On April 9, 2019, Rep. González-Colón (R-PR-At Large) introduced H.R.2173 – a bill to amend the Immigration and Nationality Act to reserve EB-5 visas each fiscal year for investors in new commercial enterprises in areas where a major disaster has been declared by the president.

The bill is not publicly available as of this writing, but staff informed EB-5 Insights that it proposes to set aside 100 immigrant investor visas per year for areas designated by presidential declaration to be major disasters.

Rep. González’s legislative approach recognizes the economic benefits of the EB-5 program and the ability to fund vital government programs while creating new jobs for Americans in new and creative ways.

However, the EB-5 program is in great need of long-term authorization and modernization, especially as relates to the current 10,000 annual visa cap. Due to family derivatives count and per-country caps, the actual number of annual EB-5 investors is approximately one-third of annual visas, thus restraining the economic potential of the program.

According to a recent economic study by the EB-5 Investment Coalition (linked above), EB-5 modernization, such as removing derivatives from the annual visa cap and/or expanding the annual visas available, could unleash EB-5 as an economic engine to fund vital government programs well above-and-beyond its constrained status today.

Please check back for additional information on this development and other matters as information becomes available.

For more on the economic impact of EB-5, click here.

On March 14, 2019, the EB-5 Investment Coalition, in cooperation with Invest in the USA (IIUSA), released the most comprehensive economic analysis of the EB-5 program to date. Laura Reiff, co-chair of Greenberg Traurig’s Immigration & Compliance Practice, commented on the report: “Without the typical data limitations and constraints on economic analysis, premier industry economists measured and determinized the billions of dollars in economic activity created by EB-5.  At a time of needed reauthorization and legislated reforms, we hope to present this data to the Administration and Congress to help make sound economic-based reforms to this vital economic engine and job-creating EB-5 program.”

For more on EB-5 and job creation, click here.

For more on EB-5 and the economy, click here.

˘ Not admitted to the practice of law

Two members of the Senate introduced The American Job Creation and Investment Promotion Reform Act, S. 1501, in June 2015.  The bill has many provisions seeking to provide reform to the program, including provisions for integrity measures, increased capital investment amounts, and provisions to redefine Targeted Employment Areas (TEAs).

Under current law, a TEA is defined as “an area which, at the time of investment, is a rural area or an area which has experienced unemployment of at least 150 per cent of the national average rate.”  The definition of a “high unemployment area” is defined as a “metropolitan statistical area, the specific county within a metropolitan statistical area, 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 150 percent of the national average rate.”  The state is given the authority to designate TEAs.

The new bill proposes to redefine TEAs and high unemployment areas.  Under the proposed bill, a TEA means “a high unemployment area, a rural area, or any area within the geographic boundaries of any military installation closed, during the 20-year period immediately preceding the filing of an application . . .based upon a recommendation by the Defense Base Closure and Realignment Commission.”  8 C.F.R. §204.6.  The TEA designation determination, under S. 1501, shifts the responsibility to the Department of Homeland Security and takes away the designation authority from the state.  In addition, high unemployment area is redefined under S. 1501 as “an area, using the most recent census data available, consisting of a census tract that has an unemployment rate that is at least 150 percent of the national average unemployment rate.”

The new proposed definition of a TEA under S. 1501 limits the word “area” to only one census tract.  This action restricts the EB-5 program’s economic benefits into many mid-sized cities and suburbs across the country, as many areas that currently qualify as a TEA will no longer qualify as a TEA under S. 1501.  The EB-5 Investment Coalition (EB-5IC) has compiled data on select states demonstrating the percentage of census tracts that would be disqualified in certain Metropolitan Statistical Areas (MSAs).  Please refer to the  following documents: 1501’s TEA Proposal: The Economic Consequences Made Clear and Cities of All Sizes Will Lose Jobs Under S.1501.

The Government Accountability Office (GAO) recently reviewed the risks and economic benefits of the EB-5 program. The report addresses several challenges related to the EB-5 program that have been highlighted in recent years, and which are addressed in legislation currently pending in Congress.

The congressional requesters asked the GAO to examine the following:

  • The extent to which U.S. Citizenship and Immigration Services (USCIS) and its sister agencies have assessed risks of fraud in the program, and what risks have been found;
  • The extent to which USCIS has put into place procedures to address and identify risks within the program;
  • The extent to which USCIS has expanded its capacity to verify job creation, including the use of reliable methodologies to report economic benefits of the programs.

The report’s top line findings were as follows: while USCIS had worked with its partner agencies to identify fraud risks, such assessments are not ongoing. The GAO reported that USCIS acknowledged that it did not have current plans to systematize such assessments. The GAO noted that USCIS stated that fraud-related risks were evolving. Specifically, the GAO received information from agency officials relative to areas of concern for fraud risk that included determining an investor’s source of funds and the legitimacy of an investment entity. The GAO made clear that USCIS had taken steps to enhance its oversight and focus resources effectively, but also noted that weaknesses in its information systems present challenges to most effectively using data collected to identify such risks.

The report also focused on USCIS’ ability to report the program’s economic benefits, noting that USCIS’ increase of its EB-5 workforce, and its enhanced technical sophistication, has increased its capacity to verify job creation through the program.  The GAO reported that USCIS’ reporting methodology can both overstate and understate economic benefits resulting from the program. The GAO recommended that USCIS implement better information collection procedures; though it also acknowledged that USCIS does not believe it has the statutory authority or mandate to develop a more elaborate mechanism to collect such information.

As part of its study, the GAO interviewed numerous parties associated with the EB-5 program, from USCIS adjudicators and economists, to regional center principals and FDNS and IPO supervisory officials to gain insight to its queries.  The GAO also reviewed the economic models to estimate job creation and interviewed the appropriate subject-matter experts. The GAO also reviewed two reports issued by the DHS Office of Inspector General (OIG) on the EB-5 program: a report published in December 2013 focused on USCIS’ ability to terminate a regional center based upon national security concerns and determining whether the program was benefiting the U.S. economy and fulfilling job creation requirements. The second report, from March 2015, found that a former director created the perception of favorable action toward some program stakeholders.

The GAO’s Findings

As a result of its inquiry into the fraud risks and economic benefits of the EB-5 program, the GAO found the following, summarized below:

Source of Immigrant Investor Funds

The GAO reports that it can be difficult for USCIS adjudicators to verify the lawful source of investor funds, which is then identified as a fraud risk. The GAO assessed 150 petitions designated as “high risk” for fraud concerns, and the Fraud Detection and National Security Unit (FDNS) determined that the source of funds contained a risk of fraud, including counterfeit documents and the inability to verify information from foreign banks. The U.S. currently has some limits in verifying foreign banking information, though it does have agreements with certain countries to exchange financial information.

Legitimacy of Investment Entity

Regional centers and their operators have been under recent scrutiny by USCIS for potential fraudulent investment schemes. The GAO report cites two instances where the regional center was found to have defrauded investors. According to the report, there are concerns relating to the inability of the U.S. government to fully investigate foreign-based sales and marketing practices abroad.

Appearance of Favoritism in Program Administration

The GAO referenced a report issued by the DHS Office of Inspector General that examined actions by a former USCIS director, which concluded that the former director created an appearance of favoritism. The GAO noted that following the issuance of that report, the Secretary of Homeland Security instituted protocols to prevent agency actions that could give rise to such an appearance of favoritism.

Steps Taken by USCIS to Address Fraud Risks

In response to the risks identified above, the GAO recognized that the USCIS has taken some steps to mitigate fraud risks, including:

  • Changing its organizational structure: USCIS restructured its EB-5 program operations and moved all activities from California to Washington, D.C. USCIS also established a fraud specialist unit within FDNS, in addition to increasing its staff to be well equipped to ensure program integrity.
  • Establishing fraud awareness training: USCIS is committed to deterring fraud, and has invested in training programs. Examples include programs focused on detecting evidence that may indicate money laundering, and developing an “EB-5 University” to address evolving fraud issues.
  • Law enforcement collaboration: USCIS has increased its coordination with law enforcement agencies, and as such, has expanded the scope of background checks.

The GAO identified some shortcomings regarding the USCIS ability to collect information to detect and mitigate fraud risks. Specifically, the GAO identified certain programs and processes that it believed merited improvement, summarized below, and noted that USCIS is taking steps to address the concerns:

  • Electronic Database

The report found that USCIS does not have the appropriate electronic databases to conduct fraud-mitigating activities. For example, the information on Form I-924 concerning regional center principals is not required to be entered into the database, and as such, this information is never run through a database or background checks. To remedy this, USCIS will begin utilizing its Electronic Immigration System to capture all data, though the system has been delayed for nearly four years and costing over $1 billion.

  • FDNS Site Visits Are Limited

FDNS currently conducts site visits if the Immigrant Investor Program Office (IPO) staff uncovers a material concern regarding the project and the information cannot be verified. In response, USCIS plans to implement additional random site visits in 2015, and to hire eight additional EB-5 program staff for this purpose.

  • Interview of Investors Applying to Remove Conditional Permanent Resident Status

The GAO found that USCIS has not interviewed any immigrant investors applying to remove the conditions on his or her permanent resident status. The GAO recommends that interviews could lead to more information gathering and could lead to corroboration with the information given at the I-526 stage of the petition process. USCIS agreed with the GAO’s recommendation, and will develop a plan to implement enhancements to data collection procedures, including the possible use of interviews, to be completed by September 30, 2016.

  • USCIS Does Not Collect Certain Applicant Information

The GAO reported that USCIS is not capturing certain information that may help mitigate fraud. Specifically, USCIS does not collect information from third parties associated with the regional center or the project, including the businesses supported by the regional center, advisors, foreign brokers, marketers, attorneys, and advisors. USCIS has stated that it is currently drafting a revised Form I-924 to capture this information. 

National Security

A large part of the GAO report is dedicated to national security issues and USCIS’s ability to terminate or deny an application based solely on credible concerns. USCIS recognizes that national security concerns are grounds for denial at the adjustment of status stage, but it does not believe it has the authority to terminate a regional center on national security grounds unless there is an eligibility ground (relating to EB-5 eligibility) that has not been met. The GAO reported that there are some regional centers that are allowed to operate by USCIS despite national security concerns, and recognizes that currently pending legislation in Congress will address these issues. USCIS currently conducts a minimum of one fraud, national security, or intelligence assessment on the program on an annual basis, and will continue to do so.

Methodology for Calculating Jobs

The December 2013 OIG report claimed that USCIS lacked the necessary means to evaluate job creation. In response, USCIS hired 22 economists who have all undergone training. In addition, USCIS has provided its economists with access to data from the RIMS II economic model, noting that it is the model most often utilized and measures indirect and direct jobs. The GAO reported that the RIMS II data does not provide USCIS the ability to determine the exact location of the indirect jobs created through the program.

Reporting EB-5 Outcomes

The GAO reported that USCIS does not have the proper tools to track the outcomes of investment and job creation, and that as a result it may overstate or understate the economic benefits of the EB-5 program. The GAO found that 26 percent of investors have not finished the program, and as such, recommends that USCIS track all data entered on Form I-526 and I-829. USCIS concurred in the recommendation and will develop a plan to collect data on investment amounts and job creation, to be done by September 30, 2016.

A concern reflected in the GAO’s report is whether immigrant investors should be able to claim jobs created by other investors in the project who are not seeking a green card, as permitted by controlling regulations. The GAO reported the views of the IPO, which recognizes that EB-5 capital is critical to the viability of many projects. There GAO recognized that there are numerous industries, including manufacturing, that would not be able to generate the required number of jobs if it relied solely on jobs created by the EB-5 investment at current investment levels.

Study to Address Overall Program Benefits and Cost of the EB-5 Program

The GAO report recommends that the Department of Commerce’s Economics and Statistics Administration (ESA) should complete its study on the EB-5 program and its associated costs, specifically weighing the cost of running the program against the benefits that immigrant investors bring to the United States, such as tax payments, consumer spending, and job creation. The GAO believes it is important to measure a program’s net economic impact, and the GAO recommends that this study strive to do so. The USCIS IPO concurs and will include relevant program costs in the study, to be published November 30, 2015.

Conclusion

The GAO’s report highlights a number of areas for improvement within USCIS. These recommendations are largely directed toward ensuring program integrity and better collection and use of data received from regional centers and immigrant investors to measure program performance. It is noteworthy that USCIS, in its letter response to the GAO, concurred in all four of the GAO’s recommendations.

Given the breadth of the GAO’s report, please check back for additional posts following up on this overview, including examining the way in which legislation currently pending in Congress, if enacted, would address the GAO’s findings.

From left are Greenberg Traurig Attorney Kate Kalmykov, Bank of China Chairman Tian Guoli and Greenberg Traurig Attorney Laura Reiff.

Last week, Greenberg Traurig EB-5 attorneys Kate Kalmykov and Laura Reiff attended the China-U.S. Economic and Investment 2014 Annual Gala Dialogue hosted by the China General Chamber of Commerce (CGCC). CGCC is one of the largest nonprofit organizations representing Chinese enterprises in the United States. The gala served as a platform to enhance economic and business cooperation for both Chinese and U.S. enterprises through the exploration of the new collaborative model of Chinese-U.S. relations. Guests included business executives and elected officials from both China and the United States. Continue Reading Recap from 2014 China — U.S. Economic and Investment Dialogue Annual Gala

The EB-5 program contributed $3.39 billion to the U.S. GDP and supported over 42,000 U.S. jobs during 2012. This is according to the “Economic Impacts of the EB-5 Program 2012: An Economic Development Program for the 21st Century” report released by the Association to Invest in the USA (IIUSA). These results are more than double than those seen in the 2011 report.

The following results are among those highlighted by IIUSA in the 2012 report:

  • “Total economic impact, combining the benefits of EB-5 investments, household spending of immigrant investors and other EB-5 related spending, was $3.39 billion to U.S. GDP and supported over 42,000 U.S. jobs.
  • Investment represents the largest component of EB-5 spending, with approximately $1.8 billion invested by EB-5 Regional Center investors.  These investments contributed $2.5 billion to U.S. GDP and supported 33,134 American jobs.
  • Over 85 percent of EB-5 investment capital – $1.55 billion – was invested in the construction sector.  Other sectors seeing EB-5 investments include chemical manufacturing, mining, manufacturing, and power generation.
  • Pennsylvania, New York, California and Illinois top the list of states with the largest level of investment, and these saw the largest investment impacts.  For example, more than 8,000 jobs were supported in California.
  • Household spending by immigrant investors and their families contributed approximately $383 million to US GDP and supported more than 4,700 jobs in 2012.  The economic impact of household spending represents a permanent impact on the U.S. economy, as these families maintain spending patterns year after year.
  • Spending on EB-5 related immigration services contributed approximately $477 million to U.S. GDP and supported nearly 5,000 jobs in 2012.  These expenditures include spending on flights, moving services, cars, investment and legal services and government fees.”

The report uses well-established economic modeling methods to track data on I-526, I-829, and I-924A applications, as well as approval/denial statistics for EB-5 Regional Centers to determine GDP and job growth impacts. IIUSA uses data measured by state and by impacted industry sector. This includes federal, state, and local tax revenue from EB-5 investments and household spending by investors.

IIUSA is the national trade association representing EB-5 Regional Centers. To view the “Economic Impacts of the EB-5 Program 2012: An Economic Development Program for the 21st Century” report, visit the IIUSA website.

Kate Kalmykov and James Cormie recently published an article on EB-5Investors.com outlining the announcement that the Bureau of Economic Analysis (BEA) will no longer produce the Regional Input-output Modeling System II (RIMS II) that many economists rely on when calculating Regional Center jobs. This update introduces new economic methodologies for EB-5 economists when estimating the impact the EB-5 project on regional demand, economic growth and corresponding job creation.

To read the full article click here.

Congress’s stated purpose in allowing EB-5 investment in USCIS-approved regional centers was to promote “economic growth,…improved regional productivity, job creation, and increased domestic capital investment.”[1] Regional centers have admirably risen to this objective, providing rich sources of capital investment for a variety of projects across the nation. Particularly in the current economic climate where capital investment comes at a hefty premium, regional centers have pooled foreign capital investments for a relatively low price. However, the December 2009 Neufeld Memorandum illustrates that USCIS has chosen this time to enforce a rule effectively requiring regional center investments to create jobs within an artificial two and a half year time period.

In recent months, Stakeholders have reported that USCIS has begun to deny petitions for investment in regional centers that fail to forecast requisite job creation within 2.5 years of the Form I-526 adjudication, and that at the I-829 stage they cannot document the same. Understanding the untenable nature of this requirement requires a brief discussion of EB-5 job creation requirements, as well as consideration of the economic realities of regional center investment.

The regulations break down job creation requirements into three basic categories, namely direct EB-5 investment, investment in troubled businesses and regional center investment. (Investments in troubled businesses are not relevant to the current discussion.) For a direct or individual EB-5 investment, an investor must show that her new commercial enterprise has either created ten new jobs for qualifying employees or will create such jobs within “the next two years.”[2] When the two-year window begins is not clear from the regulations, but the USCIS Adjudicator’s Field Manual states that the two-year period commences six months after the Form I-526 adjudication.[3]  This effectively creates a “2.5 Year Rule” for direct EB-5 investors, which appears to be a tenable position considering the language of the regulation.

On the other hand, for investments in regional centers, the regulation merely states that a “petition must be accompanied by evidence that the investment will create full-time positions for not fewer than ten persons either directly or indirectly through revenues generated from increased exports resulting from the Pilot Program.”[4] Notably, the regulation contains no time constraints on the projected job creation, nor does it reference the time limits for direct EB-5 investment laid out only two paragraphs preceding it. The fact that the later regulation clearly leaves out the temporal restrictions of the earlier regulation suggests that no time limit was intended. Nonetheless, the Adjudicator’s Field Manual mentions a two-year requirement for regional centers as well, a requirement that USCIS insists it will enforce.[5]

Given the nature of many markets and industries this guidance appears to be unworkable.  For example, in many cities such as New York obtaining permits and completing construction alone, can take several years.  Stakeholders need to continue to flag this issue and work with USCIS to find a reasonable resolution.  USCIS has promised since November of 2011 to issue new guidance that centralizes all of the various memorandums issued by the Agency.  The time frame for job creation must be addressed in this guidance and take into business realities. 

By Kate Kalmykov and Bryan Flannery


[1] P.L. 102-395 Section 610(a)

[2] 8 CFR 204.6(j)(4)(i)(B)

[3] USCIS Adjudicator’s Field Manual 22.4(c)(4)(D)(ii)

[4] 8 CFR 204.6(j)(4)(ii)

[5] USCIS Adjudicator’s Field Manual 22.4(c)(4)(D)(ii)

 

Originally posted on eb5investors.com

Based on a recent hearing in a lawsuit challenging certain EB-5 regulations, it appears the regulations may be struck down due to the illegal appointment of Department of Homeland Security (DHS) Secretaries by the Trump Administration.[1] Enacted on Nov. 21, 2019, the regulations at issue had increased investment amounts from $500,000 to $900,000 for investments in a targeted employment area (TEA), restricted the ability for investments to be considered within a TEA, and made other changes to the EB-5 visa category. This is the second lawsuit to challenge these EB-5 regulations, the first of which was filed in November 2019.[2] The government in that earlier lawsuit survived a preliminary injunction request on a different basis, one related to the economic harm of the new regulations, as opposed to whether or not DHS had a lawfully appointed secretary.

During the hearing, the U.S. Magistrate Judge reviewing the lawsuit focused on whether the DHS secretaries involved in promulgating the regulations had the proper authority. The regulations were proposed under acting DHS Secretary Kevin McAleenan, and the final rule was issued by Acting DHS Secretary Chad Wolf. Multiple federal courts and the Government Accountability Office (GAO) have found that McAleenan and Wolf were improperly appointed. Because neither McAleenan nor Wolf had the property authority to issue the regulations, the regulations are invalid.

According to the magistrate judge, if she rules in favor of the plaintiffs challenging the regulations, there would need to be a remedy agreed to by the plaintiffs and defendants on winding down the regulations. Further briefing has been ordered by the judge, and a hearing date has been scheduled for May 6, however, the judge may issue a final ruling based on the briefs alone. The judge requested the parties to brief remedies if the regulations were invalidated, a strong indicator of the outcome.

If the regulations are struck down, there is likely no negative effect on I-526 petitions filed by EB-5 visa applicants after Nov. 21, 2019, as the new regulations were inclusive of the old regulations. In other words, all I-526 petitions that qualify under the new regulations should still qualify based on the old regulations.


[1] Behring Regional Center LLC v. Wolf et al., No. 3:20-cv-09263 (N.D. Cal.).

[2] Florida EB5 Investments, LLC v. Wolf et al., No. 1:2019cv03573 (D.D.C.).

The Biden administration has revoked Presidential Proclamation 10014 of April 22, 2020 -Suspension of Entry of Immigrants Who Present a Risk to the United States Labor Market During the Economic Recovery Following the 2019 Novel Coronavirus Outbreak (PP 10014).

PP 10014 was intended to stop the issuance of immigrant visas at embassies and consulates abroad in order to protect the U.S. labor market; however, it contained many notable exemptions. Exempt from PP 10014’s restrictions included immigrants with valid visas, those seeking to enter the United States in certain medical professions, EB-5 visa holders, immediate relatives of U.S. citizens, members of the U.S. armed forces and their immediate relatives, and those whose entry was deemed to be in the national interest, among others.

It is not clear whether PP 10014 has actually protected the U.S. labor market, given that by law the majority of employment-based immigrants must satisfy a labor market test or have shown such a test is unwarranted (i.e., extraordinary ability, national interest waivers or multinational managers). As the Biden administration noted in its presidential proclamation, PP 10014 appeared mostly to harm the United States by preventing certain family members of U.S. citizens and lawful permanent residents from entering the country. In that manner, PP 10014 served to function as a ban on family-based immigration and diversity visas. The U.S. immigration system was constructed by Congress to favor family-based immigration, and PP 10014 overturned that careful construction, leading some to believe that the Trump administration was using the pandemic as a pretext to push through an anti-immigrant agenda. Diversity visa winners were forced to sue in federal court for the right to utilize their lawfully obtained benefit to immigrate and have recently seen their visa expiration dates extended at the U.S. district court level.

While this will be a welcome step by many, it may not satisfy immigration advocates’ expectations of a full rollback of the Trump administration’s pandemic-related immigration restrictions. The Biden administration has not revoked Presidential Proclamation 10052 of June 22, 2020 – Proclamation Suspending Entry of Aliens Who Present a Risk to the U.S. Labor Market Following the Coronavirus Outbreak (PP 10052), which has restricted the issuance of H-1B, H-2B, J and L visas from abroad. PP 10052 has also been subject to litigation and was enjoined at the U.S. district court level; however, that ruling was restricted to the plaintiff organizations and their members. This effectively limited the injunction to members of the National Association of Manufacturers, the U.S. Chamber of Commerce, the National Retail Federation, TechNet, and Intrax, Inc.

In addition to PP 10052, the Biden administration has also continued the Trump administration’s suspension of the entry of certain travelers who spent any part of the 14-days prior to entry in the Schengen Area, United Kingdom, Republic of Ireland and Brazil. These restrictions overlap with the CDC requirement that all travelers to the U.S. obtain a viral test within three days of flight departure, leading some to find that the suspension of entry should be reconsidered.

Lastly, the final challenge to restoring the U.S. immigration system will be the restoration of routine visa services at embassies and consulates worldwide. Since the pandemic began, many embassies and consulates have completely shut down or severely restricted visa processing, both for immigrant and nonimmigrant visas. While these restrictions are largely pandemic-related and are in place with good reason, they have the effect of stymieing lawful immigration, as most foreigners who require a visa to enter the United States cannot obtain one, and therefore, cannot enter the country. This shadow ban on immigration affects all applicants, including family-based and employment-based immigrant and nonimmigrant visa holders. It is also the most inconsistent, as visa applicants are at the mercy of the operations of the consulate or embassy with jurisdiction over their foreign country of residence. Some embassies, like London, have severely restricted visa processing, while others, like Panama, are processing certain immigrant and nonimmigrant categories. In another example, the Amsterdam Embassy recently switched to only providing emergency nonimmigrant visa services despite the in-country case average hovering near its rate from October, a time when the embassy had expanded services. Visa applicants generally cannot shop around, as most embassies and consulates restrict processing at their location to residents of the jurisdiction they cover and, if they could apply at a different embassy or consulate, would have to pay a new visa fee.

While it is generally believed that the Biden administration will ultimately also revoke PP 10052 and resume routine consular operations worldwide (with appropriate pandemic-related measures), those actions cannot come soon enough for immigrants caught in limbo, many of whom are separated from loved ones or unable to start work.