EB-5 Regulation Published

The EB-5 Immigrant Investor Program Modernization Regulation (RIN 1615-AC07) has been published today in the Federal Register as a Final Rule. The final rule is effective in 120 days, on November 21, 2019. For every investor who files I-526 on or after November 21, 2019, the required minimum investment amount will be at least $1.8 million, or $900,000 in a Targeted Employment Area, with TEAs being subject to redefined rules. Those are the headlines. The final rule also retains the limited priority date retention provision, I-829 process tweaks, and minor clarifications as proposed in the Notice of Proposed Rulemaking (NPRM) in 2017.

For a solid summary of the rule’s content and implications, I recommend Robert Divine’s 5-page article for IIUSA The Rush is On: New EB-5 Rule Nearly Doubles Minimum Investment in 120 Days (July 23, 2019).

For those concerned to understand the rule and its background in detail, I recommend reading all 61 pages of the final rule itself. The actual regulatory amendments can be found on the final three pages. The rest of the document explains the final rule, how it differs from the NPRM and current regulations, DHS thinking behind the rule, and why the agency did or did not agree with industry comments.

My post will not duplicate Divine’s excellent analysis, or obviate the need to read the rule itself to know what it contains. But I’ll consider a few basic questions.

1. Will this rule actually take effect?

The rule will take effect in November, unless there is litigation against USCIS to stop the regulation, or Congress passes a new EB-5 law that would overrule the regulation. Both litigation and legislation have been bruited in the past. 120 days gives the industry a bit of time to pursue such alternatives, given inclination and opportunity. I guess that inclination depends on a calculation by the regional centers with budgets for lawyers and lobbyists. Their new markets will be damaged by the regulations. But does this matter to them, in light of the damage already resulting from oversubscription and wait times? Do they see sufficient long-term potential for new EB-5 demand to keep fighting for marketable investment amounts supported by TEA flexibility? The opportunity for a successful lawsuit does not look wide, considering the care DHS put into this regulation. I doubt imminent legislation, considering the political climate, and I would not want legislation based on the scandalous so-called industry consensus with TEA set-asides. But I do not discount these possibilities in the next few months, so long as the motivation exists to fight for an alternative to the regulations.

2. Should I hurry to file an I-526 petition before November 21, 2019?

I would ask a couple questions first. (A) Is it important to you that the investment amount is $500,000 rather than $900,000 or $1.8 million? and (B) Is it important to you that the investment result in a visa? If the answer to (A) is yes, then file. If the answer to (B) is also yes, then don’t hurry too much. Skipping due diligence, skimping on source of funds analysis, risking incomplete investment, pushing premature projects, neglecting to consider backlogs and timing issues … these timesavers are likely to leave you with a faulty petition that never results in a visa due to I-526 denial, and/or to visa wait problems not to mention investment problems. So waste no time, but don’t be hustled. Heed experienced lawyers like Robert Divine and Dan Lundy, who warn against skeletal filings. As a business plan writer, I aim to work twice as hard over the coming months to accommodate accelerated deadlines without sacrificing quality.

3. Will it be practically possible to raise EB-5 funds after November 21, 2019?

You know best whether your market has any taste for a $900,000 or $1.8 million investment, under current conditions. The IIUSA TEA mapping tool can help give a general idea of whether your project location could qualify at the $900,000 level going forward. (The tool was designed for the NPRM proposal, but the TEA provisions in the final rule are essentially the same as in the NPRM. A precise determination would require examining the underlying data and guessing how USCIS will implement the rule.) The final rule makes very clear that investment amount and TEA changes apply to all I-526 filed from the rule effective date onward, with no exceptions. (e.g. regardless of whether the project is in the middle of a raise, or has I-924 approval under the old rules). I do not think that EB-5 will die entirely, unless changes to visa allocations make the visa wait unacceptably long for all countries. But certainly, demand has not been and will not be remotely close to the numbers in Figure 1 and Table 3 of the final rule. And new EB-5 investors will want to consider the likelihood that the project they’re investing in will be able to successfully complete the capital raise before November 21, or risk a very tough market after November.

4. What did DHS spend two years doing with the EB-5 rule? Did they listen to industry input? Whose input and interests swayed their thinking?

The discussion in the final rule shows that DHS did indeed read the hundreds of public comments submitted on the NPRM in 2017, and engaged seriously with them. I can judge this because I also read all the comments. Most of the final rule consists of methodical response to the specific points made by the public. Sadly DHS dismissed many good ideas just for lack of supporting data and analysis, but at least they recognized the ideas. The content of the final rule shows that DHS was not manipulated by the much-maligned “powerful moneyed interests”. For example, Related NYC Metro Regional Center submitted over a hundred pages of comments personally and through proxies and had two in-person meetings with OMB about the regulations. The final rule acknowledges the arguments but does not soften any of the TEA restrictions or incentives opposed by Related. On the other hand, the final rule makes a major change from the NPRM – changing the TEA investment amount from $1.35 million to $900,000 – based on good input from someone of no importance. I can judge this, because I wrote the four-page comment that’s extensively cited in the final rule’s discussion of investment differential. (If only I’d written as compellingly about TEA designation! I didn’t occur to me DHS might decide to eliminate both itself and states from the designation business, and just leave petitioners and adjudicators with individual unguided judgment regarding which unemployment data and methodology make most sense.)

5. What does the rule mean for people who filed I-526 prior to November 21, 2019, and still making their way through the immigration process?

Changes to the investment amount and TEA rules do not apply to anyone who filed I-526 prior Nov. 21, 2019. Starting on Nov. 21, people between I-526 approval and conditional permanent residence may be able to take advantage of the rule’s new priority date retention provision. (Update: see my post on this topic.) Starting on Nov. 21, the relatively minor I-829 clarifications/changes will affect anyone reaching the I-829 stage. The rule includes no change to redeployment policy, material change policy, or visa availability.

6. Where do I go with my questions?

Your immigration lawyer and regional center should be there for you. Many webinars will be hosted. For example, Wolfsdorf Rosenthal have a webinar on Thursday, Klasko Law has a webinar on Monday, and ILW has a webinar on Tuesday. I will write additional blog posts as time permits.

And finally FYI, a copy of the email sent out by USCIS.

From: U.S. Citizenship and Immigration Services
Sent: July 23, 2019 10:16 AM
Subject: New Rulemaking Brings Significant Changes to EB-5 Program

Minimum Investments, Targeted Employment Area Designations Among Reforms

WASHINGTON—U.S. Citizenship and Immigration Services (USCIS) will publish a final rule on July 24 that makes a number of significant changes to its EB-5 Immigrant Investor Program, marking the first significant revision of the program’s regulations since 1993. The final rule will become effective on Nov. 21, 2019.

New developments under the final rule include:

• Raising the minimum investment amounts;
• Revising the standards for certain targeted employment area (TEA) designations;
• Giving the agency responsibility for directly managing TEA designations;
• Clarifying USCIS procedures for the removal of conditions on permanent residence; and
• Allowing EB-5 petitioners to retain their priority date under certain circumstances.

Under the EB-5 program, individuals are eligible to apply for conditional lawful permanent residence in the United States if they make the necessary investment in a commercial enterprise in the United States and create or, in certain circumstances, preserve 10 permanent full-time jobs for qualified U.S. workers.

“Nearly 30 years ago, Congress created the EB-5 program to benefit U.S. workers, boost the economy, and aid distressed communities by providing an incentive for foreign capital investment in the United States,” said USCIS Acting Director Ken Cuccinelli. “Since its inception, the EB-5 program has drifted away from Congress’s intent. Our reforms increase the investment level to account for inflation over the past three decades and substantially restrict the possibility of gerrymandering to ensure that the reduced investment amount is reserved for rural and  high-unemployment areas most in need. This final rule strengthens the EB-5 program by returning it to its Congressional intent.”

Major changes to EB-5 in the final rule include:

• Raising minimum investment amounts: As of the effective date of the final rule, the standard minimum investment level will increase from $1 million to $1.8 million, the first increase since 1990, to account for inflation. The rule also keeps the 50% minimum investment differential between a TEA and a non-TEA, thereby increasing the minimum investment amount in a TEA from $500,000 to $900,000. The final rule also provides that the minimum investment amounts will automatically adjust for inflation every five years.
• TEA designation reforms: The final rule outlines changes to the EB-5 program to address gerrymandering of high-unemployment areas (which means deliberately manipulating the boundaries of an electoral constituency). Gerrymandering of such areas was typically accomplished by combining a series of census tracts to link a prosperous project location to a distressed community to obtain the qualifying average unemployment rate. As of the effective date of the final rule, DHS will eliminate a state’s ability to designate certain geographic and political subdivisions as high-unemployment areas; instead, DHS would make such designations directly based on revised requirements in the regulation limiting the composition of census tract-based TEAs. These revisions will help ensure TEA designations are done fairly and consistently, and more closely adhere to congressional intent to direct investment to areas most in need.
• Clarifying USCIS procedures for removing conditions on permanent residence: The rule revises regulations to make clear that certain derivative family members who are lawful permanent residents must independently file to remove conditions on their permanent residence. The requirement would not apply to those family members who were included in a principal investor’s petition to remove conditions. The rule improves the adjudication process for removing conditions by providing flexibility in interview locations and to adopt the current USCIS process for issuing Green Cards.
• Allowing EB-5 petitioners to keep their priority date: The final rule also offers greater flexibility to immigrant investors who have a previously approved EB-5 immigrant petition. When they need to file a new EB-5 petition, they generally now will be able to retain the priority date of the previously approved petition, subject to certain exceptions.

Updates (reauthorization, visa cap, redeployment, AAO decisions)

Reauthorization

There seems to be optimism that Congress and President Trump will agree before February 15 on a deal to fund the government for 2019. I assume and trust that the deal, when unveiled, will include extension of regional center program authorization at least to September 30, 2019. [Update: H.J.Res 31, which became law on 2/15, has regional center program authorization to 9/30/2019 in Division H, Title 1, Sec. 104 (PDF page 463), and no other changes that affect EB-5.]

Luckily for EB-5, the case against it has been taken up by the pariah Rep. Steve King. Last month he introduced H.R.773 – To terminate the EB-5 program, proposing that EB-5 be erased from the INA, and that DHS cease to accept new petitions and dismiss all pending petitions and applications. The bill has gained 0 cosponsors, reflecting what other lawmakers think of this proposal and/or of supporting anything associated with Steve King.

Visa Availability

The per-country cap for EB visas continues to be an issue in the new Congress, with at least two new bills proposing to eliminate it: H.R. 1044 ‘Fairness for High-Skilled Immigrants Act of 2019 and S.386 – A bill to amend the Immigration and Nationality Act. These bills have quite a few cosponsors. This time around, IIUSA has taken a stand on the issue. “While the elimination of per-country caps may make sense for some categories, the elimination of the per-country caps for EB-5 will be to the detriment of the program,” stated IIUSA Executive Director Aaron Grau. [2/18 Update: IIUSA has expanded on its statement. 7/1/2019 Update: See my post on Country Cap discussion.]

EB-5 Activity at USCIS

Here’s what USCIS has done publicly so far for EB-5 in 2019:

• Not finalized EB-5 regulations (or at least, not yet advanced them to OMB for review)
• Not approved or terminated any regional centers
• Not published petition processing data for July-Sept 2018 (I expected this to happen by December 2018)
• Not held or announced any stakeholder engagements
• Made a couple tweaks to petition processing time reports, each time adding or subtracting a few days. Currently, petitioners can be considered “outside normal” processing times if they are 796 days from I-526 filing, 1,077 days from I-829 filing, or 715 days from I-924 filing.  Dear me. However, I’m hearing anecdotally of I-526 adjudicated within a year.
• Published a number of AAO decisions on EB-5 appeals (a few of which I discuss below)

Material Change and Redeployment

I have something to add to the redeployment discussion, as a business plan writer who has spent years grappling with the intersection of EB-5 theory and business practice. But until I have time to actually write the post I have in mind, here FYI are two planks to my thinking on the redeployment issue:

• Carolyn Lee’s analysis of the EB-5 at-risk requirement and its misapplication in redeployment policy. USCIS, be sure to read this article, which helps explain why applying redeployment policy is so hard for us. When a policy makes sense theoretically, then we don’t have to badger you with questions about how to apply it. Then we can figure it out ourselves with reference to the statue/regs/precedents etc., with the help of our smart lawyers. As it is, we do hassle you with questions because there’s a broken link to the established rules, giving us and you no firm foundation to stand on in applying the policy, and leaving us all vulnerable to capricious case-by-case determinations.
• A number of redeployment complications and constraints arise from the fact that redeployment policy is a subset of the material change policy. In preparation to discuss that aspect of redeployment, I’ve refreshed my post What is Material Change.  The post discusses the theory and links to most AAO decisions that have addressed material change in specific cases.

USCIS decision-making

AAO decisions on EB-5 appeals shed light on an important question: “If anything goes wrong with an EB-5 investment, is there any way to recover?” What if a principal goes rogue and makes off with some funds, but then there’s new management and funds are recouped and put to work again? What if a regional center was terminated, but currently well-placed to promote economic growth? What if a project did not develop as originally anticipated, but can succeed and create jobs in a new direction? These questions fall in policy grey areas, giving the agency leeway for positive flexibility or reflexive naysaying.  Unfortunately, recent AAO decisions show the later trend, and I hope that there will be pushback.

DEC102018_06B7203 Matter of L-X- is one of two decisions on appeal by investors who put money into an NCE originally managed by Emilio Francisco, who was charged by the SEC in December 2016 with defrauding investors. The NCE and other defendant entities went into receivership, it was determined that a portion of EB-5 investor funds had been diverted, and USCIS denied I-526 petitions for NCE investors. In an attempt to salvage the situation, several EB-5 investors executed an LOI with an institutional investor and amended the NCE’s LP agreement to replace the NCE manager, remove the NCE from receivership, provide necessary funding to the NCE, and complete and operate the project. USCIS/AAO claimed to be “sympathetic to the Petitioner’s situation,” but claimed that the investors still could not satisfy EB-5 requirements. Here’s the USCIS/AAO reasoning:

• The petitioner could not satisfy the “at-risk” requirement if she replaced diverted capital with additional investment, because that new capital would not be her original capital, and Izummi requires showing that the full amount of “original capital” was made available to the NCE to create jobs. “Petitioner must establish the necessary job creation with capital invested at the time of filing, not based on later infusion of additional funds.” (I don’t quite follow the justification from Izummi, or the “original capital” idea generally. Is the thought that the very dollar bills first passed between the investor and NCE must be the same dollar bills used to pay employee salaries? USCIS sometimes talks about a “path of funds” from investment to job creation – as if cash flowed through a business with each note radio-tagged and leaving a colored path as it goes. In practice, investment goes together into a pool and economic activity and jobs and ROI come out of the pool. A “path of funds” from X original dollar to Y job never exists, and USCIS/AAO should not make demands that presume such a path.)
• If the investor replaced $182,133.33 of diverted capital with $182,133.33 in additional investment, then the petitioner would be committing impermissible material change because that would effectively increase the minimum investment amount from $500,000 to $682,133.33. (Really, USCIS? How does investing more than the required minimum undermine eligibility?)
• USCIS couldn’t tell whether the Petitioner had actually invested the additional funds, or only intended to do so. (This is a fair point, but why did USCIS raise this issue if against additional investment in principle?)
• The Petitioner did not demonstrate that all approvals needed for the proposed NCE restructuring had been obtained, making USCIS doubt whether the restructuring could go forward. (Fair point, if true.)
• The Petitioner did not file an updated business plan to describe the current status of the project and its current job creation potential. (I wonder if this was fundamentally the most important problem with the Petitioner’s appeal. A business plan is a chance to tell a compelling story about use of investment and job creation, reconcile apparent inconsistencies, argue that changes aren’t material, make an eligibility case, and pre-emptively address questions, doubts, and misconceptions that the reader might have. Don’t miss the prime opportunity to tell your story! As a business plan writer, I’m sensitive to the critical and delicate role of the business plan in presenting changed circumstances to USCIS.)

DEC042018_01K1610 Matter of P-A-K  is AAO’s third decision regarding the designation of  Path America KingCo regional center. This decision was compelled by US District Court, where the regional center filed a complaint after the AAO denied its initial appeal and motions to reopen and reconsider. AAO gives 21 pages this time to reiterate the denial, with arguments that can be summed up in this sentence that the decision quotes from INS v. Abudu: “The INS should have the right to be restrictive.” Path America KingCo presents a compelling case for its current and future potential to promote economic growth, but the AAO finds that this isn’t relevant to its current designation status. AAO rests on this technical claim: that appellate decisions are final, and cannot be reconsidered in light of new evidence, but only reassessed in terms of evidence that existed at the time the decision was made. One might think that Path America KingCo deserves designation if it is continuing to promote economic growth, but AAO says no – the relevant issue is whether it was promoting economic growth at the time it was terminated. A different agency might’ve looked at the fact pattern – a company that has good management (now), good projects, and committed investors dependent on the designation – and found a way to say yes. The so-called “balancing test” discussed in prior terminations claims that “we take into account a variety of factors, both positive and negative, that encompass past, present, and likely future actions.” However, it appears that this test does not apply on appeal, as USCIS does not consider positive present or likely future actions once a termination letter has been issued.

Letter to Senator Collins in the USCIS electronic reading room shows USCIS responding frostily to a plea from Senator Susan Collins regarding a small town in her constituency that planned to use EB-5 investment to rebuild after the catastrophic closing of a paper mill. The scenario sounds like textbook example of what Congress hoped EB-5 could do, but it did not move USCIS, which terminated the regional center purchased for the town before the town had a chance to use it, and just offered Senator Collins the cold comfort of filing an AAO appeal. Is this administering the Immigrant Investor Program in a fair and efficient manner? Fair and efficient, I suppose – the RC was apparently inactive prior to being taken over for Millinocket, Maine. But is the decision in tune with EB-5 program logic and objectives? No.

To be fair, AAO appeals sometimes work. JAN252019_01B7203 is an example of a denial that AAO remanded back to USCIS for more precision in identifying specific problems in credibility and eligibility, and for more rigor in assessing relevant evidence.

And as a reminder that court cases also sometimes work, EB-5 investors have another win on use of loan proceeds for EB-5 investment.

Senate hearing, legislation, I-829 receipt notices (updated)

Senate Hearing

Mark your calendars for 10 am EST Tuesday, June 19, when Chairman Grassley will host a Senate Judiciary Committee hearing with the provocative title Citizenship for Sale: Oversight of the EB-5 Investor Visa Program. So far the only announced witness is USCIS Director L. Francis Cissna. As background for the hearing, I recommend my 2015 post Immigrant investor program comparison, which explains how EB-5 fits in the continua of investor visa programs around the world, and the risks and challenges for government oversight inherent in the fact that it’s specifically not a “citizenship for sale” program.

Legislation

The House will reportedly vote next week on immigration legislation: Bob Goodlatte’s H.R. 4760 Securing America’s Future Act, and another to-be-announced bill dealing at minimum with DACA and border security. H.R. 4760 as written would not affect EB-5. (It covers DACA, border security, family reunification, and diversity visas, and proposes reallocating diversity visas to reduce backlogs in EB-1, EB-2, and EB-3 only.) The second bill (available in discussion draft) would affect EB-5 by removing the per-country limit on visa numbers for the EB-5 category. (This would be good news for backlogged China and bad news for all other countries, which would then share the burden of oversubscription equally with China.) In an apparent slight to EB-5, the discussion draft bill would increase total visa numbers for every EB category except EB-5.

I-829 Notices

And a nice email (followed up by another email with qualifications) for people facing long I-829 waits.

From: U.S. Citizenship and Immigration Services <uscis@public.govdelivery.com>
Sent: Tuesday, June 12, 2018 9:02 AM
Subject: Update to Form I-797 Receipt Notices for Form I-751 and Form I-829

As of June 11, 2018, petitioners who file Form I-751, Petition to Remove Conditions on Residence, or Form I-829, Petition by Entrepreneur to Remove Conditions on Permanent Resident Status, will receive a Form I-797 receipt notice that can be presented with their Form I-551, Permanent Resident Card, as evidence of continued status for 18 months past the expiration date on their Permanent Resident Card.

We are making the change from 12 to 18 months because current processing times for Form I-751 and Form I-829 have increased over the past year.

Additionally, we will issue new Form I-797 receipt notices to eligible conditional permanent residents whose Form I-751 or I-829 was still pending as of June 11, 2018. Those Form I-797 receipt notices will also serve as evidence of continued status for 18 months past the expiration date on petitioner’s Permanent Resident Card.

As a reminder, conditional permanent residents who plan to be outside of the United States for a year or more should apply for a reentry permit by filing Form I-131, Application for Travel Document, before leaving the country. Read more information on our Green Card webpage.

To learn more, visit our website.

From: U.S. Citizenship and Immigration Services <uscis@public.govdelivery.com>
Sent: Wednesday, June 13, 2018 10:21 AM
Subject: Form I-751 Data Entry Delay at California Service Center

USCIS’ California Service Center (CSC) is experiencing a delay in initial data entry for Form I-751, Petition to Remove Conditions on Residence. Since initial data entry has to be completed before a receipt notice can be issued, some petitioners and their dependents may experience a delay in receiving a receipt notice for a Form I-751 submitted to the CSC.

If you submitted a Form I-751 to the CSC in May 2018 and you have not received a receipt notice, do not file a duplicate Form I-751 unless you have received a rejection notice or have been instructed to do so by the CSC.

The CSC is working to complete data entry of these petitions by the end of June 2018, and will issue another web alert once initial data entry has returned to normal. Petitioners will receive a receipt notice once their data is entered into USCIS systems.

If your 2-year green card has expired, you should call the USCIS Contact Center at 1-800-375-5283 (TTY for people with hearing or speech disabilities: 1-800-767-1833). The USCIS Contact Center will setup an appointment for you and any eligible dependents at your local field office. If possible, bring evidence that you sent your Form I-751 via USPS or courier service, such as FedEx.

For more information, visit our website.