The EB-5 Reform and Integrity Act of 2022 brought many changes to the EB-5 program. For the latest information, please click here.
The new EB-5 regulations that the EB-5 industry has been anxiously awaiting since USCIS first published a notice of proposed rulemaking in the Federal Register in January of 2017 appear to finally be on our doorstep. The final regulations passed the OMB on June 27, and were released to USCIS for final publication. All that is left is for USCIS to publish them in the Federal Register, and they will be the law of the land. While the publication date is unknown, industry insiders expect it to be within a matter of days to a week or two.
What we know:
The draft regulation increased the minimum investment amount from $500,000 in a TEA and $1 million outside of a TEA to $1.35 million in a TEA and $1.8 million outside of a TEA. It also radically redefined TEAs to limit them to the census tract the EB-5 project is located in and any adjacent census tracts, provided that the weighted average unemployment level is at least 150% of the national average. Rural TEAs continue to be defined as outside of an MSA and outside of any city or town with a population of 20,000 or more. The draft regulation also stripped states of the authority to determine TEA boundaries, and instead placed that authority with USCIS. The draft regulation also contained several miscellaneous provisions, most notably priority date retention for some investors whose I-526 petitions were approved but whose projects experienced a material change, failure or fraud, or whose regional center is terminated through no fault of the investors. There was, of course, massive outcry from the industry in response to these regulations, especially concerning the investment amount and TEA processes. Many thought $1.35 and $1.8 million were just too high, and would decimate the potential investor market. Many also objected to USCIS taking over the TEA process, citing USCIS’ perpetual inability to manage its caseload and process applications and petitions in a reasonable amount of time. Debate still rages over how to define a TEA, with many feeling that a project’s impacts and labor force extend well beyond the census tract in which the project is located and adjoining tracts, and that this definition is both arbitrary and too narrowly drawn.
What we do not know:
Effective date. We do not know when the regulation will be published, and if it will provide the normal required 30-day grace period before becoming effective, or if some or all of it will be effective immediately, or even retroactively to pending petitions. Ordinarily, an agency is required by the Administrative Procedure Act to provide a minimum of 30 days between the publication of a regulation and its effective date. If the regulation is complex, an agency may provide even longer, for instance 60 or 90 days. We think retroactive application is highly unlikely and would spur endless litigation (with our firm leading the charge). Similarly, we think it is unlikely that the regulation would be effective on publication. Our hope and expectation is at least a 30-day grace period, so there is no need for investors, regional centers, or EB-5 projects to panic. Cases that are already pending will, most likely, not be affected by the new regulation.
Investment amount. It’s going up. We’re all but guaranteed that. However, whether USCIS actually listened to any of the comments stating that the proposed amount was so high it would effectively turn the EB-5 program from a job-creating engine to a niche product available to a handful of the world’s super wealthy is unknown. We just don’t know if the new minimum will be $800,000, $1 million, $1.35 million, or something else. We believe that the vast opposition to the amounts proposed is likely to have resulted in USCIS adopting some amount between the current levels and the $1.35/1.8 million, but we won’t know until we see the regulations.
TEA. We know this one will change too. USCIS was dead set on eliminating alleged “gerrymandering” of TEAs, and the TEA definition will surely be narrowed. We hope that USCIS will not take away the states’ authority to designate TEAs, no matter what the definition is, because we have absolutely no faith in USCIS’ ability to take on more work and process yet another EB-5 product line in any reasonable amount of time.
What to do:
Obviously, for projects, there is a limited window to get new investors to sign up, transfer their funds, and file I-526 petitions before the effective date of the regulation. Investors similarly face a limited window to invest at the current levels. That window could be as little as a few days, or up to a few months, but however long it is, we expect a rush of filings. Investor source of funds will still need to be properly vetted. You can expect USCIS to react to a flood of filings by tightening standards and rejecting or denying, possibly without RFE, petitions that don’t appear approvable at first blush. Some in the industry are promoting skeletal filings. While we acknowledge that the timing may not allow for perfection, we would caution against lowering the standards too far in the rush to get things filed. Existing projects need to evaluate the likelihood of closing out their capital raises in the very near future, the possible effects on the ability to raise capital in the future, and what contingency plans need to be put in place. It goes without saying that the sudden change in investment amount and TEA status could be disruptive to existing projects that are only partially through their capital raises.
Investors planning on investing should start gathering documents showing their lawful source of funds and arranging to have a translation service at the ready for any documents not in English. However, it is advisable to consult with your immigration attorney before transferring money or translating documents to make sure the source of funds is likely to be acceptable.
Stay Tuned. We will share more information as soon as we get it, and will be available to consult on the effect on your project or regional center.
Please contact your Klasko attorney with any questions.
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