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Senate Judiciary Committee Chairman Charles Grassley (R-Iowa) and Ranking Member Patrick Leahy (D-Vt.) have introduced S. 1501 (the “American Job Creation and Investment Promotion Reform Act of 2015”), which if passed, will reauthorize the EB-5 Regional Center (RC) program for another five (5) years, until September 30, 2020. It is important to understand that the bill is not actual law and is therefore subject to change(s) prior to being enacted into law.
The good news right now is that the introduced bill has received bi-partisan and support at the highest levels and it is clear that both Democrats and Republicans recognize the importance of the EB-5 program to the U.S. economy and support its reauthorization. However, there is a fair amount of ambiguity and uncertainty with respect to the language of the proposed bill. It is nevertheless safe to say that EB-5 projects located in urban areas could be adversely affected by changes in TEA designations. Also, if the bill is passed as is, an even greater degree of commitment by RC principals will be required.
Below is a summary of some of the keys provisions of the proposed bill for the reauthorization of EB-5 Regional Center Program for the benefit of our readers.
1. Increase in Minimum Investment Amounts - EB-5 investors would be required to invest at least $800,000 in projects located in Targeted Employment Areas (TEAs) area, or at least $1.2 million for those located in non-TEA areas. The required minimum investment amount is currently $500,000 for projects located in TEA areas and $1milllion in non-TEA areas.
2. DHS Authority to Restrict TEA Definition - Unfortunately, the proposed provision does away with the authority of individual states to liberally designate census tracts as TEAs, which allow for the lower investment amount of $800,000. The Department of Homeland Security would be given the unfettered authority to determine the boundaries of TEAs based on its own interpretation. The definition of TEAS will likely favor more investment in areas of high unemployment and rural areas.
3. Increased DSH Authority to Terminate RC Application - DHS would be afforded increased authority to terminate RC applications where there is fraud, criminal misuse, or a threat to public safety to national security. This provision raises serious questions regarding due process for potentially affected RCs.
4. Elimination of Derivatives from the Annual Quota - If spouses and children are no longer counted in the visa allocation quota, more Chinese EB-5 investors stand to benefit from the program each fiscal year and there would be no priority date retrogression issues due to per country limitations based on current visa usage figures.
5. Required Pre-Approval of Business Plans Prior to Filing I-526 Petition- Under the proposed bill, the business plan submitted with the I-924 Regional Center Applications and Amended Applications must be approved prior to the filing of EB-5 investor I-526 petitions. Depending on the specifics of the proposed rule, and based on the extent to which timing considerations are taken into account, this could be a benefit to the EB-5 program.
6. Implementation of Premium Processing Option and Fee for Business Plans Approvals - RC business plans could be reviewed (and possibly approved) on an expedited basis for those RCs willing to pay for the service. The premium processing fee would include the opportunity for early site visits and curing deficiencies in the business plan and investment documents prior to an approval or denial. It is possible that the premium processing option will ultimately decrease petition processing times.
7. Establishment of EB-5 Integrity Fund- the annual fee for each RC would be initially set at $20,000 and subject to incremental increases over time. The fund would be used to conduct audits and fraud investigations in the U.S. and abroad, for site visits, and RC compliance with EB-5 related immigration laws and regulations.
8. Background Checks for RCs and Project Developer Principals - In the new bill both RCs and the project developer principals must undergo background checks.
9. Requirement of Increased Disclosures to EB-5 investors - RCs would be required to increase their disclosures to investors regarding the business risks and conflicts of interest with their respective projects.
10. At Least Ten Percent (10%) of Created Jobs Must be Direct - The proposed legislation states that a maximum of ninety percent (90%) of the created jobs may be counted as indirect jobs. The minimum ten percent (10%) direct job requirement appears to stem from concerns by some that indirect jobs are not real jobs that can be accounted for as is the case with direct jobs, which may be verified with W-2 forms, payroll documents, and the like.
11. Required Acceptance of Economist’s Job Creation Methodology by the Department of Commerce - this requirement is viewed as burdensome and the logic and rationale is currently unclear.
12. Thirty Percent (30%) Maximum Credit for Jobs Created by Non-Alien Investors -According to the bill, EB-5 investors may only receive credit for up to thirty percent (30%) of the jobs created as a result of investment capital invested by US citizens and lawful permanent residents. In addition, jobs created under the tenant occupancy methodology cannot be credited towards the required jobs for EB-5 investors. This provision essentially limits credit for job creation based on the percentage of an EB-5 investor’s investment in the capital stack.
13. At Least fifty percent (50%) of Jobs Must Occur in TEA locations- For EB-5 investors to receive credit for jobs created in a project, at least half of them would have to be created in TEA areas.
14. Places Restriction of Gifting Funds to EB-B investors - EB-5 investors would only be able to use gifted founds as the source of their investment if the funds are gifted from a spouse, parent, child, sibling, or grandparent and the funds were gifted in good faith and not done to circumvent limitations placed on other permitted source(s) of funds.
15. Allows for Concurrent Filing of EB-5 Petitions and Adjustment of Status Applications - EB-5 investors would be able to file their I-526 petitions along with their adjustment of status (green card) applications once the priority date is current. The benefit of this is that EB-5 beneficiaries could apply for work authorization and advance parole for travel at the time the I-485 application is filed, rather than having to first wait for I-526 approval before proceeding with the I-485 application.
16. Allows Some Conditional Residents to Remain a “Child” for Subsequently Filed I-526 Petitions - Under the proposed bill, in some cases, conditional residents who derived their conditional residency status as a child of an EB-5 investor and whose I-829 application is denied, may remain a “child” of the EB-5 investor in a subsequently filed I-526 petition. This is certainly an advantageous provision for those who would be negatively affected as a result of “aging out”.
17. Places Restrictions on Using Loans As Source of EB-5 Funds- Under the proposed bill, a loan or other indebtedness may only be used as a source of EB-5 capital if the loan is secured by assets owned by the EB-5 investor and was issued by a reputable bank or lending institution, as determined by the Secretary of Homeland Security.
18. Expansion of SEC Jurisdiction Beyond U.S. - Under the bill, the purchase or sale of securities by any RC (or person associated with an RC) will be deemed to have occurred inside the US. There would be greater oversight of projects and increased monitoring for securities compliance. The rationale behind expanding the reach of the SEC’s enforcement authority is to protect EB-5 investors and to ensure the integrity of the EB-5 program.
Effective Dates: It is believed that the bill would become effective on the date of enactment in specific cases. However, changes to TEA designation status and minimum EB-5 investment amount would not apply to projects that have been approved or those with pending exemplar petitions on the date of enactment. It is therefore advisable for RCs with current projects to file their exemplar petitions as soon as possible.
Peta-Gaye Ricketts serves as Of Counsel to Mona Shah & Associates, PLLC. Peta-Gaye’s EB-5 experience encompasses preparing Regional Center (RC) applications, preparing and critiquing business plans for EB-5 investment projects, and handling complex source of funds issues for foreign investors worldwide. Peta-Gaye possesses substantial experience in employment-based and family-sponsored immigration cases. She is also highly experienced in advanced and complex consular matters as well as representing clients with children who face “Age Out” issues, which could potentially impede their ability to obtain lawful permanent residency in the United States.
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