Author: H. Ronald Klasko
This is not business as usual. EB-5, at least as we have known it, has reached a pivotal point. Action taken or not taken in the next couple of months will likely presage the future of the program.
A sea change occurred about a month ago when the Department of Homeland Security Ombudsman’s Office issued a report confirming that the quota waiting list for a Chinese investor who invests today in the EB-5 program is likely to be in excess of 10 years. Although word had been getting out in China that previous estimates of 3 or 4 years may be unrealistically optimistic, an official document with the imprimatur of the U.S. Government confirming a decade-plus wait (which will only increase absent action taken to address the issue) foretells a precarious future for the Chinese EB-5 market.
Yes, the EB-5 program could survive if regional centers and developers focus on India, Vietnam, Dubai, Brazil and other alternative markets. However, the magnitude of EB-5 capital raises – – and the magnitude of job creation produced by those capital raises – – would be on a vastly smaller scale. The ability of EB‑5 projects presently on the market to complete large capital raises, on which the project’s success is dependent, would almost certainly be compromised.
Other than doom and gloom, what is the purpose of this blog? It is a call to arms for everyone interested in or involved in advocacy for the future of EB-5. If you care about this issue, tomorrow may be too late.
Before I list the legislative options for addressing the numbers issue, I think it is important to mention a number of different public policy reasons why the waiting list issue must be addressed in any legislation.
Congress and USCIS have been clear that the EB-5 program is not intended to be a passive investment program but rather a program in which the investor is required to be “engaged in the management.” How is an investor to be engaged in the management of an investment enterprise when the investor will not even be able to come to the U.S. for a period in excess of 10 years – – long after most projects that are receiving the EB-5 money and creating the jobs have been completed? This is a problem for regional center EB-5 investors; it is a virtual impossibility for direct EB-5 investors.
Furthermore, USCIS has determined that the period during which the investment must be sustained at risk is two years following admission as a conditional resident. For Chinese investors, this means that the investment must be sustained – – if the Ombudsman is correct – – in excess of 12 years. Such an extended investment period creates greater opportunities for misfeasance or malfeasance that could result in more failed or fraudulent projects. This would obviously be counterproductive to Congress’ efforts to protect the program against such negative consequences through the enactment of integrity and transparency provisions.
Finally, with a waiting list of 10-plus years, virtually every project will be long completed, and every loan long paid off, before the investor has completed the required sustainment period. This means that, in virtually every case, the investor’s funds would have to be redeployed to another project. From a public policy perspective and an investor protection perspective, this is not a good result. We want investors to perform due diligence before making investments, but investors have no ability to perform due diligence on an unknown project into which their money will ultimately be redeployed.
For these reasons and others, the time has come to re-focus our advocacy priorities. In fact, I suggest that significantly increasing availability of immigrant visa numbers for EB‑5 investors as part of a long-term extension of the regional center EB-5 program should be our highest legislative priority. I suggest that we should be prepared to be flexible on virtually all other issues in order to attain this goal. Although I have no difficulty providing a laundry list of provisions that I do not like in pending EB-5 bills, or providing a wish list of provisions that I would like to see added, I believe that there are only two issues that could be considered program killers:
- There can be no retroactivity of investment amounts or other substantive requirements to investors who have previously filed I-526 petitions; and
- There can be no requirement of an approved exemplar petition before investors can invest in projects or file I-526 petitions.
I am fully aware of the political difficulties in increasing numbers for any category of immigrants. I am also fully aware that, even if many other concerns are negotiated away, it is still a steep uphill climb. However, it is a climb that we must pursue because the problem will not solve itself. If legislation passes to extend the EB-5 program, and does not include numbers relief, there is no realistic likelihood that the issue will again be addressed in the near future. Quite simply, it is likely now or not for a very long time.
There are many possible ways to address this issue. The following is a list in rough order of feasibility:
- Legislative language to make clear that the 10,000 EB-5 numbers refers to 10,000 investors and not family members. This is probably the most feasible alternative since it is already contained in the bill advanced by Senator Cornyn. In this regard, it is worth mentioning that a number of lawyers – – including myself – – believe that both the present legislative language and the legislative history can and should be interpreted to provide for 10,000 investors.Another way of accomplishing the same result is a technical amendment to the existing language of Section 203(b)(5) of the Immigration and Nationality Act to clarify that 10,000 refers to investors.
- Reducing or eliminating the diversity visa lottery. Approximately 50,000 immigrant visas per year are awarded on a lottery basis to people with no particular skills or family relationships based on geographic diversity. Although I am fully aware that this program has prominent proponents, if we conclude that Congress does not have the appetite for adding additional immigrants, this may be the best solution. The diversity immigrant numbers could be allocated to categories with the longest backlogs, including family categories, Indian high tech and national interest EB-2s and, of course, Chinese EB-5s. It is not a question of whether it is a good idea to eliminate the lottery. It is a question of whether the lottery is more important than people performing work in the national interest of the United States, immigrants with high tech skills needed by U.S. employers, family reunification and job-creating investors.
- Recapturing unused employment-based immigrant numbers. There are over 100,000 employment-based immigrant numbers from past years that went unused. Some or all of these numbers could be allocated to the same categories mentioned above. The advantage of this solution is that it has been done twice before through acts of Congress.
- Providing a “special immigrant” category for investors who invest in projects deemed to be in the national interest. Various special immigrant categories, which are exempt from any immigrant quotas, already exist in the law. The most logical national interest category might be infrastructure investments. The idea of funding major infrastructure improvements in our country at no cost to the U.S. taxpayer shouldn’t be lightly discarded.
If none of the above options is politically feasible, the fallback would be for Congress to create a new nonimmigrant visa category (the W visa) for foreign nationals with approved EB-5 petitions to come to the U.S. to “oversee” their approved investments for as much or as little time as they wish during the pendency of the immigrant visa quota wait. Presumably, this would not provide work authorization but would provide the ability for children to study in the U.S. This option also has the benefit of precedent. A special nonimmigrant visa category was previously created by Congress to allow spouses of permanent residents waiting for the family second preference quota to become current to enter the U.S. during the pendency of the quota wait.
In the event that no legislative solution is possible – – a very unfortunate scenario indeed – – the only other option is litigation. There are at least two different legal arguments that can be advanced for the proposition that the existing law is being interpreted incorrectly. One legal argument is that the present Section 203(b)(5) should be read to provide for the immigration of 10,000 investors per year. The other would be an interpretation that Section 203(d), which applies to all immigrant categories, does not include dependent family members in the overall visa count. Even though I believe there is strong legal support for both arguments, the chances of success in any litigation must be considered, at best, highly speculative because of the deference that federal courts usually give to long-held administrative positions. However, even if the chances of success are only 15% to 20% (which I think is a conservative estimate), a 15% to 20% chance of striking gold with no risk of loss doesn’t sound too bad to me.
But first…let’s focus on the legislative solution.