The EB-5 investment industry received shocking news on June 22, 2021: the controversial EB-5 Modernization Rule, which made several important changes to the EB-5 program, had been invalidated by a U.S. district court. Most EB-5 stakeholders celebrated the court’s decision—as a result of the ruling, EB-5 investments can now be made at $500,000 for targeted employment area (TEA) projects and $1,000,000 for non-TEA projects (the Modernization Rule had raised these amounts to $900,000 and $1,800,000). The opportunity to make an EB-5 investment at only $500,000 prompted many foreign nationals to participate in the EB-5 program.
Just a few days after the invalidation of the Modernization Rule, the EB-5 Regional Center Program expired temporarily on June 30, 2021. As of that date, United States Citizenship and Immigration Services (USCIS) only accepts direct EB-5 investments. Even though EB-5 regional centers will likely be reauthorized, investors should take advantage of the valuable opportunity to make direct investments at $500,000. In this article, we explain how to make an EB5 investment at the lower minimum amount while reducing the associated financial risk.
How to Invest at the Reduced Amounts Safely
Despite the above-mentioned court ruling, USCIS or the Department of Homeland Security (DHS) could take action to revalidate the Modernization Rule, possibly by taking the case to the Court of Appeals. Interested foreign nationals will have to consider this scenario before deciding to invest at $500,000.
To reduce the risk of failing to meet the minimum investment requirements in the future, a foreign national can invest $900,000 into an EB-5 project that will release $500,000 from its escrow account once Form I-526 is approved. Then, the foreign national can submit two I-526 petitions: one I-526 petition would report an investment of $500,000, while the other would be filed at $900,000. By following this procedure, investors can feel confident about their EB-5 investment even if the minimum required amounts are raised once more.
Investors should also note that they are allowed to use a wide variety of sources to procure their funds—regardless of the source of funds, USCIS mainly focuses on making sure that the funds originated legally. Investors may use gifts, loans, and even cryptocurrencies to fund their EB-5 projects.
The documentation needed to prove the legality of each of these sources varies. For gifted funds, investors will have to provide information regarding the gift giver’s background and the original source of the capital. In the case of loans, investors should submit a copy of the loan agreement and a capital source statement outlining the loan terms (a 2020 court ruling decided that unsecured loans can be used as EB-5 investment capital). EB-5 investors using cryptocurrencies to fund their projects usually convert the digital fund to a conventional currency and then invest this amount into the project. Of course, they must prove that the cryptocurrency was originally sourced lawfully.
How to Reduce the Financial Risk
All EB-5 investments carry a degree of financial risk: foreign nationals can never be completely certain that their EB-5 investment will be returned or that it will result in U.S. permanent resident status. For example, investors may wonder when the EB-5 project will give back their invested funds. This largely depends on the operating agreement signed by the investor. In addition, USCIS dictates that EB-5 investment capital must remain at risk—there cannot be a binding guarantee that the funds will be returned, even if the investor does not ultimately obtain U.S. residency.
Investors need to find out whether their EB-5 project will return the invested funds if their I-526 petition is denied. Fortunately, most projects do have arrangements for returning funds to investors in the case of a Form I-526 denial. The terms of these provisions usually differ among EB-5 projects—for example, the conditions needed to repay the invested funds in their entirety may vary.
EB-5 projects may either offer to hold an investor’s funds in escrow until Form I-526 is approved or release them for use immediately. If an EB-5 project will release invested funds immediately, the investors should make sure that their funds will be repaid in the event of a Form I-526 denial. In most cases, projects that hold invested funds in escrow are safer.
Even though making an EB5 investment does require taking some risks, obtaining a U.S. green card is certainly worth the effort: foreign nationals should act quickly to take advantage of the reduced investment amounts. EB5AN would be delighted to help you identify the best EB-5 investment opportunities.