EB-5: Summary of the Major Changes Proposed and their Potential Impacts on the Investors

On January 13, 2017, the Department of Homeland Security (“DHS”) published, in the Federal Register, a proposed rule titled “EB-5 Immigrant Investor Program Modernization” (“proposed rule”), to update the existing regulations that govern EB-5 immigration investors and regional centers.

Here is an overview of the major changes proposed, and their potential impact on investors:

Priority Date Retention

DHS proposes to authorize certain EB-5 petitioners to retain the priority date, which is the date the petitioner’s I-526 is received by USCIS. The priority date establishes a person’s place in line for a green card. If a petitioner with a retained priority date needs to file a new I-526 petition due to unforeseen circumstances (e.g. termination of a regional center associated with the original petition or due to material changes to his or her original petition), he or she could use the priority date of the original I-526 petition to apply for conditional residency.

In accordance with the proposed rule, priority date retention generally applies except in cases where DHS revokes the original petition’s approval based on fraud, willful misrepresentation of a material fact, or a determination that DHS approved the petition based on a material error. DHS’s policy consideration under this provision is to avoid further delays on immigrant visa processing associated with the loss of priority dates, and to promote greater certainty and stability for investors to obtain permanent residence in the US.

The ability to retain the priority date will be particularly favorable to investors from China where there is an oversubscription of EB-5 visas and, therefore, a backlog in obtaining a green card provided any revocation of a previous petition by the USCIS was not due to fraud or misrepresentation. Additionally, the priority date retention will allow investors more flexibility to optimize their investments in case a more viable and/or less risky EB-5 investment option becomes available after the submission of their original I-526 petition.

Increases to the Investment Amounts

DHS proposes to increase the minimum investment amount in high employment areas, from $1 million to $1.8 million, and the minimum investment amount in a targeted employment areas (TEA) from $500,000 to $1.35 million. According to DHS, such changes represent an adjustment for inflation from 1990 to 2015 as measured by the unadjusted Consumer Price Index for All Urban Consumers (CPI-U), an economic indicator published by the Bureau of Labor[1] that tracks the prices of goods and services in the United States. In addition, the rule makes regular CPI-U-based adjustments in the investment amount every five (5) years, beginning five (5) years from the effective date of these regulations.

If enacted, the immediate possible impact of this provision may include an increased financial burden on future investors and a possible reduction in the number of investors who are unable or unwilling to invest at this much higher rate. On the other hand, an increase in the minimum investment amount could potentially make it easier for the individual investor to satisfy the requirement of creating ten (10) full-time jobs with their investment amount. Whether the significant increase of the investment amounts will deter the use of the EB-5 program will depend on a host of issues. Such issues include both the macroeconomic and political environment of the investors country of residence as well as the economic and political policies of the United States in the foreseeable future.

[1] See Bureau of Labor Statistics, CPI-U Inflation Calculator, http://data.bls.gov/cgi-bin/cpicalc.pl.

TEA Designations

DHS proposes to replace the old Targeted Employment Area (“TEA”) adjudication methods, which allows the state government the power to designate a TEA by issuing letters certifying areas within a metropolitan statistical area or within a city or town with a population of 20,000 or more as a TEA. Under the new rule, DHS proposed to centralize the TEA designation authority by eliminating state designation of high unemployment areas. If the proposed rule gets approved, DHS would be the only agency that is authorized to designate a targeting employment area.

In addition, DHS will make such designations using new standards in its efforts to further minimize any inconsistencies or discrepancies in designating TEAs.

From the prospective of EB-5 investors and project developers, the TEA designation reform might lead to the disqualification of some projects and investments, which may lead to a decrease in the number of projects and therefore investment opportunities.

Removal of Conditions Process

DHS proposes to clarify that derivative family members of the principal petitioner must file their petitions separately to remove conditions on their permanent residents when they are not included in a petition to remove conditions filed by the principal investor. This would benefit the derivative family petitioners at the expiration of their conditional permanent residence when all the removal conditions are satisfied but the principal petitioner does not intend to or is unable to (e.g. death) file his or her I-829 petition.  In addition, DHS proposes to improve the adjudication process for removing conditions by providing more flexible interview locations, which, once approved, is likely to bring convenience to any individual petitioner.

Miscellaneous Changes

In addition to the above major changes, DHS proposes to update the EB-5 regulation by incorporating the miscellaneous statutory changes made since its effective date in 1991. Also, DHS proposes to clarify definitions of key terms for the program. Both efforts are aimed towards the provision of greater certainty regarding the eligibility criteria for investors and their family members.

What Happens Nex

The public has until April 11, 2017 to submit written comments. Upon the expiration of the comment period, a final rule will be published on the same website, while a copy will be sent to the Congress for approval. The proposed final rule will become effective sixty (60) days after the date Congress receives it, provided Congress does not pass a joint resolution of disapproval.

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