Examining Goodlatte’s EB-5 bill, as deadline looms

Examining Goodlatte’s EB-5 Bill, As Deadline Looms
Author: Allissa Wickham
September 19, 2016

Law360 logoWith the EB-5 visa regional center program slated to expire at the end of the month, House Judiciary Committee Chairman Bob Goodlatte, R-Va., has introduced a reform bill just weeks before the reauthorization deadline, and its proposals could have a serious impact on foreign investors if passed.

For those who have worked with EB-5 visas, this fall may present a serious case of déjà vu, as the regional center program is once again up for reauthorization amid calls for reform on Capitol Hill.

The EB-5 program provides green cards to foreign nationals who invest at least $500,000 in the U.S., and the regional center program allows investors to pool funds for specific projects. The centers are a huge part of the larger visa program, as roughly 90 percent of EB-5 investments go through them, according to an immigration agency spokesman.

But despite the program’s popularity, EB-5 reauthorization efforts have seen plenty of drama in recent years, as the visa program has proven itself to be somewhat of a scandal magnet. In 2015, the U.S. Securities and Exchange Commission accused an oil company of targeting EB-5 investors in a “Ponzi-like” $68 million scheme, and it launched a similar case in Washington over an alleged $136 million EB-5 fraud.

Despite proposed reforms for the program last year, Congress simply opted to extend the regional center component until Sept. 30 as part of the omnibus bill. Now, lawmakers are back at it again with proposed reforms, although attorneys aren’t bullish about any reform happening before the regional center program’s expiration deadline on Sept. 30.

“I think that there is serious concern about the EB-5 program, and people want to make reforms. But I think that people realize that it’s too much to expect that Congress can make those reforms by Sept. 30,” said Steve Yale-Loehr, an attorney at Miller Mayer LLP and a professor at Cornell Law School.

Indeed, Sen. John Cornyn, R-Texas, has indicated the EB-5 visa program would likely be part of a possible short-term spending bill, known as a continuing resolution, according to a Sept. 12 report from The Hill. And on top of that, the markup of the EB-5 reform bill introduced by Goodlatte was abruptly canceled Tuesday night.

But whether reforms could occur after a potential short-term reauthorization is still open to debate. For instance, Yale-Loehr said he thinks that between Sept. 30 and the middle of December, there will be “serious negotiations behind the scenes to come up with reforms.”

Yet even if chances are slim for major EB-5 reform happening in the next two weeks, Goodlatte’s bill — known as the “American Job Creation and Investment Promotion Reform Act of 2016” — may offer the best current road map for eventual reform, especially since Sens. Patrick Leahy, D-Vt., and Chuck Grassley, R-Iowa, have issued statements supporting it.

Notably, Goodlatte’s bill is companion legislation to a bill introduced last year by the two senators, according to Leahy’s office.

“I think Goodlatte clearly is taking the lead now, in the sense that Grassley and Leahy have both lined up with Goodlatte formally in press releases,” said Doug Hauer, a partner at Mintz Levin Cohn Ferris Glovsky & Popeo PC. “That’s significant, because it means that we’re not going to see a turf war over EB-5.”

So, what are some of the major proposals in the Goodlatte bill? Importantly, it extends the regional center program through 2021, putting an end to the yearly cycle of uncertainty that’s become the new normal for EB-5.

The bill would also raise the required minimum investment amounts to $1.2 million, or $800,000 for investments in an infrastructure or manufacturing project, or projects located in a “targeted employment area.” Currently, while the general minimum investment is $1 million, immigrants who invest in a high-unemployment or rural area, known as a TEA, only need to pay $500,000.

TEAs could potentially get a revamp under the Goodlatte bill, as the legislation defines TEAs as either a “priority urban investment area,” a rural area, an area involving a military installation that was closed, or an area made of a “census tract or contiguous census tracts” that is not located inside a metropolitan statistical area.

Notably, the U.S. Department of Homeland Security would be given the power to determine an area’s eligibility for being a TEA, a shift from the current practice of letting states figure that out. The proposed changes follow concerns that developers have been gerrymandering TEAs, which were meant to drive investment into economically struggling areas.

Hauer, however, argued that if Goodlatte’s TEA proposal is passed, then we will likely see “the EB-5 program severely trimmed down, in terms of its ability to be a source of financing in major urban areas.”

“I think that lawmakers need to be cognizant that states have historically decided the definition of a TEA,” he added. “So, I think involving state agencies in the hearings on a bill is very important.”

The bill would also make the changes retroactive to June 2015, according to Yale-Loehr, who noted that “thousands of pending petitions would have to comply with the new provisions,” and there’s a legal concern regarding “changing the rules midstream.”

“The problem is that investors … they would retroactively be required to throw in another $300,000,” said Robert Divine of Baker Donelson Bearman Caldwell & Berkowitz PC. “And a lot of these projects have already closed and been done … Where would that $300,000 be used?”

And these are just some of the larger changes. The bill also contains a new age restriction for investors under the program, as well as clauses setting aside visas for immigrants who invest in rural and “priority urban investment” areas. It’s a lot for lawmakers to chew on in the fall, or even into next year.

As such, it remains to be seen whether legislators can hash out a passable EB-5 reform bill in the coming months, especially as massive EB-5 fraud cases like the Jay Peak suit simmer in the background.


Initial summary & analysis of Goodlatte EB-5 reform bill

House Judiciary puts EB-5 reform up for discussion in new bill

On September 9, 2016, a draft EB-5 reform bill was released by U.S. Representative Bob Goodlatte (R-Va), chair of the House Judiciary Committee. The bill has not been formally introduced yet, but in its draft form, the nine-section, 123-page bill is largely a reprisal of S. 1501, the main Senate EB-5 bill enacted in late 2015, with a few key changes.

The draft bill follows on the heels of a September 8 letter from Senators Chuck Grassley and Patrick Leahy, chair and ranking member of the Senate Judiciary Committee, respectively. Both oppose a straight reauthorization of the EB-5 regional center program, citing observations of fraud, failed projects and money laundering. In light of this letter, industry unity on regional center oversight measures will be essential to avoid program lapse after September 30.

My colleague Carolyn S. Lee (Miller Mayer LLP) and I performed an initial review and analysis of the draft bill. Here’s what we learned. Highlights are included below; see the full-length summary and analysis for complete coverage.

Highlights of the Goodlatte bill

  • Five-year reauthorization of the EB-5 regional center program, until September 30, 2021
  • Regional center oversight measures are in Section 3. It mostly reproduces S.1501’s oversight provisions, plus a new section on account transparency and a new $2,000 petition fee. Most provisions in Section 3 would take effect no later than 90 days after enactment.
  • Section 2  puts revocations, denials, and debarments for national security threats and fraud front and center, along with restrictions on the investor’s source of funds.
  • Section 4 of the Goodlatte bill contains many provisions, including:
    • $1.2 million new threshold investment level for non-TEAs; $800,000 for TEAs as well as infrastructure and manufacturing projects
    • 4,000 non-rolling visa set-asides for rural and “priority urban investment” areas to take effect October 1, 2016
    • DHS will determine TEAs as well as designate infrastructure and manufacturing projects
    • TEAs comprise of rural, priority urban investment, closed military bases, and high poverty areas
    • Redesignation permitted to new TEA (may intend to include redesignation into set-asides)
    • Effective upon enactment, with exception for pre-6/1/15 petitions. TEA rulemaking required within 180 days of enactment
  • Retroactive application of the new law is generally contemplated for petitions filed after June 1, 2015. There is limited grandfathering of petitions associated with exemplars filed before June 1, 2015 or approved before enactment.
  • Direct jobs minimum of 10% remains with modifications in Section 3 and should be reviewed along with the definition of “full-time employment” in Section 4.  Notably, though drafting is unclear, construction jobs appear to be deemed direct jobs.
  • Investor fraud protections remain largely the same and are in the proposed new subparagraph (O) in Section 3. Investors would have 180 days after a regional center is terminated or debarred to associate the new commercial enterprise (NCE) with a new regional center or to invest in a new NCE. There is no tolling in the event a regional center seeks appeals termination and no priority date retention. The Goodlatte bill may contain inadvertent omissions in drafting that may have contemplated additional amelioration.
  • Site visit references appear in disparate provisions and are required under Section 3. The bill adds a new requirement to review evidence of direct jobs.  The effective date requires closer review but appears to be no later than two years after enactment per Section 5.

Beneficial provisions in the draft Goodlatte bill include:

  • Premium processing regulations within 180 days and “timely processing” goals at Section 7
  • Mandatory preapprovals but I-526 petitions may be filed upon preapproval filing (as opposed to after approval) at Section 3
  • Concurrent adjustment applications with visa availability at Section 4

New and notably, investors must be at least 18 under the new law, effective prospectively after enactment per Section 6.

Section-by-section summary

A section-by-section summary is included in our complete response to the draft bill. View the complete article on the Miller Mayer website or click here for a PDF version.





Examining Goodlatte’s EB-5 bill, as deadline looms

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The lecture is being sponsored by The International Student and Scholars Office, the Vice Provost for International Affairs, the Dean of Students Office, and the Mario Einaudi Center for International Studies. For more information, contact me or visit the event website.

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