By Anayat Durrani
The United States Citizenship and Immigration Services (USCIS) has published EB-5 program data for the second fiscal quarter of 2023. The statistics released reveal some jarring findings, particularly in regard to I-526 petitions, which show high rates of denial.
During the second fiscal quarter, the denial rate for I-526 comprised 55% of all petitions reviewed. Varvara Latyntseva, commercial director at Second Wind EB-5, says that means USCIS issued denials for more than half of all applicants that invested funds and were waiting on average for about 50 months for adjudication.
“Such a high rate of denials could be happening due to the fact that there has been a lot of criticism of the EB-5 program as an option to “buy” a residence permit, so USCIS is doing its best to show that they are vetting applicants with very high standards,” says Latyntseva.
What factors are behind the high EB-5 denial rates?
She says there are a variety of factors that come into play but it is difficult to pinpoint which factors have had any or more effect on the denial rates since USCIS does not provide statistics on the reasons for the denials. Furthermore, she notes that the USCIS does not track this information for their internal use, per a GAO report.
“A good benchmark for the “normal” denial rates has been reported by the GAO, when they analyzed the last five years from 2016 till 2021. We can see that the denial rate for the I-526 was only 13%,” says Latyntseva.
She says some factors she believes play the biggest role in the denials include source of funds, new EB-5 markets, 2019 filings, Regional Centers, and direct EB-5 cases.
Regarding source of funds in a number of cases Latyntseva says several issues came up.
“They asked for proof of funds not related to the EB-5 investment, but which were mixed with the EB-5 investment funds in the same account,” she says.
In another case, she says it was stated that the transaction was done through a bank on the sanctions list, which she says clearly was not the case when the transaction was made.
“Or even asking for a currency exchange slip for a transaction that occurred 10 years ago. No doubt this list can go on and on if one talks with just a few immigration lawyers,” says Latyntseva.
New EB-5 markets could be another factor. Since 2008 the main EB-5 market was China, but she says with the new markets entering the game and increased processing times, “it’s harder to understand the USCIS views on countries’ specific documents for the source of funds, because nowadays if you submit an application you have to wait for up to five years to see if they actually accept the source of funds proof or not.” She says in new markets, like India and Vietnam, immigration lawyers and projects were new, and there was some uncertainty about currency controls, “which forced immigration lawyers to experiment with the source of funds.”
Additionally, due to the increase in investment amount from $500,000 up to $900,000 in November 2019, she says many investors tried to prepare their source of funds documents quickly to ensure they filed prior to when the increase came into effect.
“Immigration lawyers had a very high volume of cases back then, and many petitions were filed and not as carefully prepared as they should have been,” says Latyntseva. “In Q1 2020, 4,264 petitions were filed, more than in the whole of 2019.”
More reasons for the high EB-5 denial rates
Another potential cause for the denials may be due to the big increase in the number of operating Regional Centers in the last decade, “and we can assume that a proportion of the RC community started the EB-5 fundraising process and were unable to complete them.” She says this could be due to projects being weak, or some RCs unaware of the effort required to find investors while maintaining operations, or due to fraud.
“In the event that a Regional Center was unable to fulfill their obligations, this led to a situation in which some investors lost their immigration benefits. All of this may have played a role in the increasing denial rate,” says Latyntseva.
Kate Kalmykov, co-chair, Global Immigration and Compliance at Greenberg Traurig, LLP says according to USCIS data, there was a nearly 50% denial rate for regional center EB-5 petitions filed under the legacy program.
Kalmykov says there are many reasons for the high denial rate. First, she says many projects ran into issues during the pandemic and were unable to secure other financing, or dealt with significant delays or the inability to move forward with their projects.
“Second, some projects failed due to fraud, and that would also result in investor denials,” says Kalmykov. “Third, many investors filed prior to the price increase for EB-5 investment in early and late 2019. Many filed poorly documented applications that did not thoroughly explain or document the source of their funds.”
Regarding direct EB-5 cases, Latyntseva says while the RC program was in a technical lapse from June 2021 until March 2022, the only projects that could be filed were direct EB-5 projects, “which historically are more complicated to approve, and due to this reason, have suffered a higher denial rate.”
Vivek Tandon, CEO, EB5 BRICS, LLC says the legacy I-526 petitions— those filed prior to the Reform and Integrity Act 2022—always had an elevated denial rate.
“We believe this is driven in part by direct EB-5 visa petitions as those generally carry more risk from an immigration perspective as well as regional center applications filed through inexperienced participants in the program and what I call marginal investors filing although there may be gaps in documenting their source of funds,” says Tandon. “Furthermore, more and more applicants come from non-traditional filing countries and perhaps their source of funds may be not fully understood and approved by USCIS.”
Kalmykov says USCIS has been focused on cases from countries that have currency restrictions that use a money exchanger “requesting documentation of licensure for such exchange, for legal opinions to the legality of such exchange and for proof of registration with local government bodies authorizing such exchanges to occur.” She says these requests are often tough to satisfy, since the data is not publicly available “and investors are unable to submit it to USCIS resulting in denials.”
Latyntseva says some investors also could have just changed their minds and withdrawn their applications when dealing with long processing times. She says long processing times also make it more complicated to gather missing documents required for the source of funds and projects when asked for by USCIS.
The impact on investors, Latyntseva says, could mean that the EB-5 program may seem less attractive overall, “because now in addition to the very long processing times, we have another obstacle for investors, a high denial rate, which cannot be easily explained.”
She says should the denial rate remain very high, it may be doubtful that the program will ever be able to attract as many applicants as it once did.
“Investors can only aim to reduce their risks by working with experienced immigration attorneys and Regional Centers,” Latyntseva says.
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