The employment-based fifth preference (“EB-5”) immigrant visa petition category suffered severe setbacks over the past 18 months, but should emerge triumphant in the new millennium. Allegations of rampant fraud and various schemes designed to circumvent statutory requirements caused a virtual freeze on the adjudication of such petitions in 1998, followed by the installation of an INS team to deny or revoke many previously approvable petitions. Critics in Congress called for the repeal of the EB-5 program, but an influential opposition requested an INS report earlier this year before taking such rash action. In the aftermath of the report, INS is adjudicating petitions, albeit slowly, and by all appearances the program will survive.
The Immigration Act of 1990 (“IMMACT 90”) allocated an annual limit of 10,000 visas to alien investors participating in the EB-5 employment-creation program. The program allows the INS to grant permanent resident status to immigrants entering the United States to engage in a new commercial enterprise: (1) which the alien has established; (2) in which the alien has invested, or is actively in the process of investing a minimum of either $500,000 or $1,000,000; and (3) which will benefit the U.S. economy and create 10 full-time jobs for U.S. workers. The minimum investment requirement of $500,000 applies only when the enterprise is located in a rural area or an area of high unemployment.
The grossly underused EB-5 category only benefited a few hundred immigrant investors during each of its first several years of existence. In the middle 1990s, however, private organizations emerged offering EB-5 classification to persons investing far less than the statutory minimums, and in many cases guaranteeing no loss to the investor. Thousands of investors took advantage of these programs, and INS approved the petitions. The programs superficially complied with the statutory requirements of the EB-5 program, but through the use of pooled investments, creative financing and balloon payments, generally did not create employment.
In late 1997, INS cracked down and put a freeze on all action pertaining to EB-5 petitions. A few months later, the INS’ Administrative Appeals Office issued four precedent decisions, all of which narrowly construed the requirements of the EB-5 program and were relied upon in the denial or revocation of hundreds of previously approvable petitions. The decisions attacked whether investments were in a “new commercial enterprise,” created new employment or met the minimum investment requirements.
Many participants in such programs saw the INS directive as a renege on prior policy and an effort at unauthorized rule-making without the promulgation of regulations. The INS believed that many investments did not in fact comply with the requirements, such that the decisions were proper. In reality, while a few investment structures may not have met the letter of the law, the INS overreacted and denied or revoked many petitions that were based on bona fide, employment-creating investments.
Fortunately, the vast majority of Congress still sees the EB-5 program as a valuable tool to boost the U.S. economy, and supports its continuation, although perhaps with some modification. Investors are now guided by a hodge-podge of rules to be gleaned from the four precedent decisions and their attorneys’ experience. Petitions are being approved, even though the future of the program is not certain. Nonetheless, the current state of the economy and renewed interest in Congress suggests that the program, in one form or another, will be around for years to come.