On July 25, 2018, Kurzban, Kurzban, Weinger, Tetzeli & Pratt, P.A. filed a lawsuit against the United States challenging the way the U.S. Government counts EB-5 visas. The suit can have profound consequences. If successful, the visa backlog disappears. Even without winning, the suit has the potential to galvanize stakeholders to find other solutions to the crushing EB-5 visa backlog.
While a part of the fabric in the other U.S. immigrant categories, a visa backlog in the EB-5 category is relatively new. The EB-5 program historically suffered from underuse since its creation in 1990. From FY2008 to FY2011, the average number of visas issued annually totaled only 2,752. FY2012 marked a pivot point where visa demand took a quantum leap to 7,641.
Then FY2015 marked the beginning of a new era of EB-5 backlogs. The May 2015 Visa Bulletin, the monthly report of visa availability issued by the U.S. State Department, established a final action date of May 2013 for EB-5 visa applications. This meant that for the first time in EB-5 program history, there were more visa applications than budgeted, a phenomenon the State Department calls visa “oversubscription.”
Enter another watershed moment at the end of FY2015. With the introduction of Senate bill S. 1501 in June 2015 and the possibility of investment amounts going up to $1.2 million starting October 1, 2015, investors rushed to invest at the $500,000 level. During the months of July through September 2015, USCIS received 6,725 I-526 petitions, nearly the combined total of the prior 9 months’ filings. With another “deadline” marked to the expiration of a federal budget continuing resolution in December 2015, USCIS received another 6000+ petitions in 1Q FY 2016. At the end of FY 2016, USCIS had over 20,000 I-526 petitions pending, nearly triple the number of pendings petitions just three years earlier.
Analyzing these FY 2016 statistics, the USCIS Ombudsman reported in its Annual Report 2017 to Congress that “EB-5 immigrant visas remain immediately available to nationals of all countries except China, whose nationals will likely wait 10 years or longer for their EB-5 immigrant visas due to oversubscription, absent an increase in or recalculation of the annual quota.” Despite this dampening report, investors, a majority still Chinese, continued to file petitions in spikes timed to continuing resolution expirations through Q3 FY2017. These surges in I-526 petition filings through 3Q 2017 continued to feed the increasing EB-5 visa backlog.
Q1 FY2018 then marked a turning point for Chinese investor demand. For the first time in at least three years, Chinese demand fell below rest of world demand for I-526 petitions. By the end of Q2 FY2018, Chinese I-526 demand was significantly below rest of world. There is no sign that the Chinese investor demand will revive without a sea change, particularly given the more recent report of a potential 15-plus year wait for an EB-5 visa.
The report is consistent with other expert estimates based on current assumptions. At the end of Q2 FY2018, there were 22,607 I-526 petitions pending with USCIS. Based on the author’s estimates derived from the Q2 2018 I-526 approval rate and an assumption of two derivatives per investor, this pending inventory of petitions alone represents approximately 6.3 raw years of future EB-5 visa usage. This wait would be added to the visa applications represented by the prior 27,714 I-526 approvals from FY2015 to Q2 2018, representing approximately 8.4 raw years worth of visa applications.
Need for Visa Numbers Remedy.
The numbers story has two different plotlines at the moment. The story of Chinese investors who have already invested and whose children will age out is one of great and immediate distress on a human level. However, there is another story of a surging visa demand in other markets now finding some sun. Vietnam, India, Brazil, and South Korea are proving solid though much smaller markets by comparison to China. Current investor demand for new I-526 petitions is on pace with the “normal heydays” of FY2013 and FY2014.
So does the availability of EB-5 capital from other investor markets actually contradict what feels obvious – a sense that there is a severe visa unavailability problem?
Yes, in the short term. By operation of the per country caps, even though tens of thousands of Chinese investors and family members are in the EB-5 visa backlog, investors from other countries with less than 700 visa applicants do not need to wait.
But backlogs are coming for these emerging markets. We already have oversubscription for Vietnam, and backlogs are predicted starting the middle of 2019 for India, Brazil, and South Korea. Moreover, it only takes 232 investors, or more likely much less, to cause oversubscription because derivatives are counted. That amounts to $116 million or less per country per year (assuming investment at the $500,000 level), over which visa backlogs start to accumulate under the current counting method. For each “normal” year of I-526 petitions filed based on the 3-year average of FY2012, FY2013 and FY2014, there will be a visa wait of 1.3 raw years under the current visa allocation method.
The backlog we have in China and Vietnam and soon for other markets is caused by the State Department’s counting method of including derivative spouses and children to principal investors against the annual EB-5 visa quota of 9,940. But what if this counting method is contrary to the law?
A bold claim pending before the D.C. District Court states that State Department method is wrong. The plaintiffs are thirteen Chinese investor families including investors and their derivatives as well as one regional center, American Lending Center LLC. Representing the plaintiffs, Ira Kurzban, John Pratt and their colleagues argue that the Government has been miscounting all along by counting derivatives of principal investors against the annual quota (the “Counting Policy”). Remedies sought include enjoining or stopping the Government from counting derivatives in the EB-5 category and allowing those children who have aged out as a result of the County Policy to rejoin their parents.
What is the lawsuit’s potential upside? The plaintiffs’ outside expert, David J. Bier of the Cato Institute, concludes that if the State Department had been counting correctly, there would be no visa backlog today.
The arguments are based on plain meaning interpretation of INA section 203(b)(5), legislative history of the EB-5 category’s creation, and a historical analysis of the Immigration and Nationality Act (INA)’s quota framework as related to derivatives. The complaint sets out in detail the harm created by the Counting Policy including its impact on each family’s lives. The families include children who have already “aged out” and children who will likely age out.
The complaint can be summarized in one of its opening paragraphs:
This lawsuit challenges an unlawful Government policy that is undercutting the EB-5 Program’s growth and the economic benefits to the U.S. economy that result. Specifically, although Congress intended that the EB-5 visa numbers it set aside be used for qualifying investors, the Department of State has systematically diluted this visa pool by individually counting the spouses and children of investors against the EB-5 quota. This “Counting Policy” unlawfully erodes the number of visas available for actual investors, prolongs wait times, separates immigrant families, and undermines the U.S. economy.
Plain Meaning and Legislative History.
The leading argument in the lawsuit is that the plain language of the EB-5 statute “unambiguously provides that the 7.1% of employment-based visas which ‘shall be made available’” under INA s. 203(b)(5) are allocated to investors only. The plaintiffs argue that “[n]othing in the language of the EB-5 statute authorizes the [State] Department to reduce the allocation of EB-5 visas for investors by expending visa numbers on an investor’s spouse or child.”
Congress did not intend derivatives to be counted against the 7.1%, which is all reserved for investors, themselves, the argument goes. Instead, derivatives are afforded status under INA section 203(d). Section 203(d) provides that derivatives must be accorded “the same status and the same order of consideration” as the principal investor. This plain language, the plaintiffs argue, means that when a visa becomes available to an EB-5 investor, the spouse and children are put in the same shoes and same visa number slot as the principal, and thereby may immigrate at any time. But this does not happen when the final action date on the Visa Bulletin retrogresses, or slides back, before the derivatives immigrate. In that situation, currently, derivatives must wait until their priority dates are current again and therefore are not accorded the same order of consideration as the principal.
Further evidence of Congressional intent to only count EB-5 investor principals abound. The most compelling relates to the 3,000 visas set aside for targeted employment area (TEA) investments. INA section 203(B)(5)(B)(i) provides that “[n]ot less than 3,000…[be] made available…for qualified immigrants who invest in a new commercial enterprise…which will create employment in a targeted employment area.” (emphasis added). There is no indication, the plaintiffs argue, that Congress intended for all 9,940 to be used up by the 3,000 TEA set aside visas. Alas, that is precisely what occurs by the State Department’s counting method.
The plaintiffs also bring in uncontested legislative history, contemporaneous with the EB-5 program’s creation. The plaintiffs’ memorandum quotes Senator Paul Simon (D-IL) whostated, “We have an investor program that will permit up to 10,000 people to make investments here, to come to this country and create jobs;” Senator Edward Kennedy (D-MA) stated that “10,000 employment generating visas are provided for investors who invest in enterprises, especially in depressed or rural or urban areas, which create a minimum of 10 new jobs for Americans.” Finally, Representative Lamar Smith (R-TX) stated about the EB-5 Program:
[T]his particular provision of the immigration bill is actually the only provision of the immigration bill that is absolutely guaranteed to create jobs and produce revenue for the U.S. Government. In fact, if these 10,000 investor visas are taken advantage of, it will create a minimum of 100,000 jobs in the United States, and it will generate a revenue of up to $10 billion [ . . . ] This provision, of course, says that 10,000 investors may come into the country if they are going to start a business that will employ at least a minimum of 10 employees. That is where the figure comes from of 100,000 guaranteed jobs.
In giving effect to laws as in contracts, the intent of the drafters is paramount. The legislative intent is clear from these records: Congress meant to admit 10,000 investors under the EB-5 program
The plaintiffs’ arguments are compelling on the merits. The Government responded, but dismissed the key argument centered around clear legislative intent and plain meaning. The response focused instead of decades of State Department custom and a thin construction of the INA that does not survive the plaintiffs’ fuller statutory analysis. The crux of the argument the Government misses is that quotas apply to principals only under the INA. Derivatives are accorded status under a completely separate paragraph not subject to the quota, INA section 203(d).
While professional bettor may hesitate putting his life savings on the odds of winning the lawsuit, there is hope in an example from decades past. In 1968, the Government began wrongfully charging or counting Cuban refugees against the quota and continued the practice for eight years. In 1976, a suit was filed challenging the Government’s counting policy. The plaintiffs won that case, resulting in a recapture of 145,000 visas wrongfully charged to Cubans and thereby depleting available visas.
The similarities are striking and the EB-5 lawsuit’s counsel are Olympians. The suit’s real purpose, though, is serving as a clarion call above the alarm.
Wang v. Pompeo, No. 1:18-cv-01732-TSC (D.D.C. filed July 25, 2018).
See L Li, Regional Center Business Journal, Vol. 5, Issue 3 (October 2017) at https://iiusa.org/blog/wp-content/uploads/2017/12/Navigating-EB-5-Visa-Usage-Statistics2C-A-Historical-and-Current-Perspective.pdf]; see also U.S. State Department reports at https://travel.state.gov/content/travel/en/legal/visa-law0/visa-statistics/immigrant-visa-statistics.html.]
 Id. The number of EB-5 visas issued as reported by the U.S. State Department reflects I-526 petitions filed at a prior point in time, later approved, and then processed by the U.S. State Department for each family member based on foreign state chargeability, category, and priority date. Accordingly, the leap to 7,641 visas being issued in FY 2012 probably reflects the leap in I-526 petitions filed in FY 2011 based on then-USCIS processing times.
 The U.S. Government’s fiscal year begins October 1 and ends the following September 30.
 See, e.g., data presented by NES Financial during its Webinar, “EB-5 Capital: New Capital. New Needs” on July 19, 2018. Information at https://nesfinancial.com/event/eb-5-capital-new-needs-new-sources-webinar/ (“NES Data”).
 See NES Data, supra note 10.
 The combined quarterly average of I-526 petitions filed in FY2013 and FY2014 is 2,159. See https://www.uscis.gov/tools/reports-studies/immigration-forms-data/data-set-form-i-526-immigrant-petition-alien-entrepreneur.
 See American Immigration Lawyers Association (AILA) Practice Alert: EB-5 Visa Waiting LInes at https://www.aila.org/infonet/practice-alert-eb-5-visa-waiting-lines.
 For FY2012, FY2013 and FY2014, the average annual petitions filed is 7,779. I am using a multiplier of 3 for the investor and 2 derivatives to estimate the number of visas issued under the current U.S. State Department counting method here and throughout this article.
 In the author’s humble opinion, Mr. Bier is subject matter expert without peer in the Immigration and Nationality Act’s treatment of derivatives. See Mr. Bier’s summary of his appearance and expert testimony with links to the full text of his affidavit and motion papers at https://www.cato.org/publications/public-comments/expert-affidavit-eb-5-investors-wang-v-pompeo.
 See Wang v. Pompeo, supra note 1, Plaintiffs’ Motion for Preliminary Injunction at page 23.
 136 Cong. Rec. 35,616 et seq.(1990).
 See the AILA White Paper: Solutions to the EB-5 Visa Waiting Line finding the relevant legislative history at https://www.aila.org/infonet/white-paper-solutions-to-the-eb-5-visa-waiting.
 See Mr. Bier’s criticism of the Government’s response at https://twitter.com/david_j_bier/status/1034538695771213824?lang=en with accompanying statutory exegesis and links to the Government’s reply.
 Nor does it survive the Cato Institute’s withering and incisive scrutiny. See Mr. Bier’s blog reacting to the Government’s reply at https://www.cato.org/blog/governments-poor-defense-counting-derivatives-against-immigration-quotas.
 See Silva v. Bell, 1978 U.S. Dist. LEXIS 15038 and at https://www.clearinghouse.net/chDocs/public/IM-IL-0009-0002.pdf. Credit to Mr. Bier for finding this case.