How Would Proposed EB-5 Legislation Affect Individual Investors?

How Would Proposed EB-5 Legislation Affect Individual Investors?

How Would Proposed EB-5 Legislation Affect Individual Investors? 500 318 Michele Franchett

The EB-5 Regional Center Immigrant Investor Program is due to expire on December 9, 2016, and the United States Congress is considering reauthorization legislation.  Considerable controversy abounds, but the focus of this post is to summarize those provisions in H.R. 5992 that would impact individual investors if they are enacted into law.

H.R. 5992 is a bill that was introduced into the House of Representatives on September 12, 2016, by Representative Goodlatte (on behalf of himself and Representative Conyers).  Below is a summary of the provisions in this 125-page long bill that would directly affect individual investors.

Effective Dates – All of the new provisions would impact investors unless they are exempted (“grandfathered”) based on:

  • I-526 petition filed prior to June 1, 2015; or
  • I-526 petition filed between June 1, 2015 and the date of enactment and:
    • The regional center filed an I-924 with exemplar I-526 petition prior to June 1, 2015; or
    • The regional center filed an I-924 with exemplar at any time, which was approved prior to enactment; or
  • I-829 is based on I-526 filed prior to June 1 2015 or approved before enactment

New provisions include:

  • Source of Funds Rules
    • Investors must provide business and individual tax returns “as applicable” for 7 years
    • Investors must provide source and tracing for both capital contribution and administrative fees
    • Investors must identify all persons assisting in transfer of funds
    • Gifts that serve as the source of investment funds may only come from the investor’s spouse, parent, son/daughter (over 21), sibling, or grandparent (note – not mother-in-law or father-in-law). The funds must be “gifted in good faith and not to circumvent any limitations imposed on permissible sources of capital under this subparagraph.”
    • Loans that serve as the source of investment funds must be secured by assets of the investor and be issued by a properly licensed or chartered bank or lending institution.

This raises the question – what about gifts derived from loans? We have no clear answer yet

  • Minimum investment amounts will increase to $800,000 (TEA) and $1.2 million (non-TEA)
  • New TEA definitions will apply for rural areas and “priority urban investment areas”

Amendments to I-526 petitions will be permitted without losing the priority date in order to submit evidence showing the business is primarily conducting business in a TEA under the new definition

  • Visa set-asides reserve visas for investors in businesses located in TEAs
    • 2,000 set aside for rural areas
    • 2,000 set aside for “priority urban investment areas”

Note – these visas cannot roll-over for use by non-TEA investors.  If there are not enough TEA investors these visas would go unused and exacerbate the visa backlog problem overall

  • New job creation requirements
    • For regional center investment projects, investors may take credit for indirect job creation amounting to only 90% of overall job creation. 10% must come from on-site jobs
    • Jobs associated with tenant occupancy must be new, and not merely relocated
  • No public bonds – EB-5 capital may not be used to purchase bonds available to the general public
  • Increased I-526 petition filing fees –  $1,500 plus $2,000 Integrity Fund Petition Fee
  • No petitioner may be under 18 at the time of filing (effective for petitions filed on or after enactment)
  • Effective upon enactment, no I-526 petition may be filed until the regional center has filed “an application for approval of an investment under 203(b)(5)(I)”, which must include:
    • A comprehensive business plan
    • Economic analysis
    • Any documents filed with the Securities and Exchange Commission or State securities regulator
    • Any offering documents and marketing materials
    • Description of due diligence policies and procedures to ensure compliance with securities laws by RC, NCE and JCE, agents, employees, advisors, attorneys and others acting in concert with them, as well as a certification by the regional center that they are in compliance in connection with the offering
    • Evidence the RC consulted with a local economic development agency or municipality regarding the project, indicating the number and type of jobs to be created and whether the project is consistent with the plan for economic development in the region
  • Materially different facts will require the filing of a new I-526 petition

This mirrors current USCIS adjudications policy, and will be effective immediately upon enactment for all I-526 petitions

  • Section 245(k) of the Immigration and Nationality Act (“INA 245K”) will be expanded to include EB-5

INA 245K permits adjustment of status even where the applicant failed to continuously maintain valid nonimmigrant status for a period of up to 180 days.  This will most likely be useful only to investors from countries other than China due to the current visa backlog in China’s EB-5 category (unless the 4,000 visa set-asides for TEAs result in visas becoming immediately available to investors from China)

  • Concurrent filing of I-526 petition and I-485 adjustment of status

Concurrent filing will be permitted if visas are immediately available – effective upon enactment.  Again, this will most likely be useful only to investors from countries other than China due to the current visa backlog in China’s EB-5 category (unless the 4,000 visa set-asides for TEAs result in visas becoming immediately available to investors from China)

Relief for good faith investors following “program noncompliance”

H.R. 5992 contains provisions designed to improve the integrity of the EB-5 Immigrant Investor Program, and authorizes USCIS to fine, terminate and debar from participation in the Program regional centers, new commercial enterprise, job creating enterprises, and individuals who engage in certain prohibited activities (“program noncompliance”).  These provisions focus primarily on conduct involving fraud, misrepresentation, securities law violations, certain criminal activities, and activities considered to threaten national security.  The focus of this discussion is how these provisions may impact individual investors, but it does not explore these provisions in great detail.

Following termination or debarment of EB-5 entity

An approved I-526 petition or conditional lawful permanent resident status of an investor shall remain valid following termination of the regional center (“RC”), new commercial enterprise (“NCE”) or job creating enterprise (“JCE”), but then will be terminated after 180 days unless:

  • The NCE associates with a new RC; or
  • The investor makes a qualifying investment in another NCE associated with an approved RC; or
  • The alien makes an investment in another NCE not associated with an RC

But USCIS shall terminate the petition and status of the investor if it believes he or she was a knowing participant in conduct leading to the termination of the RC, NCE or JCE


I-829 petition after re-investment following program noncompliance

If an affected investor makes a new investment to comply with EB-5 program rules, he or she may file an I-829 petition 2 years after the date of the subsequent investment


Securities enforcement actions

In case of enforcement action by the Department of Homeland Security, the Attorney General, or the Securities and Exchange Commission in a United States District Court, or by a State authority in State court against the RC, NCE, JCE or any person involved with them regarding fraud affecting the EB-5 investor’s investment:

  • Department of Homeland Security may hold the I-829 petition in abeyance
  • The United States District Court may order an extension of deadlines to prevent age-out of derivatives
  • The investor may petition to amend the underlying I-526 petition or I-829 petition without changes being deemed material changes and retain the priority date (unless the investor is believed to have been a knowing participant in the conduct leading to the enforcement action)

OFAC SDN List Check (Office of Foreign Assets Control Specially Designated Nationals)

  •  Checks will be required prior to admission for permanent residence for all family members  – effective upon enactment

I-829 Petitions

  • Instead of removing conditions, USCIS may grant a one year extension of Conditional Resident Status, which would require the investor to file another I-829 petition. This would presumably occur in cases where the NCE had not yet created the requisite number of jobs at the time of the initial I-829 filing
  • Interviews will be conducted for I-829 petitioners, but USCIS will have the authority to waive the interview. USCIS has already starting conducting interviews of I-829 petitioners, and in the cases we are aware of USCIS invited the regional center representative to appear with the petitioner to answer questions about the project.

Adjudication goals

For what it is worth, H.R. 5992 sets forth adjudication processing time goals as follows:

  • 120 days for RC designation proposal
  • 120 days for “approval of investment in a commercial enterprise” (I-924 filing with request for approval of exemplar I-526 petition)
  • 150 days for I-526 petitions
  • 180 days for I-829 petitions

Electronic filing

H.R. 5992 permits USCIS to increase filing fees to cover the cost of implementing a system for electronic processing of petitions

Premium Processing

For a fee that has yet to be determined, investors and regional centers may request that their petitions and applications be adjudicated within ½ the target processing times above.  This option is supposed to become available 180 days after enactment