New Update Revitalizes EB-5 Immigrant Investor Program

Background

The EB-5 program was created in 1990 to encourage immigrants to create US businesses, with the specific aim of stimulating the economy and creating new jobs. The program allowed immigrant investors and their families (spouses and unmarried children under 21) to become permanent residents in exchange for investing a million dollars in a new business that would create at least 10 new jobs. The program also designated Targeted Employment Areas, with a lower investment threshold, to create jobs in high unemployment and rural areas. In 1992 the program was expanded to add the additional option of allowing immigrants to instead invest through approved for-profit Regional Centers which would pool their money and invest in larger projects.

The EB-5 program eventually became very popular but has also had several recurring problems.  Long processing wait time and raising costs of application fees by USCIS has made the process almost counter-productive to apply for. Also, with technological improvements and artificial intelligence, number of workers are constantly shrinking, so finding a company which needs to create 10 full-time jobs is becoming more and more challenging.

On top of that, some states, to increase their tax revenues, found ways to allow Targeted Employment Area projects in urban areas with high employment, and some Regional Centers were accused of faking proof using the invested money to start real businesses and spent the funds on personal luxury items. And partly due to these problems, in June 2021, Congress failed to renew the Regional Center program. As a result, the USCIS stopped processing all EB-5 Regional Center applications which put a lot of international investors in a difficult situation, becoming prisoners to the immigration litigation and tying up their financial resources beyond all logical timelines.

To address these problems, the new EB-5 Reform and Integrity Act (RIA) went into effect on March 15, 2022. It re-authorizes Regional Centers and adds several new rules designed to hopefully reduce previous abuse and fraud.

Targeted Employment Areas

Under the RIA, the standard required investment is now $1,050,000, or $800,000 in a Targeted Employment Area (TEA). These amounts will be adjusted for inflation every 5 years, with the first adjustment happening in 2027. Also under the RIA, 32% of visas will be available only for TEAs: 20% for rural areas, 10% for high unemployment areas, and 2% for infrastructure projects.

Previously, TEAs were designated by states, which could specify the geographic boundaries of a TEA. This encouraged some states to gerrymander strangely shaped TEAs that would allow projects to get the TEA designation even though they were in urban areas with high employment, exactly the opposite of what TEAs were designed for. To address this problem, under the RIA, the USCIS is assigned to designate what qualifies as a TEA. TEAs are being designated in high unemployment areas backed up by census (individual or immediately adjacent) with unemployment levels of at least 150% of the national average.

Regional Centers

Prior to their suspension in June 2021, Regional Centers were both the most popular EB-5 option, and the largest source of fraud. Regional Centers allow the option for EB-5 applicants to act as investors rather than entrepreneurs, by simply providing their money to the center, which pools it and can invest in larger projects. In addition, while that money must still create 10 jobs, 9 of those jobs may be indirect, created by increased economic activity, rather than employees hired directly by the entity being invested in. One very popular type of project for EB-5 Regional centers is large hotels. For example, money from EB-5 Regional Centers was used in Las Vegas to fund the construction of the Downtown Grand, SLS, and Resorts World hotel and casino. It brough a lot of jobs to Las Vegas and kept the local economy going during the Real Estate economic downturn.

The popularity of Regional Centers grew slowly at first, before seriously catching on. In 2007 there were only 16 regional centers, but by 2017 that number grew to 883. Many have closed since then, but today there are still over 600 Regional Centers remaining.

Unfortunately, some Regional Centers did not have solid projects and investors lost their funds making the program’s reputation slide down.  In additional, some Regional Centers became home to the most common type of EB-5 fraud, where a Center essentially sold green cards by accepting money (sometimes well under the required amount), and then faked proof of investment in a job creating project. These concerns about widespread fraud were one of the reasons the Regional Center program was not renewed by Congress in June of 2021.

When the program was suspended in 2021, that not only stopped the USCIS from accepting new applications, but it also stopped processing previously submitted applications, putting them in administrative limbo until Congress decided what to do next.  That took until March of 2022 (almost a year).  Making the processing time for an EB-5 application staggering 56 months.

To address these problems, the RIA did several things. First, it reauthorized the Regional Centers for five more years (until September 30, 2027), which also restarted the processing of previously filed applications formerly in limbo. The RIA also specified that should the Regional Centers ever become de-authorized again in the future, USCIS should continue to process already submitted applications, so as to avoid a repeat of the recent processing halt.

In addition, the RIA requires Regional Centers to be more transparent and subjects them to more scrutiny, specifically designed to prevent fraud. In particular, one important change is that Regional Centers will need to hire a professional fund administrator for each project to monitor the project and look out for the interests of investors. Fund administrators will verify fund transfers, prepare financial statements, document income and expense allocation, track assets, create reports for investors, perform regulatory administration and coordinate audits. To enforce these rules, the USCIS has established the EB-5 Integrity Fund, which will collect money from each Regional Center and use it to pay for the increased oversight.

To implement these new rules after the RIA passed, the USCIS initially told all previously existing Regional Centers they were decertified and would have to re-apply for Regional Center status under the new rules. However, six Regional Centers sued, in two lawsuits, and on June 24, 2022 a federal court issued a preliminary injunction requiring the USCIS to reinstate all Regional Centers that had been in good standing before the 2021 suspension. However, all Regional Centers will still have to apply to renew their status by December of 2022, so in the long run the USCIS will still require all Regional Centers to abide by the new, stricter, rules specified by the RIA.

Chinese and Indian Applicant Backlog

An unfortunate side effect of the EB-5’s popularity is that it has a massive processing backlog, with applications often taking up to seven years to complete. And this is one problem the RIA did little to address. It did make one small change, now allowing investors and family members already legally in the US to file both their EB-5 investor petition (I-526 for regular investors or I-526E for Regional Center investors) and their adjustment of status petition (I-486) at the same time, instead of sequentially, as was previously required.

This allows the investor and family to move to the United States and to wait for the processing of the application in the United States as opposed to waiting outside the US for over 7 years while the investment funds are already invested in the United States. But that will do little to reduce the existing backlog of petitions and won’t allow investors and their families to become Legal Permanent Residents any sooner. And unfortunately, the annual number of I-526 applications processed by USCIS (approved or denied) has declined every year since 2018.

The EB-5 backlog, and that of the USCIS in general, is so bad that U.S. Representative Tony Cardenas (D-California) has proposed the Case Backlog and Transparency Act of 2022 (H.R. 9226) specifically to “to determine the reasons for the processing delays and find potential solutions to reduce the immigration case backlog.” However, unless and until that bill passes, the backlog is something applicants simply have to live with and work around.

Two groups which have been particularly impacted by the EB-5 backlog are Indian and Chinese immigrants, who have to wait longer than others. These groups are restricted by set dates which their applications for green cards must be dated before in order to be processed, known as Final Action Dates.

The current Final Action Date for India EB-5 investors is November 8, 2019, and for China it is March 22, 2015. The Chinese date was even recently moved back again from a date in December of 2015, further indicating the severity of the backlog. The Final Action Dates for all other countries are current, meaning applicants from those countries do not have to wait to apply for their green cards longer than the already ridiculously long USCIS application processing time listed as 56 months.

The severe backlog for Chinese applications is because of how extremely popular the United States’ EB-5 program has been in China. A Studly report found that in 2015, 85.4% of EB-5 applicants were from China, an increase of 15.9% from just four years before. At the moment, there are very few workarounds for this. A Chinese or Indian national married to a person from a country without a backlog can reduce their wait time if they make the non-Chinese/Indian spouse the primary applicant. Also, if a child is born outside of China and is over 18, they can become primary investor and when that child obtains U.S. citizenship, they can sponsor their parents to become a green card holder.

Because EB-5 program’s Final Action Date depends on the country of birth and not a country of citizenship, obtaining passports of other countries would not help with moving Final Action date for Chinese and Indian EB-5 investors. Most other categories of visas are also backed up for Chinese and Indian nationals and hence applying for another types of immigrant visas would not speed up the process of obtaining green cars for the nationals of these two countries.

So, Chinese and Indian applicants must simply recognize that their applications will take an especially long time to process if they are committed to EB-5 visa application process.  It is worth noting that EB-2 and EB-3 categories of employment immigrant visa Final Action Dates are far longer than EB-5 for India and China, so EB-5 may still be a way to obtain Legal Permanent Residency for Chinese and Indian Nationals.

Conclusion

The EB-5 Immigrant Investor Program is a possible choice for wealthy, business-minded prospective immigrants seeking to establish permanent residency in the US. Entrepreneurs will do well with the regular program, while those wanting a more hands-off approach can simply invest their money through a Regional Center. The returns on Regional Center investments are typically extremely low since the program bars return of funds before the final full approval and removal of condition is processed.

This currently is a scary 6-10 year process, and many times the full amount of the principal investment is lost while the application is being processed. EB-5 investor program is not what it was when it first opened in 1990 and investors should look at all available options before committing their time and funds to the program.