What You Need to Know About the Imminent Changes to the EB-5 Immigrant Investor Program
On July 24, 2019, United States Citizenship and Immigration Services (“USCIS”) published a final rule “EB-5 Immigrant Investor Program Modernization.” The action, which has an effective date of November 21, 2019, will significantly revise EB-5 regulations, including a significant increase in minimum investment amount, revision of the definition of a Targeted Employment Area (“TEA”), and retention of priority date for investors.
All I-526 petitions received by USCIS on or before November 20, 2019, will be governed by the current EB-5 regulations. It is therefore crucial that investors understand the changes in the regulations, the requirements imposed upon their investment, and best practices for investments over the next 120-day period.
I. What changes do the new regulations make to the EB-5 program?
Priority Date Retention
The Immigration and Nationality Act (INA) sets the number of immigrant visas that may be issued to foreign nationals seeking to become lawful permanent residents each year. When the demand is higher than the supply of visas for a given year in any given category or country, a backlog forms. An immigrant’s priority date provides them with their place in line waiting for a visa. At present, USCIS does not permit investors to use the priority date of an approved immigrant investor petition (an I-526) in the event the immigrant investor needs to file a subsequent I-526 immigrant petition. If an investor needs to materially update their I-526 petition, they will lose their place in line.
Under the new regulations, USCIS will allow an EB-5 immigrant petitioner to use the priority date of an approved immigrant investor petition for a subsequently filed I-526 petition for which the petitioner qualifies. Priority date retention is not available in cases involving fraud, willful misrepresentation of a material fact by the Petitioner or when an approval was based on material error.
Priority date retention allows foreign investors to file a new EB-5 when their I-526 petition is negatively affected by material changes in a business plan, termination of a Regional Center etc. and maintain their place in line for permanent residence status.
Increases to Investment Amounts
Under the current regulations, the EB-5 Program requires foreign investors to invest a minimum of $500,000 in a New Commercial Enterprise within a Targeted Investment Area (TEA) to create 10 U.S. Jobs. An investment in a project not located in a TEA is required to be at least $1,000,000.
Under the new regulations, foreign investors will be required to invest a minimum of $900,000 in a project based within a TEA, and $1,800,000 in a project not located within a TEA.
Stricter Criteria for Designating Targeted Employment Areas (TEAs)
A Targeted Employment Area (TEA) is defined by statute as (i) a rural area, which is defined as an area with less than 20,000 residents or (ii) an area that has experienced high unemployment, which is defined as an unemployment rate of at least 150% of the national average unemployment rate. Currently, investors demonstrate that their investments are in high unemployment areas, and therefore qualify for the lower minimum investment of $500,000 in two ways:
1. Providing evidence that the project is located in a rural area or the Metropolitan Statistical Area (MSA), the specific county within the MSA, or the county in which a city or town with a population of 20,000 or more is located, in which the new commercial enterprise is principally doing business, has experienced an average unemployment rate of at least 150% of the national average rate; or
2. Submitting a letter from an authorized body of the government of the state in which the new commercial enterprise is located, which certifies that enterprise is located in a rural area or the geographic or political subdivision of the MSA or the city or town with a population of 20,000 or more in which the enterprise is principally doing business has been designated a high unemployment area.
The new regulations grant USCIS the authority to designate TEAs and remove all state involvement. TEAs will be limited to the immediate area around an EB-5 project, and will only allow for the addition of adjacent census tracts if:
1. The New Commercial Enterprise is located in more than one census tract; and
2. The weighted average of the unemployment rate for the tract or tracts is at least 150% of the national average.
Removing the authority from the states to define the TEA and eliminating the ability to combine a series of census tracts will have the effect of significantly reducing the areas in the US that may be defined as a TEA. This will mean that projects that were formerly contained within areas that were designated as TEAs, may not be classified as TEAs under the new regulations, and will therefore require a minimum investment of $1,800,000, instead of $500,000.
II. Impact on Prospective investors, Regional Centers and Issuers prior to November 21, 2019
With these significant changes coming into effect on November 21, 2019, foreign investors have a little under four months to make a qualifying capital investment and file an I-526 petition with USCIS under the existing regulations. For those of us that endured the rush of August and September 2015, the next 120 days may feel like déjà vu. However, prospective investors as well as Regional Centers and issuers should consider following best practices over the next few months. It is vital that stakeholders consider the following:
1. Avoid filing incomplete I-526 petitions
In July of 2018, USCIS issued a policy memorandum which stated that it will exercise its discretion to deny cases that are submitted without sufficient initial evidence to demonstrate that the petitioner is eligible for the benefit sought. This policy did not exist in 2015. The times are different and, therefore, investors should understand the risks of filing a “bare bones” I-526 filing. An incomplete I-526 can be denied outright without the issuance of a Request for Evidence or Notice of Intent to Deny from USCIS. With a denied I-526 petition, investors would be left with the option of filing a Motion to Reopen within 30 days of the denial as the only recourse to save his/her petition: a challenging and unenviable position to be in.
Four months is plenty of time to organize the necessary documents from both the investor and the project. Start early and make a plan with your attorney so that you can file the strongest petition possible.
2. There really is no such thing as “interfiling” an I-526 petition
In a rush, investors may decide to file a barebones I-526 petition with the idea that they will later submit more documentation before USICS may have the chance to review the case. This is colloquially called “interfiling”. In the past, USCIS has been known to accept post filing submissions of evidence at its discretion, but not always. In consideration of USCIS’ updated policy, interfiling an I-526 petition is problematic for two main reasons.
First, USCIS’ standard operating procedures invoke a rule called “approvable when filed.” Essentially, an officer is to review a petition or application based on the record submitted and facts that existed at the time of the filing. Though USCIS often will accept additional documentation in response to an RFE, submitting a barebones petition in light of the 2018 policy change may trigger an outright denial without the issuance of an RFE, even if subsequent documentation was interfiled.
Second, interfiling additional evidence after the I-526 is submitted gives USCIS great discretion to act in its best interests, which is not always in the best interests of the petitioner. USCIS could exercise its discretion and deny a barebones filing by simply stating that the petition was not approvable when filed because it lacked sufficient evidence from the outset. With predictions that perhaps thousands of I-526s could be filed over the next few months, USCIS could easily be incentivized to deny all barebones I-526 filings as a way to lighten its caseload.
For Regional Centers and issuers, it would help to reduce their exposure by only accepting I-526 petitions with strong supporting documentation. Having to refund money in two years’ time as a result of denied petitions may prove problematic for many different reasons.
3. There is no one-size-fits-all checklist for Source of Funds
Each investor’s story is different, and nobody lives his/her life in a vacuum. A properly developed I-526 record of source and path of funds requires a tailored approach. Developing a checklist of documents needed to support each investor’s narrative is a fluid process. Stakeholders and investors should be leery of boilerplate or standard checklists used in a rush to file.
4. The decision to invest in an EB-5 project should be reached independently and thoughtfully
Foreign investors should give the same care to the selection of an EB-5 project that they do to any investment. They should be conscious of being spoon-fed a project, and take the longer grace period to really consider their options for investment. The foreign investor should exercise independence and ensure that anyone having an outside influence on project selection is licensed or otherwise lawfully authorized and qualified to provide such investment advice.
5. An influx of I-526 petitions may have an effect on processing times and priority dates
Foreign investors should manage their expectations as to when they might receive permanent residence status after I-526 approval. China, India and Vietnam are already in retrogression for the EB-5 visa category, meaning that foreign investors need to wait for their Priority Date to become current before applying for adjustment of status or an immigrant visa. There will be a significant influx of I-526 petitions leading up to the effective date of November 21, 2019 of the new regulations. This will lead to both a backlog in processing times at the Investor Program Office of USCIS, and potentially contribute to even longer wait times for priority dates to become current.
III. Best Practices for Regional Centers continuing to operate after November 21, 2019
Many Regional Centers have sponsored projects that are currently eligible under the EB-5 Program to accept investments, which may no longer be the case after November 21, 2019. Regional Centers should take care to exercise their duty of oversight of their sponsored projects, by working with their projects to amend their offering documents as soon as possible to ensure that they incorporate the new rules. The “Anti-Fraud” obligations pursuant to the U.S. securities laws mandate that offering documents contain accurate and complete material information about the project and the offering. It is a good idea to update offering disclosures to set forth the pending regulations and review and revise any risk factors as necessary. While USCIS has stated that they will not penalize Regional Centers for filing offering documents that are not yet updated after November 21, best practices would require them to be amended as quickly as possible.
The effective date of the new regulations, November 21, 2019, provides investors, Regional Centers and entities raising EB-5 capital with a significant window to ensure that carefully prepared I-526 petitions can be filed under the existing regulations to give the best chance of approval and EB-5 capital can be raised. Moving forward, there is still excellent opportunity for all parties to benefit from the new Program.