It seems as though the EB-5 Program is a moving target. First, we received notification in August of 2015 that loans could be repaid before I-829 final adjudication after the required jobs have been created, provided that funds were then deployed in an “at-risk” activity. Then the Policy Guidelines attempted with great difficulty of trying to clarify what “at-risk” means. One could argue that their examples and statements both directly and through footnotes created more confusion than clarification.
The main takeaway from the new USCIS Policy Manual Guidelines (the Policy Guidelines) is the pronouncement that many immigration attorneys thought was already the law that the EB-5 investment could be returned to the petitioner once the two-year conditionally residency period had expired and the requisite jobs have been created. On one hand this is a big victory for the EB-5 Program. No waiting the extra 2 years to 30 months (based upon current wait times) to receive a return of capital. Now, based upon the Policy Guidelines, the I-829 adjudication requirement is no longer relevant to the “at risk” requirement with respect to the applicable investor.
Of significant impact is the implication for non-Chinese investors who can now receive a return of capital in less than 5 years. The key factors are the aggregate time period to obtain the initial I-526 petition approval, the visa appointment to receive the EB-5 visa (or change of status pursuant to Form I-485 if the applicant is already present in the United States pursuant to a valid visa, such as an F-1 visa) resulting in the change in status to a conditional resident. A reasonable estimate for this process would seem to be 2 years to 30 months, but no longer than 3 years in total. Then you add the 2 years conditional residency requirement to determine the time period when capital can be returned – the Post Conditional Residency Period. The redeployment necessity for such investors becomes less significant given the time frames involved. Funds could still be repaid to the NCE before the 4½ to 5 year Post Conditional Residency Period estimated time period, resulting in the redeployment requirement being of a much shorter duration.
This analysis is totally different for Chinese investors due to retrogression. The time frame to obtain a temporary residency today could well extend to 7-9 years depending upon the visa backlog over time. Therefore, the necessity for the redeployment of funds seems more like a certainty for these investors since the estimated term of a loan (assuming a loan model) is generally not extended for such a long time frame.
Given the variance of the two nationalities (Chinese and non-Chinese), the structure of EB-5 projects will need to take into account these 2 variations and the necessity for redeployment liquidity for non-Chinese investors within a 5 year time frame compared to the extended period for Chinese nationals.
Based upon the above analysis, project documents may need to be amended to permit the return of capital prior to I-829 petition adjudication since until now, most offering documents have provided as a condition to return of capital to an investor that the I-829 final adjudication be determined in order to avoid a USCIS denial. Partnership or operating agreements will need to be reviewed to determine whether the general partner/manager has the authority to amend the corporate agreement without investor consent in order to obtain the desired result based upon the Policy Guidelines. It is possible that the document permits the return of capital in accordance with USCIS guidelines without the requirement of I-829 adjudication, in which event no amendment would be required.
As noted by other distinguished authorities, the Policy Guidelines create total confusion when it comes to sustaining the “at risk” requirement prior to the Post Conditional Residency Period. This includes:
- 1. The concept of redeployment “related to engagement in commerce,” which in and of itself makes no sense. Is the making of a loan “engagement” in commerce? Is the acquisition of debt instruments such as bonds or the investment in a REIT engagement in commerce?
- 2. The requirement that the redeployment must be “consistent with the scope of the NCE’s ongoing business.” Does this definition depend upon what business is authorized under the applicable corporate document? Can the corporate document be amended to include an expanded business model?
- 3. The requirement of “similar loans” in a loan model. Is that a requirement or just a suggestion? What does that mean? Practically the only similar loan to an initial development loan would be one that involves redeployment in another development transaction. But, why should investors be exposed to a second risk of project completion after the jobs have been created by the initial investment? This makes no sense.
- 4. Redeployment must occur “with a commercially reasonable time.” What does this mean? The time frame for non-Chinese vs. Chinese investors is totally different as noted above. Can there be different standards of reasonableness for these two classes of investors? It is noteworthy how long it currently takes to undertake the diligence, the loan closing (if a loan model) and the initial deployment of funds in another project. Surely USCIS does not intend to increase the risk to investors by requiring a rapid redeployment of funds into a new project that has not otherwise been properly settled and documented.
- 5. Redeployment “must be adequately described in the I-526 record.” Again, if the corporate documents provide for the authority to redeploy in “at risk” activities that meet USCIS guidelines, then is this requirement otherwise satisfied? One assumes that the corporate document is part of the I-526 record.
All of the above requirements not only create confusion from an immigration standpoint, but also create significant securities law and corporate implications with respect to advance disclosures and the provision for corporate flexibility. Offering documents will now need to be amended to take into account all of the above possibilities in addressing the ambiguities of the Policy Guidelines. It would appear as though the redeployment of NCE funds in marketable securities would not qualify under the Policy Guidelines since same would not be deemed “an actual commercial activity which involves the exchange of goods and services.” But a loan, which is a commercial activity, has nothing to do with the exchange of goods and services. The USCIS mentions as an example loans into more residential projects or “new municipal bond issuances, such as an infrastructure spending.” Does that imply that jobs have to be created? What is a similar activity? Does the asset class need to remain the same?
I pose that USCIS has created unintended consequences in establishing the above guidelines, which will hopefully be clarified and corrected based upon valid industry wide responses. But who knows how long this will take to correct? In the meantime, professionals will need to navigate the process by taking into account all of the above issues.