On July 24, 2020, United States Citizenship and Immigration Services (USCIS) published a Policy Alert announcing long-awaited clarification of the guidelines surrounding the redeployment of capital under the EB-5 program. The new guidance, which comes into effect immediately, focuses on Volume 6, Part G, Chapter 2 of the USCIS Policy Manual (A(2)). The update substantially influences the redeployment of EB-5 capital, not only for EB-5 investors but also for regional centers and developers working with project sponsors.
Why Do EB-5 Investors Need to Redeploy Capital?
To qualify for a permanent green card, an investor must show that their EB-5 investment remained at risk throughout the conditional residence period. Conditional permanent residence usually last two years, and in the last 90 days, investors must file their I-829 petitions to apply for removal of conditions and prove that they have met the requirements of the EB-5 program. An EB-5 investor’s funds cannot be released until the end of the investor’s two-year conditional permanent residence period, which begins only when the conditional green card is issued and not upon the approval of the I-526 petition.
Usually, EB-5 regional center investments are structured as loans or equity investments with five-year terms, where the new commercial enterprise (NCE) invests in a job-creating enterprise (JCE). This period initially related to the amount of time it took for most investors to complete the immigration process. However, because of the delays investors have experienced in recent years due to visa backlogs and retrogression and increased USCIS processing times, some investors can wait from three to 15 years to become eligible for permanent residence. During this time, their EB-5 capital must remain at risk for them to keep meeting the requirements of the EB-5 program. According to USCIS policy, an investment in the NCE, with the money simply sitting in an account, is not enough—the money must be deployed again. Thus, EB-5 investors who face significant delays in the immigration process must redeploy their capital to ensure that it remains at risk.
Redeployments must also meet several criteria to avoid USCIS viewing them as a material change. Capital can be redeployed only after the initial investment has met the requirements of the EB-5 program and the capital is available to the NCE or has been returned to the NCE. In other words, this implies that redeployment can occur only once the entire investment has been deployed to the JCE, the JCE has created all the required jobs, and most of the goals set out in the original business plan have been met.
Until now, USCIS has not provided clarity about redeploying funds in such a way that investors remain in compliance with the requirements of the EB-5 program. The July 2020 clarifications address in which types of activities and enterprises, where, and when capital should be redeployed.
5 Key Points Contained in the EB-5 Capital Redeployment Policy Update
The clarification of the guidelines covers five key points.
1. The EB-5 capital must be redeployed into a commercial activity. If an investor redeploys the capital into a purely financial activity by investing in securities or financial instruments on the secondary market, the investment does not meet the at-risk requirement of the EB-5 program. Thus, investors should not redeploy their capital by, for example, placing it in a brokerage account or buying stock on the stock exchange.
2. The capital must be redeployed through the NCE in which the investor made the original investment.
3. Investors can redeploy capital into any commercial activity that aligns with the purpose of the NCE to engage in the conduct of lawful business. The most important consideration is that the NCE must engage in commerce that falls within its stated scope. The good news is that USCIS seems to be flexible regarding the kinds of activities that would qualify and that it is willing to allow amendments to NCE operating and partnership agreements to adjust the scope of the business.
4. The NCE must operate within the approved geographic area of the same regional center. However, this includes areas that fall under any amendments to expand the geographic scope of the regional center that are approved before redeployment.
5. Redeployment should occur within 12 months, but USCIS may consider longer periods if the delay was out of the control of the investor, NCE, and regional center. In other words, USCIS will consider evidence that the delay was reasonable.
The Main Implications of the EB-5 Capital Redeployment Policy Update
While EB-5 investors should be aware of the criteria for redeployment to ensure that their capital remains at risk and that they continue to meet the requirements of the EB-5 program, the clarifications have the greatest implications for regional center operators and developers who work with regional center sponsors. Because of the restrictions relating to the geographic scope of regional centers, the latter two groups must consider the future redeployment of capital by expanding the scope of existing regional centers or working with regional centers that offer extensive geographic coverage.
1. Expanding the Approved Geographic Scope of a Regional Center
To expand the existing scope of a regional center, a regional center operator must file a Form I-924 amendment. Doing so is especially important for regional centers with limited coverage. For example, if a regional center covers only three counties, redeployment will have to occur in only those three counties. If the regional center can expand its coverage area by adding another 20 counties, redeployment can occur anywhere within the 23-county area.
2. Working with a Regional Center that Offers Extensive Geographic Coverage
EB-5 project developers who are considering regional center sponsorship must select a regional center with a large geographic coverage area, as this will ensure flexibility for future redeployment. Project developers should factor in this criterion when conducting their due diligence during their search for the ideal regional center sponsor.
How Can EB5AN Help You to Facilitate EB-5 Capital Redeployment?
EB5AN owns and operates 14 regional centers that cover 20 states. Many of our regional centers cover entire states, and some even extend across multiple states. Thus, if you choose one of our regional centers to sponsor your EB-5 project, you can maximize redeployment flexibility—in addition to benefiting from our best-in-class transparency and fund management practices.
If you’re the owner of a regional center, you can benefit from our experience: USCIS has approved more than 150 Form I-924 regional center formation and expansion amendments we’ve worked on. We specialize in expansion applications for larger geographic areas.
To ensure that your EB-5 investors remain in compliance with the EB-5 program by effectively redeploying their capital if the need arises, file a Form I-924 amendment as soon as possible. This will ensure that you can offer them the best investment options and flexibility available when the time comes.
Contact EB5AN today to learn more about the services we offer and to discuss your unique needs with a member of our team.