There have been two important developments in the US EB-5 program that can have a significant impact on demand for the program amongst Chinese investors, and also on the way the program is run in the future.

A significant issue affecting applicants from China is that of the Chinese retrogression. To understand what is retrogression and how it impacts applicants from China, it is important to understand how the US immigration process works.

The US Congress sets an annual global limit on the number of immigrations allowed to enter the country in the year. This quota is divided into sub-quotas for each country. Further, the sub-quota for each country is further sub-divided into quotas for different categories.

In 2014, the quota limit was set at one million immigrants. This limit was further divided into the various employment categories — from EB-1 through EB-5. In 2014, the Congress permitted the issue of a maximum of 10,000 EB-5 visas to immigrants from all over the world. Apart the category-wise limit, the law also imposes a limit on total immigrants from a particular country.

In 2014, the China was allocated a total of 70,000 immigrant posts, out of which a maximum of 700 visas could issued to Chinese immigrants under the EB-5 program. Spots that remained unutilized at the end of the year were carried forward and added to the next year’s limit.

In August 2013, the USCIS announced that the annual limit applicable to EB-5 applications from Chinese nationals had been reached. Occurring for the first time in 20 years, this development meant that those applying after the limit had been reached would not be eligible until the existing backlog was cleared.

In April 2015, the US Department of State announced that the EB-5 visa category for Chinese applicants will begin to retrogress from May 2015 for a period of two years. Simply put, this meant that those who had applied after the retrogression began i.e. on or after May 1, 2013 were not eligible for qualifying for the EB-5 visa. Only those applicants who had applied before cut-off data would, in due course of time, be entitled to further processing of their EB-5 applications.

Considering that 80% of all EB-5 applications were from China, the possibility of retrogression of Chinese EB-5 visa applicants had been discussed and debated for the past two years. The net effect of this move is that those applying after the cut-off data are deemed to be ineligible until the backlog is cleared and the retrogression is removed.

The most significant consequence of this retrogression is that there can be a lengthy delay between the completion of the I-526 form and the grant of permission to the investor to lawfully reside in the USA. This means that investors from China will, due to the retrogression, find it even more difficult to manage his or her investments in the USA.

A delay in recovery of the investment capital is inevitable. Further, investors will find it difficult to anticipate their priority data in advance. Additionally, this may also crate complications for children of Chinese investors due to the applicability of the Child Status Protection Act.

Despite these additional hardships, the EB-5 visa is unlikely to lose its popularity amongst Chinese investors. Of course, a natural consequence of the retrogression will be that EB-5 applications from immigrants from other countries will get priority.

Another development, which is likely to affect the way the EB-5 program is administered as a whole, is the recent crackdown by the SEC on instances of immigration lawyers collecting transaction fees from foreign investors who were trying to apply for the EB-5 visa.

According to the law, only brokers registered with the SEC can charge commission on investment activities in the USA. Lawyers who did not complete any registration formalities were acting in contravention of the law when acting as brokers for foreign investors.

The crackdown is likely to result in reduction in instances of immigration attorneys charging hefty commissions from applicants. Of course, the lawyers are entitled to charge for their legal services, which can be increased to include the amount earlier charged as commission.

While the SEC cannot regulate the quantum of legal fees charged, the crackdown has effectively ensured lawyers don’t act as mere brokers introducing foreign investors to different Regional Centers. Of course, the SEC may intervene where it is evident that the commission is simply being called legal fees for the sake of bypassing the law.

Growing concerns about the way the EB-5 program is run may result in legal professionals focusing primarily on completion of the procedural and administrative formalities for prospective EB-5 applicants in the future.

Source: Forbes

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