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USCIS Publishes EB-5 Modernization Rule: the Impact on the EB-5 Program
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Dawn M. Lurie, Mark A. Katzoff, Angelo A. Paparelli, Randel K. Johnson
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<strong>Seyfarth Synopsis: </strong>
On July 24, 2019, U.S. Citizenship and Immigration Services (USCIS),
the immigration-benefits component of the Department of Homeland
Security (DHS), published a final regulation on “EB-5 Immigrant
Investor Program Modernization” (the “Rule”) to reform the EB-5 program
in the Federal Register. Absent successful court challenges, or the
passage by Congress of EB-5 legislation, the Rule will take effect on
November 21, 2019. The Rule makes pronounced changes to the EB-5
program, including a significant increase in the investment threshold,
conferral of exclusive authority to USCIS to designate Targeted
Employment Areas (TEAs), and retention of priority dates for
petitioners.
<a
href=”https://www.federalregister.gov/documents/2019/07/24/2019-15000/eb-5-immigrant-investor-program-modernization”
target=”_blank”
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The text of the Rule can be found here
</a>
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The changes imposed by the Rule include the following:
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<ul>
<li>
Raising minimum non-TEA investment by 80% – from $1 million to $1.8
million with automatic adjustments based on increases in the Consumer
Price Index for All Urban Consumers (CPI-U) every five years;
</li>
<li>
Increasing the TEA investment by 80% – from $500,000 to $900,000. In
the event of subsequent adjustment to the minimum non-TEA investment,
the minimum TEA investment will be automatically adjusted to remain at
50% of minimum non-TEA investment, maintaining the current ratio
between the 2 investments;
</li>
<li>
Stripping states’ authority to designate high-unemployment TEAs,
thereby giving an exclusive authority to USCIS to designate TEAs;
</li>
<li>
Changing the definition of which geographical locations qualify for a
TEA;
</li>
<li>
Allowing an EB-5 investor to retain the priority date (for purposes of
the immigrant visa quota) in the event that, e.g., a regional center is
terminated, by filing a new Form I-526 petition and showing that there
are no material changes to their investment other than securities law
disclosure obligations arising because of the Rule’s new requirements;
and
</li>
<li>
Allowing the derivative family members (i.e. the spouses and children)
of an EB-5 investor to file their own Form I-829 petition if they were
not included in the principal investor’s petition.
</li>
</ul>
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The changes in the requirements for qualifying as a TEA include the
following:
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<ul>
<li>
Permitting cities and towns with a population of 20,000 or more outside
of a Metropolitan Statistical Area to potentially qualify as TEAs based
on high levels of unemployment;
</li>
<li>
If a new commercial enterprise (“NCE”) is located in multiple census
tracts, allowing the inclusion of contiguous census tracts in which the
NCE is principally doing business so long as the weighted average of
the unemployment rate for the tracts included is at least 150% of the
national average; and
</li>
<li>
Allowing the inclusion of both contiguous census tracts in which the
NCE is principally doing business and any adjacent tracts so long as
the weighted average of the unemployment rate for the tracts included
is at least 150% of the national average;
</li>
<li>
The principal effect of the changes in the TEA designation process is
likely to be that obtaining a TEA designation will become more both
more uniform, with a single agency (USCIS) responsible for TEA
designations, and more difficult in that there will be greater
restrictions on the census tracts that can be used to comprise a TEA.
</li>
</ul>
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Given these major changes, such as a notable increase in the minimum
investment amount, the change in the authority to designate TEAs, and the
narrowed down definition of TEAs, it is foreseeable that there will be an
influx of EB-5 applications in an attempt to be grandfathered under the
current rules. This will certainly result in further application processing
delays and possibly the further tightening of standards by USCIS.
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The Rule does not impose a moratorium on the filing of I-526 petitions
prior to the effective date of the Rule. In fact, the Rule expressly
provides that I-526 petitions filed prior to the effective date will be
adjudicated based on the eligibility standards in effect as of the date of
filing the petition. Accordingly, investors should take care both to invest
and file their I-526 petition prior to November 21. Investment alone will
not suffice.
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The Rule further provides that there will be no loss of an investor’s
immigrant visa priority date if there are any amendments to the project
documents that may be required as a result of investor disclosures under
the securities laws due to the changes in the EB-5 program implemented by
the Rule. It remains to be seen how USCIS will apply this provision since
the agency has kept in place its existing material-change policy which
triggers a loss of priority date if a new I-526 petition is required.
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A quick search on the internet shows many regional centers, and attorneys,
are advocating the rapid filing of skeletal petitions in order to invest
with the lower amount. A skeletal filing is made with very little
information included on the source and trace of EB-5 funds by the investor.
The 120-day delay between publication and implement of the Rule should make
it easier to file a more fulsome application before the new standards take
effect. Investors should be forewarned that the skeletal-submission
approach may meet with rejection by USCIS (for lack of sufficient initial
evidence) or trigger the issuance of a burdensome or impossible-to-fulfill
USCIS request for additional evidence.
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To the extent, however, that investors find themselves with no choice but
to file something without all the relevant information and documentation,
investors should at least take care to include any evidence of lawful
source of funds in order to avoid requests for additional evidence from the
USCIS or even denials. It is also critical to review the potential source
of funds with a qualified attorney to identify any potential issues with
respect to either the ability to verify the source of funds or the
compliance of the proposed source of funds with the requirements of the
EB-5 Program as it is impossible to make changes once the investment and
filing are made.
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There is sometimes an alternative source of funds available which may be
easier to satisfy the EB-5 requirements than the original source
considered. A dialogue with an expert could ferret that information out.
For example, an investor considering the use of a gift from a family member
may not understand they will need to detail the legal source of those
funds, which may prove more difficult than first contemplated as the gift
or may not be willing or able to provide the level of detail in terms of
documentation the USCIS is expecting to see.
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<br>
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In the context of a regional center investment, investors should be careful
to diligence projects, including a detailed review of the offering
documents, economic analysis and business plan, in order to protect their
investment and ability to obtain permanent residence. Consideration should
be given as to the impact of a slowdown of investment capital coming in to
the project after the thresholds are increased, leaving projects at risk of
not being completed or delayed because of inadequate funds. Investors
should inquire about that impact, if any.
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Of course, this final regulatory action was preceded by several years of
activity on Capitol Hill in pursuit of changes to the EB-5 program, many
opposed and blocked by industry, but which are reflected in the final
regulation. It’s possible that dissatisfaction with the Rule will create
pressure on the Hill to revisit many of these provisions and result in a
compromise which would trump the Rule. However, it’s a lot easier to kill
something on the Hill than to get it enacted. Further, it is very unclear
how the replacement of Representative Bill Goodlatte (R-VA.), who was much
involved in in past legislative EB-5 debates, as chair of the Judiciary
Committee with Representative Jerry Nadler (D-NY) affects the Hill’s
dynamics. Needless to say, Chairman Nadler also has other priorities
attracting his attention at this time.
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<p>This post originally appeared on <a href=”https://www.seyfarth.com/publications/CA072919-EB-5″ target=”_blank”>Seyfarth Shaw LLP</a>. Reprinted with permission.</p>
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About The Author<br/>
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<p>
<b>Dawn M. Lurie</b> is senior counsel in the Immigration Practice Group of Seyfarth Shaw LLP’s Washington, D.C. office. Dawn advises on corporate immigration issues involving the recruitment, hiring, transfer, and retention of personnel worldwide. She is recognized in the legal community as a forward thinking immigration compliance authority and EB-5 investment strategist. She has more than 25 years of experience providing assistance with global and U.S. immigration processes. Ms. Lurie is considered a trusted partner to corporate clients and is relied on for her ability to spot impending government enforcement trends. Her ability to balance business necessity with regulatory reality is also highly valued. When advising clients, Ms. Lurie presents creative, yet compliant, solutions and identifies issues long before they become problematic. Dawn’s proudest professional achievement is her ongoing work with young women in the legal field. She has served as a mentor and sponsor, and remains active in women’s workplace initiatives.
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<b>Mark A. Katzoff</b> is a senior counsel with over 30 years of legal experience in Seyfarth Shaw LLP’s Boston office. His practice focuses on general business and capital markets, representing both venture capital funds and emerging companies in structuring private equity investments. He has a particular emphasis working with companies seeking to raise funds from investors looking to participate in the EB-5 program and the regional centers that sponsor the issuers. Mr. Katzoff also advises registered broker-dealers and investment advisers with regulatory compliance matters and previously served for a number of years as a registered securities principal for a broker-dealer firm. His practice in general corporate and contractual matters includes mergers and acquisitions, equity compensation matters, and preparation of joint venture and licensing agreements.
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<b>Angelo A. Paparelli</b> is a partner in the Business Immigration Practice Group of Seyfarth Shaw LLP. A Certified Immigration Law Specialist (CA), he is known among clients and peers for providing creative solutions to complex immigration law problems, especially those involving mergers and acquisitions. He also serves as an expert witness and consultant on immigration issues arising in litigation.
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<b>Randel K. Johnson</b> based out of Seyfarth Shaw LLP’s Washington, D.C. office, is practice chair of the firm’s Government Relations and Policy Group. Before joining Seyfarth, Mr. Johnson served as the senior vice president of the U.S. Chamber of Commerce from December 1997 to December 2017. As senior vice president, he was responsible for labor, immigration, and employee benefits issues pending before Congress and the federal agencies. Mr. Johnson determined the Chamber’s position and set strategy on a wide variety of issues that fell within the jurisdiction of his division. These included union-driven initiatives such as card check legislation, ergonomics, and blacklisting regulations; pension funding reform and health care; civil rights and wage and hour; and comprehensive immigration reform, including visa and border policy.
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