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The Rush is On: New EB-5 Rule Nearly Doubles Minimum Investment in 120 Days
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</h3><h4><i>by <a href=”http://discuss.ilw.com/articles/articles/391263-article-the-rush-is-on-new-eb-5-rule-nearly-doubles-minimum-investment-in-120-days-by-robert-c-divine-of-baker-donelson#bio”>
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Robert C. Divine of Baker Donelson
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<p>Date: July 23</p>
<p>
USCIS has sent its
<a
href=”https://s3.amazonaws.com/public-inspection.federalregister.gov/2019-15000.pdf”
>
final EB-5 regulation
</a>
to the Federal Register for publication tomorrow. Effective for I-526
filings arriving at USCIS on or after November 21, 2019, new EB-5
investments must be at least $900,000 in a “targeted employment area”
(TEAs) and otherwise $1,800,000, and the areas that can qualify as TEAs for
the lower investment amount are more limited. Absent legislation to provide
additional visa numbers, the next four months may be the last great days
for entering and subscribing investments under the EB-5 Program for the
foreseeable future.
</p>
<p>
<strong>Before the Rule Takes Effect</strong>
</p>
<p>
The new regulation is as important for what it will cause pre-effective
date as after.
</p>
<p>
<strong><em>The Surge:</em></strong>
The rule allows investors to remain under the current investment amounts
and TEA areas if they file the first step in the EB-5 process (I-526
petition) before the November 21, 2019 effective date. This means that
during the next four months anyone who is contemplating making an EB-5
investment should rush to invest and file at the lower investment level of
$500,000. According to the regulation’s preamble, EB-5 investments already
made appear likely to use up at least seven years’ worth of the 10,000 visa
numbers available to investors and family members each year. In fact, the
nationalities of the heaviest usage face even longer waits due to a 7%
per-country limit, and those born in lower volume countries face much
shorter or zero waits. The new rush of filings in the next four months will
extend the existing waits for high volume countries by many years.
(Oft-proposed but yet unpassed legislation could eliminate the per country
cap and make all new investors wait the same regardless of nationality.)
The combination of nearly doubled minimum investment amounts and expanded
wait time for visa numbers will pose huge disincentives for investors
filing under the new rule. Thus, now begins the last great four-month EB-5
investment rush unless Congress allocates additional visa numbers to the
program.
</p>
<p>
<strong><em>The Scramble:</em></strong>
In the scramble to invest and file, some investors will ask to invest with
less than the full $500,000 amount, using the law’s allowance for those
“actively in the process of investing.” Some sellers of investments may be
tempted to accept such investors. If such investors can qualify under
present law, their I-526 filing with less than the full amount might
preserve their ability to invest only $500,000 under current regulations.
The new regulation itself only acknowledges placing the full funds in
escrow.
<a
href=”https://www.justice.gov/sites/default/files/eoir/legacy/2014/07/25/3361.pdf”
>
USCIS case law
</a>
requires that if an investor invests part of the required capital plus
“indebtedness” (owing the remainder not in escrow), the investor’s debt to
the investment enterprise must be adequately secured by his or her personal
assets under arrangements that are legally perfected in their location.
Full investment up front is strongly advised to avoid risk of denial.
</p>
<p>
Even apart from the capital actually invested, investors must show in their
I-526 filing that their source of funds is legitimate. Investors will be
tempted to slap together skeletal evidence of their sources of funds. But
USCIS can deny petitions that turn out not to have been “approvable at the
time of filing.” While responses to USCIS requests for evidence normally
can add evidence about facts that existed at the time of filing, USCIS can
refuse evidence of newly identified or switched sources. USCIS might take
more aggressive positions against investors who slopped in sketchy filings
to lock in the $500,000 investment amount. All of this argues against only
partial capital contribution and in favor of making the best effort
possible to document sources on the front end.
</p>
<p>
<strong><em>The Risks:</em></strong>
Issuers of investments should consider amending their offerings now to
include disclosure of risks posed by the new regulations’ higher investment
amounts, including the prospect that any EB-5 capital not raised for the
project before November 21 might be much more difficult to raise,
necessitating other sources for any funding gaps. Many projects that are in
state-designated TEAs today may not qualify under the new rules, making
post-November subscriptions of EB-5 capital practically impossible.
</p>
<p>
<strong>After the Rule Takes Effect</strong>
</p>
<p>
Here is how the rules will change for I-526 petitions filed on or after
November 21, 2019:
</p>
<p>
<strong><em>Investment Amount:</em></strong>
The normal minimum investment level will increase from $1 million to
$1,800,000. The minimum investment in a Targeted Employment Area (TEA) will
increase from $500,000 to $800,000. The rule also provides for a process of
inflation-based adjustments to the minimum investment amounts beginning on
October 1, 2025 and every five years thereafter, with the TEA level always
50% of the “normal” amount. The price adjustment of the normal amount will
be based on the Department of Labor’s “Consumer Price Index for All Urban
Consumers for the U.S. City Average” as compared to $1 million in 1990 when
the EB-5 program was created, rounded down to the nearest $100,000.
</p>
<p>
<strong><em>TEAs for lower investment:</em></strong>
Whether a project’s location can qualify for the lower $900,000 level by
being in a TEA will remain as crucial as before, given the 50%
differential. The TEA definition of a rural area remains unchanged: <em>both</em> outside a town of 20,000 <em>and</em> outside a Metropolitan
Statistical Area (MSA). Some areas will be TEAs based on federally
published data showing an unemployment rate of 150% of the national
average: an MSA; a county within an MSA, or a city or town outside an MSA.
Otherwise, a “specially designated” high unemployment area may be
determined only by USCIS itself (not by the states as before) and must
either include the single census tract or contiguous census tracts in which
the job creating business will operate or also any or all census tracts
directly adjacent to such tract(s). This change is meant to cut down on the
“gerrymandering” of extended snake-like areas previously subject to state
designation including project areas that many criticized as not worthy of
the lower investment level.
</p>
<p>
<strong><em>Process for TEA “Special Designation”:</em></strong>
Sadly, USCIS will not establish a separate process for “specially
designated” TEAs before a project is organized or offered, except when a
regional center seeks optional “exemplar” approval of a project, which can
take a few years to get. Instead, investors must include in their I-526
petitions the data on which the TEA can be determined by USCIS. The rule
does not identify one definitive set of data for these determinations,
because “no one dataset is perfect for every scenario.” The regulation
specifically mentions data from the U.S. Census Bureau in the American
Community Survey or from the DOL’s Bureau of Labor Statistics as “reliable
and verifiable,” which probably will result in those sets being relied on
most, and the rule’s preamble mentions the need to use consistent data both
for the local and national unemployment rates. But the lack of absolute
clarity in data and methodology puts huge pressure on the economists on
whom the project developers and regional centers rely to make a correct
assessment of TEA eligibility, and on investors to make sure that the data
to be used in their filing is the latest available data as of the time of
filing.
</p>
<p>
<strong><em>Date that Locks in TEA:</em></strong>
Importantly, under the statute the date of investment is the date the
investment area must qualify as a TEA. But when capital is placed first in
escrow until I-526 filing (and possibly beyond), USCIS considers the time
of investment to be the time of I-526 filing. Therefore, we can expect the
popularity of even short escrows to decline in order to ensure that an
investor can depend on the TEA data as of the time of actual investment and
can avoid any disastrous change in TEA data that could occur between
investment and filing.
</p>
<p>
<strong><em>Retention of I-526 Priority Dates:</em></strong>
The onslaught of investment during this season will result in even longer
waiting lists for visa numbers than already exist. The new regulation
mercifully provides that if an investor gets an I-526 petition approved,
and then for some reason that I-526 is abandoned or even revoked (because
of some material change) other than for misrepresentation or for
ineligibility as of the time of filing, then the investor can take the
place in the queue marked by that first approved petition and apply it to a
subsequently filed I-526 petition. Importantly, a priority date that is
actually used to immigrate as a conditional resident cannot be carried
forward to a new petition, which means that investors who experience
project-related problems that result in denial of I-829 would need to start
all over in the queue. Also, a “material change” to an investment project
that results in denial of an I-526 petition in the first place will provide
no priority date, while a material change after that I-526 approval–though
resulting in revocation of the petition before immigration to conditional
residence–marks a place in the queue that the investor can take to a new
petition. One investor who after I-526 approval decides not to immigrate
cannot pass on a priority date to a family member. The regulation does not
provide any new protection from a child “aging out” of eligibility by
reaching an adjusted age of 21 (absolute age minus the time of I-526
adjudication) by the time a visa number becomes available to the investor.
Thus, as in the I-140 context for the first three employment based
preferences, only the time the ultimately used petition was pending will be
subtracted from the child’s absolute age under the Child Status Protection
Act. Importantly, a place in the visa queue marked by an approved I-526
will not be useful in immigrating under an I-140, and vice versa. And a
subsequent I-526 retaining a prior petition’s priority date will not allow
the investor to use the lower level of minimum investment that may have
been in effect for the first petition.
</p>
<p>
<strong><em>Miscellaneous Clarifications:</em></strong>
Several additional “changes” are basically clarifications of existing
interpretations. For instance, the filing of an I-526 petition is what
marks an investor’s place in any queue for visa numbers. EB-5 investors may
take credit for all of the new jobs created by a project even if dependent
on other capital in addition to that of EB-5 investors. Family members of
investors who do not file with the investor (including divorced spouse or
child who has married) must file their own petition with their own fee.
While essentially passive investments as limited partners in a limited
partnership were recognized because of specific reference in the statute,
now the regulation acknowledges that an investor is sufficiently engaged in
policy making activities of the investment enterprise if the organization
documents provide the investor with “certain rights, powers, and duties
normally granted to equity holders of the … type of entity in the
jurisdiction” which include the commonly used LLC structure. It does not
appear that USCIS is seeking to use the regulation to tighten its current
approach that essentially allows EB-5 investors to have essentially a
passive role, even if only a nominal right to make “policy input.”
Nevertheless, one could imagine a future nightmare if USCIS began to
evaluate what kinds of rights LLC members are “normally granted.”
</p>
<p>
<strong><em>I-829 Interview Locations:</em></strong>
One seemingly small change could have meaningful effect for investors.
USCIS may require the investor and family filing an I-829 to remove
conditions on residence to appear at an interview at the USCIS office
having jurisdiction over either the location of the investor’s commercial
enterprise, the investor’s residence in the United States, or the location
of the adjudication of the petition, at the agency’s discretion. These
locations could be far from the investor’s residence, so interviews could
cause meaningful inconvenience and expense.
</p>
<p>
<strong><em>I-829 Denial Process:</em></strong>
The regulation clarifies numerous aspects of the process to remove
conditions from an investor’s permanent residence based on an I-829
petition, including that a denial of the petition shall result in a “Notice
to Appear” that starts removal proceedings where the investor and family
can appeal the denial in front of an immigration judge. The regulation says
that upon USCIS I-829 denial the investor must surrender the green card and
does not say that USCIS will issue temporary evidence pending appeal in
removal proceedings, but under the law investors are entitled to such
temporary evidence and should demand it.
</p>
<p>
<strong><em>Offering Tweaks:</em></strong>
The rule allows necessary modification of securities offering documents
without jeopardizing any previously filed petitions based on some notion of
material change, but it is hard to imagine how any changes necessitated by
this rule would trigger such notions as to existing investors anyway.
</p>
<strong><em>What Else Might Happen:</em></strong>
<p>
Some parties might bring litigation against USCIS to stop the regulation,
alleging some fault in the rulemaking process or analysis. Congress might
be persuaded to pass a new EB-5 law that overrules the regulation on the
investment amount and TEA approach and makes other changes, including
integrity measures, and maybe even to increase the available visa numbers
(a very politically challenging task). Neither will stop a current rush of
investors expecting the rule to take effect as planned.
</p>
Reprinted with permission.</p>
</span>
<hr/><h4>
<a name=”bio”></a>
About The Author<br/>
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<p>
<b>Robert Divine</b> is active in the Firm’s Government Enforcement and Investigations team and has represented and assisted employers and other parties in some of the largest immigration enforcement investigations and prosecutions as well as private RICO actions. He provides strategic advice and training for employers in their immigration compliance efforts. Mr. Divine also has litigated significant business matters, including contract, commercial, product liability, antitrust, ERISA benefits and business torts (including RICO, misrepresentation, Consumer Protection Act).
By presidential appointment, Mr. Divine served in Washington, D.C., from July 2004 until November 2006 as Chief Counsel of United States Citizenship and Immigration Services (USCIS), the world’s largest immigration services agency within the U.S. Department of Homeland Security. From July 2005 until July 2006, he served as Acting Director and then Acting Deputy Director of USCIS, spearheading the USCIS Transformation Program, testifying in Congress about the E-Verify system, enhancing operational security, and increasing transparency of rules and procedures. In early 2004 he served as an expert retained to assist the U.S. Commission on International Religious Freedom in its congressionally mandated study on the expedited removal process. He has testified as an expert on immigration law for courts in the United States and abroad.
Mr. Divine represents many business developers in creating, managing and using “Regional Centers” that can create indirect jobs toward the 10 new U.S. jobs whose creation can give rise to EB-5 permanent residence for investment in the developers’ projects. He is the elected Vice President of the national industry association of “EB-5” Regional Centers, Association to Invest in USA (IIUSA). He represents developers similarly using other parties’ Regional Centers. He coordinates this work with attorneys supporting securities law compliance in offerings to investors, with economists identifying “targeted employment areas” and projecting indirect job creation, with licensed securities brokers coordinating offerings, and with attorneys obtaining U.S. Government (OFAC) licenses to serve investors from restricted countries. He also represents individual investors in obtaining conditional permanent residence and in removing conditions from permanent residence.
Since 1994, Mr. Divine has authored Immigration Practice (Juris Publishing, 15th ed.), a well-regarded 1,800 page practical treatise on all aspects of U.S. immigration law, which is republished each year to incorporate the constant changes in the field.
</p>
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