John Burson  edited Friday, September 6, 2024

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Legal Tug-of-War: The IIUSA Challenge Against USCIS's EB-5 Policy Changes

Explore the latest developments in IIUSA's lawsuit against USCIS over the EB-5 sustainment period policy change and its impact on foreign investors

Key Insights

• IIUSA filed a lawsuit in March 2024, claiming the policy change violated the Administrative Procedures Act by bypassing public input.
• If IIUSA wins, the sustainment period could revert to the longer original timeframe tied to conditional residency.
• Investors from China and India in urban TEA projects post-March 2022 may face delays in capital return due to visa retrogression if the lawsuit succeeds.
• The lawsuit raises issues of administrative transparency and could set a precedent for future regulatory processes.

In October 2023, the U.S. Citizenship and Immigration Services (USCIS) introduced a significant modification to the EB-5 Immigrant Investor Program by adjusting the "sustainment period" requirements. Traditionally, this period commenced when an investor received their conditional Green Card and typically lasted two years. The revised policy now starts the clock at the moment of investment when the funds are actively at risk and employed in job creation, effectively shortening the duration before investors can reclaim their capital.

This policy shift, while potentially advantageous for investors by reducing the time their funds are tied up, has sparked controversy and legal scrutiny.

Invest in the USA (IIUSA), a prominent advocacy group, has challenged the new rule, arguing that its abrupt introduction overlooked critical considerations such as market conditions and the expectations of EB-5 investors. Filed on March 29, 2024, in the U.S. District Court for the District of Columbia, IIUSA's lawsuit accuses USCIS of bypassing the mandatory public comment and rule-making processes stipulated by the Administrative Procedures Act.

The suit seeks to overturn the recent policy change and restore the original sustainment period guidelines, asserting a need for a balanced interpretation of the law that accommodates both investor interests and market realities.

Background of the IIUSA Lawsuit Against USCIS

In October 2023, USCIS implemented a policy reducing the required investment sustainment period for EB-5 investors from a longer, unspecified duration to precisely two years, starting from the time of investment. This policy shift, announced without the typical rule-making process including public comment, prompted IIUSA to take legal action in March 2024, asserting that the change was made in violation of the Administrative Procedures Act (APA).

Legal Arguments Presented

IIUSA's primary contention is that the USCIS bypassed essential procedural steps required by the APA, depriving stakeholders of their right to participate in the decision-making process. The lawsuit argues that this lack of transparency and procedural fairness undermines the integrity of the EB-5 program and could mislead investors about the terms of their investments.

Potential Outcomes and Their Implications

The outcomes of this lawsuit could reshape the EB-5 investment framework significantly:

• If IIUSA prevails
  The court might require USCIS to revert to the previous longer sustainment period or enforce a new rule-making process. This could lead to a more stable and predictable investment climate but might extend the time investors’ capital is tied up.
• If USCIS’s position is upheld
  The current two-year sustainment period would remain, potentially enhancing the attractiveness of the EB-5 program due to the shorter capital commitment requirement. However, this could also lead to increased legal scrutiny of USCIS’s rule-making practices in the future.

Broader Legal and Economic Context

The lawsuit is set against a backdrop of ongoing debates about the balance between regulatory flexibility and the need for robust stakeholder engagement in administrative governance. The decision in this case will likely influence how similar changes are handled by federal agencies in the future, impacting not only immigration law but also broader aspects of administrative law and economic policy.

A Shift in Policy

Historically, the EB-5 program has facilitated U.S. residency for foreign investors in exchange for significant capital investments that create local jobs. The crux of IIUSA’s lawsuit lies in an October 2023 policy announcement by USCIS, which unexpectedly reduced the required investment sustainment period from a traditionally longer duration to a mere two years. This period now begins at the time of investment rather than at the point of conditional permanent residency being granted, a substantial shift from previous practice.

The lawsuit alleges that USCIS circumvented the formal rulemaking process required under the Administrative Procedure Act, thereby denying stakeholders a chance to comment on changes that significantly affect their investments and future planning. IIUSA argues that such procedural shortcuts not only undermine the trust of international investors but also destabilize the predictability of the EB-5 program.

Legal Perspectives and Implications

The legal arguments presented by IIUSA focus heavily on the need for a transparent and consultative approach in policymaking. By sidestepping the established avenues for public input, USCIS has potentially infringed upon the principles of administrative law that ensure government accountability and fairness.

From a broader perspective, this lawsuit could have far-reaching consequences for the EB-5 program and its attractiveness to future investors. If the court sides with IIUSA, it may compel USCIS to revert to the previous policy or to engage in a comprehensive rulemaking process to redefine the sustainment period formally. This decision could either restore the longer sustainment period, aligning with the industry's historical expectations, or solidify the two-year period through a transparent regulatory process.

Market Reactions and Future Outlook

The response from the EB-5 investor community has been mixed. While some stakeholders appreciate the shorter sustainment period for its potential to quicken capital recovery, others view it as a destabilizing factor that could deter long-term investments crucial for major development projects. The outcome of this legal challenge is poised to influence investor sentiment and the strategic approach of developers relying on EB-5 funding.

Conclusion

If IIUSA's lawsuit against the USCIS's new EB-5 policy succeeds, it could have significant repercussions for certain EB-5 investors, particularly those from China and India who have invested in urban Targeted Employment Area (TEA) projects since March 2022. These investors are likely to be adversely affected due to their choice of projects promising shorter investment periods of two to three years, aimed at a quicker capital return.

The potential reversal to the original sustainment period, which begins with the two-year conditional residency, could lead to unexpected repayment delays, especially due to visa retrogression. Many of these investors could face a situation similar to the pre-Reform and Integrity Act (RIA) Chinese retrogression, with extended periods of capital redeployment needed to fulfill the sustainment period requirements.

Should the sustainment period extend to five years, projects initially promising shorter investment durations would need to find new avenues for redeploying investor funds, often into secondary investments that carry their own sets of risks and may require further sustainment beyond the initial term. This scenario introduces additional uncertainty and extends the timeline for investors to recoup their capital, potentially complicating their investment journey and financial planning.

For developers and investors, this case could significantly affect the rules regarding when capital can be returned, potentially extending the time investments must be maintained. The outcome of this lawsuit could lead to changes in how the sustainment period is defined, impacting future and current EB-5 investors.