EB-5 VISA AVAILABILITY PROJECTION FOR FY2015 AND BEYOND: UNDERSTANDING THE CHINESE VISA QUOTA AND PLANNING FOR RETROGRESSION by Bernard P.

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1 EB-5 VISA AVAILABILITY PROJECTION FOR FY2015 AND BEYOND: UNDERSTANDING THE CHINESE VISA QUOTA AND PLANNING FOR RETROGRESSION by Bernard P. Wolfsdorf * INTRODUCTION The EB-5 Immigrant Investor Program created by the Immigration Act of 1990 (IMMACT 90) was initially an underutilized program. Of the 130,000 visas allocated between 1992 and 2004, only 6,024 visas were issued to immigrant investors and their dependent family members. Of this group, only 643 investors were successful in removing the conditional requirement and receiving full permanent resident status. In the 10 years since 2006, demand for EB-5 visas, particularly from Chinese citizens, has surged. In Fiscal Year 2013, ending September 30, 2013, 8,564 visas were issued, of which 6,895 were charged to the China-born allocation. Between 2010 and 2013 alone, demand increased from 1,885 to 8,564. It is now predicted that the full allocation will be used in Fiscal 2014, but no visa backlog will exist for Chinese, or any nationality. 1 * Bernard P. Wolfsdorf is a past president of AILA and managing partner of Wolfsdorf Rosenthal, LLP ( a 20-lawyer immigration firm with offices in Los Angeles and New York City. He was honored by AILA with the Service Excellence Award for his contributions. For the past five years, Mr. Wolfsdorf has been selected as the most highly-regarded immigration lawyer in the world and was selected as Immigration Lawyer of the Year by Who s Who Legal, the official research partner of the International Law Section of ABA. Mr. Wolfsdorf serves on AILA s EB-5 Committee and has over 20 years experience filing EB-5 cases. The firm specializes in high volume EB-5 petition and regional center filings. He can be reached at Bernard@Wolfsdorf.com. Copyright 2014 Bernard P. Wolfsdorf, A Professional Law Corporation (all rights reserved). The author wishes to acknowledge and thank H. Ronald Klasko of Klasko, Rulon, Stock & Seltzer, LLP for his input including specifically his FAQs on retrogression. 1 For example, Mr. Oppenheim reported in a May 9, 2014 IIUSA panel with the author titled, An Update on Chinese EB-5 Quota Backlog that the full Chinese quota would be used in Fiscal 2014 but that it would most likely not be necessary to establish a cut-off date for Chinese Nationals for Fiscal Mr. Oppenheim also advised that applicants should try to ensure that they are documentarily qualified and proceed to final interview as soon as possible as deficient cases would not be able to re-schedule interviews in September 2014 since Chinese EB-5 visas would be in short supply. Mr. Oppenheim also predicted that China will use about 85 percent of the Fiscal 2014 and Fiscal 2015 EB-5 visa allocation. 227

2 228 IMMIGRATION OPTIONS FOR INVESTORS & ENTREPRENEURS, 3RD ED. Mr. Oppenheim estimated the China EB-5 visa cut-off date will most likely not occur until summer 2015 in May or June 2015, with a May 2013 cut-off date being possible at that time. Mr. Oppenheim stated that we re probably only looking at a 2-year backlog for Chinese investors at that time. He indicated he would try to give two three months notice of any new developments, and that otherwise we may expect news regarding the Chinese cut-off date to appear in the May 2015 Visa Bulletin. His prediction is that China retrogression will likely not occur until summer 2015, with a May 2013 cut-off date possible at that time. While it is impossible to accurately predict how long the wait line for Chinese EB-5 investors will be, it appears likely the two year wait line starting in the third quarter of 2015, will not be sufficient to slow demand, and the wait line will likely go to three years. Each petition uses at least two derivatives, therefore 5,000 petition will likely use up the 10,700 Fiscal 2014 quota. The Immigration and Nationality Act (INA) at 201 sets the worldwide annual level for immigrant employment-based cases, and 202 sets the per-country limit at 7 percent of the total annual employment-based preference limits. Thus only 9,940 (140,000 x 7 percent = 9,940) EB-5 visas are available in any Fiscal Year, unless there are unused visas from the family-based categories that would be reallocated to the employmentbased categories. In the past year there were unused family-based visas that were allocated to the employment category. 2 What Is the EB-5 Quota? Congress has allocated approximately 10,000 visa numbers for EB-5 investors and family members. This quota was established in 1990 and has never been changed. 2 8 USC 1151, 1152, and 1153.

3 EB-5 VISA AVAILABILITY PROJECTION FOR FY2015 AND BEYOND 229 Because of a lack of demand in the EB-5 category, this 10,000 allocation has been sufficient to meet demand but with increased demand in recent years this number is no longer sufficient. What Is a Quota Backlog? The INA sets limits on how many green card visas may be issued each Fiscal Year (October 1 through September 30) in all visa categories. No one country may have more than a specific percentage of the total number of visas available annually. If these limits are exceeded in a particular category, for a particular nationality, a waiting list is created and applicants are placed on the list according to the date of their case filing. This date is called a Priority Date. If there is a backlog the priority date is very important. What Is the Priority Date and Why Is the Priority Date Important? For EB-5 applications, the priority date is established on the date U.S. Citizenship and Immigration Services (USCIS) receives the I-526 petition. For an individual to obtain an immigrant visa, a visa number must be available. This is referred to as the priority date being current. The priority date is current if there is no backlog in the category, or if the priority date is on or before the date listed as current in the State Department s (DOS) monthly Visa Bulletin. This Bulletin is accessible at visa-bulletin-for-june-2014.html. What Is the Difference Between the Visa Category Being U (Unavailable) and mm/dd/yy (Quota Backlog)? What Does it Mean to Be Current? Unavailable means that there are no more visas available at all for the month. If there is a date noted (i.e., ), it is considered to be the cut-off date; meaning there is a quota backlog. Only individuals who have a priority date earlier than the cut-off date may move forward with the permanent resident process. Current this means that there is no quota backlog in this category. If there is a C in the visa category on the Visa Bulletin, then there is no quota backlog and the applicant may proceed with an I-485 adjustment application or immigrant visa application, abroad. COMMON QUESTIONS ABOUT VISA BACKLOGS If the Visa Bulletin Shows a Date of and My Priority Date Is , Is My Priority Date Current? No. In order for the priority date to be current, it must be a date prior to the date published in the Visa Bulletin. How Often Do the Backlogs Change and Will They Improve? Each month, the State Department issues the Visa Bulletin, usually in the middle of the month. When the bulletin is issued, it will provide information that will take effect on the first day of the following month. (i.e., on , the DOS released the dates effective as of ). Depending on the availability of immigrant visas, the priority dates in each category and for each country can change each month. Sometimes the priority dates stays the same. They can move very slowly or progress by several months or years. They can move forward or backward. Therefore, there it is hard to anticipate what the priority date will be in a future month or when a category will become current. VISA AVAILABILITY IS BASED ON COUNTRY OF BIRTH, NOT COUNTRY OF CITIZENSHIP Country of birth is what determines your country of chargeability.

4 230 IMMIGRATION OPTIONS FOR INVESTORS & ENTREPRENEURS, 3RD ED. My Spouse Was Born in Hong Kong, Taiwan or Macau. Since the Application Is Based on My Investment, Does My Spouse s Country of Birth Help Me? A spouse s country of birth may be used to determine chargeability. For instance, if you were born in China (mainland), but your spouse was born in Hong Kong and there is a quota backlog for China (mainland). There is no quota backlog for Hong Kong, you and your spouse may proceed with your immigrant process based on your spouse s country of birth. Hong Kong, Macau, and Taiwan are charged separately from China. However, a child s country of birth cannot be used to determine chargeability. How Many EB-5 Investors Can Obtain Conditional Green Cards Each Year? A majority of the EB-5 quota is used up by investors family members. The actual number of EB-5 investors who can immigrate in any year depends on the number of family members, but is generally in a range between 3,500 and 4,000 approved investors. For Fiscal Year 2013, ending September 30, 2013, the ratio of EB-5 visa usage for cases processing abroad was: primary investors 33.5 percent spouses and qualifying children 66.5 percent) Therefore there are approximately two derivatives for every principal Chinese investor applicant. When Are EB-5 Visa Numbers Allocated? The visa is allocated upon approval of conditional permanent residence either through issuance of a conditional immigrant visa at a U.S. Consulate abroad, or during adjustment of status to conditional permanent residence in the U.S. There Where Over 6,500 I-526 Petitions Filed in the Fiscal Year Ending September 30, 2013 With Over 3,600 Approvals. Why Wasn t the Quota Reached? There is often a delay of about one year from the time of approval of the I-526 petition until the time of issuance of conditional immigrant visa or approval of conditional permanent residence status, therefore the impact of the FY-2013 filings and approvals will only be fully realized in subsequent fiscal years quota allocations. The Dept. of State Predicted the EB-5 Quota Might Be Reached Last Fiscal Year in 2013 Why Wasn t it? The main reason is the slow pace of I-526 approvals by USCIS. Processing times for I-526 petitions have increased from six months to, in many cases, more than eighteen months. This if I-526 petitions do not get approved, investors do not get conditional permanent residence; and numbers are not used. The slow processing times delayed the onset of quota backlogs. Is the EB-5 Quota Likely to Be Reached in the Fiscal Year Ending September 30, 2014? As of the present time, June 2014, demand for EB-5 visas continue to be strong and at the current rate of about 1,200 a month, there is a strong possibility we will cross the manageable line. However, Charles Oppenheim has indicated that the State Department will almost certainly keep the category current for the month of September If EB-5 Visa applicants that do not present all of their documentation, they will not be able to return for visa issuance in the month of September and they will have to wait until October 2014 (the beginning of the next fiscal year) to complete their immigrant visa applications. If the Quota Is Reached, Will it Affect All Countries? No, it will only affect China as 85 percent of the world s EB-5 petitions are filed by Chinese nationals. It is anticipated that for fiscal 2014 and fiscal 2015, 85 percent of investors will be Chinese Because there are per country limits that set in before the quota is backlogged for the entire world, the Department of State would create a waiting list for Chinese visa chargeable investors, to make certain that EB-5 visas remain available for the rest of the world.

5 EB-5 VISA AVAILABILITY PROJECTION FOR FY2015 AND BEYOND 231 What Does it Mean if There Is a Quota Backlog for Chinese Investors? Chinese investors will still be able to invest. Chinese investors will still be able to file I-526 petitions. Chinese investors will still be able to have their I-526 petitions approved. However, the final step of the process issuance of the conditional immigrant visa or adjustment of status to conditional permanent residence will not occur until there is an EB-5 visa number available for the investor. If a China Quota Backlogs Occur, How Long Will the Wait Be? Charles W. Oppenheim, the State Department visa control chief has indicated that there are over 9,000 petitions in the system, many with I-526 filing dates (priority dates) in Therefore it is likely that a cut off of May 2013 will have to be established in summer of 2105 (most likely sometime between May and June 2015). This will create a wait line of almost two years. Thereafter absent congressional action, the Chinese wait line is likely to get longer. What Does it Mean if There Is a May 2013 Cutoff Date for Chinese EB-5 Investors? If there is a China EB-5 quota cutoff date of May 1, 2013, then only those investors whose I-526 petitions were filed before May 1, 2013 will be able to continue processing for their conditional permanent residence in May 2015, or June Investors who filed I-526 petitions on or after May 1, 2013 will have to wait until the cut-off date moves forward and they will not be able to complete their cases until the numbers move. This date is updated each month in the Department of State Visa Bulletin. ( When There Is a Quota Backlog, Will There Be a Difference Between the Regional Center and Direct EB-5 Waiting Line? No. The cut-off would apply to China EB-5 across the board with no distinction between C5 (traditional investor in Targeted Employment Areas (TEA)), T5 (traditional investor in non-tea), I5 (RC program for TEA), and R5 (RC program for non-tea). If There Is a Backlog in the Last Quarter of the 2014 Fiscal Year, Will it Likely Continue Indefinitely? While it is expected September 2014 will remain current, even if some there are no EB-5 visas left for the end of September 2014, at the beginning of the new fiscal year on October 1, 2014, the quota could again become current given the infusion of a new year s 10,000 allocation of visa numbers. However, unless congress takes action to improve the visa allocation, there will be a quota backlog in May, June or July 2015 during the fiscal year ending September 30, Is There Any Chance USCIS Will Increase the Quota? No, USCIS does not have the power to do so. Only congress can do so. Why Should the EB-5 Quota Be Increased? Retrogression in the Chinese EB-5 quota could discourage investment and since EB-5 investment contributes almost $2 billion of foreign direct investment to the United States annually and creates more than 40,000 jobs per year, this would be contrary to the national interest. With 9,000 petitions pending, there is an estimated $4-5 billion in EB-5 deal flows The charts below show rapidly increase in demand for EB-5 visas.

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7 EB-5 VISA AVAILABILITY PROJECTION FOR FY2015 AND BEYOND 233 THE NUMBER OF EB-5 CASES IN THE PIPELINE IS ESTIMATED AT 9,200 The EB-5 cases on file at the National Visa Center show a 50.2 percent increase as of November 1, 2013 (total 4,748); over November 1, 2012 (total 3,162). Again, the information in this article lacks the benefit of detailed information about the estimated 9,200 I-526 petitions pending at USCIS, including their associated priority date patterns. A sudden meaningful increase in USCIS I-526 adjudications could speed the imposition of an EB-5 cutoff date for China. CONSEQUENCES IF CONGRESS DOES NOT EXTEND THE REGIONAL CENTER PROGRAM So while Chinese investors will still be able to make investments in regional centers, unless congress extends the regional center program, all applicants may have to qualify by showing 10 direct jobs have been created for each investment. Fortunately, the U.S. Congress has repeatedly extended the regional center program since 1993, and hopefully, it will also increase the quota. The immigration bill, S 744 that passed the U.S. Senate last year would have removed derivatives from the visa count. Several bills have been introduced in the house that also make the regional center program permanent and resolve the Chinese quota issue. Therefore even if over 6,000 petitions are used in Fiscal 2014, there would be more than enough visas to avoid a quota backlog for several years. IMPACT OF CHINESE QUOTA BACKLOG ON CHILD AGE-OUTS The Chinese EB-5 quota retrogression will have the biggest impact on derivative children who turn 21 after the I-526 petition is filed. The Child Status Protection Act (CSPA) formula provides for an artificial determination as to the age of the child on the date that a visa number becomes available, by permitting the subtraction of the number of days the petition was pending, from the child s age at the time of visa availability. This does not provide complete protection, however. For example if the petition is filed immediately before the child s 21st birthday, and the petition takes 12 months to adjudicate but the quota is backlogged 24 months, then the child could age out. Based on the above-mentioned prediction of a two-year Chinese cut-off for summer 2015, it appears both 19 year-old and 20 year-old Chinese derivative applicants would already be in jeopardy of agingout. Those cases that have been pending at least two years may be okay as they may deduct the entire

8 234 IMMIGRATION OPTIONS FOR INVESTORS & ENTREPRENEURS, 3RD ED. two-year wait period. If the child is under 21 using this formula, he or she may benefit from CSPA ageout protection. However, the wait-line may backlog further and therefore even 18 year-old derivative children need to be cautioned they could age-out. It appears 17 year-old derivative children should be eligible to immigrate with their parents if the petitions are filed in Fiscal 2014, but it s not clear whether 17 year-old children will be eligible if the parent s petitions are filed in Fiscal 2015 or beyond, absent a legislative remedy. If congress does not increase the quota, and since the regional center program expires September 30, 2015, if the immigrant visas or green card is not issued by September 30, 2015, applicants will not be able to complete their green card applications under the regional center program guidelines allowing indirect job counts, and will have to qualify showing 10 direct jobs are being created for each qualifying investment. Hopefully congress will extend the regional center program beyond September 30, 2015, (and increase the number of visas available). Fortunately, the U.S. Congress has repeatedly extended the regional center program since 1993, and hopefully, it will increase the quota. The immigration bill that passed the U.S. Senate last year would have removed derivatives from the visa count, thereby effectively increasing the number of visas to 30,000. Therefore even if over 7,000 petitions are used in 2014 year, there would be enough visas to avoid a quota backlog for several years. Chinese EB-5 quota retrogression will have the biggest impact on derivative children who turn 21 after the I-526 petition is filed. The Child Status Protection Act (CSPA) formula provides for an artificial determination as to the age of the child on the date that a visa number becomes available. With 9,200 cases in the system even 18 year-old children face possible age-outs, as this would indicate demand for almost 27,000 visas. To obtain CSPA protection the applicant must seek to acquire lawful permanent residence status within one year of visa availability. The one-year requirement generally means that the applicant must have submitted the completed Form DS-260, Part I within one year of a visa becoming available, and pay the fee bill. It is not yet clear if the parent can lock-in the child s CSPA age by only filing a Form I-824 with USCIS, or must file Forms DS-260 on behalf of the child with the State Department and pay the fee bill, or file an adjustment of status if in the United States. To obtain CSPA protection, a second step is required to freeze the derivative child s age. The applicant must seek to acquire lawful permanent residence an applicant must actually have one full year of visa availability. If a visa availability date retrogresses and EB-5 preference numbers are unavailable and the visa applicant has not yet sought to acquire lawful permanent resident status, then once a visa number becomes available again, the one-year period starts over. The beneficiary s age under the CSPA is re-determined using the subsequent visa availability date. For those frustrated by the long waiting line, and multiple requests for evidence, these processing delays will become a silver lining as such delays will become an advantage if the USCIS processing time is lengthy, since the child applicant can deduct more time from their actual age during the critical determination that must be made at the time the petition is approved. If the child can be deemed to be under 21 years-old, then the child s age can be permanently frozen by taking certain actions such as the filing of the Form I-824, or filing the Form DS-260 and paying the government filing fee bill, or filing an I-485 adjustment application in the United States.

9 EB-5 VISA AVAILABILITY PROJECTION FOR FY2015 AND BEYOND 235 IMPACT OF RETROGRESSION ON JOB CREATION In the stand-alone or direct EB-5 context, the investor is often the manager of the business and a Chinese Visa cut-off may delay the investor s entry in the United States for years. In the regional center context, the EB-5 regulation and policies require ten qualifying jobs need to be created within two years and the two-year period is deemed to commence six months after the adjudication of the I-526 petition. 3 With Chinese quota backlogs, the jobs might end up being created utilizing the EB-5 capital before the investor is able to enter the U.S. OPTIONS TO ADDRESS THE INCREASING NEED FOR EB-5 NUMBERS WITHOUT IMPACTING THE OVERALL EB-5 ANNUAL LIMIT One option would be a legislative amendment which would allow unused EB-4 numbers to fall-down to the EB-5 category under the same Immigration and Nationality Act (INA) 4 provisions which currently apply to the EB-1 and EB-2 categories. The fall-down of unused numbers from EB-4 to EB-5 would only be a short-term fix, since EB-5 demand will likely continue to increase. While it may alleviate the extent of FY2015 EB-5 retrogression, it would be unlikely to provide a solution to the inevitable EB-5 visa wait line, and unless there is a legislative fix, the FY2016 (commencing October 1, 2015) EB-5 backlog is likely to be severe. Mr. Oppenheim has indicated that based on the current/historical demand allowing unused EB-4 numbers to trickle down to EB-5 would not have any negative impact on visa availability in the EB-1 category, which is where such unused EB-4 numbers are currently applied. Mr. Oppenheim indicated there are still several thousand unused EB-1 numbers which fall down for use in the EB-2 category. This assumes that there will not be any significant increase in EB-1 number use. It is reasonable to make this assumption because the level of EB-1 demand has been fairly stable during the past two fiscal years, but such demand is always subject to USCIS processing issues. The practical consequences of a substantial Chinese EB-5 visa waiting line could have meaningful implications for this program that at current capacity brings in over $1.5 billion dollars of investment capital and creates tens of thousands of jobs annually. 5 In addition to impeding the inflow of investment dollars, it could also impact many derivative beneficiaries with potential age-out issues. The Child Status Protection Act does not continue to freeze a child s age between I-526 petition approval and the availability of a visa number. Thus, the deeper the retrogression of China cutoff dates, the more children will age out. More than half of the employment-based immigrant visa numbers go to derivative dependents. In investing through the EB-5 program, petitioners are often investing in their family s futures. For those derivative applicants who are immigrant visa processing abroad and have children in school in the United States, the visa appointment and relocation to the United States is sometimes delayed until the summer months after school has finished for the year. Practitioners with clients who intend to follow this timeline ought to strongly urge them to have their children nonetheless file their DS-260 applications at the earliest possible moment to lock in protection under the Child Status Protection Act. Otherwise, establishment of a cut-off date for EB-5 China could see many derivative children age out while waiting for their priority dates to become current. While the children s actual immigration will still be subject to delay in the face of visa retrogression, the State Department has a policy interpretation recognizing CSPA protection in this situation. 3 8 Code of Federal Regulations (CFR) 204.6(j)(4)(i)(B) states The need for not fewer than ten qualifying employees will result within the next two-year period of conditional residence. 4 Pub. L. No , 66 Stat. 163 (codified as amended at 8 USC 1101 et seq.). 5 EB-5 Annual Revenue Calculation: During FY2013 there were approximately 2,800 Principals (worldwide) x $500,000 = $1,400,000. It is safe to assume that for FY2015, and beyond, the EB-5 annual limit will be approximately 10, ,100 x 33.5 percent (estimated principals) x $500,000 = $1,692,000,000.

10 236 IMMIGRATION OPTIONS FOR INVESTORS & ENTREPRENEURS, 3RD ED. The Association to Invest in the USA (IIUSA) commissioned a comprehensive, peer-reviewed economic study finding that from , investments made through the EB-5 program contributed $2.2 billion to U.S. GDP and supported over 28,000 jobs. Initial results of IIUSA s 2012 economic impact assessment is even greater, accounting for 42,000+ American jobs, $3.3+ billion in capital formation, and $713+ million in federal/state/local tax revenue. An even greater economic impact will likely be reported for 2013, with significant growth in EB-5 investor applications seen in the last two years. Currently, IIUSA estimates that the over 7,000 pending EB-5 investor applications alone represent $3.5 billion in potential direct investment and 70,000 jobs. If the number is 9,200, it would appear there is close to $5b at stake. CONCLUSION As the U.S. economy finally emerges from the Great Recession, it would be sad if congress does not act swiftly to avoid the inevitable backlog in Chinese EB-5 visa numbers that help provide American jobs and much needed capital.