If not for an email blast from USCIS advising of “further guidance regarding job creation and capital requirements for Form I-526…and Form I-829,” the move may have gone entirely unnoticed.
And the one-page Policy Alert accompanying the email offered few additional clues, noting only that the agency’s pre-existing policy manual now included, effective June 14, 2017, new guidance for EB-5 investors on topics like redeployment and maintenance of funds at risk. Rather than summarizing the new guidance in a policy memorandum, as is customary practice, new EB-5 policies were embedded inconspicuously in various portions of USCIS’s vast online policy manual, thus defying immigration advocates to comb through the manual’s chapter on immigrant investors and discern what in the hundred or so pages had changed, with only their recollection of prior versions to guide them.
Suffice to say that USCIS’s delivery of its new policy guidance belied the scope of the changes that awaited, with some revisions lurking in a footnote, nearly unseen. The highlights are described herein.
Redeployment of EB-5 Funds
The guidance on redeployment is particularly eye opening. This topic has emerged recently as a hot button issue in in the industry, and it’s one that increasingly plagues Chinese investors, who have found, no thanks to adjudication delays and visa backlogs, that their investment funds once deployed to a job creating project are now making their way back to the new commercial enterprise long before the investor has an opportunity to remove conditions on their green card. The discordant timing has left many to wonder where the eB-5 capital should go once it is repaid to the NCE, since returning it to the investor, who is required to maintain funds at risk, is not an option.
Prior to any new guidance, industry consensus held that these funds should be redeployed to another vehicle rather than sit idly in an account with the NCE; but in what vehicles and under what conditions were anyone’s best guess, prompting long overdue input from USCIS. Unfortunately, the answers to these essential questions are still largely unknown; but the new parameters released in June limit the universe of options previously thought to be available to NCEs and their managers.
For example, now USCIS states that after the requisite jobs are created, EB-5 funds may be further deployed outside the original job creating entity, but only in a manner “related to engagement in commerce,” which term is then paraphrased as the “exchange of goods and services.” Also, the investment must be “consistent with the scope of the NCE’s ongoing business” and take place “within a reasonable time.”
While these terms are extraordinarily broad, those familiar with USCIS understand that the move signals an attempt to limit further investment options, or at least direct redeployment away from lower risk investments such as certificates of deposit or marketable securities, and back into large-scale development. For example, USCIS recommends that NCEs created for the purpose of lending money for construction of a residential building may, as a possible redeployment option, use funds to provide “similar loans to other entities,” or to purchase new issue municipal bonds for infrastructure spending, and that is only if such redeployment is within the scope of the NCE’s “ongoing business.”
The meaning of “similar loans” is frustratingly vague, and the rationale behind the example, much less its legal basis, is highly questionable. Also, given the fact that most NCE’s in a regional center context are created for the sole purpose of raising and investing EB-5 funds, the term “ongoing business” seems misplaced.
In the interim, immigration advocates seek to gain more clarity on what, outside of those narrow examples, qualifies for redeployment and Klasko Immigration Law Partners specifically submitted comments to the Service to that effect. One short-term solution, while awaiting further instruction, is to ensure operating agreements and private placement memorandums for EB-5 projects remain flexible on the NCE’s business scope (ie. such as defining the business as a “funding company”). This approach preserves a wider range of possible redeployment options without committing to a particular vehicle that could later be challenged as outside the NCE’s scope. In other words, respond to the agency’s open-endedness in kind. At the same time, if the project has some idea of potential redeployment vehicles, such as related projects of the same developer, or if the NCE is willing to commit to certain limits on the next investment’s volatility, those details can be fully disclosed in the PPM to give investors some assurance that redeployment is not boundless.
Sustainment of Capital at Risk
On the plus side, USCIS took an important step in its revised guidance by clarifying that the period during which an investor’s funds must remain at risk (the “sustainment period”) is limited to two years of conditional residence, and not, as the agency has previously held, the entire period of conditional residency. The distinction is subtle but important: an investor’s conditional residence extends well beyond two years and continues so long as USCIS is adjudicating the I-829 petition – an unmerciful timeline with seemingly no end. Now, because of the new guidance, investors can look forward to a hard stop on the at-risk period after two years, and untether themselves and their investments from the agency’s slow processing times.
While the June blast is unlikely to be the final word on USCIS policy guidance for redeployment and sustainment of funds, projects are already working to incorporate the new requirements into their documents with the assistance of counsel, and building in the option for NCEs to return any repaid capital sooner, which not only cuts down on the time during which funds must be redeployed but removes some of the uncertainty for investors who look forward to an eventual return of their investment.
The material contained in this article does not constitute direct legal advice and is for informational purposes only. An attorney-client relationship is not presumed or intended by receipt or review of this presentation. The information provided should never replace informed counsel when specific immigration-related guidance is needed.
This article appeared in NES Financial’s Fall 2017 Platinum Medallion Partners ebook “EB-5 Insider” published on October 31, 2017.