EB-5 Reauthorization Bill Summary

Summary

Stephen Yale-loeher makes sense out of the lengthy and complicated bi-partisan proposed EB-5 bill. Note that it is extremely unlikely that this bill passes in its current form.

June 15, 2015


Section 1: Title: American Job Creation and Investment Promotion Reform Act of 2015.

Section 2: Reauthorizes EB-5 regional center program for five years, until September 30, 2020.

Repeals section 610 of the original 1992 appropriations law and moves the regional center program to INA § 203(b)(5)(E).

P. 2 line 20: DHS can give priority to petitions filed under the regional center (RC) program.

P. 3 line 6: discusses what is required in applying for RC designation.

P. 4 line 3: RCs must report steps taken to ensure compliance with all laws regulations, and

P. 4 line 9 through p. 5 line 21: Up to 90% of all job creation could be satisfied through indirect jobs. Have to use economically and statistically valid methodologies that have been accepted by the DOC’s BEA to determine indirect jobs.

P. 5 line 22 through p. 6 line 20: EB-5 investors can get credit for jobs created by domestic investors “only for the percentage of total jobs created that is equal to the percentage of total capital investment provided by such non-alien entrepreneurs in the commercial enterprise. The percentage of jobs created for which alien entrepreneurs may accrue credit … based on such non-alien entrepreneur capital contribution may not exceed 30 percent of all jobs created even if such contribution exceeds 30 percent.” [So, if domestic capital accounts for 80% of the capital stack, only 30% of the jobs can flow to EB-5 investors. Will this hurt some EB-5 projects?]

P. 6 line 21: No tenant occupancy jobs are allowed.

P. 7 lines 3-25: RCs have to give advance notice to DHS of significant proposed changes to their organizational structure, ownership, or administration, including the sale or rental of such centers. DHS has to approve the changes before they can take effect. DHS has to provide notice of any such changes for at least 30 days in advance on its website. [So, if an RC wants to rent its center to a project, they need to get advance permission?]

P. 8 line 6 through p. 12 line 20: Before an RC can market a new project it needs to submit a business plan, economic report, PPM, marketing materials, and all other relevant documents to DHS. The documents need to specify various items, including any potential conflicts of interest, everyone who is getting a fee in connection in the investment, any pending litigation, and investment risks for the new commercial enterprise (NCE) or related business. The project also needs to certify that it and its agents, etc. are complying with U.S. securities laws.

P. 12 line 21: DHS project approval is binding on agency unless there is evidence of fraud, misrepresentation, material change, material mistake in law, etc.

P. 14 line 3: DHS can deny or revoke a business plan application if DHS thinks it presents a significant risk of fraud, self-dealing, conflicts of interest, etc.

P 14 line 24: DHS to perform at least one site visit per year for each EB-5 project.

P. 15 line 5: Premium processing for RC business plan applications, including expeditious site visits with ability to cure any deficiencies in business plan.

P. 16 line 12: RCs have to certify annually that they are complying with various requirements.

P. 20 line 3: DHS can sanction an RC for various violations.

P. 21 line 1: Sanctions include civil penalties of up to 10% of the total EB-5 capital raise, a temporary suspension, a permanent bar from program participation, or RC termination.

P. 22 line 3: Anyone associated with an RC or a commercial enterprise associated with an RC, including a marketer and promoter, is barred from participating in the EB-5 program if convicted within the last 10 years for fraud or deceit or sanctioned by a state securities commission or equivalent for fraud or deceit.

P. 24 line 13: This bar also applies if DHS has “reasonable cause to believe” the person may engage in a variety of activities, including trafficking, espionage, sabotage, or money laundering.

P. 26 line 7: Anyone “directly or indirectly involved with a regional center as its principal, administrator, owner, officer, board member, manager, executive, general partner, fiduciary, or other similar position of significant authority for the operations or management of the regional center” must be a lawful permanent resident or US citizen.

P. 26 line 20: No foreign government entities may be directly or indirectly involved with the ownership or administration of an RC.

P. 27 line 1: DHS must do background checks on all persons associated with an RC or a commercial enterprise associated with an RC.

P. 28 line 1: DHS has unreviewable discretion to terminate on basis of fraud, misrepresentation, criminal misuse, or poses a threat to national security.

P. 29 line 6: SEC has jurisdiction over an EB-5 RC transaction.

P. 29 line 20: RCs must certify that it is in compliance with and will ensure that all parties associated with the regional center remain in compliance with state and US securities laws.

P. 30 line 15: An RC must make this certification every year.

P. 31 line 11: If an RC discovers through due diligence that they have violated securities law in the previous fiscal year, they must report the noncompliance, actions currently being taken to remedy noncompliance, and certify they are now in compliance.

P. 32 line 3: An RC must monitor and supervise the sales of securities made by parties associated with the regional center to ensure compliance with US securities laws.

P. 32 line 17: DHS has unreviewable discretion to suspend or terminate an RC that does not provide the annual certification.

P. 34: The bill defines “parties associated with a regional center” to mean a regional center, any commercial enterprise associated with the regional center, owners, officers, directors, managers, partners, agents, employees, promoters and attorneys, and any other person in active participation with the regional center.

P. 35 line 5: each RC must pay an annual fee of $20,000 to establish an EB-5 integrity fund starting Jan 1, 2016. DHS may change the amount. DHS is to use the fund for audits and site visits, and to conduct investigations inside and outside the United States.

P. 38 line 21: Direct and third party promoters of a regional center must register with USCIS.

P. 40 line 1: RCs/NCEs must have contract with all third party promoters outlining rules and standards (P. 38 line 23).

P. 40 line 11: An investor has to prove the lawful source of their administrative fees, as well as the capital contribution.

p. 41 line 13: 7 years of tax returns required.

p. 42 line 17: limits gifted funds. Gifted funds can only be used for EB-5 investments if gifted by a spouse, parent, child, sibling, or grandparent. Gifts must be in good faith and not to circumvent limits on permissible sources of capital.

p. 43 line 9: Capital based on loans must be collateralized on investor’s personal assets. The language at this section is vague and there is still some confusion on capital as indebtedness and capital as cash obtained from an underlying loan.

P. 43 line 16: Loans must be obtained by a reputable bank or lending institution that is properly chartered or licensed under laws of state, territory, or country, or applicable jurisdiction. “Reputability” determined by consulting relevant commercial and government databases, such as OFAC, TFFC, and FinCEN.

P. 44 line 4: treatment of investors if RC is terminated: If a regional center or NCE is terminated, investors that have already obtained conditional residence would have 180 days to affiliate with an new regional center, make a new investment in a new NCE, or make a new investment through an NCE affiliated with a different regional center. The two-year conditional residence program would start over.

P. 46 line 10: DHS has “unreviewable discretion” to deny or revoke any EB-5-related petition for fraud, misrepresentation, criminal misuse, or threats to public safety or national security.

P. 47 line 14: DHS can debar an RC or any person associated with an RC if DHS, in its unreviewable discretion, determines that the person was a “knowing participant” in the conduct that led to the RC’s termination.

P. 48 line 6: Effective dates: Not pertaining to RCs: take effect immediately. Any RC or “person involved” that is pending or approved upon enactment will also take effect immediately. Any RC approved before enactment will have a 1-year grace period.

P. 48 line 22: GAO report by December 31, 2018 on the economic benefits of the EB-5 program, compliance, fraud prevention, etc.

P. 50 line 22: DHS OIG report by December 31, 2018 on EB-5 vulnerabilities, potential concerns re economic espionage, exports of sensitive technology, terrorist money laundering, etc.

Section 3: I-829 Changes

P. 53 line 18: DHS must make a site visit to the EB-5 project. The site visit can be made at any time after the project has filed a project preapproval application. [See also p. 14 line 25]

P. 54 line 16: If the investor has sustained his investment for at least 24 months before admission, the investor may file his or her I-829 petition at any time. [Note: This may help backlogged or retrogressed cases.]

P. 55 line 5: DHS may deny an I-829 petition for fraud, misrepresentation, criminal misuse, or threats to public safety or national security. DHS doesn’t have to disclose the basis for its determination if such disclosure would be contrary to the national interest.

P. 56 line 1: Section 3 takes effect upon enactment, with one exception.

Section 4: EB-5 Visa Reforms

P. 56 line 17: sets aside at least 5,000 EB-5 visas a year for investments in TEAs.

P. 57 line 1: A designation as a high unemployment TEA is valid for two years, starting on the date an application if filed under subparagraph (F) [meaning the RC business plan review discussed starting on p. 8.]

P. 58 line 1: TEA investments are $800K; non-TEA investments are $1.2 million. Automatic adjustments to occur every five years based on CPI changes.

P. 60 line 1: Minimum investment for an EB-5 project in a TEA shall never be less than half and never more than ¾ of a non-TEA minimum investment amount.

P. 60 line 16: defines “capital” to include “all real, personal, or mixed tangible assets owned and controlled by the alien entrepreneur, or held in trust for the benefit of the alien and to which the alien has unrestricted access.”

P. 60 line 23: Capital must be valued at fair market value in US dollars.

P. 62 line 6: defines “high unemployment area” to mean an area “consisting of a census tract” that has an unemployment rate that is at least 150% of the national unemployment rate. [Note the limitation to “a” census tract. Unclear whether this means a project can qualify if it is in multiple census tracts as long as at least one of the census tracts has a high enough unemployment rate, or whether it must be exclusively in one census tract.]

P. 62 line 13: defines “rural area” as being outside an MSA or outside a city or town of 20,000 or more.

P. 62 line 22 through p. 63 line 21: defines a “targeted employment area” as a high unemployment area, a rural area, or any area within the geographic boundaries of a closed military base. TEA determinations are made by DHS; DHS is not bound by what others say. DHS to issues rules to implement the modified definition of a TEA. DHS and DOD to issue rules to implement the modified definition of a TEA.

P. 64 line 1: If a parent’s I-829 petition is terminated, a child is still a child for EB-5 purposes if the child remains unmarried and the parent files a subsequent I-526 petition within one year after the original petition was terminated.

P. 64 line 18: Increased pay for USCIS EB-5 workers.

P. 65 line 1: Bill amends INA § 245(k) to include EB-5 investors. [This means that an EB-5 investor who has been out of status for less than 180 days may nevertheless adjust status.]

P. 65 line 9: The bill allows concurrent filing of an adjustment of status petition of a visa is immediately available.

P. 65 line 16: Section 5 takes effect upon enactment, with certain exceptions.

Section 5: Procedure for Granting Immigrant Status:

P. 66 line 13: Investor can file an I-526 petition only after USCIS has approved the project business plan.

Section 6: Fee Changes:

P. 67 line 8: USCIS must do a fee study to make sure the agency is getting adequate fees.

P. 67 line 22: USCIS is supposed to ensure that on average, regional centers are decided in 120 days, I-526 petitions are decided in 150 days, and I-829 petitions are decided in 180 days. [Note: the bill does not require the agency to adjudicate EB-5 petitions within these time frames.]

Section 7: Transparency:

P. 69 line 16: USCIS can’t give preferential treatment to any EB-5 investor or project.

P. 70 line 6: This includes not attempting to expedite in a manner not available to all petitioners.

P. 71: DHS must keep copies of all emails and phone calls concerning an EB-5 case.

P. 73 line 1: evidence from law enforcement or intelligence agencies are not to be made part of the record.

P. 74 line 4: Only communications through appropriate channels.

P. 76 line 8: USCIS director must keep a log of all communications.

P. 77 line 13: All non-case specific information about program requirements or administration that was not previously publicly available must be made publicly available within 30 days.

P. 78: Penalties for violating these new communication requirements range from a written reprimand to removal.

P. 79: effective dates: Section 7 amendments take effect the date of enactment.