Tag Archive for: EB-5

David Isaacson

Some Highlights of the EB-5 Reauthorization: CSPA Protection and How 245(k) and Concurrent Filing Combine to Create a New Option for Some Applicants Who Have Recently Dropped Out of Status

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The recently enacted Consolidated Appropriations Act of 2022, which was signed into law on March 15 after the House and Senate resolved their differences earlier in the month, reauthorized the EB-5 Regional Center program and made some other changes to the EB-5 program in the “EB-5 Reform and Integrity Act of 2022”, included as Division BB of the appropriations bill (at pages 1022 to 1061 of the PDF version of the bill).  Others have already produced summaries of the bill, such as one drafted shortly before the President signed the bill by Robert Divine of Baker Donelson and posted by Invest in the USA, and I will not here attempt an exhaustive list of all of the changes contained in almost 40 pages of statutory text, but there are a few highlights that seemed particularly worth mentioning.

Section 203(h)(5) of the Immigration and Nationality Act, as added by section 102(b) of Division BB (at pages 1026-1027 of the PDF version of the bill), provides additional protection under the Child Status Protection Act for some children of investors who would otherwise age out of their derivative status. If a child becomes a Lawful Permanent Resident (LPR) on a conditional basis through a parent’s investment, and the parent’s conditional resident status is later terminated because of, for example, failure to create the requisite number of U.S. jobs, there will be a one-year window after the termination during which the parent can file a new EB-5 petition and the child (if still unmarried) will continue to qualify as a child under the new petition even if then over age 21.

Likely of relevance to more people are two provisions of Division BB which can have a particularly powerful effect in combination: the addition of EB-5 petitions to those covered by INA § 245(k), and the addition of a new section § 245(n) allowing concurrent filing of an application for adjustment of status where approval of an EB-5 petition would make a visa number immediately available. Both of these are contained in section 102(d) of Division BB (at page 1027 of the PDF version of the bill).

Under previous law, EB-5 petitions and applications for adjustment of status could not be filed concurrently, and INA § 245(k) did not apply to EB-5 petitions. The former meant that it was necessary to file an EB-5 petition and wait for it to be approved before filing an I-485 application for adjustment of status, and the wait could be very long: current posted USCIS processing times indicate that an I-526 Petition by Alien Investor under the EB-5 program can take anywhere from 35 months to 71.5 months to adjudicate. During those three to six years, the investor/petitioner would have to either maintain status in the United States, or (if already here) leave the country. And when the time finally came to apply for adjustment of status, the inapplicability of section 245(k) meant that absent some rare exceptions, the investor/petitioner would have to prove that they had maintained status continuously, without even small gaps, and had never worked without authorization.  This is in contrast to most employment-based green card categories, where section 245(k) provides for limited forgiveness of up to 180 days of time out of status or employed without authorization since one’s last admission into the United States.

Under the former law, therefore, the EB-5 program was not a useful option for people who wanted to remain in the United States, but lacked access to a long-term nonimmigrant status or had briefly fallen out of status for whatever reason. With these amendments, on the other hand, it can be.

Imagine, for example, a well-off L-1A nonimmigrant manager or executive sent to open a new office in the United States who runs into trouble after a year because the sponsoring company’s business operation has not yet developed to the point that USCIS acknowledges it to be able to support his or her continued efforts as a manager or executive. If an L-1A extension is denied, and an EB-1C I-140 petition for a manager or executive is not a viable option because USCIS would deny it for the same reason, the previous law would not have allowed the nonimmigrant to remain in the United States while pursuing the EB-5 process after falling out of L-1 status.  An I-526 petition would have had no direct impact on the nonimmigrant’s status until years later.

Under the newly amended version of the law, however, assuming no previous time out of status or unauthorized employment since the last time that our hypothetical L-1 nonimmigrant was admitted to the United States, there would be a window of 180 days after the L-1 extension denial when the nonimmigrant could utilize the EB-5 process to remain in the United States. If the requisite investment were made and an I-526 petition were concurrently filed with an I-485 application for adjustment of status within that time, then the I-485 application would be protected by amended INA § 245(k).  (According to USCIS guidance, it would also be necessary for the applicant to refrain from unauthorized employment after filing and before receiving employment authorization; the legal correctness, or not, of that guidance is outside the scope of this blog post.) The applicant would then be protected from the accrual of unlawful presence by the pendency of the I-485 application for adjustment of status, and could be issued an employment authorization document (EAD) while the application was pending, pursuant to 8 C.F.R. 274a.12(c)(9).  Thus, while the I-526 and I-485 were pending, the applicant would effectively remain able to live and work in the United States, ultimately transitioning to LPR status if the petition and application were approved.

The above scenario is only possible when, at the time of filing, a visa number is immediately available in the EB-5 category without the need for an earlier priority date. However, as things now stand, the State Department’s Visa Bulletin indicates that this will be true in almost all scenarios, with only one exception. In the April 2022 Visa Bulletin, the non-regional-center EB-5 Final Action cutoff dates are Current for all countries, meaning that visa numbers are available for any priority date and so concurrent filing is possible. Although the regional-center EB-5 Final Action Dates were Unavailable at the time of Visa Bulletin publication because the Bulletin was first authored on March 10 before the Consolidated Appropriations Act reauthorized the regional center program (though there has since been an update referencing the reauthorization), the regional-center Dates for Filing were Current for all countries but China, and the same will likely be true of the Final Action cutoff dates next month.  For those born in mainland China and unable to exercise cross-chargeability based on birth of a spouse or (under certain rare circumstances) parents elsewhere, however, regional-center EB-5 numbers will not be available without a priority date much earlier than concurrent filing would produce: the Dates for Filing cutoff as of April 2022 is December 15, 2015. Thus, concurrent filing will not be possible for such investors born in China and pursuing a regional center investment.  It will, however, still be possible for them in connection with a direct investment.

The Act raises the minimum required investment thresholds, so taking advantage of this new opportunity will require a larger investment than was necessary in the past. For investments in Targeted Employment Areas (that is, either rural areas or areas of high unemployment) or particular infrastructure projects defined by a new provision in the bill, a minimum amount of $800,000 is now required, a significant increase over the previous $500,000 threshold for Targeted Employment Areas. For investments elsewhere, the requirement is $1,050,000, a more modest increase over the previous $1 million threshold. The amounts will be further adjusted for inflation in 2027 and every five years thereafter.  (See page 1024 of the PDF version of the bill.)

It is also important to note that only the Secretary of Homeland Security or “a designee of the Secretary who is an employee of the Department of Homeland Security” will be able to designate high unemployment areas for Targeted Employment Area purposes, while state or local officials will no longer be able to do so. (See page 1023 of the PDF version of the bill.)  This is presumably an effort to counter what current Senate Appropriations Committee chair Senator Patrick Leahy (D-VT) previously described as “gerrymandering” of purported high-unemployment areas by states. Thus, to take advantage of the lower $800,000 threshold, the investment projects of Regional Centers and others may need to be located in different kinds of places than they previously were.

The new law also indicates, at section 203(b)(5)(E)(ii)(I) of the INA as added by section 103(b)(1) of Division BB (at page 1027 of the PDF version of the bill) that in the regional-center context, DHS “shall prioritize the processing and adjudication of petitions for rural areas”.  Even true areas of high unemployment in an urban or suburban context, therefore, may be disfavored under the amended program relative to rural areas.

One other, more esoteric portion of the new law, which may be of interest primarily to attorneys (like this author) who practice federal litigation, is what one might call an anti-Darby provision. New section 203(b)(5)(P) of the INA, as added by section 103(b)(1) of Division BB (at pages 1049-1050 of the PDF version of the bill), provides for administrative appellate review of various USCIS decisions in the EB-5 context by the USCIS Administrative Appeals Office (AAO), and then states:

Subject to subparagraph (N)(v) and section 242(a)(2), and notwithstanding any other provision of law (statutory or nonstatutory), including section 2241 of title 28, United States Code, or any other habeas corpus provision, and sections 1361 and 1651 of such title, no court shall have jurisdiction to review a determination under this paragraph until the regional center, its associated entities, or the alien investor has exhausted all administrative appeals.

That is, one will be required to first appeal to the AAO before going to federal court. This is in contrast to the general rule set out by the Supreme Court’s decision in Darby v. Cisneros, 509 U.S. 137 (1993), which held that under 5 U.S.C. § 704, judicial review of an agency action ordinarily need not await an administrative appeal of that action unless the agency has both required an appeal and made the administrative action inoperative pending that appeal. However, Darby specifically recognized that an exception exists when an appeal is “expressly required by statute,” and Congress has chosen to create such an express requirement here in the new statute. In this context, therefore, unlike many other contexts, it will not be possible to bypass the AAO and seek review of a USCIS decision directly in federal court.  (The referenced exceptions in subparagraph (N)(v) and INA section 242(a)(2) relate to removal proceedings, where there would generally still be an administrative appeal required at least to the Board of Immigration Appeals, if not the AAO, before judicial review could be sought.)

As flagged by IIUSA, USCIS has indicated that it intends to provide “additional guidance” regarding the changes to the EB-5 program made by the Consolidated Appropriations Act, so we can expect that further details regarding the USCIS interpretation of the provisions mentioned above, and others, may become available in the future.  Even before such guidance comes out, however, it is already clear that things have changed in some interesting ways.

Cyrus Mehta

EB-5 Green Card, Ethics and Trump

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The EB-5 green card program for foreign investors is very much in the news due to its connection with President Trump!

A series of news reports have highlighted the Kushner family’s attempt to raise funds through the EB-5 green card program from Chinese investors by suggesting Trump’s connection to one of its real estate projects through his son in law, Jared Kushner. Qiaowai  is a Chinese agency that acts as an intermediary between Chinese EB-5 investors and EB-5 projects, including the Kushner EB-5 project called One Journal Square in Jersey City. Qiaowai has touted this project’s close links to President Trump.  When Qiaowai did a road show in China recently, Nicole Kushner Meyer, Jared Kushner’s sister, was promoted as the event’s “heavyweight honored guest”.  According to the New York Times, Ms. Meyer told prospective investors that the Journal Square development project “means a lot to me and my entire family,” and that her brother served as chief executive of Kushner Companies before leaving the company to work for the president. Qiaowai’s founder, Ding Ying, has boasted about being close to Trump. Its website stated, “The fact that Ms. Ding has once again been invited to attend a presidential inauguration shows that the U.S. Congress values and approves of the Qiaowai group.” The US Immigration Fund, is the Regional Center promoting this project in the United States.

This close connection between an EB-5 project, the foreign migration agency, the Regional Center and Trump has resulted in a barrage of criticism as it once again brings up the specter of conflicts of interest. There has already been widespread concern about Trump’s businesses violating the Emolument Clause of the Constitution. At the same time, there has been scant commentary on the dilemma that such conflicts involving Trump and his family members pose for the immigration lawyer who represent EB-5 investors. Must the immigration lawyer, when providing a list of viable EB-5 projects that have resulted in green cards for the investor, now also recommend projects of the Kushner family because of their close proximity to President Trump? While an immigration lawyer should not be acting as an investment advisor, unless licensed, an immigration lawyer may still conduct “immigration due diligence” on behalf of the client. The immigration due diligence assesses the viability of the project, not with regard to whether it will deliver a rate of return, but from the perspective of whether the investor has a reasonable chance of getting the green card. Such diligence includes evaluating the past I-526 approvals through the project and whether the project will create the requisite 10 indirect jobs per investor to satisfy the EB-5 statutory requirement. It also includes whether the project is in a targeted area that qualifies for the $500,000 investment, whether the investment capital is at risk, the investor’s place in the queue regarding job allocations and a host of other considerations that are unrelated to investment advice. Conducting such immigration diligence is part of the immigration attorney’s ethical obligation to be competent under ABA Model Rule 1.1, which provides:

A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation

The immigration lawyer must also consider other ethical rules, besides the duty of competence, when representing EB-5 investors:

Rule 1.2 addresses the scope of representation and the allocation of decision-making authority. According to this allocation, the client establishes the objectives, and the lawyer controls the means to pursue them.

Rule 1.4 on communication overlaps with 1.2: “A lawyer shall explain a matter to the extent reasonably necessary to permit a client to make informed decisions regarding the representation.”

Rule 1.0 defines informed consent: “The agreement by a person to the proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonably available alternatives to the proposed course of conduct.”

Rule 1.3 on diligence emphasizes the lawyer’s commitment to the client. “A lawyer shall act with reasonable diligence and promptness in representing a client.” The first comment to Rule 1.3 expands on this statement. “A lawyer must also act with commitment and dedication to the interests of the client and with zeal in advocacy upon the client’s behalf.”

As part of the lawyer’s competent representation and other ethical considerations on behalf of a prospective EB-5 investor client, must the ethical lawyer factor into consideration the EB-5 project run by the Kushner company due to its close relationship to President Trump? This is especially true when an intermediary such as a foreign migration agency in China has enticed the client to invest in a project that is close to the president. The lawyer may need to consider whether there is a likelihood of such an EB-5 project being treated more favorably, for example, by receiving less scrutiny with respect to its job creation plan, thus increasing the chances of a green card for the client? Hopefully, the answer should be “No,” but in the age of Trump, expectations have been defied and turned upside down many times over. In the not too distant past, then USCIS Director Mayorkas was investigated for appearing to show favoritism for EB-5 projects that had connections to Hillary Clinton’s brother and Senator Reid. Although Director Mayorkas did not face any sanction at the conclusion of the investigation, in an ideal world, an EB-5 project’s connection to Trump or his family ought not to matter. Both the financial advisor and immigration attorney should independently evaluate the project without regard to any political connections. By the same token, even the USCIS should independently evaluate the project, without regard to whether it is connected to a close family member of the president. It is also worth noting that the success or failure of an EB-5 application depends, not so much on the project, but on whether the investor can demonstrate the source of funds. In other words, is the investor able to demonstrate he or she was the owner of the funds from the very beginning? If the investor cannot demonstrate that he owned the funds, as opposed to an uncle depositing the money in the investor’s bank account, the EB-5 application will fail regardless of the strength of the EB-5 project. Therefore, the immigration lawyer can ethically advise that the success or failure of an investor’s EB-5 application may have nothing to do with how connected it is to the president.

Still, Flaubert said, “There is no truth. There is only perception.” If an investor hears that someone who invested in an EB-5 project connected to the Trump name got approved before she did in another EB-5 project, there will always be this lingering doubt in the mind of that investor. While Trump and his family members may yet be unaffected by their conflicts of interest, immigration attorneys have been left scratching their heads when representing EB-5 investors whether to ask clients to consider EB-5 projects close to Trump. Of course, while we are all witnessing a breathtaking compromise of ethics at the presidential level, it still behooves a lawyer to comply with the ethical rules when representing EB-5 investor clients. It is quite often the case that a foreign migration agent in China, such as Qiaowai, will hire the immigration lawyer to prepare and file EB-5 applications on behalf of its clients. Foreign migration agents play a crucial role in assisting the investor in assembling the documentation to demonstrate lawful source of funds, assisting in communications and translations and monitoring the statuses of all processes and filings of the investor. Still, as New York State Bar Ethics Opinion 1116 recently stated, it is imperative that the lawyer maintain her independence from the migration agent and that the lawyer’s judgment not be compromised. Therefore, if the migration agent has steered the investor into an EB-5 project with a close connection to Trump, it is incumbent on the lawyer to still maintain professional independence and to ensure that the lawyer’s judgment has not been compromised. The lawyer may wish to advise the client that the foreign migration agencies’ claims may be mere puffery.  If the lawyer accepts referrals from a foreign migration agent knowing that the investment selected by the agent will not be in the client’s best interest, the lawyer may be conflicted and must get informed consent from the EB-5 client under Rule 1.7(b). The client must acknowledge that the lawyer has a relationship with a foreign migration agent who may be steering the client to a project that may ultimately not be in the client’s best interest. Under no circumstances may a lawyer pay a referral fee to the foreign migration agent. If the foreign migration agent insists that the referral fee is for payment for expenses for services it provides, those services and expenses have to be identified and disclosed to the EB-5 investor client and should not cost more than services that could be found elsewhere.

Trump can remain in office for four years, and if he wins reelection, for a maximum of eight years, unless he is impeached before that! While Trump and his family members may disregard conflicts of interest and the truth, a lawyer cannot and should not follow suit. The lawyer must stay within the ethical rules – which includes not lying, not being compromised by conflicts and being competent – in order to outlast Trump by many decades.

Cyrus Mehta

Impact of EB-5 Retrogression on the Regional Center Loan Model

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In light of the retrogression in the employment-based fifth preference (EB-5) for China, which is predicted to occur as early as May 2015, the delays will once again impede much needed investment into the United States, which in turn will also dampen job creation. The negative effects of priority date retrogression in family and employment-based preferences have already had an adverse impact on families, who are unable to unite, and employers, who cannot employ a much needed worker even after the labor market has been unsuccessfully tested for qualified US workers. Due to retrogression, children may be less likely to be able to seek the protection of the Child Status Protection Act from aging out.

The China EB-5 retrogression will result in other unique problems not experienced in other immigrant visa preference categories. Most EB-5 regional center investments are based on a loan rather than an equity model. EB-5 investors invest into the new commercial enterprise (NCE) of a regional center. The NCE in turn invests in a project or a business, known as the job creating enterprise (JCE). The JCE is a project that will result in at least 10 indirect jobs per EB-5 investor, such as a hotel or assisted living home or some other business operation. The NCE’s investment in the JCE can either be through an equity investment or a loan. The loan model is more favored than the equity model in EB-5 projects. Although a direct loan by an EB-5 investor is disallowed, as the investment is not at risk if the loan is guaranteed to be paid back, the EB-5 investor makes an equity investment in the NCE as a limited partner, which in turn loans the investors’ aggregated funds to the JCE. Thus, the EB-5 investor still has an equity interest in the NCE, while the NCE makes a loan to the JCE. The loan model has been permitted by the USCIS as the EB-5 investor is really buying an equity interest in the NCE while the NCE makes a loan of the aggregated investors’ capital to the JCE.

When the NCE makes a loan to the JCE, there is an agreement for the JCE to pay back the loan to the NCE. If the time frame is 5 years or more, this period would cover the point of time when the investor obtains conditional residence, and two years later, when the investor applies for removal of conditional residence. With the EB-5 quota retrogression, these two events will be stretched out even further in time, and it is likely that by the time that the investor applies for removal of conditional residence, it may be beyond five years from the date of the initial adjudication of the Form I-526 application. Would the USCIS now take the position that the investment is no longer at risk if the JCE pays back the loan to the NCE before the investor has removed the conditions on residence? If retrogression becomes even more severe, like the India and China EB-2 for example, the JCE may have paid the loan back at the time that the investor makes the initial application for conditional residence.

Although the USCIS has not yet addressed this issue, it can be argued that the JCE is paying back the loan to the NCE, and not to the investor, and this did not alter the investment, which was always at risk. The investor is not being paid back on a guaranteed basis, and this arrangement is distinguishable from the facts in Matter of Izummi, 22 I&N Dec. 169 (AAO, July 13, 1998). There, the investors were promised that the NCE would repurchase their interests at a fixed price after six years, and such an investment was not considered “at risk.”  Here, the JCE is paying back the loan to the NCE, and the decision to repay the investor is entirely in the discretion of the general partner of the NCE. The investor is clearly not the beneficiary of the repayment of the loan; rather it is the NCE. The NCE can use the repaid loan for other purposes rather than repay the investors.

In light of the crushing backlogs in the EB-2 and EB-3 preferences, Gary Endelman and this author have proposed various ameliorative solutions through administrative fixes, including not counting derivatives separately from the principal beneficiary, and these should apply with equal force to prospective EB-5 backlogs too. The Obama administration has been actively considered administrative fixes in the face of Congressional inaction to expand visa numbers and reform the broken immigration system, and it is urged that the administration also broadly interpret the “at risk” element of the investment so as to relieve EB-5 investors from uncertainty if the loan of the JCE is paid back to the NCE. Even if the JCE has paid back the loan to the NCE, the investor’s investment was always at risk at the time of the project’s inception, and at the time of filing the initial I-526 application. It is this point of time that ought to be considered when adjudicating EB-5 applications, in the case of potential crushing EB-5 China retrogression, and the administration has ample flexibility to maintain that the capital was “at risk” despite the JCE repaying the loan to the NCE prior to the investor either obtaining conditional residence or filing an application to remove conditional residence. After all, the requirement that the capital be “at risk” is found in the regulation and not the INA at 8 CFR 204.6(j)(2), and it only applies at the point of filing the I-526 application. Moreover, in a similar context where the EB-5 financing replaces bridge financing, the jobs were created at the point of bridge financing and not when the EB-5 capital replaced bridge financing. According to the May 2013 EB-5 Policy Memo, the use of bridge financing is permitted and is given credit for purposes of job creation so long as replacement financing, even if it was not EB-5 financing,  was  contemplated. Therefore, in the context of bridge financing, the length of time when the investment remains at risk, or when the investment creates the requisite number of jobs is irrelevant. What should really count is that the investment was “at risk” at some point of time and that investment did result in job creation at some point in time, although it can be legitimately argued that the investment still remains at risk even if the loan has been repaid to the NCE and not to the investor.   Similarly, the requirement that the investment have been sustained under INA 216A(d)(1)(A)(ii) throughout the conditional residency period be broadly construed so long as the repaid loan is still in the NCE and the investor has not been repaid.

The ethical risks in representing a client have been further exacerbated by the prospect of EB-5 quota retrogression. There is also more cause for conflicts of interest if the same attorney who represents the NCE and/or project also represents the EB-5 investor, given that the repayment of the loan, which will benefit the JCE, may adversely affect the investor if the investment is no longer considered “at risk” or continue to be “sustained.” There is no prohibition under ABA Model Rule 1.7 for an attorney to take on multiple clients where there is a potential conflict of interest, if the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;  the representation is not prohibited by law;  the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and  each affected client gives informed consent, confirmed in writing. The attorney representing both the investor and the NCE/JCE has to be mindful about the conditions pursuant to Rule 1.7 when undertaking or continuing the joint representation. In the event that the attorney faces an irreconcilable conflict, it may be incumbent upon the attorney from withdrawing representation of both clients. In some situations, an attorney may be able to represent one client and withdraw from the other one when the conflict was not foreseeable and was “thrust upon” the attorney. See e.g. New York City Bar Formal Opinion 2005-05.  NYC Bar Op. 2005-5, which also discusses how other jurisdictions have dealt with “thrust upon” conflicts,  characterizes such a conflict  between two clients that 1) did not exist at the time either representation commenced, but arose only during the ongoing representation of both clients, where 2) the conflict was not reasonably foreseeable at the outset of the representation, 3) the conflict arose through no fault of the lawyer, and 4) the conflict is of a type that is capable of being waived. NYC Bar Op. 200505 further requires the lawyer to apply a balancing test in deciding whether to withdraw from the representation of one client and continue representation, with the other client. The opinion requires the lawyer to factor in whether there would be any prejudice that will be caused to the client due to confidences being placed at risk, and whether representation of one client over the other would give an unfair advantage to the client. A lawyer may wish to carefully use the “thrust upon” conflict doctrine if the conflict regarding the repayment of the loan was not foreseen prior to the announcement of the EB-5 quota retrogression, and the lawyer needs to decide whether to withdraw from representing both parties or one party.

Finally, the immigration attorney when performing due diligence of an EB-5 regional center and project needs to also factor in the timing of the repayment of the loan and the delays caused by EB-5 retrogression. While most immigration attorneys should provide only immigration related due diligence rather than investment advice,  investment advice may wittingly or unwittingly be factored  into  the  general advice the attorney  may provide when assessing the viability of an EB-5 project on behalf of an investor client. While it is always advisable for an immigration attorney to limit his or her representation to immigration advice,  and refer the investment advice out to another qualified professional who is a registered investment adviser or broker dealer, Section 202(a)(11) the Investment Advisers Act of 1940 does indeed carve out an exception for attorneys, accountants, engineers and teachers so long as the investment advice provided is incidental to their profession. According to an advisory by the Stroock law firm, the factors that will be considered are whether the professional holds himself or herself out as an investment adviser, whether the advice is reasonably related to the professional services, and whether the charge for advisory services is based on the same factors that determine the professional’s usual charge.