With the advent of the new administration in the US, it is a good time to review the current status of the EB-5 Program, and talk about what is due to happen next. Before we start, we must recall the trajectory of EB-5, and how we got to where we are now.
The EB-5 Immigrant Investor Visa Program was created in 1990 to provide a method for eligible Immigrant Investors to become lawful permanent residents – obtaining a green card by investing in a business in the US while increasing foreign investment and encouraging economic growth. Most immigrant investors choose EB-5 schemes based in targeted employment areas (TEAs) — rural or high unemployment areas — which lowers the required investment threshold.
EB-5 version 1.0 was in existence for some 20 years, then EB-5 version 2.0 increased the investment amount. The newly planned EB-5 version 3.0 will be focused on transparency and supporting regional centers. Here is the current legislative situation.
Grandfather clause, grandfather policy, grandfathering
A grandfather clause is a provision in which an old rule continues to apply to some existing situations while a new rule will apply to all future cases. Those exempt from the new rule are said to have grandfather rights or acquired rights, or to have been grandfathered in. Frequently, the exemption is limited; it may extend for a set time, or it may be lost under certain circumstances of fraud, deception, misrepresentation. This extends, confirms, and establishes the idea of a new regulation, law or rule not being retroactively applied.
In addition, future changes impacting previous activities are prohibited under the ex post facto laws, and grandfather clauses can be used to prevent a law from having retroactive effects.
With the existing EB-5 Subscription Agreements and Preferred Placement Memorandum falling under contract and SEC law, all the previous contracts are binding on all parties. In case of changes, those would become effective at a time in the future. Specifically, in this case, the contract changes would apply to any contract signed after 31 June 2021. In short, there will be no retrofitting of contracts.
The implied covenant of good faith and fair dealing
This is a general presumption that the parties to a contract will deal with each other honestly, fairly, and in good faith, so as to not destroy the right of the other party to receive the benefits of the contract. It is implied in a number of contract types in order to reinforce the express covenants or promises of the contract.
In US law, this legal concept arose because of interpretations that in every contract there is an implied covenant that neither party nor the government, state or federal, shall do anything, which will have the effect of destroying or injuring the rights of the other party. In other words, every contract has an implied covenant of good faith and fair dealing, and this is also recognised by the federal government and its agencies.
With the existing EB-5 Subscription Agreements and Preferred Placement Memorandum, no party can break up the contract unless it violates contract law, national security and other exceptions.
EB-5 in the political stay of play in 2020
In December 2020, the Grassley-Leahy team (the Congressional group supporting and passing all of the previous EB-5 bills) asked the EB-5 community including Attorneys, regional centers, and the extended community such as chambers of commerce and trade associations to be quiet and reach a workable legislative draft. Time was short and there was much to be covered.
This Grassley-Leahy bill is narrowly focused on keeping things simple and direct. The legislative team wanted to get stability and a time frame to continue EB-5 and prevent fraud, and negotiations were successful in creating an excellent integrity package. The 5 years reauthorisation was seen as a good bill and was due to be included, but the Congressional staff did not have enough time to review the document included in the re-appropriation bill, so the programme was separated from the appropriations process. Previously, EB-5 has been tied to a re-appropriation measure, however, now reauthorisation is set to 30 June 2021 and the programme is no longer tied to any other piece of legislation.
In fact, there was never a single discussion in 2020 regarding downsizing or scrapping EB-5. On the contrary, the aim of the legislative team was to create a good government bill for a 5 year reauthorisation and to cleanup previous fraud.
New Congress and new administration
The new administration is taking a new stance on immigration. It plans to overturn the executive orders of the previous administration with the desire for a more comprehensive immigration reform for some components of EB-5.
In the new Congress, Senator Leahy has been in the past few years an engaged and vocal supporter of EB-5. Senator Durham, who is another supporter of the programme, will oversee EB-5 through the Senate. Power is shared equally in the committees between Democrats and Republicans. In case of a tie vote, Vice President Harris would be the decider. Charles Grassley will remain the ranking member on the Judiciary Committee and will support and push EB-5 legislative issues.
All sectors of US immigration should remain intact. This includes all of the permanent residency laws, including EB-5. It is intended immigration laws will be expanded rather than restricted.
In the history of the EB-5 Program, there have been multiple lapses and it has always been reauthorised. Another lapse would be no different than the previous ones.
Changes in EB-5 on 31 June 2021
The legislative team has expressed its support that Congress will reauthorise in June 2021 with these suggested changes:
- ESCROW AGREEMENT: There will be a revival of the escrow until the EB-5 application is approved. This goes back to previous times.
- EXCLUSION OF DERIVATES: This is a new approach and would expand the EB-5 numbers.
The purpose of the new bill is to keep the programme from permanently expiring, to reduce the global impact on investors, and not to create a huge chilling effect on community projects that create jobs and stimulate the economy – even though at this specific moment, there is a chilling effect on investors. The future bill will implement the following:
Regarding the regional center programme, the new bill will create guidelines regarding the:
- Functioning with operable oversight (regarding TEAs and non-TEAs);
- Protecting good faith investors;
- Protecting lawfully operating shareholders.
To stabilise the regional center programme, the future bill will:
- Cement a reauthorisation for a five years period going to 2026 (already started by the Biden Administration);
- Assure the shareholders and investors of the federal government’s commitment to the programme.
Then engage the federal policy-makers to:
- Redress processing times and visa numbers (already started by the Biden Administration);
- Additional visa numbers and backlog relief measures;
- Protect the investors;
- Strengthen the EB-5 programme.
All of the above is to solidify the integrity measures. However, there wasn’t time to get all of these measures in the new bill, especially as there were other pressing matters including an election and COVID-19.
Planning for the future
The profile of the EB-5 regional center programme has been raised with a focus on judiciary committees and the leadership of both the House and the Senate. There is broad bi-artisan support for the programme with its new integrity reforms, especially during the recovery, when investment and jobs will be vital.
This will not be a single stand alone bill and will be accompanied by other bills as it was done in the past. It is an economic development plan, so should have a long future.
A great deal of work has been done on the integrity reforms. The EB-5 community welcomes the transparency as a wonderful opportunity, with the real recognition that EB-5 has many benefits so is here to stay.