On December 15, 2015, Congress passed an Omnibus appropriations bill containing, among other things, an extension of all current EB-5 rules (with no modification) until September 30, 2016 (“2016 Extension Period”). Congress recognized the need for reform of the abuses that have occurred in the EB-5 program, and the months leading up to the September 30, 2016 deadline were critical in determining whether the various interest groups and stakeholders could work together with Congress to enact meaningful reforms to the EB-5 program.
The EB-5 Program continues to receive heightened scrutiny from regulators. The Office of Compliance, Inspections and Examinations (“OCIE”) of the SEC published its “Examination Priorities for 2016” (“Priorities”), pursuant to its National Exam Program. The Priorities are published annually and highlight “certain practices and products that OCIE believes to present potentially heightened risk to investors and/or the integrity of U.S. Capital Markets.” For the first time, the Priorities specifically included the EB-5 Program and stated that the SEC will, with respect to private placements and offerings in connection with the EB-5 program, “evaluate whether legal requirements are being met in the areas of due diligence, disclosure, and suitability.” In addition, the Financial Industry Regulatory Authority (“FINRA”), which regulates broker-dealers, issued its “2016 Regulatory and Examination Priorities Letter” (“FINRA Examination Letter”), dated January 5, 2016. The FINRA Examination Letter states that FINRA’s “focus on private placements in 2016 will address concerns with respect to suitability, disclosure and due diligence. These concerns are relevant regardless of the underlying industry of the issuer or the type of investment (e.g., notes offerings, pre-initial public offering investment funds, real estate programs, EB-5 investment funds or start-up companies).”
The U.S. Senate Judiciary Committee held a hearing titled The Distortion of EB-5 Targeted Employment Areas: Time to End the Abuse, on April 13, 2016. The hearing constituted the third hearing on the EB-5 Program that the Senate Judiciary Committee has held this year regarding extension of EB-5 Regional Centers. The April 13 hearing focused on TEAs and whether urban, rural, and suburban areas should be able to compete equally for EB-5 capital.
Congress again extended the EB-5 program (for the fifth time), with no changes, on September 28, 2016, under a Continuing Resolution to avoid a shutdown of the U.S. government at the end of the fiscal year, and the President signed the bill into law on Sept. 29 (H.R.5325; P.L. 114-223). But the extension will expire on December 9, 2016. The failure to extend the program any further likely is a result of the increased fraud and scandals involving the EB-5 program, which have weakened the popularity of the EB-5 program over the past few years and reduced the number of applications filed, and the fact that this is a presidential election year. There also is no obvious or organized group currently lobbying to reform the program. But if ultimately passed, a new EB-5 bill likely would redefine TEAs, and raise the minimum investment requirement -- which hasn’t changed since 1992 -- from $500,000 to $800,000 for high-unemployment areas and from $1 million to $1.2 million for low-unemployment areas. As noted earlier in this article, lax oversight and instances of outright fraud necessitate major reforms of the EB-5 visa program. For example, Chinese investors who file an application at the present time can expect to wait five to seven years to obtain a visa.
