions that are “in exchange for a note, bond, convertible debt, obligation, or any other debt arrangement.” [Footnote: The full definition of invest is provided at 8 CFR 204.6(e).]

An agreement evidencing a preconceived intent to exit the investment as soon as possible after removing conditions on permanent residence may constitute an impermissible debt arrangement. [Footnote: See Matter of Izummi, 22 I&N Dec. 169, 183-188 (Assoc. Comm. 1998).] Funds contributed in exchange for a debt arrangement do not constitute a qualifying contribution of capital.  [Footnote: EB-5 regulations contain two basic requirements in order to have a legitimate qualifying investment: (1) 8 CFR 204.6(e) defines “invest” to require a qualifying (that is, non-prohibited) contribution of capital; and (2) 8 CFR 204.6(j)(2) requires a qualifying use of such capital (placing such capital at risk for the purpose of generating a return). In order to satisfy the evidentiary requirement set forth at 8 CFR 204.6(j)(2), an investor must first properly contribute capital in accordance with the definition of invest at 8 CFR 204.6(e). If the contribution of capital fails to meet the definition of invest, it is not a qualifying investment, even if it is at risk for the purpose of generating a return.] In general, the petitioner may not enter into the agreement knowing that he or she has a willing buyer at a certain time and for a certain price.  [Footnote: See Matter of Izummi, 22 I&N Dec. 169, 186-187 (Assoc. Comm. 1998).]

Any agreement between the immigrant investor and the new commercial enterprise that provides the investor with a contractual right to repayment is an impermissible debt arrangement. In such a case, the investment funds do not constitute a qualifying contribution of capital.  [Footnote: See Matter of Izummi, 22 I&N Dec. 169, 188 (Assoc. Comm. 1998). Matter of Izummi addressed redemption agreements in general, and not only those where the investor holds the right to repayment. USCIS generally disfavors redemption provisions that indicate a preconceived intent to exit the investment as soon as possible, and notes that one district court has drawn the line at whether the investor holds the right to repayment. See Chang v. USCIS, 289 F.Supp.3d 177 (D.D.C. Feb. 7, 2018).] Mandatory redemptions and options exercisable by the investor are two examples of agreements where the investor has a right to repayment. The impermissibility of such an arrangement cannot be remedied with the addition of other requirements or contingencies, such as conditioning the repurchase of the securities on the availability of funds; the delay of the repurchase until a date in the future (including after the adjudication of the Petition by Entrepreneur to Remove Conditions on Permanent Resident Status (Form I-829)); or the possibility that the investor might not exercise the right. In other words, repayment does not need to be guaranteed in order to be impermissible. It is the establishment of the investor’s right to demand a repurchase, regardless of the new commercial enterprise’s ability to fulfill the repurchase, that constitutes an impermissible debt arrangement.  [Footnote See Matter of Izummi, 22 I&N Dec. 169 (185-86) (Assoc. Comm. 1998).]

The following table describes certain characteristics that might be present in agreements and explains whether their inclusion creates an impermissible debt arrangement.

Characteristics of Redemption Provisions
Type of Provision	Description	Impermissible Agreement?
Mandatory redemptions	Arrangements that require the new commercial enterprise to redeem all or a portion of the petitioner’s equity at a specified time or upon the occurrence of a specified event (for example, once the conditions are removed on the petitioner’s permanent resident status) and for a specified price (whether fixed or subject to a specified formula).	USCIS considers this an impermissible debt arrangement. Such impermissible obligations are not subject to the discretion of the new commercial enterprise (although it may have some discretion regarding the timing and manner in which the redemption is performed).
Options exercisable by the investor	Arrangements that grant the petitioner the option to require the new commercial enterprise to redeem all or a portion of his or her equity at a specified time or upon the occurrence of a specified event (for example, once the conditions are removed on the petitioner’s permanent resident status) and for a specified price (whether fixed or subject to a specified formula).	USCIS considers this an impermissible debt arrangement.
Option exercisable by the new commercial enterprise	A redemption agreement between the immigrant investor and the new commercial enterprise that does not provide the investor with a right to repayment. One example of such an agreement is a discretionary option held by the new commercial enterprise to repurchase investor shares. These options are typically structured similarly to options exercisable by the investor, except that the option is held and may be exercised by the new commercial enterprise. When executed, these options require an investor to sell all or a portion of his or her ownership interest back to that entity.	USCIS generally does not consider these arrangements to be impermissible debt arrangements. [Footnote: See Matter of Izummi, 22 I&N Dec. 169, 188 (Assoc. Comm. 1998). See Chang v. USCIS, 289 F.Supp.3d 177 (D.D.C. Feb. 7, 2018).] However, such an option may be impermissible if there is evidence the parties construct it in a manner that effectively converts it to a mandatory redemption or an option exercisable by the investor (considered a debt arrangement). For example, an arrangement would be impermissible if ancillary provisions or agreements obligate the new commercial enterprise to either (a) exercise the option (at a specified time, upon the occurrence of a specified event, or at the request of the investor) or (b) if it chooses not to exercise the option, liquidate the assets and refund the investor a specific amount.