Author: Julia Park
After much hand wringing and negotiations surrounding the draft language of a new bill that proposed to change the EB-5 program as we know it today, the US Congress came to an agreement to temporarily extend the program unchanged until September 30, 2016.
Due to the explosive speed at which the program has grown during the past 7 years, there are definitely elements of the current rules that do not scale easily to accommodate the larger projects on the market today. In addition, the proliferation of Regional Centers in recent years has increased the need for government oversight of the EB-5 program.
Reflecting this reality, legislation introduced to reform the EB-5 program in 2015, in particular the so-called Grassley-Leahy Bill addressed two broad topics: (1) Technical Rules addressing such topics as the TEA, minimum investment and visa quota allocations and (2) so-called Integrity Measures that are aimed at strengthening the government’s oversight capabilities of the program to prevent fraud and protect investors.
The five bills that were floated in Congress in 2015 attempted to address all of these issues in one fell swoop. However, the EB-5 program is a complicated program that has many interrelated moving pieces. So moving one piece inevitably affects other pieces. In addition there are different interests among the players in the EB-5 community. The bill that was negotiated up to the last minute on December 15, 2015, attempted to cram through too many changes with too little discussion. It ultimately failed because it was difficult to reconcile all the technical issues and as a result it didn’t could not receive the support of the EB-5 community.
However, despite the disagreement over the Technical Rules, there was never much controversy over need for Integrity Measures. Reflecting this perceived need, a new bill was introduced in the Senate in December 2015 by Senator Flake of Arizona. Listed as the EB-5 Integrity Act of 2015, or S. 2415, the bill was introduced by Flake on Dec. 17 (two days after the more comprehensive bill failed) and co-sponsored by Sens. John Cornyn, R-Texas, and Charles Schumer, D-N.Y. It contains several provisions aimed at increasing Regional Center transparency and integrity, and some of its proposals are similar to ideas contained in the EB-5 legislation that failed to pass.
Most of the provisions of the bill are obviously aimed at regulating Regional Centers (such as a $25,000 annual fee for all RCs), but in this article I want to point out some provisions of the bill that would impact the migration industry and future investors.
1) EB-5 capital may not be used to purchase municipal bonds or any other bonds if such bonds are available to the general public
2) An exemplar petition must be filed by the Regional Center before any investor can file their I-526. (Currently, it is considered best practice to do so, but it is not a rule that an exemplar must be filed. But unchanged from the current rules, the Exemplar Petition doesn’t have to be approved for the investor to file.)
3) A person must be a U.S. citizen or permanent resident to be “involved with” a Regional Center. Being “involved in” a Regional Center is generally defined as having an ownership interest or being in a position of substantive authority to make operational or managerial decision.
4) A foreign government entity may not provide capital to, or be directly or indirectly involved with the ownership or administration of a Regional Center. (This is actually a looser restriction compare to the Grassley-Leahy Bill which said that a foreign government entity may not be involved in not just the Regional Center but also the NCE or JCE – which basically eliminated involvement of all U.S. affiliates of Chinese SOEs from being involved in EB-5 in any way.)
5) Investors will be required to pay an additional $1000 in addition to the $1500 filing fee. (This number was $12,000 in the bill that didn’t pass.)
6) Migration agencies will have to register with the USCIS and disclose fee arrangements to the USCIS. The list of registered agencies may be made publicly available by the USCIS.
7) Each investor’s I-526 petition must include a disclosure document signed by the investor which discloses all fees and compensation paid by the Regional Center or the NCE in connection with that investor’s investment
8) Investors must provide source of funds for administrative fees in addition to the $500,000 investment. (The rather controversial new SOF rules of the bill that didn’t pass didn’t make it into the Integrity Bill. Ex. Only direct family members can gift; Only chartered banks or financial institutions can make EB-5 loans.)
9) Investors must disclose any monetary judgments against them as well as any pending governmental civil or criminal actions, governmental administrative proceedings, and any private civil actions involving possible monetary judgment against the investor in any court in or outside the U.S.
10) The Integrity Bill provides procedures to save investors whose I-526 has been approved if the RC is terminated. This is great news for people who are inadvertently caught up in RC termination cases through no fault of their own. Basically if the investor already has an approved I-526 or already is a conditional resident and the RC that sponsors their investment is terminated, the investors will have 6 months to reinvest into a new project and not lose their I-526 approval or their conditional resident status. There is also an option for the entire NCE to associate itself with a non-tainted Regional Center which would be very helpful for lease deals.
There is a pretty good chance that this bill will be passed as it doesn’t address any really controversial issues while also allowing Congress to save face in the face of criticism that they failed to pass EB-5 reforms due to lobbying pressure. So it is worth monitoring the movement surrounding this bill and also plan ahead for the possible new rules in the relatively near future.