Kendal at IIUSA 2020 Virtual Forum: I-526 & I-829 processing numbers up substantially this year

Sarah Kendall, Chief of the EB-5 Immigrant Investor Program Office at USCIS spoke at the EB-5 industry forum Nov. 10. Notable statements include: the new visa availability processing approach has been in effect since April 1; there are 232 dedicated staff members at IPO; adjudications from March to August in 2020 had a year-over-year rate increase of 43% for I-526 petitions and 69% for I-829 petitions.

See the Wolfsdorf Rosenthal blog

USCIS Posts 234 Months As Outer Limit Of EB-5 I-829 Processing; What’s Really ‘Normal’

The latest I-829 Check Case Processing Times range of 36.5 to 234 months is “good news,” according to EB-5 expert Suzanne Lazicki, as it’s “obviously ridiculous and discredits” the agency’s reporting. Looking at I-829 data between October and December 2018, she observes that 79% of the petitions were adjudicated in 18-30 months. While processing has probably slowed since then, she is optimistic that “future I-829 processing times promise to be shorter.”

While 234 months may reflect some rare cases held in limbo for decades, it’s not normal

Yes, USCIS has posted an outer limit of 234 months for their latest Check Case Processing Times range. No, this should not be considered normal and there could actually be a reason for this seemingly impossible number being published, according to EB-5 expert number cruncher Suzanne Lazicki. She posits that the immigration agency may have just processed a group of I-829 petitions that have been in “limbo since 2002 over compliance with Public Law 107-273.”

However, the number is immensely and unfairly misleading, and does not, says the EB-5 business plan writer, reflect what has been normal or expected processing for I-829 petitions. Looking at the USCIS definition of the processing range, we see that only the first number in the range they post represents what could be normal processing, as it is the median processing time of recently processed petitions. The second number is the time it takes to process 93% of the cases. This second number, is used by the agency, says Lazicki, to prevent inquires about currently pending petitions.  

How to get a real sense of normal processing times

Lazicki says it is possible to get a more accurate sense of what I-829 processing looks like for the vast majority of petitions: look at real case adjudication data. When she ventures into the USCIS Electronic Reading Room (which gives access to information identified under the Freedom of Information Act) she sees real case processing dates and can draw some very worthwhile conclusions. The latest published data is for Q1 of fiscal year 2019, and provides the approval or denial date of all I-829 petitions adjudicated from October of 2018 to December 2018. Lazicki sees that the overwhelming majority of the petitions, 79%, in fact, are processed in 18 to 30 months.

How real processing numbers compare with the Check Case Processing Times numbers

So when we have real data to see what “normal” I-829 processing looked like for this period, it is interesting to compare it with the UCSCI published Check Case Processing Times report from December 2018. That report posted a range of 30-39 months.

“The report was misleading, even if it may have been technically accurate in reflecting the median and 93rd percentile of recent adjudications,” states Lazicki. So the agency is posting real numbers but not giving a real impression of normal.  

What is normal I-829 processing today?

Processing times are reflective of USCIS efficiency. So how today’s I-829 processing numbers compare with the 18-30-month range of a couple years ago depends on how productive the agency is at the moment. While Lazicki estimates that USCIS productivity has probably been lower than it was at the end of calendar year 2018, she has good news: “Future I-829 processing times promise to be shorter, if the productivity improvement evident early this year turns into a continuing trend.”

What the 234 months could really be referring to

While it could simply be a typo (though the longer that number stays published, the less likely this theory must be), the outer range of the most recent I-829 processing time report could actually be rooted in some real cases — if 7% of recently processed petitions were older than 234 months. And Lazicki knows of one situation that may, in fact, have lead to a more than 19-year-long delay in processing.

Between 1995 and 1998, some I-526 petitions were approved, though USCIS would later have problems with them. Precedent-setting decisions were then issued that resulted in litigation. To resolve the matter, Congress passed Public Law 107-273 in 2002; this gave the investors in question an opportunity to make their petitions eligible for the removal of conditions on permanent residency. However, P.L. 107-273 required that the immigration service must first implement regulations within 120 days before denying the I-829 petitions of those investors. 


120 days came and went. Years then passed and the proposed regulations were still not finalized. In 2010, the agency said that 581 I-829 petitions were still awaiting the finalized regulations. In 2019 the proposed regulations were still not finalized. 

Thus, Lazicki surmises that USCIS only recently processed hundreds of I-829 petitions that have been in limbo for almost two decades. And that’s why we’re seeing this anomaly of 234 months as being an outside number in case processing at the moment: extreme statical outliers that are not representative of recent I-829 petitions.

Regardless of whether Lazicki’s obscure but meaningful evidence is the reason for this number, take heart in her advice that the “real normal” is not what the agency would lead EB-5 investors and stakeholders to believe. 

Read Lazicki’s blog “What is normal I-829 processing?”

Immigration lawyer’s crystal ball sees losing recent rule as well as country caps

Immigration lawyer Laura Foote Reiff looks ahead to the future of EB-5 under the Biden administration, and the possibility of major change: getting rid of the Modernization Rule; pushing for program reform; a substantive review of current lawsuits challenging rules; and a “push to pass” The Fairness for High-Skilled Immigrants Act that would remove country caps. Regardless of how prescient Reiff may be, she is very likely correct in saying the new administration will deal with “business immigration policy in a dramatically different way.”

Read the Greenberg Traurig blog

Receiver agrees to $7 million settlement in California fraud suit

A receiver overseeing assets from companies that were part of a massive fraud has agreed to a $7 million settlement. California businessman Thomas H. Henderson raised almost $120 million for seven different EB-5 projects; more than $93 million was diverted and commingled in his San Francisco Regional Center bank account, with Henderson using millions for personal expenses.

Law360 article (subscription required)

News organization, Cornell Law School & ACLU take State of Vermont to court over blocked EB-5 records

The organizations are filing a suit over blocked state documents relating to the Jay Peak and Northeast Kingdom EB-5 scandal that saw over 800 investors defrauded — despite state oversight, and the endorsement of former Governor Peter Shumlin. The blocked documents would uncover why the Jay Peak developers were still signing up new investors for projects despite concern about fraud arising in 2012.

See the Vermont Business Magazine story

USCIS loses appeal of landmark decision: EB-5 investors can use unsecured loans as investment capital

A three-judge panel ruled in the D.C. Circuit court that EB-5 investors can use the proceeds of unsecured loans for their investment capital, upholding an 2018 D.C. federal court decision. USCIS tried to argue in their appeal that to allow unsecured loans as investment capital would be tantamount to third parties buying Green Cards for foreigners. But the panel declared that there is no need to have an investor’s loan secured as the investment project will be able to use the capital even if the investor defaults on their loan.

This landmark ruling centered on whether unsecured loans could be used as investment capital for I-526 applications. For the past five years, the agency has interpreted those proceeds as debt and has been denying petitions using that element in their source of funds. 

An investor’s source of capital ‘makes no legal or practical difference’

Circuit Judge Gregory G. Katsas made this statement: ”Cash is fungible, and it passes from buyer to seller without imposing on the seller any of the buyer’s obligations to his own creditors. The buyer’s source of cash — whether paycheck, gift, or loan — makes no legal or practical difference.” 

This decision is contrary to a 2015 USCIS policy that viewed loan proceeds as debt rather than cash, if not secured by the investor’s personal assets. That same year, a Chinese EB-5 investor, Huashan Zhang, and a Japanese investor, Masayuki Hagiwara, sued the agency for using that policy to deny their I-526 applications, arguing that USCIS erroneously interpreted policy and applied it retroactively to petitions without a notice-and-comment period — thus contravening the Administrative Procedure Act.

In 2018, a D.C. federal court agreed with the investors, and also granted the investors class certification.

USCIS appealed the decision, arguing that to allow unsecured investor loans to qualify as investment capital would allow third parties to essentially buy Green Cards for the investors. The agency also argued against the class certification.

A job creating enterprise can use unsecured loan proceeds even if the investor defaults

However, the three-judge panel in the D.C. Circuit court did not accept the immigration service’s rationale. Instead, the panel pointed out that unsecured loan proceeds will still be used by the EB-5 investment project — even if the investors were to default; and thus this source of funds should still be permissible.

In support of the investors, Judge Katsas made this statement: ”As far as the enterprise is concerned, whether or how the investor’s loan was secured makes no difference; it can deploy the cash either way, and it faces no exposure if the investor defaults on any obligation to a third-party lender.”

This decision should be welcome news to many potential EB-5 investors. It simplifies things considerably.

See the Law360 article “Immigrants Can Use Loans For Investor Visas, DC Circ. Says” (subscription required)

3 significant ways EB-5 has changed so far in 2020

Prior to the pandemic, EB-5 was slowly adjusting to new investment amounts and Targeted Employment Area (TEA) rules. COVID-19 has now compounded the challenges of the marketplace. In 2020, three significant changes occurred: construction slowed considerably; as big projects struggle with the new TEA rules, smaller projects look to take a bigger share of the marketplace; job creation, particularly in hospitality and commercial projects, is at greater risk.

EB-5 challenges before COVID-19

Even before a global health and economic crisis appeared, 2020 was going to be a challenging year for EB-5. Investment amounts were hit with the first-ever increases in the nearly 30-year-old program, and the “sticker shock” was going to require time for the market to acclimate. Longer wait times, particularly for retrogressed countries like China, created another obstacle. Further, with a higher program price tag, investors began to develop a stronger appetite for rates of return higher than what was offered traditionally, which hovered around 0.25% – 1%. All in all, 2020, was set to be a challenging year for the Green Card by investment program.

And then COVID-19 shook all the countries of the world. 

EB-5 was no longer taking a deep breath and patiently waiting; it was searching desperately for a pulse. A Law360 article featuring prominent EB-5 lawyers looks at three significant ways the coronavirus, in concert with the other recent changes, has impacted EB-5.

1. A construction downturn puts EB-5 in ‘a coma’

“The industry was kind of getting its feet back in the early part of 2020, and then COVID hit. And that just really put a near full stop on capital raises across the board,” says Carolyn Lee, an immigration lawyer and EB-5 specialist.

It bears noting that EB-5 has historically been favoured by large hospitality, retail, and office projects — sectors that have been most impacted by COVID-19. 

One of the top hotel lawyers in the world, Jim Butler, offers this dire commentary on the state of EB-5 in the construction sector: “I don’t want to say it has died, but it certainly is in a coma as a source of financing for developers. The pandemic is just one more negative facto … on top of all of the blows that have befallen the EB-5 program.” 

2. Small EB-5 projects, with just a few investors

The new and far more stringent TEA rules are literally changing the EB-5 landscape, from major developments in big cities (think the infamous Hudson Yards project) to smaller developments in rural and slightly distressed areas. 

Immigration lawyer Angelo Paparelli comments on the shift to smaller developers in EB-5: “What’s happened is many of the large players have found it unattractive to be forced into investments in areas under the newly restricted set of Targeted Employment Areas. They’ve pretty much lost their appetite. They’ve been replaced by smaller developers who might have a need for only one to five investors.” 

Beyond the change in the type of developers turning to EB-5, Paparelli also foresees a shift in the investor markets away from China and toward India, Brazil, Mexico, and South Africa, all of which are familiar with “established networks for developing smaller projects.” 

3. Job creation suddenly at risk, in hospitality and commercial real estate projects 

The requirement of creating 10 jobs per investor has become more difficult, most especially for projects in the hospitality and commercial real estate sectors. 

Butler speaks to the decimating impact of COVID-19 on the hospitality business: “One of three hotels will close and never reopen. One out of four or one out of three restaurants will never reopen. Some of those projects are EB-5 projects.”

So what happens when not enough jobs are created for all investors? Paparelli tells us that projects often have stipulations on how to deal with the issue of lower than expected job creation numbers — and which investors will get credit and which will not. But a complicating factor, he says, is that the people handing out Green Cards don’t always agree with the project in situations where job creation isn’t sufficient for all investors. 

“It’s not always clear that USCIS recognizes that sequencing and gives the Green Card to the right person,” Paparelli states. “They may do a first-in, first-out. It all depends on how the allocation is decided.”

Summary: even with the challenges, EB-5 is likely to survive and potentially thrive

While looking back on 2020 may feel like reading an obituary for EB-5, the program is alive and experts expect it to survive this crisis — albeit, in different form. Carolyn Lee offers some hope for EB-5 investors and stakeholders: “There are certainly a number of indicators that show that there are players who are looking for opportunities even in this difficult and challenging environment.” 

See the Law360 article “3 Ways COVID-19 Is Reshaping The EB-5 Landscape” (subscription required)

What would a Biden or Trump win mean for EB-5?

How might EB-5 be affected by a Biden presidency — or the return of Trump? While Biden is more open to immigration, Trump has spared EB-5 during his crackdown on illegal and legal immigration. Aaron Grau, executive director of IIUSA predicts, “there will be material changes regardless of who is president.”

Though EB-5 was introduced by Congress to spur U.S. economic development, and was approved in the House of Representatives 423-3, it has been a lighting rod in political debates. “This program is an economic development program, but it’s painted with the brush of immigration,” says Grau.

Veteran EB-5 securities attorney Ronald Fieldstone talks about why EB-5 has been ignored thus far by the major political players: ““Immigration is really not being touched, because it’s politically a time bomb.” 

So when is the program likely to be reexamined — and possibly changed — by the powers that be? Expect a closer political review of the program around December 11, when the program’s current reauthorization expires. 

Biden v. Trump — who’s better for EB-5?

This question is deeper than just the immigration policies of either politician. While Trump is notoriously anti-immigration, he seems to at least implicitly acknowledge that EB-5 is an economic stimulus tool, and that appears to be why the program was excluded from his April 22, 2020, Executive Order suspending immigration into the U.S.

Biden is supportive of immigration, but that doesn’t necessarily mean he will automatically be a proponent of EB-5. Grau and Fieldstone believe that both Trump and Biden are careful to avoid a political backlash when it comes to the program, thus it might be prudent to expect either administration to tread carefully when it comes to making substantive changes to EB-5.

Senate control is a key factor

Fieldstone points out the importance of the Senate when trying to predict the future of EB-5: “Who wins the Senate control… oversees Homeland Security which oversees USCIS, which runs the EB-5 program.”

The veteran attorney also reminds us that party lines don’t always dictate support for EB-5; rather, political support of the program is often decided by urban versus rural interests. 

Historically, EB-5 money has been used to finance big urban developments, but changes to the defining of a Targeted Employment Area, implemented in the Modernization Rule last November, have gone a long way to refocusing job creation toward rural and (slightly) impoverished urban areas and urban developers are suddenly at the disadvantage as per the original vision of the program.

Another factor is the charge for EB-5 program reform, particularly integrity measures. Senators Chuck Grassley (R-Iowa) and Patrick Leahy (D-Vt.) have worked together for years to lobby for EB-5 reform (and provide a compelling example of EB-5 politics crossing over party lines). “There’s a good chance one of them could come to chair the Senate Judiciary Committee and set the tone for EB-5’s future,” says Fieldstone.

Grau declares that the EB-5 industry will happily support such program reform: “Senior staff at USCIS, Sen. Grassley’s office, Sen. Leahy’s office, the Judiciary Committee staff on the House side all agree that any reauthorization of the program needs to include integrity measures.”

Can a new administration reinvigorate the U.S. global reputation — and interest in EB-5?

Immigration lawyer Rohit Kapuria states that global demand for EB-5 has decreased because, “there is a sentiment globally that the U.S. under this administration is not immigrant-friendly.”

Could a Biden win reverse that sentiment? Given Trump’s aggressively hostile stance to even legal immigration, one would hope foreigners would view a Biden-led U.S. through a different lens.

Uncertainty is the most immediate hurdle EB-5 faces

Fieldstone says that the first hurdle to cross is simply having the election. “Number one, getting the election over is good. It doesn’t matter who wins. It’s good to get the election over… the uncertainties in positions taken by the politicians and the parties will become much more clear.” 

While certainty is welcome, a leader who welcomes foreigners into the U.S. would be embraced by many EB-5 stakeholders and would-be investors.

Read the Bisnow article “Here’s What Could Happen To The EB-5 Program In A New Administration”

Don’t look to just the Visa Bulletin when estimating EB-5 wait times

EB-5 expert Suzanne Lazicki tells us that the Visa Bulletin exists to pace demand with supply. But to properly calculate EB-5 wait times, she advises that one must count the number of EB-5 applicants in five possible places, including pending I-526 petitions — which the Department of State does not consider when publishing their Visa Bulletin. The Visa Bulletin, therefore, is only one part of the EB-5 wait-time puzzle.

See Lazicki’s blog

November EB-5 Visa Bulletin: slight advancement for Vietnam

China’s final action date is August 15, 2015, with no movement from the October Visa Bulletin; Vietnam’s is August 15, 2017, advancing two weeks. All other countries, including India, remain “current.”

See the November 2020 Visa Bulletin

  
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