Six things to know about the EB-5 reform bill
July 8, 2015
This article was first published in Inside Counsel.
On June 3rd, Senators Patrick Leahy (D-Vt.) and Chuck Grassley (R-Iowa) introduced Senate Bill 1501 to reauthorize the EB-5 regional center program, which is set to expire in September. The proposal would extend the program for five more years and would include significant changes about which EB-5 attorneys and their clients should know – and for which they should prepare.
What is the regional center program?
Launched in 1993, this program allows a public or private entity to apply for designation as an approved regional center. By obtaining this official designation, the entity can propose development projects and seek investments from foreign nationals wanting to immigrate to the U.S. There are approximately 676 such centers in multiple states, as can be seen here.
If the immigrant investor’s application is approved, his or her capital (which must be at least $500,000) is invested and conditional permanent resident status will be granted for two years. Then, if the investor fulfills all of the other requirements of the program, including creating ten jobs, he or she may petition to become an unconditional lawful permanent resident of the U.S.
This program, which has already been reauthorized five times, has generated billions of dollars in capital investment, and has created tens of thousands of new jobs across the U.S. And while certain projects have experienced problems in recent years, this program has provided a much needed financial boost to many businesses and local economies.
As Senator Leahy has noted: “The EB-5 Regional Center program faces some challenges, but I have not seen any flaw inherent to the program that could not be remedied. And I have seen over the last two decades how the EB-5 program creates jobs and provides access to capital in communities in Vermont and throughout the country, all at no cost to American taxpayers.”
The purpose of SB 1501
Senator Grassley believes this legislation, called The American Job Creation and Investment Promotion Reform Act, would improve the regional center program by providing investors with greater protection from scams and more information about their investments. It would also increase transparency and oversight by the Department of Homeland Security (DHS).
Senator Grassley stated, “The EB-5 regional center program was created to benefit American communities through investment and job creation. In many instances the program has helped combat a stagnant economy. At the same time, though, we’ve seen too many occasions where national security has been put at risk and job creation has taken a back seat.”
Key points of the legislation
Proponents of the Leahy-Grassley bill believe that it will help reduce security risks and fraud by strengthening oversight, by requiring greater accountability, and by providing for more transparency. Needed improvements to the current program will be accomplished, it is claimed, through the following measures:
- Increased authority of DHS. The ability of DHS to investigate the sources of funds and limit loaned or gifted funds would be enhanced. Also an “EB-5 Integrity Fund” would be established to be used by DHS to conduct audits and anti-fraud investigations. Regional centers would pay into this fund with an annual fee.
- Better background checks and vetting procedures. The bill would require that regional center and project developer principals undergo a background check, and it would require DHS to vet EB-5 projects earlier in the process. In this way, petitioners would be more fully informed before they apply for visas or hand over their money to developers.
- Greater disclosure requirements. This bill would require the disclosure of the business risks or any conflicts of interest that might exist. For while EB-5 capital must be an “at risk” investment to qualify, this only means that there can be no guarantee of a return, or rate of return. It does not mean that the investment must be risky! Helpful information for EB-5 investors is provided by the SEC’s Office of Investor Education and Advocacy on its website.
- Narrowed definition of “Targeted Employment Area” (TEA). SB 1501 would no longer allow developers to gerrymander boundaries to include poor areas with wealthy areas so that the wealthy areas can qualify as a TEA. Instead, a TEA would be limited to a single census tract. The intent of this change would be to ensure that more investments go where they are needed.
- Higher investment thresholds. The current minimum investment of $500,000, which applies only to projects in troubled employment area (TEAs), would be raised to $800,000. The threshold investment for all other non-TEA projects would be raised from $1 million to $1.2 million. Such a significant increase could result in a reduction in the demand for EB-5 visas.
- Expedited processing. Petitions have been facing growing delays in recent years. By providing for an expedited business plan approval option (for an additional fee), investors would be able to enjoy prompter service. It is likely that fees for all other EB-5 related service would also be adjusted upward. Usual USCIS processing times can be seen here.
As with any piece of legislation, the devil is in the details, and there is certainly much about this bill that is in need of clarification. Further, the proposed reform measures will likely undergo many changes before the Senate and the House can agree on a single piece of legislation to be sent to the White House for President Obama’s signature.
Immigrant investors would therefore be wise to keep a close eye on the debate, as many questions remain unanswered. For many, the key concern is if petitions filed before the September 30 expiration date be grandfathered in (as is likely). By working closely with qualified counsel, EB-5 petitioners will be better able to keep abreast of the latest developments and plan accordingly.
Jeffrey C.P. Wang is the managing partner and founder of WHGC, P.L.C. Mr. Wang’s practice focuses on handling the legal concerns of international and domestic…
Rita Eng Bates
Rita Eng Bates has been a senior supervising business immigration paralegal for 17 years.