Brief Analysis of EB-5 Reauthorization Bill

The EB-5 Reform and Integrity Act of 2022 brought many changes to the EB-5 program. For the latest information, please click here.

Investment Amount

• The minimum investment amount will increase to $800,000 for investments in a Targeted Employment Area (TEA), and $1.2 million for investments not in a TEA.
• The minimum investment amount can be amended by regulation, and will automatically adjust in proportion to the Consumer Price Index every five years.
• The minimum investment in a TEA cannot be less than half, nor more than three-quarters of the non-TEA minimum.

Targeted Employment Area

• The definition of a TEA has been amended to include an area consisting of a single census tract that has 150% of the national average unemployment rate, a closed military base, or a rural area.  The definition of a rural area has not changed.
• For TEAs in a Metropolitan Statistical Area or Combined Statistical Area, at least 50% of a project’s job creation must be within that Metropolitan Statistical Area or Combined Statistical Area to be counted.  If the TEA is outside of a Metropolitan Statistical Area or Combined Statistical Area, then at least 50% of the jobs must be created within the county in which the TEA is located.  If not, the total number of jobs will be reduced until the 50% threshold is met.

Job Creation

• An investor in a commercial enterprise affiliated with a regional center can use jobs predicted to be created indirectly to satisfy up to 90% of the job creation requirement.  It is not clear if that means that the NCE must have direct employees, or economically direct employees, as calculated by an economic model such as RIMS II or IMPLAN can be counted.  This represents a significant departure from the current law.
• A maximum of 30% of the total jobs that are created can be created as a result of non-EB-5 investment, even if the non-EB-5 investment represents more than 30% of the project’s funding.  This is a significant change from current practice.
• EB-5 investors can use economic models and valid forecasting tools that are accepted by the BEA.  We presume this means at least RIMS II.

Changes in Processing

• Exemplar filings and pre-approval of projects are mandatory.
• The Bill sets a limit of 120 days on average for the processing of exemplars, and allows for premium processing with an additional fee.
• Processing times for an I-526 petition are limited to 150 days, on average, and I-829 processing is limited to 180 days.

Source of Funds

• Administrative fees must be sourced.
• 7 years of tax returns mandatory for investors.
• Gifted funds can only be used for EB-5 investments if gifted by a spouse, parent, child, sibling, or grandparent.
• Capital based on loans to be collateralized on investor’s personal assets. Note, 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.
• Loans must be obtained by a reputable bank or lending institution that is properly chartered of licensed under laws of state, territory, or country, or applicable jurisdiction. “Reputability” determined by consulting relevant commercial and government databases, including OFAC, TFFC, and FinCEN.

Concurrent Filing and Age-Outs

• Concurrent filing of I-526 petition and I-485 adjustment application if a visa number is immediately available.
• In certain cases, conditional residents who obtained such status as the derivative child of an EB-5 investor, whose I-829 is denied under INA 216A, can remain a derivative “child” of the EB-5 investor in a subsequently filed I-526 petition.

Regional Center Oversight and Compliance

• The Bill adds major reporting, self certification, and compliance requirements, and adds a $20,000 per year fee to each regional center to support an EB-5 integrity fund, which will be used for audits, site visits, and investigations, both in the U.S. and abroad.
• The Bill gives USCIS the authority to suspend, terminate and fine regional centers and NCEs affiliated with regional centers, and gives broad authority to permanently bar individuals from participating in the program.
• The bill creates a registration requirement for promoters of EB-5 projects, and purports to allow USCIS to set standards of conduct, and even place limitations on fee arrangements.
• The Bill requires compliance with securities laws, certification of compliance, and maintenance of policies and procedures for ensuring the compliance of parties affiliated with the regional center or NCE (defined broadly to include attorneys, promoters, and others).
• The Bill provides a wide variety of grounds for the denial or revocation of a regional center approval, project approval, investor petition approval, or even permanent residence.  Almost all grounds for denial or revocation are within the unreviewable discretion of the Secretary of DHS, and many can be based on the Secretary’s reasonable belief that the affected party has committed an offense.  The broad discretion and loose standards appear to raise serious due process concerns, and threaten to undermine the predictability and stability needed for projects and developers to be willing to use the EB-5 program as a source of funding.
• If a regional center or NCE is terminated, investors that have already obtained conditional residence can either 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.
• If the two year conditional residence period elapses before the investor obtains conditional residence (presumably due to quota backlogs), the investor can file an I-829 and, if approved, can enter the U.S. as an unconditional resident when able.
• Regional center and NCE principals must be permanent residents or nationals of the U.S. and are not eligible if they have previous securities violations or various civil or criminal judgments for fraud, deceit, securities violations, or have been subject to discipline as an attorney.

Effective Dates

• The Bill appears to be effective on the date of enactment in most cases.  Certain sections relating to changes in TEA status and minimum investment amount would not apply to projects with an approved or pending exemplar on the date of enactment.  Therefore, it is highly recommended that current projects file exemplar petitions as soon as possible.

In summary, the changes to the EB-5 Program effected by this Bill are sweeping, and the Bill presents a fair level of ambiguity and uncertainty.  It is clear that projects in urban areas stand to be severely affected by the changes in the way TEAs are designated.  It is also clear that operating a regional center will require significantly more of a commitment by regional center principals if this Bill is passed as is.

For further information, please contact your Klasko Law attorney.