The EB-5 Notice Of Proposed Rulemaking: Top 10 Concerns

USCIS issued a long-awaited proposed rule to implement the EB-5 Reform and Integrity Act of 2022 (RIA), more than 4 years after the effective date of the RIA. In evaluating the proposed rule, two truisms must be kept at the front of the mind:

1. It is a proposed rule. It is not the law. It may be a long time before a final rule is published. The final rule may be very different than the proposed rule.
2. Despite the above, the proposed rule is very important because it reveals USCIS’ thought process and policy and, in many ways, represents a codification of USCIS policies that have been subject to challenge in responses to NOIDs and appeals to the AAO.

Before I delineate my list of the top 10 areas of concern, I should, in all fairness, start with some positives. Although there are more, I will briefly point out two laudable proposals in the proposed rule.

First, the proposed rule clarifies in a positive fashion the validity period of a TEA finding and the extension of the validity period. Specifically, it states that a TEA is valid for two years and that it automatically renews for two years upon a timely filed extension.

Second, a new procedure is proposed for streamlining the I-829 process. Specifically, USCIS proposes a new procedure whereby a regional center will file an amendment to the I-956F at least three months prior to the first investor’s I-829 filing window. This amendment would include an updated business plan and economic report. If it’s approved and includes proof that all necessary jobs have been created, each investor will no longer have to prove this in their individual I-829 petition.

Unfortunately, the list of positives is dwarfed by the list of concerns. That list, in rough order of most to least concerning, is as follows:

1. Bridge Financing

The rule proposes to disallow the use of EB-5 capital to replace bridge financing. This would be extremely damaging to the EB-5 industry since many of the most successful EB-5 projects are based on EB-5 money replacing bridge equity or bridge debt. The very nature of EB-5 funding, and the lengthy USCIS delays, require projects to move forward based on bridge financing long before the EB-5 money is available. There is some room for hope in that, in the preamble, USCIS solicits thoughts on whether there could be some limits on EB-5 money being used to replace bridge financing without completely eliminating it. Hopefully, there will be many comments from the EB-5 industry addressing this point.

As part of the regulatory language proposing to disallow EB-5 money from being used to replace bridge financing, USCIS states the following: “the job creation claimed must be tied to the investment capital, meaning that the jobs would not have been created but for the investment capital provided by the investor.” By creating a completely new test that jobs would not have been created “but for EB-5 capital,” USCIS would eliminate large numbers of EB-5 projects that don’t involve bridge financing. In fact, I would argue that this test makes no sense and is the exact opposite of what USCIS policy should be. Does USCIS really intend to suggest that, unless the project can show that it would fail or not proceed without EB-5 money, the project cannot be approved? Does a project have to prove that, unless all of the necessary EB-5 capital is raised, the project will not succeed or move forward? This is dangerous language and a dangerous concept that should be removed from the regulation.

2. Redeployment

The proposed regulation states that, as a general rule, redeployment must be completed within 3 months (there is some language allowing for an exception on a case-by-case basis). This 3-month test is completely unrealistic. The present policy of allowing redeployment within a “commercially reasonable period of time,” which is generally considered to be one year, is a test that is consistent with the real world. In reality, finding a redeployment project, completing the underwriting of the project, and negotiating and documenting the terms of redeployment is a process that very rarely is completed within 3 months.

3. Person Involved

The next concern is divided into 3 parts. The first part is the definition of “person involved,” which triggers the requirement of filing an I-956H. The proposed definition is far beyond the statutory language and intent and would include all “administrators, board members, general partners, limited partners, managers, officers, owners and anyone in a similar position at the regional center NCE or JCE.”

Secondly, any new “person involved,” or any departure of a “person involved that held a significant role,” requires the filing of a regional center amendment.

Third, any “change in ownership that results in someone becoming involved with the regional center” (presumably, no matter how small the percentage of ownership) results in USCIS withholding adjudication of any pending project application or EB-5 investor petition until the amendment is approved. Given present processing times, which are often a year or more, this would result, in all practicality, shutting down the regional center.

4. I-829 Denials

USCIS has been denying unprecedented numbers of I-829 petitions. Many of the denials relate to USCIS changing its position on source and path of funds, meaning that USCIS is giving no deference to its original approval of the source and path of funds at the I-526 stage.

Upon denial of an I-829 petition, the investor can seek approval of the I-829 petition by an immigration judge in removal proceedings. Happily, many I-829s have been approved by immigration judges. However, the process can take many years.

As a matter of law and policy, USCIS has agreed that such investors can continue to obtain evidence of their ongoing conditional permanent residence status throughout this multi-year process.

The proposed regulation, in what can only be called a shockingly punitive policy, states that the conditional permanent resident cannot be employed in the US after the denial of the I-829 and while the investor is seeking review in immigration court. I respectfully submit that that is outrageous.

5. Source of Funds of JCE

Although the language is ambiguous, the proposed regulation appears to state that all capital provided to a job-creating entity (JCE) would be subject to a requirement to document the lawful source of the money. This is obviously unrealistic. Hopefully, USCIS will make clear that this requirement only applies to money sent from the new commercial enterprise (NCE) to the JCE.

In a direct EB-5, the proposed regulation would require source of funds documentation for all entities that provided capital to the business. For example, if an investor invests $1 million into an existing business, or if one EB-5 investor and two US citizens each invest $1 million, all previous and present investors would need to document lawful source of funds.

6. Money Exchangers

The proposed regulation states that the investor must document the lawful source of funds of any “currency exchanger” or “other mechanism used to exchange or swap currencies.” This would enable USCIS to justify denials of countless investors at the I-829 stage. It would also potentially undercut federal court decisions that have overruled USCIS attempts to deny EB-5 petitions for failure to document the source of funds of the currency exchanger. I note that there is an exception if the exchanger is “licensed, regulated and authorized” by a foreign or US government authority.

7. Pre-Existing Regional Centers

As part of the settlement of the Behring litigation reopening the regional center program, USCIS agreed that regional centers that were designated before the RIA did not need to file a new I-956 in order to continue their designations. The proposed regulation would require an I-956 form for all regional centers continuing to do business under the RIA, including pre-RIA regional centers. The proposed regulation does not indicate the date by which the I-956 would have to be filed.

8. Sustainment Period

The proposed regulation, consistent with the latest USCIS policy memo, states that the sustainment period commences two years from the date the EB-5 investor’s funds are “made available” to the JCE. The proposed regulation does not address the issue of whether there is a difference between when the funds are “made available” and when the funds are actually used by the JCE. This definition of the commencement of the sustainment period results in individual EB-5 investors not knowing exactly when their commencement period begins unless the regional center provides this information to investors on an investor-by-investor basis.

9. National Interest

In recent months, there has been a significant increase in denials of petitions based on “national interest” or “national security.” The RIA makes clear that these denials are both discretionary and not subject to judicial review. There has been a question whether this provision of the RIA applies retroactively, which is actually an issue being litigated in federal court. The proposed regulation would make clear that the national interest provision in the RIA applies retroactively even though most of the other provisions of the RIA do not.

10. What’s Missing

The tenth concern with the proposed regulations is not a provision in the proposed regulations at all. Rather, it is the failure of the proposed regulations to address key issues in the RIA that need regulatory guidance. I will mention two of those here.

The definition of “infrastructure” in the RIA is seriously deficient, leaving gaping ambiguities as to what projects do and do not qualify as infrastructure projects. Unfortunately, the proposed regulation adds no clarity.

One of the key provisions in the RIA is protection for good faith investors. However, as a predicate to good faith investors getting relief, USCIS must either terminate the regional center or debar the NCE or JCE. There are many projects involving fraud, diversion of money, criminal activity, or other misdeeds sponsored by regional centers that are not terminated. In order for investors to apply for good faith investor relief, USCIS must debar the project. Unfortunately, USCIS has not debarred any projects, leaving the investors unable to obtain the relief provided by statute.

Unfortunately, the RIA provides no guidance regarding what projects should be debarred and what the procedure is for debarment. USCIS thus far has failed and refused to develop guidelines, standards, or procedures to implement the debarment provision. It would be extremely unfortunate if the final regulations do not address this important issue. The public has until August 31, 2026, to submit comments to the proposed regulations. Hopefully, many readers of this analysis will be moved to comment on one or more of the issues discussed above. Klasko Immigration Law Partners regularly assists clients in preparing regulatory comments in the rulemaking process. If your organization or project is interested in drafting a comment, please reach out to a Klasko EB-5 attorney.