A Year of Applying Dangerously: Recapping EB-5’s 2022 & Predicting 2023
By: Mona Shah, Esq., Aaron Muller, and Sarah Salarano
It has been a long, eventful year for the EB-5 set, with a smattering of ups and, unfortunately, plenty of downs. Given these experiences, now would be an ideal time for the industry to reflect on all that has happened, all that practitioners have learned, and how this year has shaped EB-5 firms’ and immigrant investors’ goals for the future.
A Look Back at 2022 Through an Expert Lens:
How better to thoroughly review the year than to look to the opinions of experts?
Ron Klasko, a founding member and managing partner of Klasko Immigration Law Partners, LLP, happily admitted that there is no one person capable of accurately predicting the future, least of all as it relates to EB-5, which has undergone massive changes in recent years. As an industry professional, however, Klasko is qualified to make educated guesses, which he did on a January 2022 episode of EB-5 Investment Voice with Mona Shah & Associates Global’s own managing partner, Mona Shah.
Were their predictions accurate? What became of some of the developments brought up in the episode?
Originally Ron and Mona agreed that the ambition was for Congress to resolve the Regional Center reauthorization problem by February 18. Though Klasko predicted, in light of Congress’ record (and its reluctance to vote on immigration legislation of any kind), that this would likely happen closer to June. On this point, Klasko was somewhat circumspect in these expectations, as the EB-5 Reform and Integrity Act (“RIA”), was actually signed into law in March. Amongst a slew of new integrity and compliance measures to revamp EB-5, the bill also reauthorized the Regional Center program, which had lapsed in June 2021.
The timing of the resolution was not the only thing that Shah and Klasko discussed. There was little certainty regarding how exactly Congress would deal with the authorization of Regional Centers, but Klasko shared some projections and factors that may sway the decision. He noted that Sens. Chuck Schumer (D-NY), Chuck Grassley (R-IA), and Patrick Leahy (D-VT) were three of the important voices regarding the future of EB-5. These legislators, Klasko argued, would be pivotal in the outcome for Regional Centers.
When asked what possibilities he foresaw, Klasko raised four potential outcomes. The first was that the program would be fully reauthorized, while the second was that Congress would pass an industry consensus bill. He also noted a third possibility: that another bill would be penned by a legislator such as Sen. Lindsey Graham (R-SC), who was pushing for the investment amount to be raised to $750,000. The fourth and most likely outcome was that a clause about the reauthorization of EB-5 Regional Centers would be tacked onto related legislation presented by Sens. Grassley and Leahy.
Ultimately, Klasko was correct in predicting that Grassley and his ilk would be responsible for the change. Outside of the world of EB-5, legislation like this barely makes a ripple. This could be due in part to the fact that the consensus around EB-5 is rarely split down party lines. This lack of controversy means a lack of coverage.
Klasko cited what he calls “traditional wisdom;” something he appears to have a wealth of. Despite how correct his predictions were, the EB-5 industry must prepare for a transformative future without the safety net of past guidance. The world has changed immeasurably in just a few short years–the shifts feel exponential, especially when packed into so tight a space–so it only makes sense that 2022 would be just as likely to surprise us as not.
So what happened that even leading industry professionals could not foresee?
Other than the enactment of RIA earlier than expected, there was little else Shah and Klasko were wrong about in their discussion. Still, there were changes to the EB-5 program that did not come up in the convo. While this does not mean that these changes were not on the experts’ minds, there were some unexpected surprises.
Perhaps the biggest shock to the EB-5 community this year was when U.S. Citizenship and Immigration Services (“USCIS”) revoked the designation status of every Regional Center. One month after RIA was passed, USCIS dropped a bombshell via the Questions and Answers section on its website, that all centers, including previously designated centers, must seek recertification by filing the new Form I-956. Additionally, new I-526 petitions associated with a Regional Center would not be accepted until the Form I-956 was approved. These unexpected measures created extensive financial hardships for Regional Centers, which had to further delay taking in business. As a result, an arduous legal battle with USCIS ensued over the interpretation of RIA.
After two lawsuits and several hearings, the battle concluded on August 25, 2022 when a settlement agreement was reached between the agency and various EB-5 industry leaders. The settlement asserted that all previously certified centers maintained their designation status, effectively putting the Regional Center program back in business
Another large change we saw in 2022 was the eradication of direct pooled investments. It was determined, along with the massive overhaul that was the RIA, that any EB-5 petition including more than one investor would now be considered a Regional Center. This move essentially serves to consolidate the many factors that play into EB-5 investing, simplifying the program into two categories.
Something that has managed to stay status quo over the past year is the controversy over I-956s. Despite the June passing of the RIA, the details of Regional Center reauthorization are still foggy. One would hope that, for an end-of-year wrap-up, a resolution would be available, but as of right now it appears that USCIS has made no definitive movement in either direction.
Hopes for 2023:
1. Our first goal for the 2023 is something for which our own Mona Shah has been advocating for years. Political advocacy efforts will be in full swing in the new year, as IIUSA’s Aaron Grau is also looking to radically change the conversation. He has some ideas for how to revamp EB-5 which he recently discussed with co-hosts Mona Shah and Mark Deal on an episode of EB-5 Investment Voice. He goes so far as to say that the nomenclature itself is due for revision. EB stands for “employment-based,” and Grau feels that this is largely misleading. He argues that a clearer title for the category would be “investment-based,” as investment is the actual driving force of the EB-5 program.
“We need Congress to enact ‘smart’ Immigration,” Mona says. The project portion of EB-5 should be moved to the Department of Commerce, not USCIS. USCIS officers are out of touch with the reality of day-to-day business. In the lead up to the 2020 presidential election, Mona spoke with many members of Congress from both parties. All were receptive to the idea of projects filing a divorce from USCIS.
So significant a change, something as critical as revising the name of the entire program, may seem insurmountable. But Deal reminds us of the nature of our democracy: “…as organizations change and develop and as we realize where things should go for proper placement and best efficiency… That’s why we have the Constitution and the amendment process, so it can evolve over time and maybe immigration and EB-5 need to do the same.” The program’s inception was relatively recent, as it was first implemented in 1990, but that date retreats farther into the distance by the year, meaning it may be more difficult to enact meaningful change from this vantage point, as the program now enjoys its 32nd year. As we move into 2023, we hope to see more serious discussion of these proposed changes, and furthermore, we hope that some real, concerted action is taken.
2. A related aspiration, one that Grau and the hosts also discussed that day, is that the EB-5 process itself become less of a quagmire. Grau argues that a lack of communication between USCIS and other involved parties can lead to litigation and ultimately, inaction: “…lawsuits beget the lack of communication. The lack of communication begets lawsuits. And around and around and around we go… It’ll take time.”
3. In a recent Webinar hosted by Carolyn Lee of Carolyn Lee, PLLC, Gregory Sheehan (Director of EB-5 Investor Platform and USCIS Compliance at Behring Co.) stressed the importance of the public creating a “record of inquiry” to USCIS. He encouraged attendees of the webinar to send USCIS their questions, concerns, and requests for clarification, hoping that this deluge of communication would result in a response from USCIS. Also participating in the discussion was President of IIUSA Bob Kraft, who expressed some skepticism that USCIS will actually read and respond to these inquiries. Sheehan, though, remains hopeful. As mentioned above, radio silence between USCIS and other parties only serves to entrench all involved in the already lengthy, complicated process. Open channels and a newfound transparency could create a more efficient and open culture.
4. Finally, it appears as though every year, the same overarching goals remain: more clarity from USCIS and quicker adjudication times. As we near one year since the passage of RIA, USCIS remains ambiguous about several of their policies – such as the filing of Form I-956s for centers not seeking to sponsor new projects and compliance requirements for foreign agents, to name a few. Following unfruitful listening sessions and a lack of response to lockbox inquiries, we can only hope that the industry will no longer have to learn through RFEs and by trial and error. Meanwhile, the USCIS visa backlog feels ever growing and adjudication times are still moving at a snail’s pace. However, there may be some hope on the horizon in 2023.For one thing, there appears to have been a certain amount of relief regarding the backlog of USCIS I-526 filings. According to data from the 3rd quarter of the current FY, USCIS has increased its number of filings to 455, which is up from merely 61 in the 1st quarter. This could perhaps to be due to an increase in hiring on the part of USCIS, as well as a measure of improvement of the state of the ongoing pandemic. These new numbers mean an average processing time of 43.8 months. However, there has also been a marked increase in the ratio of denials to approvals, as the rate of denial is up to 42%.
5.It will be interesting to observe further data that reflects the number of processed I-526s in the 4th and final quarter of the FY. Historically, data from the past few years shows that the number of processed filings tends to peak in the 3rd quarter.