Any foreign investor hoping to immigrate permanently to the United States should consider the EB-5 Immigrant Investor Program, which offers permanent resident status in exchange for a successful EB-5 investment in a qualifying EB-5 project. For an EB5 investment to be considered successful, it must satisfy a myriad of requirements that make it beneficial for the U.S. economy and its people, including the creation of at least 10 full-time jobs for U.S. workers. An EB-5 investor’s capital must also be demonstrated to originate from lawful sources, ensuring the flow of legal foreign EB-5 investment capital into the United States.

One requirement that can halt a prospective investor’s journey into the EB-5 program is the minimum required investment amount, which stands at $1.8 million. Having risen 80% from $1 in November 2019, when the Modernization Rule came into effect, the minimum required investment amount filters out numerous interested investors who simply don’t possess the means to participate in the EB-5 program.

But there is a solution, at least for some prospective investors. There is a way to halve the minimum required investment amount to just $900,000, and in fact, it is the pathway most EB-5 investors opt for. It’s simple: just invest in a targeted employment area (TEA).

What Is a TEA?

The EB-5 program was created to address unemployment and in-need regions in the United States, but as a federal program, the targeted stimulation of in-need areas is challenging. Thus, TEAs were born, offering a lowered minimum EB-5 investment amount for deployment in these critical areas. A TEA can be designated either as a high-employment TEA, with an unemployment rate 50% higher than the national average, or as a rural TEA, with a population of fewer than 20,000 people.

The problem with TEA EB5 investment is that TEA designation is not awarded by United States Citizenship and Immigration Services (USCIS)—instead, the investor must provide justification on their I-526 petition that TEA designation is warranted for the area of their project. While this introduces extra work and rampant uncertainty in TEA investments, it does simultaneously offer an advantage: the ability to construct one’s own TEAs.

Creating TEAs with Census Tracts

Using the EB-5 TEA map from EB5AN, a prospective investor can scan the entire United States for TEA-eligible regions and home in on more suitable EB5 investment projects. The map consists of census tracts, with those that qualify for TEA status highlighted in orange. But TEA designation is more fluid than rigid census tracts may imply—USCIS allows investors to combine multiple adjacent census tracts to create a TEA.

Prior to the enactment of the Modernization Rule in November 2019, census tract aggregation was more flexible, with investors able to combine a number of nearby census tracts to reach a TEA. Even if the census tract of the EB-5 project itself was not eligible for TEA status, by journeying one or two census tracts out, an investor could attain TEA designation for their project and qualify for the lower minimum EB-5 investment amount. The TEA census tract did not have to border the project census tract, allowing for the creation of various TEAs.

When the Modernization Rule was enacted, it altered the nature of TEA customization, requiring any additional census tract to be directly adjacent to the target census tract. This new rule dramatically restricts TEA creation, effectively starving EB-5 projects that would previously have qualified for TEA status of precious EB-5 investment capital. While these rules may have helped prevent some instances of gerrymandering, they have also likely hurt the inflow of foreign EB5 investment capital into in-need areas, given that census tracts are relatively small and a successful new enterprise in a nearby census tract is likely to benefit a high-unemployment census tract, even if the census tracts are not directly adjacent.

Prospective EB-5 investors can still take advantage of census tracts to create new TEAs, but they must conduct their research carefully to ensure USCIS approval. Should an I-526 petition fail to garner TEA designation for its EB-5 project, the investor will be required to invest at least $1.8 million in the new commercial enterprise.

When United States Citizenship and Immigration Services (USCIS) held an EB-5 engagement presentation on November 11, 2020, it failed to touch on pertinent questions posed by EB-5 industry leaders. However, in a quiet and belated response, USCIS did answer—or at least address—some of the questions it ignored in the public engagement when it updated its General Questions and Answers document on December 16, 2020. EB-5 investment participants are encouraged to peruse the document at their leisure, but for those looking for a quick rundown of the content, read on.

I-526 Petition Information

According to the updated document, EB5 investment participants with I-526 petitions approved for expedited processing are not necessarily approved faster than regular I-526 petitions. The petition’s assignment for adjudication is accelerated, but adjudication times will vary depending on the circumstances of the individual petition. Regular I-526 petitions are assigned for adjudication based on visa availability. USCIS indicates it assesses visa availability monthly and updates I-526 workflows each month accordingly.

USCIS also explains situations in which an I-526 petitioner may be asked to provide evidence of jobs already having been created. Since I-526 processing is exorbitantly slow, in some cases, the job creation plan an EB5 investment participant presents in their I-526 petition may have already come to fruition. In such cases, USCIS may request evidence that those jobs have indeed been created.

USCIS states it has no intentions to develop technology to allow project-related documentation filed with a pending or approved I-924 petition to be incorporated with an I-526 petition. It acknowledges this inefficiency in the system but cites budget constraints as the prohibitory reason.

I-829 Petition Information

USCIS provides information on adding an eligible dependent (spouse or unmarried children younger than 21) to an I-829 petition—it is possible but requires a number of forms and documents. Those looking to share the benefits of their EB-5 investment with dependents not included in their I-526 petition should send an email to USCIS.ImmigrantInvestorProgram@uscis.dhs.gov with “Request to Add Derivative to Form I-829” as the subject line. The investor will then be provided with a cover sheet to mail in alongside numerous forms and documents.

USCIS also touches on I-829 denials—an investor whose I-829 petition is denied is already residing in the United States, which renders the situation more complicated than with I-526 denial. USCIS policy is to issue a notice to appear (NTA) with the immigration court, but in most cases, the agency waits until the initial motion period has elapsed. However, USCIS reserves the right to turn I-829 denial cases over to ICE more quickly.

On the subject of I-829 denials, USCIS also addresses the impact of fraudulent activity in a new commercial enterprise (NCE) on I-829 petitioners. Fraudulent activity on the part of the NCE will not necessarily result in denial for the EB-5 investment participant, but if it prevents the EB5 investment from fulfilling the requirements of the EB-5 program—such as creating at least 10 full-time jobs for U.S. workers—the petition may face denial.

Finally, USCIS answers a question regarding I-829 receipt notices reissued in July 2020 to EB5 investment participants waiting on I-829 approval. While some speculated that this indicated they were being given an additional 18 months of conditional permanent residency, USCIS clarified that they were merely sent as replacements for petitioners who may not have been sent an initial receipt notice.

Regional Center Information

Given the streak of regional center terminations in 2019 and 2020, USCIS was forced to answer a question in the Q&A regarding the publication of termination letters, but the agency’s disappointing answer was that it cannot provide a timeline for the publication of termination letters from 2019 and 2020. Similarly, it stated that it does not plan to publish regional center designation letters. When asked whether it will publish more detailed guidelines on regional center compliance duties and standards to avoid termination, USCIS simply responded that it evaluates terminations on a case-by-case basis and cannot provide further guidance due to the different circumstances of each project.

Regarding the “Advance Notice of Proposed Rulemaking on Changes to EB-5 Regional Center” Program (ANPRM), USCIS was also asked in the Q&A about the status and when stakeholders can expect to hear back about the comments they submitted. The agency’s lackluster response, which ignored the second part of the question entirely, was that it can offer no updates.

For regional centers ready to file their annual report for FY2020, USCIS explains that a new version of Form I-924A, released July 23, 2020, should be used for all filings later than January 5, 2021.

Finally, USCIS addresses an important issue for regional centers concerned about termination: whether an approved regional center will be terminated if it fails to submit affiliated I-526 petitions within a three-year time period. USCIS stated that no such requirement exists, even though this metric was used to justify regional center terminations in 2018. The termination letters for 2019 and 2020 will offer more clarity on this issue when they are finally published.

Given that the EB-5 Immigrant Investor Program constitutes one of the quickest and simplest ways to attain U.S. permanent resident status, its popularity has ballooned over the years since its 1990 inception. The program, originally created to attract foreign capital to the United States and drive job creation, has injected billions in foreign capital into the U.S. economy, in return issuing U.S. green cards to thousands of EB-5 investors and their immediate family members.

To be eligible for a U.S. green card, an EB-5 investment participant must fulfill certain criteria, including the funding of at least 10 full-time jobs for U.S. workers, the provision of comprehensive source-of-funds documentation for all EB-5 investment capital, and proof that the EB-5 funds have remained at risk throughout the entire investment period. Every EB-5 investment and EB-5 project is different, and as such, different investors may have an easier or harder time with some requirements, but all EB5 investments must meet the outlined requirements to garner a U.S. green card.

The Difficulties in Meeting the “At Risk” Requirement

The EB-5 program’s requirement to maintain capital “at risk” by no means indicates that EB5 investments should be risky. EB-5 investors are advised to make sensible investment decisions that they deem likely to generate a return, but no matter what, the investment must incur both the risk of loss and the possibility of gain. The “at risk” requirement is as simple as maintaining one’s EB-5 investment funds in such a state for the duration of the investment. However, the maintenance of EB5 investment funds in an at-risk state can become complicated through no fault of the investor.

Typically, an EB-5 investor participates in the residency-by-investment program through an EB-5 regional center—region-based entities that facilitate EB-5 investment projects by attracting investors and pooling together their funds for a larger investment. The investor transfers their EB5 investment capital to the respective new commercial enterprise (NCE), which, upon receipt of all participating investors’ funds, aggregates it into a single investment and injects it into the job-creating entity (JCE) for a five-year term. In the earlier years of the EB-5 program, this scenario functioned smoothly, with investors easily swimming through the EB-5 program’s processes and becoming eligible to exit by the end of the five-year investment term.

Problems sprouted up in 2014, when the popularity of the EB-5 program began to exceed yearly EB-5 visa numbers. Investors from China, India, and Vietnam in particular dove into the program at previously unseen rates, which triggered lengthy visa backlogs and therefore significant processing delays that still linger in 2020. As of December 2020, processing times can last several years, particularly for investors from China, and can easily exceed the typical five-year EB-5 investment term adopted by most NCEs. If an EB-5 investor is not eligible to exit at the end of the five-year term, redeployment of their capital is necessary.

What Is EB-5 Redeployment?

EB-5 redeployment is, simply, the reinvestment of EB-5 capital in an NCE. At the end of the five-year EB-5 investment term, assuming the JCE was successful and paid back the loan to the NCE, the NCE may then either pay back the funds to the investor(s) or redeploy the capital under similar investment terms and conditions. An EB-5 investor who fails to meet the EB-5 requirements to exit, even if simply through processing delays due to backlogs or United States Citizenship and Immigration Services (USCIS) inefficiency, may elect to have the amount paid back instead of redeploying it, but by doing so, they would be forfeiting their opportunity to obtain U.S. permanent resident status.

SEC Regulations on EB-5 Redeployments

The United States Securities and Exchange Commission (SEC) exists to protect investors in the United States, as well as foreign nationals making U.S.-based investments, and as such, its regulations apply to EB5 investments. The SEC therefore represents an additional hurdle for EB-5 investors and NCEs to circumvent in the case of redeployments, which initially were never supposed to materialize in the EB-5 program. The SEC holds that if an EB-5 investor has to make a decision between exiting and redeploying their EB-5 investment capital, the redeployment constitutes a new sale of securities that must be appropriately registered or exempted from registration.

If an NCE requests to reuse an investor’s capital, it is analogous to requesting voluntary assessments from the investor, as is common in real estate and oil and gas securities. An NCE may write into its offering documents the circumstances for such a request, as well as the maximum amount that may be requested and how the funds may be used. In this case, the SEC would not determine the redeployment to be a new investment decision, as the details surrounding the investment were discussed and agreed upon in the initial deployment of capital. However, the SEC deems any other EB-5 redeployment situation to constitute a new offering of securities.

Similar to the SEC’s ruling on voluntary assessments is its guidance on rescissions, or the request of a party to annul an investment agreement. If the NCE makes a rescission offer to an EB-5 investor, the investor must decide whether to accept the offer and sell their securities or to reject the offer and maintain their securities. The SEC deems this, too, to be a sale of securities that requires registration or appropriate exemption.

A further area of consideration for NCEs is statute of limitations determinations, given that courts have used “investment decision doctrine” when determining whether a given sale of securities constitutes a new investment decision. In these cases, the defendants usually employ a statute of limitations defense, asserting that the initial sale of securities took place before permitted by the statute. The plaintiffs, in turn, request that the court consider the date on which the funds were called and paid, not the date of the initial sale.

Based on the above SEC regulations, in most cases when an NCE receives repayment for EB-5 investment capital and asks the EB-5 investors whether they would prefer to receive their repayment or redeploy their capital in another JCE, the Securities Act must be analyzed to determine whether the investment decision constitutes a new offering of securities. If the decision is determined to be a new securities offering, analysts must further consider whether it falls under any of the exemptions laid out by the Securities Act. EB-5 professionals should bear in mind that previously applicable exemptions may no longer apply a second time, such as if an EB-5 investor’s accreditation or domicile have changed since the initial sale.

The March 2021 Visa Bulletin is now available through the U.S. Department of State (DoS) website, and news for the EB-5 community as we wrap up the second quarter of FY2021 remains relatively unchanged. The DoS publishes the Visa Bulletin monthly so that petitioners can remain informed on the status of visa availability. Despite hopes of a more productive year than the last, we still see zero movement on Chinese EB-5 backlogs, and Vietnam dates merely inch forward.

Again, investors hoping to gain access to U.S. permanent residency status through this residency-by-investment program have been left with little information. Most disheartening is that the agency has yet to even devise an actionable plan to take full advantage of the thousands of extra EB-5 visas allocated to the program for FY2021. Backlogged investors can only watch the time being squandered as they linger in their respective lines. Nearly halfway through the fiscal year, it seems the loss of the opportunity to reduce long-standing Chinese and Vietnamese EB-5 backlogs is eminent.

Moreover, just a few weeks into the new administration’s more concerted efforts to distribute the COVID-19 vaccine, new, more contagious strains of the virus continue to develop, and as we approach the sunset date of June 30, 2021, for the EB-5 Regional Center Program, there is an even greater risk for the program’s termination. While industry leaders rally stakeholders to join forces in EB-5 reform, little else is on the horizon to change the current status of the program. EB-5 investors should continue to prepare for the possibility of another stagnant year at best.

We have some good news: All EB-5 investors outside of China and Vietnam have maintained their “current” status on their final action dates, including India, whose status became “current” in July 2020. Unfortunately, the outlook remains unchanged for EB-5 investment participants from China and Vietnam. The final action date for China has remained fixed at August 15, 2015, since the publication of the August 2020 bulletin. Wait times actually continue to increase for Chinese investors as they enter month eight of inaction on that final action date.

Furthermore, the date for filing on Chinese petitions hasn’t changed either, holding steady at December 15, 2015, for a year now. Vietnam shows a little more progress than that as it inches forward another two weeks from the February 2021 bulletin.

Industry experts are still baffled about why the increase in EB-5 visas allocated for the year hasn’t improved these backlog issues at all. There wasn’t much hope at the publishing of February’s bulletin, and unfortunately, USCIS’s song remains the same for another month. If anything, recent history has proven that circumstances can change at a moment’s notice, but right now, there aren’t any visible signs of a shift for the better.

The EB-5 Immigrant Investor Program has remained a favorite U.S. immigration program among foreign investors since its inception in 1990, promising U.S. green cards for a qualifying investor and their immediate family members upon the completion of a successful EB-5 investment that creates at least 10 new jobs for U.S. workers. With EB-5 demand particularly surging in China, Vietnam, and India, it is the program’s popularity itself that presents complications, since only a limited number of U.S. green cards are allotted to the program annually.

To partake in the EB-5 program, an investor must inject the minimum required EB-5 investment amount in their selected new commercial enterprise (NCE), which, in turn, consolidates the EB5 investment funds from all participating investors and funnels it into a job-creating entity (JCE), usually for a term of five years. Until 2014, this arrangement worked smoothly, with EB-5 investors fulfilling EB-5 requirements and exiting the investment by the end of the five years. However, newfound popularity in 2014 led to skyrocketing EB-5 demand that the relatively low annual supply of EB-5 visas wasn’t equipped for. The result was massive backlogs in countries such as China, Vietnam, and India, with China and Vietnam still backlogged as of December 2020. With backlogs elongating processing times, it wasn’t long until the five-year investment term was insufficient for some EB-5 investors to satisfy the program requirements.

Since one of the key EB-5 program requirements is that EB-5 investment funds remain at risk throughout the full investment period, EB-5 investors who have failed to meet EB-5 requirements by the end of five years have no choice but to redeploy their EB5 investment capital. Failure to redeploy would constitute a violation of EB-5 requirements, as the investor’s capital would no longer be at risk.

EB-5 redeployment is further complicated by legal requirements governed by the U.S. Securities and Exchange Commission (SEC), which serves to protect domestic and foreign investors alike in U.S.-based securities offerings. When the Investment Companies Act of 1940 and the July 2020 Policy Alert from United States Citizenship and Immigration Services (USCIS) are added to the mix, it’s clear that NCEs have a number of legal hurdles to navigate in executing EB-5 redeployments.

Problems with Investor Advisers

The Advisers Act rules that a general partner or managing member of the NCE may act as a “private fund adviser,” in which their reporting obligations differ somewhat from those of other fund advisers. Private fund advisers are permitted in EB-5 redeployments, but the level of regulation depends on whether the adviser is offering advice to the entire body of limited partners based on the objectives of the NCE or to individual EB-5 investors based on their individual goals.

The SEC has stated it will not take action if a private fund adviser offers advice to the NCE’s limited partnership, as they will be seen as furthering the objectives of the NCE and not the investors. A private fund adviser may also inquire as to whether a limited partner would prefer distributions to be paid out in cash or in kind, but they would be prohibited from offering advice or otherwise attempting to sway the limited partner’s decision in either direction. Were the private fund adviser to take such action, they would be subject to additional SEC regulation.

Exemptions under the Investment Companies Act of 1940

In most NCEs, the majority of assets comprise of a promissory note representing the deployment of EB-5 investment capital to the JCE, which classifies most NCEs as investment companies under the Investment Companies Act of 1940. To participate in the EB-5 program, most NCEs must thus fall into one of two key exemption categories within the act: Section 3(c)(1) or Section 3(c)(5)(C). Section 3(c)(1) stipulates that a securities issuer will not be considered an investment company if it has fewer than 101 investors and does not offer its securities publicly, while Section 3(c)(5)(C) exempts securities issuers whose promissory note is secured by qualifying real estate assets.

Under which section an NCE’s exemption is granted is irrelevant, but what is important is that the exemption still stands at the time of redeployment. Since the NCE’s circumstances may change with time, when it wishes to redeploy EB5 investment funds, it must determine whether it still satisfies the requirements of its exemption. If not, it must determine whether another Investment Companies Act exemption could apply.

USCIS’s Policy Alert

USCIS cannot override the regulations of the SEC or the Investment Companies Act of 1940, so no matter what, NCEs and investors must adhere their rules. USCIS regulations come next, and in July 2020, USCIS released a new Policy Alert on EB-5 redeployments.

According to the Policy Alert, any redeployment must be through the same NCE for the purposes of furthering the NCE’s objectives. If the investor is working with an EB-5 regional center, their redeployment must additionally be through the same regional center. However, the JCE need not be the same, and the commercial activity and location of the project are also permitted to differ. EB-5 investment capital initially deployed in a targeted employment area (TEA) may even be redeployed in a new area that does not qualify for TEA status.

The Hong Kong Autonomy Act is a sanctions package designed to penalize banks that conduct business with Chinese officials and was recently passed in the United States by Congress. These measures were a response to China’s enactment of the new Hong Kong security law—a piece of Chinese legislation that governing bodies across the globe condemn as an offense against democratic freedoms. While Congress’s actions are a solid counter-message to Beijing, there are a myriad of tools available that haven’t yet been used by the U.S. federal government. One is the EB-5 Immigrant Investor Program.

What the EB-5 Program Does for the U.S.

The EB-5 Immigrant Investor Program is a U.S. economic development initiative introduced in the 1990s Congress that, today, is a driver of billions of dollars in EB5 investment in U.S. markets across the country. This investment-for-residency program focuses on the needs of rural and high-unemployment areas. Eligible foreign investors can obtain U.S. green cards for themselves and their qualifying family members by infusing minimum required EB-5 investment capital amounts ($1.8 million, or $900,000 when investing in a targeted employment area, or TEA) in program-approved projects in line with EB-5 guidelines.

According to 2019 study data by Economic & Policy Resources, the EB-5 program garnered more than $55 billion in EB5 investment capital and was responsible for creating more than 355,000 jobs in 2019. As the Congressional Budget Office attests, the program’s most appealing aspect is that it operates with “no significant cost to the federal government” and at no cost to the taxpayer. This is because the program is designed such that it is EB-5 investment participants who pick up the tab.

U.S. Congress’s Untapped Potential

The current political climate in China creates the perfect opportunity for the U.S. Congress to tap into the potential synergy between Hong Kong and the United States. Further reformation on the EB-5 program to make it easier and more attractive for Hong Kong residents to invest will not only help them escape the heavy hand of the Chinese government but also aid the U.S. economy in job creation at a time when the country needs it most.

This is a win-win scenario that could positively impact both Hong Kong and the United States if Congress can enact consensus-based reforms quickly. Congress has the potential to drive home its democratic message to Beijing, draw in Hong Kong’s best and brightest, and stimulate the economy through the creation of thousands of new U.S. jobs all in one fell swoop.

Proof of Concept for a Hong Kong Focus

The United States isn’t the only country willing to support Hong Kong’s efforts. There are a number of nations with competitive investment programs around the globe helping the region’s people, including the United Kingdom and Canada.

The UK Grants Hong Kong Residents Renewable Visas

Approximately 350,000 Hong Kong residents are reported to currently hold a British overseas passport, and more than two million more are eligible to apply for one. British Prime Minister Boris Johnson made an announcement that Hong Kong residents who wish to apply may be granted renewable visas. Holding a renewable visa would allow them to hold UK employment and would set them squarely on a path to citizenship in the UK.

Canada’s Foresight Has Garnered a Return in Spades

More than two decades ago, Canada prepared for the end of British rule in Hong Kong by using its residency-by-investment program as a welcome mat for entrepreneurs and business professionals from Hong Kong. The results?

• Billions of foreign investment dollars that literally and figuratively transformed Vancouver and other areas of British Columbia into thriving international hubs
• An entire generation of talented and well-educated innovators and job creators who continue to positively contribute to the country’s economic growth

So why isn’t the United States following suit? What are U.S. officials currently doing instead? Let’s take a look at why the U.S.’s EB-5 Program isn’t currently the most attractive offer on the table in Hong Kong.

What’s Happening with EB-5-Related Legislation

It’s worth repeating: the EB-5 program isn’t the most attractive offer on Hong Kong investors’ tables right now. And now, in 2020, the federal government has made the U.S. option even less attractive. President Trump signed off on the Hong Kong Normalization Order—a policy for the United States to suspend or even eliminate the preferential treatment of Hong Kong over mainland China. This made it even more difficult for Hong Kong residents to participate in EB5 investments than before.

The July 2020 executive order has subjected Hong Kong EB-5 investment applicants to the extensive backlogs Chinese investors have been dealing with for years, likely adding years to Hong Kong investors’ EB-5 journeys. The United States is already host to more Hong Kong immigrants than any other country outside of mainland China and is a leading source of inbound EB-5 investment capital. Yet, it is still only a fraction of Hong Kong’s financial resources.

Common Sense Reforms to Strengthen EB-5 Appeal

It only makes sense to better EB-5 investment opportunities for Hong Kongers. The only way forward in reinvigorating interest among Hong Kong investors is the repeal of counterintuitive actions such as the Hong Kong Normalization Order, as well as further reform. If not, the United States can only expect to lose desperately needed Hong Kong investment capital and talent to more attractive markets like Canada, Singapore, the United Kingdom, and Australia.

Common sense reforms from Congress are a viable way to avoid this. Two creative ideas floating around the EB-5 community are as follows:

• Enact a requirement for Hong Kong EB-5 investment capital to apply only to rural areas or targeted employment areas (TEAs). This would spur on economic development in regions where it’s needed most and avoid investment concentration issues.
• Establish a temporary fast-track for processing Hong Kong investors. Exempt them from the annual visa caps that would normally apply during such this urgent time in Hong Kong. This is the type of reform that could upstage competitive offerings.

What’s most heartening is it seems that there are congressional figureheads who have suggested they are poised to support any efforts to assist Hong Kong. Specifically, they support reforms, sanctions, and aspects of a recovery bill that address how the EB-5 program would reinforce cornerstone principles of democracy, economic opportunity, and freedom, sending a very strong message to China and the rest of the world.

According to statistics pulled from the United States Citizenship and Immigration Services (USCIS) data for FY2020 Q4 (July–September 2020), new I-526 receipts at the immigration body are the lowest they’ve been in years. While it’s easy to see diminished demand as a reason to steer clear of the EB-5 Immigrant Investor Program, it may actually be an ideal time to dive into an EB-5 investment. Many of the problems that have plagued the residency-by-investment program throughout the 2010s can be traced back to the lengthy backlogs for investors from select countries, and a decrease in new demand offers a chance to reduce the backlogs.

What Does the Data Say About I-526 Petition Receipts?

The USCIS data makes clear the decrease in I-526 receipts compared to most years in the 2010s, with the exception of FY2019. A record-low year in many regards for the EB-5 program, FY2019 saw only 4,194 new I-526 petitions filed, meaning FY2020’s 4,378 represents a 5% increase.

A spike in filings in the first quarter of FY2020 is also clear. The Modernization Rule, which came into effect on November 21, 2019, pushed up the minimum required EB5 investment amounts by 80%, raising the regular amount from $1 million to $1.8 million and the targeted employment area (TEA) amount from $500,000 to $900,000. With more than 97% of all FY2020 I-526 receipts being filed in the first quarter, it’s clear a deluge of applicants jumped on the chance to secure an EB-5 investment at the lower amount.

Unforeseen at that time was the COVID-19 pandemic, which continues to devastate the globe even now in February 2021. Temporary suspensions at U.S. embassies and consulates, coupled with strict lockdowns and the general shutdown of public life around the globe, are expected to have also contributed to the sudden decrease in new I-526 petitions. USCIS received only 114 I-526 petitions throughout the three remaining quarters of the fiscal year.

Adjudications of I-526 petitions also fell in FY2020, but not as starkly as receipts. The EB5 investment world has grown used to a snail’s pace at the Immigrant Investor Program Office (IPO) under Sarah Kendall’s leadership, with the FY2019 figures falling dramatically from all-time highs in FY2018 even without a pandemic wreaking havoc on the world. FY2020 I-526 adjudications were down 27% from even FY2019 numbers, but the good news is that they are trending upward, with FY2020 Q4 exhibiting the highest number of I-526 adjudications since FY2019 Q1. The ratio of approvals to rejections is also trending favorably, with the 79% of approved petitions in FY2020 Q4 up from 62% in the previous quarter.

In terms of the seemingly endless backlogs at USCIS, the flood of new I-526 receipts in FY2020 Q1 had a substantially negative effect. USCIS closed out FY2019 with 13,763 petitions stuck in the backlogs, but the rush to beat the increased minimum EB-5 investment amounts in FY2020 Q1 pushed the figure to 17,468. The almost complete cessation of new filings throughout the rest of the year allowed USCIS to reduce the number to 15,063, but the agency still has a long way to go to eliminate the backlogs.

How EB-5 Investors Can Benefit

A time of diminished interested in the EB-5 program may actually be the perfect time to jump into an EB5 investment. Fewer I-526 petitions means less competition and more EB-5 visas available for an investor and their family members, resulting in a faster EB-5 journey. The EB-5 outlook in FY2021 is particularly favorable for new applicants considering an EB-5 investment, with the scores of unissued visas in FY2020 resulting in thousands being rolled over to the EB-5 program in FY2021. With 18,567 visas allocated to the EB-5 program, the IPO can dish out more than double the usual number of EB-5 visas in FY2021. This massive increase allows the country caps to increase to around 1,300 visas, presenting USCIS with a unique opportunity to cut down the Chinese and Vietnamese backlogs. Leftover visas, which could be as many as 7,000–8,000, could go to Chinese and Vietnamese nationals who have been left in processing purgatory for years.

Naturally, this situation is advantageous to those already engaged in an EB5 investment but stuck in backlogs, but it also offers benefits for new EB-5 investors. In particular, cutting down the massive Chinese backlog could substantially reduce estimated waiting times for new EB-5 investors from China, and if few Chinese peers similarly make EB-5 investments going forward, the situation will be even more favorable.

FY2021 essentially presents USCIS with a chance to “catch up” on the backlogs that have prevailed since 2014. With almost double the average number of yearly EB-5 visas and record-low interest, it’s unlikely the EB-5 program will ever see another opportunity like this again. Though many foreign investors are shying away from an EB5 investment, it may, in fact, be the best time to get involved with the EB-5 Immigrant Investor Program.

Even as the world descends further into COVID-induced chaos in 2021, potential for large-scale positive reform swirls about the EB-5 industry. A month and a half into the year, EB-5 investment stakeholders have witnessed freshly inaugurated President Biden’s pledge to overhaul the U.S. immigration system by clearing up backlogs, shortening processing times, and removing country-based allocation limitations. The EB-5 Immigrant Investor Program could also see a dedicated reform with the EB-5 Reform and Integrity Act proposed by long-time EB-5 allies Chuck Grassley (R-IA) and Patrick Leahy (D-VT).

The looming sunset date of the EB-5 Regional Center Program, set at June 30, 2021, provides an urgent impetus to implement the act. Without it, industry leaders fear the EB-5 program’s overwhelmingly popular regional center program, which has contributed billions to the U.S. economy, could be terminated, with Congress judging it too problem-ridden. But even if the possible termination of the regional center program were not a concern, the EB-5 Reform and Integrity Act would still bring highly welcomed change that EB5 investment stakeholders have long sought after.

Long-Term Regional Center Program Reauthorization

One benefit of the act is that it would introduce some much-needed stability into the EB-5 program. As it stands in February 2021, the regional center program is only temporary, necessitating constant reauthorization by Congress. The program’s previous coupling with broader government funding bills effectively protected it from termination, but its divorce from the group bill in the reauthorization in December 2020 now leaves it to fend for reauthorization on its own. The proposed EB-5 reform would address the issue of regional center authorization, securing authorization for a five-year period.

Strengthened Protections for EB-5 Investors

Regional center EB-5 investment offers numerous benefits to investors, making it far more popular than direct investment. Those who make an EB5 investment through a regional center enjoy easier job creation requirements, far lighter managerial duties, and can leverage the EB-5 expertise of experienced regional center managers. Nonetheless, some investors are concerned with the possibility of fraud or poor management on the part of the regional center and are more comfortable with direct EB-5 investment because the structure places them closer to the new commercial enterprise (NCE).

The proposed reform bill addresses concerns of integrity in regional centers, mandating that regional centers draft annual statements certifying their compliance with all relevant regulations. They must explain all pending or recently resolved litigation or bankruptcy proceedings involving the regional center, NCE, or job-creating entity (JCE) and accounting for all foreign capital invested in those entities. A statement for each affiliated NCE must be drafted, detailing such information as the total amount of EB5 investment capital injected, how the capital is being spent, proof that all funds from EB-5 investors have been committed to the project, details about the progress toward the project’s goals, and a report of all jobs created or preserved. These annual statements must be made available to any EB-5 investment participant who requests them.

The EB-5 Reform and Integrity Act’s protection of investors doesn’t stop at compliance and transparency reports—it extends to preserving the immigration rights of EB-5 investors duped by fraudsters. Though the incidence rate of fraud in the EB-5 program is extremely low, some investors are still deceived and have their immigration eligibility revoked as a result. Under the proposed bill, EB5 investment participants in this situation would receive a notice from the Department of Homeland Security and be given 180 days to submit an amendment or notice to secure continued EB-5 eligibility. They would keep the priority date of their I-526 petition, and their children would be protected from aging out.

Extra Time for Job Creation

The current regulations of the EB-5 program allocate two years to an EB-5 investor to create at least 10 new full-time jobs for U.S. workers as they live in the United States as a conditional permanent resident. The proposed act would offer investors who failed to create the necessary number of jobs in the two years one more year to satisfy the job creation requirement, resulting in more U.S. jobs created and more successful EB5 investments.

The EB-5 Reform and Integrity Bill Could Change the EB-5 Program’s Future

If the EB-5 industry rallies together to have the proposed bill enacted, it would have long-lasting effects on the EB-5 program and, as a result, the U.S. economy. By extending the authorization of the EB-5 Regional Center Program by five years, it would ensure the program continues to pump EB-5 capital into the U.S. economy, which could prove invaluable as the country recovers from the debilitating effects of COVID-19.

But the EB-5 community should be excited about the act for more than just the regional center program extension. The proposed integrity measures would revolutionize certain aspects of the EB-5 program, protecting investors and honest EB-5 actors while addressing outsiders’ concerns of fraud and abuse. It could help transform the program’s reputation, opening the door to more support from within and outside of the United States. While it doesn’t address all the issues EB-5 investment stakeholders face, it would go a long way in improving the EB-5 landscape.

The writ of mandamus: A seemingly singular option in the broken case inquiry system of United States Citizenship and Immigration Services (USCIS), it is an action designed to force the hand of USCIS adjudicators on pending I-526 and I-829 petitions. Unfortunately, this course of action also poses the inherent threat associated with immediate adjudication – rejection over a request for evidence (RFE) if insufficient or inconsistent information is found in the petition.

Because of this, filing a writ of mandamus has been designated a last-resort measure only in cases where wait times have become “excessive.” The process is simply too expensive and too risky an endeavor – and still offers no guarantee of EB-5 success. The EB-5 litigation bar has advised exactly this course of action for years, defining “excessive delays” as those which exceed published processing times.

Writ of Mandamus Action Isn’t Working

As it stands, mandamus case results vary little, settling only the longest pending petitions at the Immigrant Investor Program Office (IPO) and USCIS. In these rare settlement cases, the United States government has usually submitted a motion to dismiss following federal complaints officially filed by immigrant investors who have reached their wits’ ends. This has been deemed the norm, and with the published processing times standing at 30–50 months as of December 16, 2020, it is safe to assume that adjudication delays will only continue to increase. Why is that? Because right now, the IPO – not the investors – defines what a “reasonable” wait time is.

EB-5 Attorneys Contemplate Litigation

A glance through recent Visa Bulletins shows the IPO has published ever-increasing processing times, which implicitly extends “reasonable” adjudication delays. Form I-526 adjudication wait times are currently claimed to be two to four years, and in FY2020, only 1,359 I-526 petitions were resolved in the first six months. As a result, EB-5 attorneys are contemplating litigation as the only viable course for resetting the norm on what is considered a reasonable delay.

A Visible Path to Redefining Reasonable Wait Times

Some industry professionals believe that, as a practicality, the EB-5 litigation bar has to first separate actual processing times from what has been established as a reasonable amount of time for EB5 investment petition adjudication. This is because USCIS published processing times merely provide context for delays. As a matter of law, they do not prove in any way that the delays are reasonable. Alternative and more relevant guideposts must be used to define reasonable processing times.

Congressional Intent on Eliminating Backlogs

Congressional intent may serve as evidence for the need for a new definition. Congress’s express concern over excessive backlogs in benefit application processing for immigrants dates back two decades. At the time, the legislative body authorized an appropriation of funds for dissolving backlogs on pending petitions older than 180 days to confer status under the Immigration and Nationality Act. The language used was “the processing of an immigration benefit application should be completed not later than 180 days after the initial filing of the application.”

A few years later, when the Department of Homeland Security was created, Congress amended its verbiage on the matter to extend the mandate for eliminating backlogs from 180 days to one year. This doubled the definition of a reasonable wait time at a time when when Congress felt the added time was warranted. Is so much time still warranted? Actual IPO metrics would be crucial to determining that.

IPO Metrics on Workload Capacity

An evaluation of IPO metrics could pinpoint the workload capacity of its offices as a starting point. Let’s run through an exercise based on 2019 data. IPO data shows 212 adjudicators on staff in 2018, and USCIS claims it takes adjudicators an average of 8.65 hours to process an I-526 petition. This is known as the “touch time.” Then, assume that just half (106) of those IPO adjudicators are dedicated to working on I-526 applications 40 hours per week for 50 weeks per year. That equates to 212,000 work hours on I-526 petitions. Divide the dedicated hours by the touch time to find the workload capacity. We’ll save you the calculation and tell you – based on that formula, the IPO had the capacity to process 24,500 I-526 petitions a year in 2019.

While it is only fair to note that every EB-5 case is unique and that individual circumstances must be factored into processing times, as it stands, only a fraction of the petitions the IPO could theoretically be adjudicating are actually getting done. In all likelihood, therein lies a large part of the problem. Another area that should be further examined is the role of both USCIS deference and IPO prioritization in those delays.

USCIS Deference and IPO Prioritization

USCIS interprets statutory authorization for the EB-5 Regional Center Program as a license to prioritize individual EB5 investment participants’ petitions when they are filed through a regional center. Moreover, the agency grants deference to project fundamentals when there is an approved exemplar application on file. While this may seem like an efficient way to get through stacks of EB-5 petitions, the result of this interpretation has been to allow other well-qualified investors to be cast aside in the wait line for an indeterminate amount of time.

Furthermore, the IPO began prioritizing EB5 investment petitions by listing countries of origin that have visas available – also a tactic that may make sense in terms of tackling individual adjudicators’ caseloads. But where does it leave investors who have already been waiting?

A Strategy Emerges for Potential Group Action

Because every EB-5 investment is different, the individual explanations available to USCIS and the IPO for delays are virtually endless. This has made it difficult to shift the norm on what constitutes a reasonable wait time. USCIS holds up published wait times as a primary defense. Case-by-case litigation isn’t usually an option until a delay of a year and a half or two years has been established, and that’s only the beginning. The worst part is that these motions increase EB-5 investors’ hard costs, personal stress levels, and overall risks, making innovation in this type of litigation paramount.

As such, a new thought within the EB-5 legal community is emerging: it may be a wise strategy to pursue group actions in smaller jurisdictions. This would allow varying USCIS arguments to be addressed with small groups of individual investors experiencing the same kinds of delays. One suit may pursue discovery immediately. Another could move to compel the production of administrative records. The courts would become a testing ground for how to design a new precedent on what constitutes a reasonable delay.

One thing is certain – no action means no change. Following a year of unprecedented challenges, it seems there is no better time than the present to seek out new and creative ways to protect the EB-5 Immigrant Investor Program and its participants!

Every year since the initiative’s inception, the EB-5 Immigrant Investor Program has grown in popularity. It was designed to attract foreign nationals to invest in the U.S. economy, and in exchange for a qualifying investment, they and each of their eligible family members may obtain a green card. The most recent fiscal data release reveals explosive growth since 2017 in several feeder countries. South Africa is one of them.

Within just a two-year span, the number of South African EB-5 investors grew by 226%, and 2020 market trends have pointed to a large uptick in applications as an indicator that South Africa is an emerging EB-5 market.

A stroke of luck for prospective South African investors, United States Citizenship and Immigration Services (USCIS) implemented new processing procedures for I-526 petitions that allow adjudicators to process applications on a first-in, first-out basis. While this is projected to extend wait times for EB5 investment participants in countries such as China, India, and Vietnam, industry experts say these procedural changes may foster even more growth in underrepresented markets. Again, South Africa is one of them.

Learn more about the kinds of South African investors who are participating in EB-5 investments, why they are choosing this program, and what key strategies they are employing to shore up their legacies in the United States.

The Savvy South African Investor

The worldwide financial meltdown in 2008 was a catalyst for a steady rise in foreign direct investment (FDI) in the southern hemisphere. Add to that the explosive economic growth in parts of Africa and a savvier, more sophisticated South African EB-5 investor seems to have emerged. A 92% petition approval rate reflects that sophistication.

Generally, EB5 investment participants from South Africa either accumulated their family wealth over two or three generations or their entrepreneurial endeavors have been highly successful in recent years. They are savvy business owners and investors, looking for solid returns. For obvious reasons, then, a primary question they initially ask when considering the program is why they would invest such a substantial amount of capital into an investment with such a comparatively low monetary return.

Reasons More South Africans Are Seeking EB-5 Visas

Right now, the minimum capital requirement to participate in an EB-5 investment is $1.8 million (or $900,000 when a project is located in a designated targeted employment area, or TEA). That is a lot of money to tie up for potentially years for returns that are generally 5% or less, especially considering the rand-to-dollar exchange rate. Yet savvy South African investors continue to pursue the EB-5 path, and there are several reasons why.

Diversification and Security of Wealth

Diversification of a portfolio is always important, and the security of one’s investment is especially fragile at present. Despite its challenges in the last few years, the U.S. economic climate is still relatively strong, and certainly more stable than South Africa’s in the post-pandemic environment.

Education and Employment Opportunities

Additionally, the vast majority of South African EB-5 investors are seeking a life in the United States for the educational opportunities. Enrolling their children in quality schools creates an opportunity for education—and ultimately employment—opportunities they wouldn’t otherwise have such easy access to.

While it is possible for South Africans to send their children to the United States to study at the cost of international tuition, it is far more cost effective to seek permanent residency for the entire family first. Residence also increases the likelihood of acceptance into an Ivy League school.

Relative Efficiency in Processing

The rule of law seems to be crumbling in South Africa, which is signaling to many South Africans that it’s time to take their business and families elsewhere, and the EB-5 visa program is one of the most direct paths to U.S. permanent residency. Alternative employment-based visa programs often require far more time before gaining a green card.

For instance, some programs require an employer sponsorship prior to coming into the U.S. Other programs have a limited number of allocated visas, so even approval doesn’t mean a visa will be granted. Furthermore, the temporary consulate closures in 2020 drastically increased the visa rollover totals, which means more visas allocated in FY2021 for EB5 investment participants.

These are only three of the most common challenges in securing a visa through other U.S. immigration programs.

Ultimately, the EB-5 program appeals to South African investors because they can count on the security of their investment, they can access better education and employment opportunities for themselves and their families, and they can do it relatively quickly.

However, participation in the EB-5 investment program takes a bit more planning when your country of origin is South Africa.

Strategies for Meeting EB-5 Requirements Under Reserve Bank and SARS Regulations

One of the greatest challenges South African EB-5 investors face is ensuring they can meet EB-5 investment program requirements while also adhering to South African Revenue Services (SARS) and South African Reserve Bank (SARB) regulations. The SARB, which governs exchange controls, sets a limit on the amount of money citizens may take out of the country. Each passport holder retains a 1-million-rand discretionary allowance, no questions asked. At the current exchange rate in December 2020, even the minimum EB-5 investment in a designated TEA ($900,000) equates to R 15 million.

Investors use three common strategies used when funds are being sourced from within South Africa.

Prepare for Scrutiny

Keep in mind, it is not unlawful to move more than R 1 million offshore; there will simply be greater scrutiny and greater tax implications for an investor when they do. The first strategy, then, is to properly prepare for an invasive review. The review process has significantly slowed for EB-5 investment participants since the minimum investment requirement increased, and it involves both the SARS and the SARB.

Move EB5 Investment Capital Offshore Early

Many prudent investors have long-since diversified their portfolios and externalized their money. This creates a situation in which the amount of money they seek to clear with SARB isn’t the full $900,000. This strategy is usually implemented by more experienced investors, as they often attempt to time it against the strength of the rand. However, because of the volatility of the rand, this can be risky, especially when there are looming EB-5 deadlines.

Make a Spousal Donation

The regulations allow 1 million rand per citizen. When an investor needs to move more than what’s allowed, it is perfectly acceptable to do so through a spousal donation. To remain eligible for the EB-5 investment program, participants simply need to provide the proper documentation for lawfully sourced funds.

None of these strategies are new, which means the South African government is familiar with them and unlikely to send up any red flags if investors’ affairs are in proper order.

The EB-5 Journey from South Africa to the United States

While the EB-5 market certainly isn’t as large as it is in other parts of the world, there are large pockets of South Africans who are seriously considering a move to the United States. Unfortunately, the recent near doubling of the investment requirement has put the program out of reach for many of them. For some, that means they will not be able to participate, but for an increasing number of others, it has simply meant being a little more creative. This is not only a testament to the sophistication of South African investors but also an indicator of the caliber of experienced EB-5 professionals they choose to work with on their EB-5 investment.

The general rule of thumb when advising a South Africa–based client is to plan on three years of preparation before they leave for the U.S. It is also important to understand there isn’t much an EB-5 investment participant can do to speed up the process, at least in the earliest of the following three phases.

Phase 1: Addressing EB-5 Investment Capital

From the time a South African investor decides to participate in the program to the time they make an actual investment in an EB-5 project, it usually takes around three months. It may take far less time if an investor is using capital that is already located offshore because they won’t need approval from SARS. But it may take significantly more when they need to secure funding to begin with and/or have to work through SARS because the amount needed to move out of the country is greater than the threshold set by the government.

Phase 2: Awaiting EB-5 Consular Processing

During the processing phase, EB-5 investors must file several petition packets, schedule visits with the consulate, and take care of follow up. At each substage of this process, there are various strategies to help move things along (or that can slow them down).

This is the longest phase in the process, and it currently takes about three years to complete. That is an average time frame, though, and every EB5 investment is unique. Working with an experienced U.S. immigration attorney who also understands South African law is imperative to managing one’s own expectations and to garnering the most efficient processing possible.

Phase 3: Beginning the Move

Once an EB-5 investment participant receives approval on their I-526 petition, it is time to make more definite travel plans. USCIS adjudication is currently running between eight and 24 months to completion. (Non-exemplar approved projects may take a bit longer.) That is essentially enough time to tie up loose ends such as finishing out a school year or selling the house, and arranging the move.