On Jan 26 2017 by H. Ronald Klasko

Changes in the EB-5 World: What You Need to Know and What You Need to Do

I expect that we will look back on 2017 as a – and perhaps the – critical transition year in the EB-5 program. Actions taken in 2017 will likely affect the program in significant ways for many years to come. Whether those changes will be positive or negative will have a lot to do with us and whether we take proactive steps to effectuate positive changes in the program in the next few months.

The following are the key developments to watch (and on which to take action) in rough order of importance to the future of EB-5:

  1. Legislation: I expect that 2017 will finally be the year that we obtain a long term (5 or 6 year) extension of the regional center EB-5 program. There is a good chance – but far from a certainty – that EB-5 reform legislation will pass on or before April 28, 2017. The key is whether serious discussions regarding a draft bill commence well in advance of the April expiration. If Congressional leaders follow the recent pattern of not making a bill available to fellow Senators and Congressmen, and the EB-5 industry, until a short time before the expiration date, the chance of passage of a new bill diminishes significantly.

    We have a good idea of the parameters of new EB-5 legislation from all of the previous drafts floated in 2015 and in 2016. Therefore, you can act now to make your views known to your Congressman and Senators, or to work with your lawyer or one of the EB-5 advocacy organizations. If you sit back, you will have no one to blame but yourself for legislation that will govern the EB-5 program for the next 5 or 6 years and probably beyond.

  1. EB-5 Quota: It is a long shot to have the problem of the EB-5 quota backlog for China addressed in the EB-5 legislation. Nevertheless, it is worth making all possible efforts, since the unacceptable waiting list in China could be the largest stumbling block to the future of the EB-5 program. Possible solutions that we are working on (not including just increasing numbers, which is likely a political non-starter), include recapturing unused employment-based immigrant numbers; taking numbers from the immigrant visa lottery program; creating a separate “national interest” visa category outside of EB-5 for investors in “national interest” projects, including infrastructure projects; and paroling investors with approved I-526 petitions into the U.S. to enable them to live, work and go to school in the U.S. once their I-526 petitions have been approved and their money is already being used to create jobs.

    The last option can be accomplished by legislation. It can also be accomplished without legislation (the subject of the next paragraph).

  1. The New Administration: In my “Open Letter to Donald Trump”, I explained why the EB-5 program is uniquely consistent with the goals of the Trump Administration. Every effort should be made to advocate the job creation and inbound investment benefits of the EB-5 program to people who have the President’s ear.

    Although the key provisions of the EB-5 bill will be determined by leaders in Congress (most especially Senators Grassley, Schumer, Cornyn and Flake), there are actions that the President can take unilaterally if he is convinced of the importance of the EB-5 program to furthering his goals. One example is the President’s authority under existing law to parole into the U.S. any individual or group of foreign nationals that he deems to be of national interest or public benefit. If legislation does not address the quota backlog problem, and if the President is convinced that the quota backlog could very significantly diminish the job-creating benefits of the EB-5 program, he could take action to parole investors with approved EB-5 petitions whose money is already being used to create jobs in the U.S. This would allow them to remain in the U.S. (or travel in and out of the U.S.) during the quota waiting period.

    We do expect that in the first two years of the Trump Administration, there will be efforts to pass legislation dealing with legal immigration, including EB-5 and all other employment-based immigrant categories. This legislation will likely address the number of immigrants who can enter the U.S. in the various family and employment categories. Frankly, this is an area of concern for most legal immigration advocates because key advisors to President Trump – led by Attorney General nominee Sessions – are advocating not an increase but a reduction in the levels of legal immigration.

    Although I am strongly opposed to such efforts, and although I strongly believe that it is in the national interest of the United States to increase levels of legal immigration, for purposes of EB-5 advocacy, there may be an opportunity here. Efforts will likely be made to reduce family-based legal immigration, lower-skilled immigration and the diversity lottery. However, in a realignment of immigration priorities, the beneficiaries may possibly be higher skilled immigrants and investors.

    In addition to President Trump, new key players are the aforementioned Attorney General Sessions and the new ranking member of the Senate Judiciary Committee, Senator Diane Feinstein. The Department of Commerce released this month the results of its long study of the investment dollars and job creation numbers produced by the EB-5 program. The study years were 2012 to 2013. It is highly significant that the dollar ($5.8 billion) and job creation (174,000) benefits of the EB-5 program in the two-year period were even larger than expected, and the numbers have certainly grown since 2013. However, for purposes of our discussion of the new key leaders in the EB-5 debate, it is significant that Alabama (Senator Sessions’ state) had the 5th highest number of EB-5 projects in the country. California (Senator Feinstein’s state) had the single most projects and investors in the country. Now is the time for advocacy, especially by regional centers and developers with projects in Alabama or California, to make these facts known.

  1. Advance Notice of Proposed Rulemaking: On January 11, 2017, USCIS published an Advance Notice of Proposed Rulemaking (ANPRM) covering various important topics. An Advance Notice of Proposed Rulemaking is an opportunity for a government agency to formally seek input from the regulated community on issues of concern prior to proceeding with the regulatory process. We urge everyone interested in the EB-5 program to submit a comment by the deadline date of April 11, 2017. Although President Trump has put a freeze on new regulations and proposed regulations, the ANPRM provides valuable insight into the thinking of USCIS, and the comments may well help influence USCIS policy and future regulations.

    The topics on which USCIS is seeking comment include a very problematic requirement of an exemplar petition approval prior to any investor submitting an I-526 petition; separating the regional center designation process from the project approval process; limiting the period of validity of an exemplar petition; determining what changes in a project require amendment or refiling; monitoring, oversight and compliance requirements for regional centers; disclosure by USCIS of information about regional centers and projects to the public; requirements of a regional center to maintain its license; changes to a regional center that require affirmative amendment; and termination of regional centers. We will focus on a number of these issues in a subsequent blog.

  2. Chinese Currency Export Restrictions: As of January 1, 2017, the Chinese government implemented enhanced reporting and disclosure requirements for investors who wish to transfer currency out of China. This is likely to have an impact on how quickly investors may be able to get their RMB out of China, and in some cases, may discourage or prevent investors from getting their money out of the country.

    More significantly, the Chinese government is expected to implement daily currency export restrictions as of July 1, 2017. This means that the annual $50,000 per year currency export limit would be further limited by a daily limit, requiring the currency export to be effectuated on several different days, further complicating and delaying the currency transfer process. Even more concerning, many believe that the $50,000 per person annual currency export limit may be significantly reduced in 2018.

    These changes are likely to motivate Chinese investors interested in the EB-5 program to complete their investments before further restrictions are encountered.

  3. Notice of Proposed Rulemaking: On January 13, 2017, USCIS published a Notice of Proposed Rulemaking entitled “EB-5 Immigrant Investor Program Modernization.” Comments to the proposed regulation must be received by USCIS on or before April 11, 2017 (subject to action by the Trump Administration that may delay or derail the regulatory process).

    Although this proposed regulation has attracted the most attention, it is less likely to impact the future of EB-5 than any of the topics listed above. Nevertheless, we strongly urge everyone interested in EB-5 to submit comments by the deadline.

    Why is this less likely to impact EB-5 going forward? The reason requires an understanding of the regulatory process. The requirements are set forth in the Administrative Procedure Act.

    After the 90 day comment period, USCIS is required to review and analyze all comments received. We expect hundreds of comments will be submitted. For each comment, USCIS must provide a written explanation of why it has accepted or rejected the comment. If it has accepted the comment, it needs to provide the language of the change in the regulation. Any changes in the regulation as a result of the comments will need to be approved not only within USCIS, but also at higher levels, including Department of Homeland Security. Only then can USCIS publish the final regulation.

    A very high percentage of proposed regulations never become final regulations. If this proposed regulation is to become a final regulation, the process just described will likely take, at a minimum, 6 months to finalize. All of this assumes that the Trump Administration does not terminate the process.

    I would be extremely surprised if there is no new EB-5 legislation before the regulatory process plays out. The legislation would supersede most of the provisions of the proposed regulation, especially those relating to investment amount and TEA.

    Nevertheless, key provisions of the proposed regulation meriting comment include:

    • Proposal to increase the minimum investment amount for projects in TEAs to $1.35 million dollars and, for projects not in TEAs, to $1.8 million dollars. This is well above the minimum investment amounts that are likely to be in EB-5 legislation.
    • Limiting targeted employment areas (TEAs) to rural areas, projects in census tracts with unemployment rates of 150% of the national average or projects for which the weighted average of the unemployment rate for the project’s census tract and any census tract contiguous to the project census tract is at least 150% of the national average. States would no longer be involved in the TEA designation process. The designation would have to be made by USCIS. This is of concern both because a very high percentage of urban projects would no longer qualify as TEAs and because there would likely be long delays in TEA designations if USCIS takes over this responsibility.
    • Priority dates for approved EB-5 petitions would be retained in most situations if an investor has to change an investment to a different project, or if there is a material change in the project in which the investment is made. This means that investors would be able to keep their place in line if they need to move their investment because of a failed or fraudulent project, a termination of a regional center or a material change in a project.
    • The residence status of an investor would be immediately terminated upon the denial of an I-829 petition. Presently, the investor retains conditional residence status until the denial is reviewed by an immigration judge and until any appeals are exhausted. This is highly significant because, if the investor is outside of the U.S., he would be unable to return to the U.S. If he is in the U.S., it may take years before he is scheduled for a hearing with an immigration judge. In the meantime, he would be illegally in the United States. This is unacceptable and a complete change in the policy that has existed since the beginning of the EB-5 program.

In summary, there are an unprecedented number of developments coalescing into a “perfect storm.” There has never been – and may not again be – so many opportunities for EB-5 advocates to be heard and to influence the future direction of the EB-5 program. Hopefully, if we will all step up to the plate, we will not only weather the storm, but possibly even find ourselves basking in many future days of bright sunshine.