by David Hirson
In each issue of EB5 Investors Magazine, editorial board member David Hirson addresses developments in the EB-5 arena. With a mix of observation and analysis, attorney Hirson keeps readers up-to-date with all things EB-5. Here are some updates from the first two quarters of 2014.
The EB-5 world experienced many events in these first two quarters of 2014. From Canada’s elimination of its immigrant investor and entrepreneur program to culminating discussions that China would reach its visa cap this 2014 fiscal year, these past six months have proven to be very busy. Additionally, USCIS-published data shows that an astounding 6,346 I-526 petitions were received, with 3,699 approved. To date, this is the highest number that the program has ever experienced and is indicative of its continuing viability
Possibility of visa retrogression in China
Since the program’s inception in 1990, this employment-based preference has been allotted 10,000 annual visas. Although actual usage of EB-5 visas has never previously reached the allotment of 10,000 visas, the State Department has issued a preliminary warning that a cut-off date might need to be established for China’s EB-5 category at some point during this 2014 fiscal year.
If there is a quota backlog for China, Chinese investors will still be able to invest and file their I-526 applications. However, the issuance of the conditional immigrant visa following the successful completion of the consular interview or adjustment of status application will not occur until there is a quota number available for the investor. Such a quota backlog would likely delay Chinese foreign nationals with approved I-526 petitions from entering the United States and obtaining conditional permanent residency. Children who are derivative beneficiaries of the I-526 petition could “age out” if the I-526 petition is approved but there are no EB-5 visas available, as they are no longer accorded protection under the Child Status Protection Act once the I-526 petition is approved.
This has created a lot of discussion and anxiety amongst Chinese foreign nationals. Although the comprehensive immigration bill that passed the U.S. Senate would have avoided the quota backlog by removing family members from the EB-5 quota, to date, the bill remains floating in the House. Filing immigrant petitions and concluding cases to finality as soon as possible is important for immigrant visa applicants with potential age-out derivatives.
Canada eliminates investor program
In February 2014, Canada announced the elimination of its decades-old federal investor programs. All 65,000 applications that were pending would be returned and refunded fees paid. Canada’s cancellation of its immigrant investor program has resulted in many foreign national applicants looking elsewhere to immigrate, with a key alternative being the EB-5 program.
EB-5 stakeholders conferences
February 26, 2014 EB-5 StakeholdersTeleconference
USCIS held its long-awaited EB-5 stakeholder teleconference where Nicholas Colucci, the new chief of the EB-5 program office, began discussions with updates on the EB-5 program, addressed the goals and challenges that his division faced, and ended the session with a Q&A segment. Some of the notable highlights included:
Washington, D.C. Office: Starting February 2014, all Form I-924 applications and I-526 petitions will be adjudicated in the new Washington, D.C. office. Form I-829 petitions and EB-5-related adjustment of status applications will continue to be adjudicated at the California Service Center.
Processing Times : There are plans to update processing times on a monthly basis and goals to achieve better processing times for I-526 and I-829 petitions by the end of this fiscal year, with even faster processing times for I-924 applications.
Electronic Filing (“ELIS”): USCIS has now implemented the use of the online case filing system, ELIS, for the intake of I-526 petitions. Further details are to be provided at future stakeholder meetings.
Regional Center Geographic Scope: Pursuant to the May Memo, regional centers can now sponsor projects beyond the industry and geographic scope for which they have been approved, provided that it meets certain conditions, including geographic proximity. It was explicitly noted that a California regional center cannot sponsor a New York project.
Bridge Financing: It was reiterated that per the May Memo, the replacement of bridge financing with EB-5 investor capital should generally have been contemplated prior to acquiring the original financing. However, even if this was not contemplated prior to acquiring the temporary financing, so long as the financing to be replaced was contemplated as shortterm financing, the infusion of EB-5 financing could still result in the creation and credit of new jobs.
Guest Expenditures: Jobs created by hotel guest expenditures may be credited: (1) to meet unmet aggregate demand; (2) in the absence of existence of comparable facilities; and (3) in response to the demand generated by another establishment such as a sports arena.
April 23, 2014 EB-5 Stakeholders Teleconference
USCIS held a teleconference to solicit feedback in improving and clarifying current EB-5 regulations. Some of the highlights from this stakeholder input session include: implementing premium processing; regional center liability for overseas broker misrepresentations; allowing direct investment projects to calculate and include indirect and induced jobs; and releasing up-to-date information relating to I-924 and I-526 RFEs to provide more guidance to applicants. In a one-way interaction, USCIS listened to speakers but gave no specific answers or direction on what is to be expected in new regulations to come.
In light of the aftermath from the Securities and Exchange Commission (SEC) enforcement lawsuits brought in 2013, many foreign nationals have grown increasingly focused on conducting due diligence on all of the EB-5 program’s components, including the regional center, project, and managing principals. The seminal case, SEC v. A Chicago Convention Center, et al., which was the first SEC action filed under the EB-5 program in February 2013, also reached a final judgment this quarter as the defendants were ordered to disgorge $11.5 million in proceeds and pay $3.9 million in civil penalties to settle the lawsuit without the defendants admitting or denying allegations. As I covered in my last series, this lawsuit involved a fraudulent investment scheme in which the defendants allegedly sold more than $145 million in securities to prospective EB-5 investors. The investors all received their capital investment money back but not the administrative fee.
These past two quarters have not only proven to be eventful, but also shown very positive interest and acceptance indeed. With improved processing times and more transparency in the new EB-5 program developments, the federal program has proven that it is, once again, a stimulator to the U.S. economy at almost no cost to U.S. taxpayers. To date, the agency estimates that the program has raised $8.6 billion and created at least 57,300 jobs since 1990, with intentions of increasing these numbers in the years to come.
David Hirson would like to acknowledge Katie Wu, Associate Attorney, Fragomen, for her contribution to this article.
Please note that at the time of publication, published processing times were: 13.2 months for I-526 petitions; 8.9 months for I-829 petitions; and 10.6 months for I-924 applications.