Member Analysis: EB-5 Regulations – Back to the Future

By Carolyn Lee, Founder Carolyn Lee PLLC

Carolyn Lee is the Founder of Carolyn Lee PLLC. Carolyn has represented regional centers, developers, funds, and investors for over a decade, Ms. Lee is Legislative Counsel to Invest in the USA (IIUSA).

We mark four months into the regional center program lapse. Those of us vested in the EB-5 industry are focused on reauthorization legislation. So, what can be said about EB-5 regulations? 

As the title of the IIUSA Virtual EB-5 Forum kickoff panel suggests, we are back to the pre-Modernization Regulations state of the EB-5 program. But the alluring and weighty question is: is this indeed our future? And that question takes us on a journey that’s inextricably interwoven with reauthorization legislation.

How did we get to where we started?

We can better understand where we are now by traveling back in time to see how we got here. In January 2017 by Notice of Proposed Rulemaking (NPRM), the Department of Homeland Security (DHS) proposed to amend its regulations governing the EB-5 Program. This rule sought public comment on proposed changes to the EB-5 program regulations including raising the minimum investment amount and changing the designation process for targeted employment areas. It also allowed certain EB-5 petitioners to retain their original priority date if their approved petitions were no longer viable.

In July 2019, DHS published the final rule effective November 21, 2019 (Modernization Rule). As we all know, with the Modernization Rule in effect, the investment thresholds were increased from $500,000 for investments in targeted employment areas (TEAs) and $1 million for non-TEA investments to $900,000 for TEA investments and $1.8 million for non-TEA investments. The TEA rules also changed, removing state participation and limiting high unemployment TEAs to areas directly touching the area in which the EB-5 project is located – the “donut” configuration. 

The run-up to the November 21 effective date led to another rush of filings. Over 4,200 EB-5 petitions were filed in Q1 2020. As regional centers tried to pivot to a new reality thereafter, Covid-19 broke in early 2020 changing the landscape again, this time on the global scale.

Then in December 2020, Behring Regional Center LLC filed a complaint against Chad Wolfe, Acting DHS Secretary, and other DHS officials (Behring Case). The complaint alleged, among other things, that DHS officials in “acting” appointments implemented the Modernization Rule without authorization to do so under the Federal Vacancies Reform Act and the Homeland Security Act.

In March 2021, the current DHS Secretary, Alejandro Mayorkas as a properly appointed official ratified the July 2019 promulgation of the Modernization Rule.

In June 2021, the court hearing the Behring Case granted a summary judgment in favor of Behring Regional Center solely on this claim, finding that the Modernization Rule was promulgated “in excess of statutory authority” because Former Acting DHS Secretary Kevin McAleenan was not properly serving in his position when he promulgated the rule in July 2019. The U.S. District Court ruled that the Modernization Rule is thereby void (Behring Order). The Court further held that the current DHS Secretary’s ratification did not save the rule.

Thereafter, in July 2021, the DHS published a notification of the earlier DHS ratification signed in March 2021 “out of an abundance of caution,” being careful to note that neither the ratification nor the publication is a statement that the Modernization Rule is otherwise invalid.

On its heels, in August 2021, the DHS formally appealed the Behring Order to the Ninth Circuit.

In the meantime, USCIS has posted on its website that while USCIS considers the Behring Order, that it “will apply the EB-5 regulations that were in effect before the rule was finalized on Nov. 21, 2019” reverting to the pre-Modernization Rule’s investment thresholds and TEA requirements.

Where do we go from here?

This is where the interplay with the regional center reauthorization legislation comes in.

Yes, DHS could initiate the rulemaking process afresh as it first did in January 2017. This seems unlikely for two reasons. First, DHS’s position is that the Modernization Rules are not invalid because they have been ratified. Promulgating new regulations would undermine that position.

Second and more practically, the discussions around EB-5 reauthorization legislation including changes to investment thresholds and TEAs have been active. Therefore, it would make sense to avoid rulemaking as a proposed rule at this stage may be superseded by legislation.

And what if there is legislation?

If the legislation brings substantive changes beyond a “clean” extension, the effect on the current regulations will first depend on the new legislation’s effective date.  If there is a delayed effective date, say 90 days from enactment, the current regulations will continue to be in effect assuming no change on the litigation front. The legislation may also have some mechanics to avoid a rush of direct EB-5 filings at the $500,000 threshold during the delay period.

After the effective date, the new laws will be the law of the land, and any regulation or policy inconsistent with the new laws would be ultra vires. The current regulations, to the extent contrary to a new law, would be unauthorized.

The second item to look for in any new law would be a provision, if any, calling for new regulations to be promulgated implementing the new law. Some prior EB-5 legislative proposals have had such provisions requiring DHS to make rules within a certain time. Given the inherent delays in the rulemaking process, the question must then be asked: what if any statutory deadline for rulemaking is exceeded?

A precedent on this point is the 2002 Public Law providing relief to EB-5 investors caught in legacy-INS’s retroactive application of new requirements.  The statute required legacy-INS to promulgate regulations in 120 days. We are still waiting for those regulations, although some relief by agency action has come recently.  So, it may well be the case that if and when we have substantive EB-5 legislation, that stakeholders’ operative authority will be the statute itself. Updates to the Policy Manual might arrive hopefully shortly thereafter. The next round of EB-5 regulations may only be in the possibly-distant future.


Want additional insights? Join IIUSA for our 2021 Virtual EB-5 Industry Forum | November 2-11

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