Potential EB-5 Changes Ahead

May 16, 2017Articles Law360

The EB-5 Regional Center Program has been extended in its current format through Sept. 30, 2017. The EB-5 program was originally set to sunset on April 28, 2017, but was eventually extended as part of an omnibus spending bill, signed by the president on May 5, that will continue to fund the federal government through the end of September. Though a clean extension has been issued, a flurry of proposals is being floated by members of Congress seeking to reform the EB-5 program, perhaps sooner rather than later.

There is a genuine effort by legislators on both sides of the aisle to pass an EB-5 reform package. The key reforms up for debate center on reclassifying targeted employment areas (TEAs), raising the minimum investment amounts, implementing firmer oversight measures, improving visa processing efficiency, and increasing the number of visas available. While the EB-5 program has been renewed for years through short-term continuing resolutions, lawmakers have targeted the program and are poised to take legislative action.

Reclassification of TEAs and Visa Set-Asides

The most controversial reform centers on the reclassification of TEAs. Currently, each state has the authority to designate TEAs. The TEA discussion highlights stakeholders’ concerns about the intent of the EB-5 program, which many view as being disproportionately utilized by developers in bigger cities versus in rural or impoverished areas that may actually stand to benefit from the economic stimulus. Some have proposed allowing the federal government to determine what areas qualify for TEA designation, a change perceived by many stakeholders as troubling.

Those against giving the federal government TEA authority claim that a one-size-fits-all method for determining TEA eligibility is unfair and inaccurate as not every area is the same. Those in favor of taking power away from the states argue reclassification of TEAs is necessary in order to follow the intended spirit of the EB-5 program. Some have proposed dealing with this hotly debated issue by requiring the federal government to set aside a certain percentage of EB-5 visas for investors who invest in rural or impoverished areas. While this proposal has support from those seeking to direct EB-5 investment dollars to rural and high unemployment areas, many industry leaders question whether foreign investors would remain interested in an EB-5 program where their investments are outside of big well-known cities with established developers, even if the investment threshold is less.

Increased Investment Amounts

Under the current EB-5 program, investment limits are set at $1 million for non-TEAs and $500,000 for TEAs. The EB-5 program minimum investment amounts have remained unchanged since the program’s introduction in 1992. Proposed increases to the minimum investment amounts include increasing TEAs to $800,000, and a U.S. Citizenship and Immigration Services proposal increasing minimums to $1.8 million for non-TEAs and $1.35 million for TEAs. Most stakeholders agree an increase is acceptable  within reason.

Many industry leaders fear raising minimum investment amounts over $1 million will make the EB-5 program less attractive to investors, especially those from China. Chinese citizens account for the majority of EB-5 program investors. With existing currency controls in place restricting the outflow of funds from China, Chinese investors already face challenges to investing $500,000. If the minimum investment amount is raised, practitioners believe it could take even longer for these investors to make their investments. Additionally, establishing a minimum investment amount of $1 million arguably makes the EB-5 program less competitive globally where investors can invest less than $1 million for the green card equivalent in a different country. Many countries offer a pay-to-play program where investors can achieve a similar result for a reduced investment in a shorter period of time.

Integrity Measures

Stakeholders welcome stricter integrity and oversight measures. While the EB-5 program has operated for years with loose oversight, a number of recent scandals, bad actors and fraudulent money-raising schemes have surfaced, reinforcing the need to ensure investors are protected. Proposed integrity measures revolve around certifications of securities law compliance, background checks on regional center operators and/or principals, and project preapprovals.

Earlier this year, USCIS announced the launch of its EB-5 Regional Center Compliance Audit initiative as a tool for verifying information submitted by regional centers in application(s) and annual certifications. In a continuing effort to improve EB-5 program integrity, the USCIS Immigrant Investor Program Office will continue to increase the number of site visits. The government will also publish regional center termination notices for review, which is a step in increasing transparency beyond publishing the list of terminated regional centers.

Visa Numbers and Efficient Visa Processing

The EB-5 program provides 10,000 visas annually for investors and their family members. Historically, the EB-5 program offered the fastest route to a green card. In recent years, the popularity of the program among developers in the U.S. and foreign investor applicants has surged resulting in a multiyear backlog before an investor with an approved I-526 petition may immigrate to the U.S. as a lawful permanent resident.

Under the present model, each family member is allocated one of the 10,000 visa numbers, resulting in far fewer than that number of investors entering the program each year. Stakeholders advocate increasing the number of visas available annually and/or counting each family as a single visa instead of allocating separate visas per family member. Increasing the number of visas available to actual investors through either proposed mechanism would greatly enhance the capacity of the EB-5 program and reduce the government’s visa processing backlog, which is estimated at more than 20,000 applicants. Arguably, because of these lengthy wait-times, the EB-5 program becomes less attractive when competing globally with similar investment-type programs in other countries that may have fewer restrictions and yield faster results.

Over the next five months, legislators, lobbyists and industry leaders are focused on reaching a consensus for EB-5 legislative reform. The EB-5 program has been a tremendous benefit to the U.S. economy, generating several billion dollars in foreign direct investment last year. With a goal of reforming the program, lawmakers are encouraged to institute the necessary and welcome oversight while giving ample consideration to the successes of the program and its global competitive advantage.

Reprinted with permission from Law360. (c) 2017 Portfolio Media. Further duplication without permission is prohibited. All rights reserved.