Successfully Challenging a USCIS Change in EB-5 Policy

Recognizing the competing needs of investor safety and the commercial need to have access to funds to complete a project on time, our firm, in conjunction with Arnstein & Lehr and NES Financial, developed an escrow holdback concept that has become industry standard.

This holdback arrangement had been used in many projects, and approved over 1,000 times by USCIS in the context of adjudicating investor I-526 petitions. However, in 2014, USCIS suddenly challenged this holdback arrangement during the adjudication of one of our client’s I-924 Exemplar Applications.

There were at least 1,000 more I-526 petitions pending at that time that contained nearly identical holdback language. Thus, the impact of a USCIS change in direction on this issue would have been crippling to the industry, as all of those pending petitions would have been denied if USCIS found the holdback language to be unacceptable.

USCIS issued a Request for Evidence and Notice of Intent to Deny to our client. We responded in great detail, explaining the mechanics of the holdback language. USCIS issued a Notice of Interview before the IPO Review Board.

Several lawyers from our EB-5 Team, as well as the client and representatives of NES Financial, attended the hearing, either in person or telephonically. At the hearing, USCIS stated its concerns regarding the holdback. It became instantly clear that USCIS did not fully understand the mechanics of the holdback. We were able to walk through the flow of funds, step by step, and explain to USCIS that the only money refunded to an investor from escrow belonged to that particular investor, and all other money being refunded was being refunded by the NCE, from the NCE’s money. Because of this, there was no circumstance whereby one investor’s money would ever flow to another investor. Moreover, there was no circumstance for which the amount of EB-5 money loaned to the developer and used in the project could be less than the total number of approved investors multiplied by $500,000.

Ultimately, USCIS re-approved the holdback language and approved our client’s Exemplar Application. However, had it not been for our ability to correct USCIS’s misunderstanding of how the holdback worked, the result would have been a sea change in USCIS policy that would have damaged the credibility of the EB-5 program.