Over the years, the EB-5 program has been changed many times and in many ways. Understanding these changes can be the difference between immigration success and failure. You need accurate, up-to-date information to navigate these changes.
Changes to the EB-5 program are sometimes made through the rule making process or through policy updates. These changes can be challenged in court and have, in the past, been undone by judges.
When a change to the EB-5 program is challenged through a lawsuit, it can create uncertainty and confusion. But you do not need to be confused. With timely and accurate information, you can make an informed EB-5 investment with confidence.
This article discusses a legal challenge to a change made to the EB-5 program, how it might impact you, and how you can minimize your risk.
On March 29, 2024, Invest in the USA (IIUSA), a non-profit EB-5 industry trade organization, took legal action against U.S. Citizenship and Immigration Services (USCIS). IIUSA’s lawsuit is in response to a recent October 2023 policy change that affects EB-5 investors who have made or will make an EB-5 investment after March 2022.
Select Webinar Highlights: Lawsuit Filed by IIUSA against USCIS and Proposed New Rule
to Extend EB-5 Investor Minimum Investment Period from Two Years to Five Years
Full Webinar: Lawsuit Filed by IIUSA against USCIS and Proposed New Rule
to Extend EB-5 Investor Minimum Investment Period from Two Years to Five Years
IIUSA Challenges the New Sustainment Period Policy
IIUSA Proposes a Five-Year Sustainment Period
Who Will the IIUSA Lawsuit and Proposal Affect the Most?
How to Minimize Risk as an EB-5 Investor
How EB5AN Can Help You
IIUSA Challenges the New Sustainment Period Policy
The October 2023 USCIS policy significantly shortened the minimum period for EB-5 investment, also known as the “sustainment period.” Before the new policy, the sustainment period was the two-year period that begins when an EB-5 investor receives his or her temporary Green Card. Under the new policy, however, the sustainment period is two years from the date an EB-5 investor invests their funds, making them at risk and creating jobs. The new sustainment period is much shorter than the original sustainment period. Arguably, the new policy is favorable to EB-5 investors.
In this lawsuit, IIUSA challenges this new sustainment period policy. The lawsuit calls out the abrupt implementation of the new policy that it argues was done without proper consideration of market conditions and EB-5 investor interests. IIUSA argues that USCIS has the responsibility to interpret the law in a way that balances many factors, including market realities and EB-5 investor expectations.
The lawsuit was filed in the U.S. District Court for the District of Columbia on March 29, 2024. In the suit, IIUSA claims that USCIS violated the Administrative Procedures Act by implementing a new rule without allowing for public input. The lawsuit seeks to revert this policy change.
Download a Copy of the IIUSA Lawsuit
For the sake of clarity, EB5AN was not and is not involved in the IIUSA lawsuit or its proposed five-year sustainment period rule. EB5AN, as a passive member of IIUSA, did not receive any consultation or advance notice regarding the IIUSA lawsuit and the proposed five-year sustainment period rule. The IIUSA board of directors approved both actions with no vote taken by the IIUSA membership. No member of EB5AN has ever served on the board of IIUSA.
IIUSA Proposes a Five-Year Sustainment Period
While the lawsuit seeks to undo the new USCIS sustainment period policy, IIUSA’s ultimate goal is not to revert to the original sustainment period. In addition to the lawsuit, IIUSA has also formally requested that USCIS repeal the policy and establish a new sustainment period through proper rulemaking procedures. IIUSA has proposed a five-year sustainment period. This proposal aims to provide a balanced approach that accomplishes three goals:
- Establishes a reasonable timeframe for EB-5 investment
- Aligns with EB-5 industry standards
- Ensures transparency
Together, the lawsuit and rulemaking petition aim to protect investors and uphold the integrity of the EB-5 program. Historically, Congress has developed the EB-5 program over the course of many years, collaborating with industry stakeholders throughout the process. IIUSA argues that USCIS should not unilaterally impose changes through policy updates without working through the proper legal procedures. The process of making changes, IIUSA argues, should be through notice-and-comment rulemaking.
IIUSA highlights the negative impacts that the new two-year sustainment period will have on EB-5 projects. It asserts that the new policy contradicts the original intent of the EB-5 Reform and Integrity Act of 2022 (RIA), which aimed to increase transparency and further safeguard EB-5 investor interests.
IIUSA further argues that, from a policy perspective, longer investment periods are common in similar programs. For instance, the New Markets Tax Credit program requires longer hold periods. Such periods reflect the time needed for investments to make a meaningful impact on job creation and economic development.
Who Will the IIUSA Lawsuit and Proposal Affect the Most?
If the lawsuit or new rule is successful, the EB-5 industry will at least benefit from added clarity.
But some EB-5 investors will be negatively affected if IIUSA’s lawsuit succeeds. Those most likely to be impacted are Chinese and Indian investors who invested in urban TEA projects after March 2022.
How and why might these EB-5 investors be negatively affected?
Many of these investors selected projects that promised shorter investment periods of two to three years. Such projects promised a faster return of capital. But if this lawsuit succeeds and the sustainment period reverts to the two-year conditional residency period, those investors will face unexpected repayment delays due to visa retrogression.
Based on USCIS I-526E filing data, many Indian and Chinese investors who invested in urban TEA projects after March 2022 likely face a significant backlog. If the new two-year policy is set aside, these investors will likely be trapped in a situation similar to the pre-RIA Chinese retrogression. They could be facing years of redeployment to complete the sustainment period. The proposed five-year sustainment period rule may shorten the delay slightly, but not to the same extent as the new two-year policy.
For example, if an EB-5 investment returns capital after three years but the sustainment period is five years, the project’s regional center sponsor will need to redeploy EB-5 funds into a second investment. Typically, the investment that will receive these redeployed funds is unknown at the time of the initial investment. This adds risk. And this new investment will have to be sustained for at least another two years to meet the sustainment period requirement. But a two-year investment may not be available, which could mean an even longer repayment delay.
How to Minimize Risk as an EB-5 Investor
EB5AN sponsors both urban and rural TEA projects and is transparent with the risks and benefits of each project type. No two EB-5 investors are exactly alike, and there is no one size fits all approach to selecting the “best” EB-5 investment project. Urban TEA projects will be a better fit for some EB-5 investors, while rural TEA projects will appeal to others. The key for investors is understanding the differences and making informed decisions.
EB-5 regional centers and project sponsors knew, or should have known, that the new two-year sustainment period policy was almost certain to be challenged in court. Instead of transparently communicating this to investors, some quickly adjusted their offering documents to make their investment durations appear to be shorter and more favorable for investors.
For example, one project was offering a five-year loan term with a single one-year optional extension. Overnight, the loan term changed from five years to two years with four optional extensions of one year each.
The maximum duration of the loan term remained the same:
5 + 1 = 6
2 + 1 + 1 + 1 + 1 = 6
But the headline for this project was a two-year loan term. This is blatantly misleading.
As noted above, a shorter-term target investment is much more likely to result in a redeployment of EB-5 funds. Redeployment can potentially put investors at significantly higher risk in two primary ways.
First, redeployed funds often remain invested longer than required, which means EB-5 investors’ funds remain at risk for a longer period. The longer the investment, the more opportunity for something to go wrong. Second, redeployed funds typically go to an investment project unknown to the investor when he or she initially invests. This unknown investment may have different terms and more risks than the first investment.
Not all redeployments are high risk, however. Some are even lower risk than the original investment. And sometimes redeployment cannot be avoided.
So how can you minimize risks related to redeployment?
One of the best ways to protect yourself is to work with an independent regional center sponsor that has a proven track record of success.
Independence is key. If the regional center and developer are under common control, any redeployment event will be subject to a conflict of interests. Also, if the regional center and developer have an agreement where the developer of the original project will share in the profits from a future redeployment of EB-5 investor funds into a second unknown project, that is even worse. EB-5 funds are likely to be redeployed under unfavorable terms for EB-5 investors because the regional center and developer will want to serve their own shared interests. A truly independent regional center, on the other hand, will work to find a redeployment option that serves the interests of EB-5 investors since the regional center’s interests are aligned with EB-5 investor interests.
But independence by itself is not enough. You need a regional center sponsor with a proven record. If a regional center has never redeployed funds, you cannot know how it will approach redeployment. You cannot check its record to see whether it is likely to find an investment with a risk profile similar to or better than your initial investment. But you can have greater confidence in a regional center that has experience redeploying EB-5 funds in low-risk opportunities.
How EB5AN Can Help You
EB5AN is independent and has a track record of redeploying funds in a manner consistent with EB-5 investors’ initial investments. We pride ourselves on our uncompromising transparency and unbiased analysis of EB-5 policies, proposals, projects, and trends—even when our analysis is unpopular with others in the EB-5 industry.
If you need more information about how redeployment works or would like our opinion about how risky a project’s redeployment terms are, feel free to schedule a one-on-one consultation. We want to help you, even if you end up choosing a different project.
