The Pros and Cons of the EB-5 Immigrant Investor Program

Teodora Purcell tpurcell@

The Pros and Cons of the EB-5 Immigrant Investor Program

The EB-5 Immigrant Investor program was created by the Immigration and Nationality Act ("INA") of 1990 to stimulate the US economy through capital investments made by foreign investors to create jobs. It attracts capital by facilitating US permanent resident status (aka "green card") for foreigners who make a $1 million USD (or in some cases, $500,000 USD) investment in an eligible business that results in at least ten US jobs and benefits the US economy.1

The pros of the EB-5 program to the US are evident from the numbers. In FY 2014, 10,928 EB-5 petitions were filed with the United States Citizenship and Immigration Services ("USCIS"), 5,115 approved, and 12,453 pending, which translates into over $2.5 billion approved for investment and an additional $6.2 billion in capital awaiting federal adjudication, and the creation of thousands of US jobs.2 EB-5 capital is also an attractive low cost funding tool for project developers in the US, while it offers the foreign investor a path to permanent residency that is not visa backlogged and does not require sponsorship by a US employer or relative. But is the EB-5 an easy and quick way "to purchase your green card"?

Basic EB-5 Requirements

The EB-5 program includes two separate avenues: (1) Direct EB-5 investment ? where the investor invests in an enterprise and plays a role in management or policy making, which will directly create ten jobs, or (2) Regional Center based EB-5 investment ? where the investor invests in a USCIS approved regional center and plays a more passive role by having policy making authority. Both require: (1) the investment to be made in a for-profit, new commercial enterprise;3 (2) a contribution of capital at risk in the amount of $1,000,000 USD, or $500,000 USD if the business is in a targeted employment area (i.e. high unemployment or rural area), aka "TEA";4 (3) the investment to be used for creation of at least ten full time jobs for US workers;5 and (4) the investor to establish the path and the lawful source of the investment.

Pros and Cons of Direct and Regional Center EB-5 Investments

The Regional Center ("RC") is an entity designated and regulated by USCIS, which pools EB-5 capital from multiple foreign investors in job-creating economic development projects within a defined geographic region and designated industries.6 USCIS has approved approximately 600 RCs7 and 95% of

1 The immigration EB-5 laws can be found at INA?203(b)(5); 8 CFR?204.6 and 8 CFR?216.6. 2 / 3 8 CFR ??204.6(e) & (h). 4 8 CFR ??204.6(e) & (f)(2). 5 8 CFR ??204.6(e) & (j)(4). The USCIS deems the two year period to commence six months after the adjudication of the I-526 petition. See USCIS Policy Memorandum (May 30, 2013) 6 8 CFR ?204.6(e).

the EB-5 petitions are based on a RC investment. Notably, EB-5 RC investment funds are subject to U.S. securities and anti-fraud laws and regulations,8 and the Securities Exchange Commission (SEC) and USCIS are raising awareness of how the EB-5 program can be misused and of the importance of proper due diligence to be conducted by foreign investors.9 The direct EB-5 program is permanent, whereas the RC EB-5 program sunsets on September 30, 2015, but is expected to be reauthorized by Congress for another five years, and there is proposed legislation to make it permanent.10

With the direct EB-5 investment, the foreign national accomplishes not only an immigration purpose but also a purpose of investing in a business that he or she runs and that may provide significant return, whereas with the RC EB-5 investment, the rate of return is typically 0.5-2% and the investor plays a more passive role. However, the direct EB-5 investor must prove direct employment of ten U.S. workers, whereas, with RC EB-5 investment, the job creation is shown by a combination of direct, indirect and induced employment using reasonable economic methodologies. Most (but not all) RCs are located in $500,000 TEAs but there can be direct EB-5 investments that also qualify for the reduced capital. Both EB-5 options require the investor to be engaged in the "management" of the enterprise, which can be satisfied if the investor is a limited partner with the rights, powers and duties normally granted to limited partners under the Uniform Limited Partnership Act.11 Which EB-5 option to choose requires an individualized analysis of the investor's circumstances and goals.

No Fast Track EB-5 Process and No Guaranteed US Permanent Residence

The EB-5 investors are not guaranteed a green card because of the lengthy process and possibility that the project in which they invest could fail or undergo material changes, and there is no expedite processing of EB-5 petitions. The process starts with the filing of an I-526 immigrant entrepreneur petition with USCIS, in which the investor must establish the lawful source of funds, document the path of the required investment, and show that the ten US jobs will be created within two years,12 or that the jobs have already been created as a result of the investment.

The filing of an I-526 petition alone does not give the investor the right to stay or work in the US. Current I-526 average processing time is about 14 months and the I-526 approval does not give the investor permanent residence. Rather, after the approval, if the investor is outside the US, he or she and dependent family members will apply for their immigrant visas at the US Consulate in their home country, which requires additional documentation, security checks and adds another 6-12 months to the process. If the investor is in the US in valid nonimmigrant status, he or she will adjust status to permanent resident in the US, which takes about six months.13 So after 2-3 years (provided no visa retrogression), the investor receives a green card that is conditional and valid for only two years.

7 8 The interest being offered and sold in an EB-5 offering by regional centers constitute securities. See Securities Act of 1933; Securities Exchange Act of 1934.). 9 For more information, see 10 S.744, H.R. 2131, H.R. 4178, and H.R. 4659 in the 113th Congress 11 8 CFR ?204.6(j)(5) 12 The USCIS requires that the I-526 petition be accompanied by a detailed and credible business plan compliant with the requirements in the precedent decision of Matter of Ho, 22 I&N Dec. 206 (INS Assoc. Comm'r, Examinations, 1998). 13 .

Within 90 days of the conditional green card expiration (i.e. between the 21 to 24 month after the green card approval), the investor must file an I-829 application to remove the condition on permanent residence with USCIS14, and prove that the investment has been sustained and that the requisite jobs have been created or will be created within a "reasonable time."15 The current average I-829 processing time is 10 months and if unsuccessful, the EB-5 investor may not only lose the green card but end up in removal proceedings. If the I-829 is approved, the EB-5 investor receives his or her permanent green card. During this process, the EB-5 investment must remain in the enterprise until the condition is removed (i.e. for 4-5 years), whereas in all other employment based green card categories, the result is a permanent green card and no such significant financial commitment is required.

The EB-5 program accounts for less than 1% of the immigrant visas issued annually by the US and throughout the process, investors are subject to the same background checks as applicants in any other visa category, and their ability to eventually apply for citizenship is the same as others. The INA allocates 10,000 EB-5 immigrant visas, of which 3,000 are reserved for the RC program, and no more than 7 percent of the visas can be allocated to any one country.16 Since close to 85% of the investors are from China, for the first time in September 2014, the EB-5 visas became unavailable for Chinese nationals, and EB-5 visa backlog for Chinese investors may be expected in 2015. There are more significant immigrant visa quota backlogs in other categories of family and employment-based immigration, which is why the EB-5 still remains attractive.

EB-5 and Other Green Card Options

Despite the challenges investors may face in tracing the invested funds or in the job creation, and the possibility of visa backlog for some, the EB-5 is still a good option, although it is not the panacea for all foreign nationals seeking permanent residence in the US. There are other employment based visa options that may be available for the investor and these alternatives, if successful, lead to a permanent green card, do not require placement of a $1,000,000 investment at risk, and there are minimal concerns about visa availability. For the foreign nationals who choose the EB-5 green card avenue, it is important to put together a competent team that includes an immigration counsel, as well as business, tax, and securities counsels, to advise on the multiple complex issues that go into determining whether the EB5 green card path is the right choice for the client.

Immigrant investors and entrepreneurs bring substantial value to the United States, not only through the capital they deploy or the jobs they create, but also with the knowledge and experience they bring to US businesses, and working with such clients is very rewarding.

14 8 CFR ?216.6 15 8 CFR ?216.6(a)(4)(iv) . In its May 30, 2013 Policy Memorandum, USCIS has interpreted "reasonable time" to mean one year, starting at the end of the conditional residence period. 16 INA? 203(a) ; INA ?204(1) & INA? 202(a)(2).

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