In the last five months Behring Regional Center and Greenberg Traurig law firm have been in the Federal Courts challenging the 2019 EB-5 modernization rule. In the case of Behring Regional Center v. Wolf, Case No. 3:20-cv-09263 (N.D. Cal) Behring Regional Center submitted an application against the Department of Homeland Security requesting the courts to disallow the implementation of the EB-5 modernization rule of 2019. The lawsuit claims that the process was done beyond the scope of power of the then-acting Department of Homeland Security officials and as such a clear violation of Administrative Procedures Act as the acting officials had no legal authority.
The EB-5 modernization rule updated various regulations governing the EB-5 immigrant investor program and in doing so subsequently affected the number of investors filing for EB-5 petitions. The main change in the rule was to increase the required capital investment amount from $500,000 to $900,000. Various industry leaders voiced several concerns that the drastic increase of the investment amount made the program unattainable for the middle class who have proved to be the main applicants under this program. These middle class families use their life savings, retirement annuities and other means to obtain the required investment for participation in the program.
Although the program was already perceived as a niche avenue because of its investment costs, the increase in investment capital drastically altered the positioning of the program and placed it as a route for the higher class only. The problem with the upper echelon of earners is that they would not undertake the EB-5 program for U.S. residency, as it opens them up to global taxation. It is the upper middle class investor who is seeking a better livelihood and hopes to create new opportunities for their children who benefits from this program. With this evaluation at hand, Behring Regional Center argued that the acting Department of Homeland Security Officials failed to fully account for the adverse economic impact this rule would have on the program.
The crux of the one of the main issues at hand is that the wrong person took the government position in which the $900,000 rule was implemented and thus lacked the capacity in instituting the deleterious regulations. In a recent hearing in California on May 13, 2021 the presiding judge Jacqueline Scott Corley agreed with the Behring Regional Center argument by stating that the issue is that “the wrong person took the position of the secretary.” The Department of Justice argued that in accordance with the Federal Vacancies Reform Act, Kevin McAleenan, as the acting U.S. Secretary of Homeland Security, was provided with duties and powers as stated in the act and thus had the authority to enact the 2019 EB-5 modernization rule. Additionally, Alejandro Mayorkas, as the current Secretary of Homeland Security, was provided the authority by the same act to ratify the rule change. However, Judge Corley responded by stating that upon her reading of the Federal Vacancies Reform Act, she does not interpret the statute in the same manner. This indicates that she is in agreement with the claim submitted by Behring Regional Center.
Although Judge Corley did not issue a ruling on the matter at the hearing, based on her comments regarding her statutory interpretation of the Federal Vacancies Reform Act along with clear facts of the case that are hard to dispute, and the conclusion of Judge Nicholas Garaufis that McAleenan was wrongly appointed, it can be assumed that the courts are leaning towards the reversal of the 2019 rule.
The American Legal Center, an EB-5 consultancy firm and my employer, does not envision the capital amount to remain at $500,000 for long. It is possible that after a few weeks of the program being at $500,000 it will either go back to $900,000 or increase to keep up with the inflation rate. The window of opportunity will be limited.
Furthermore, a reduction of the capital investment will result in a surge of applications, which could subsequently lead to a delay in investors obtaining their green cards. The United States Citizenship and Immigration Services almost doubled the EB-5 visa quota for financial year 2021, so there will be more visas available for applicants. However, in previous years we have seen how a surge of applications led to a huge backlog in the system and ultimately delays in applications. Therefore, families considering undertaking the process should start to discuss their options now.