USCIS Appeal Sparks Speculation About The EB-5 Foreign Investor Program

At the last moment, the U.S. Citizenship and Immigration Service (USCIS) filed an appeal against the decision in the Behring Regional Center lawsuit dealing with the U.S. EB-5 investor immigration program. The appeal deals with a preliminary injunction obtained by the Behring Regional Center against the Department of Homeland Security’s EB-5 Modernization Rule that went into effect on November 21, 2019.  The EB-5 Modernization Rule increased the minimum investment requirement for EB-5 projects from $500,000 to $900,000 if the project was located in a Targeted Employment Area (TEA) and from $1 million to $1.8 million if the project was located outside of a TEA. The injunction was issued by the U.S. District Court for the Northern District of California to strike down the EB-5 Modernization Rule and return to the old investment requirement of just $ 500,000. The USCIS appealed to reinstate the level back to $ 900,000.

Impact Of The Behring Decision

As mentioned, the Behring decision reduced the EB-5 investment requirement down to $ 500,000, but it also reinstated a more flexible means of establishing the boundaries of TEAs, thereby making EB-5 regional center projects more accessible to urban development. The basis of the decision was that Kevin McAleenan, former Homeland Security Secretary, was not lawfully serving in his position when he promulgated the EB-5 Modernization Rule, thereby making it unauthorized and void. In an attempt to provide clarity to the EB-5 industry shortly after the Behring decision, USCIS issued an alert  stating that “While USCIS considers this decision, we will apply the EB-5 regulations that were in effect before the rule was finalized on Nov. 21, 2019."

What About A Stay?

Of most significance regarding the appeal was the fact that it did not include a motion for a stay of the Behring decision, which implied that the USCIS will continue to accept petitions under the EB-5 direct investment program filed with the lower amount of $500,000. Whether the USCIS appeal will be successful is uncertain, but the more pertinent question is whether the USCIS still might try to file such a motion for a stay. A stay, if approved by the appellate court, would temporarily stop the implementation of the decision of the District Court and thereby effectively reinstate the EB-5 Modernization Rule and the higher minimum investment amount of $900,000 until the appellate court reconsiders the issues in the case. This is really what the USCIS would like. However, it is generally doubted that the USCIS can establish a sufficient showing of imminent harm for a stay application to be successful. That may be why it was not requested and may not be any time soon. 

So Where Are We With EB-5?

At the moment the EB-5 program is largely in disarray. The Regional Center part of the program has expired as a result of the automatic sunset provision that was part of its operation until June 30th, 2021. For some 20 years the program was renewed by Congress each year and in that way the program never sunset. But this time the Regional Center program was detached from regular Congressional budget renewals and was thus sidelined to await further developments. The result is that only the Direct Investment EB-5 Program is still in play. The significance of this is that well over 90 % of the investors who took part in the EB-5 program in the past chose the Regional Center option which was preferable because the investment amounted to a five year loan to a Regional Center project and was repayable at that time.

Now EB-5 investments can only take the form of equity with a purchase of shares in an EB-5 project with the requirement that the investment also create a minimum of 10 jobs. There are two sorts of Direct Investment EB-5 projects: ones in which the foreign investor maintains control and the other in which he or she is a minority shareholder. In the former, supervision of the employment component and compliance with business plan approved by the USCIS are the responsibility of the investor and can be complicated. In the latter, the investor surrenders control and trusts the project managers to ensure the project complies with all immigration requirements. In either case, the projects are smaller in size than Regional Center ones, involve fewer investors and may require more investor care to ensure compliance. Thanks to the Behring case, however, in either case the projects only require $ 500,000 to be invested.

Given the closure of the Regional Center option, USCIS officers are likely to have more time available to process Direct Investment EB-5 applications and there is an expectation that this could mean speedy processing of such cases. The combination of fewer EB-5 compliant projects available, the lower investment requirement and likelihood of speedy processing make such EB-5 Direct Investment projects more desirable. In addition, investors can take comfort in the fact that there is no sunset provision regarding the EB-5 Direct Investment Program like there was for Regional Center EB-5 projects.

Will The Regional Center Program Be Re-Established?

As for whether the Regional Center part of the EB5 program will be reinstated, there is no clear answer to that question. Congress has to pass new legislation and judging by the sittings of the House and the Senate, a probable estimate would be some time towards the end of this year. A key factor will be forging an agreement between currently competing Urban and Rural advocates for the program. As for when we might see an increase in the minimum investment requirement, the most probable options would be Congressional action with the renewal of the program, or a properly introduced EB5 regulation with a 60 day comment period - both routes involving a delay towards the end of this year.

What About Current Regional Center Investors?

There is a growing Congressional recognition about the need to secure the investment of those who have invested in the EB-5 program to date, no matter what may happen in regard to extending the Regional Center program. Such a measure is likely to grandfather investors in Regional Center projects to enable them to conclude their investments and obtain green cards. Passage of such a measure is desirable to maintain U.S. integrity in the foreign direct investment community and appears likely to be implemented soon.

The next few months promise to bring many new developments regarding the EB-5 program. It is hoped that Congress will rise to the occasion and put everything in the EB-5 house in order.