For the first time in the history of the EB-5 visa program, the visa quota for China has retrogressed. According to the July 2015 Visa Bulletin, EB-5 visas are now available to Chinese Citizens who filed their petitions on or before September 1, 2013.
RAMIFICATIONS OF EB-5 VISA RETROGRESSION FOR CHINESE CITIZENS
With quota retrogression, it may be several years between the filing of the form I-526 and the time the investor can lawfully immigrate to the United States and manage his investment. This creates problems for the Direct EB-5 investor who will have to wait several years to come into the USA to manage his or her investment unless they are able to obtain some temporary non immigrant work visa. In addition, for direct EB-5 investments, the I-526 petition must be accompanied by evidence including a business plan that the new commercial enterprise will employ not fewer than ten qualifying employees within the next two years. A Chinese Investor cannot submit a good faith business plan when he does not know when he will actually immigrate to the USA to employ and oversee these employees.
Similarly, the ability of a Chinese investor to invest in a “troubled business” to obtain residence under the EB-5 program will be all but eliminated because of Chinese quota retrogression as the petitioner must demonstrate maintenance of the number of existing employees at no less than the pre-investment level.
CHINESE QUOTA RETROGRESSION AND THE CHILD STATUS PROTECTION ACT
Chinese EB-5 quota retrogression also creates a conflict between project developers, the agents and the Chinese investors. Project developers and the agents are anxious to obtain approval of form I-526. Many projects hold a petitioner’s funds in escrow until the form I-526 is approved. Thus, approval of the form I-526 is often crucial to freeing up the investor’s capital for use in the investment. But this may be inconsistent with the investors interest if the Investor has a child who is about to turn 21. The Child Status Protection Act (“CSPA”) freezes the age of children who are derivative beneficiaries of an I-526 petition while the petition is pending, but not once the petition is approved and awaiting the quota to become available. A Chinese petitioner with children age eighteen or older will want to freeze a child’s age for as long as possible in a visa retrogression situation. The longer the time the I-526 is pending, the longer the time the child’s age is frozen. It may be beneficial for certain Chinese nationals who have children close to “aging out” to draw out the I-526 petition process and delay responding to a Request for Evidence.
SUSTAINABILITY OF THE INVESTMENT
Under the Eb-5 regulations, the investor’s investment in the new commercial enterprise must be “sustained” during the two years of conditional residence. If the average processing time of an I-526 petition is 13 months, and if it takes approximately one year to complete the adjustment of status process, or the conditional immigrant visa and U.S. entry process, and another two years is added for the filing of the I-829 petition and another one year for adjudication of the I829 petition-- from the time of the investment and filing of the I-526 petition until the time conditions are removed and the investment no longer must be sustained, in most cases, between 7 and 8 years have elapsed factoring in current visa retrogression for Chinese Citizens. . So what happens in the event of quota retrogression? This means the investor cannot have his capital returned for at least 7 years and must sustain the investment for the same time period. From the investor’s point of view, this means that the investment money will be tied up for a longer period of time and any “exit strategy” will become more protracted.
This delay is also problematic for regional center investors. A significant majority of regional centers utilize the so-called “loan model”. Under this model, the investor is an equity investor in the new commercial enterprise. The new commercial enterprise is, in turn, a lending company that lends the EB-5 investors’ investment money to the project developer (the so-called “job creating enterprise”). Traditionally, the loan from the new commercial enterprise to a job-creating enterprise is five years creating a five year exit strategy for investors. Quota retrogression will require lengthening of the loan time period, which will delay the investor’s return of investment proceeds. Project developers may also want to refinance or sell the business, which could have significant negative consequences for the condition removal process for the investors if it occurs before the approval of the I-829. Conversely what if the loan is repaid in five years by the developer? The funds cannot be paid back to the investor until I829 approval or lie idle in the new commercial enterprise’s bank account as the funds would no longer be considered “at risk”.
Congress needs to adjust the number of EB-5 visas available to no longer include derivative family members in order to make the number of visas available more in line with the demand. In the interim, USCIS needs to provide some guidance on how it will deal with Chinese visa retrogression.
