Redeploying EB-5 Investments: Navigating Securities Laws After 2020 USCIS Clarification

by Mariza McKee, Partner, Kutak Rock & Robert Ahrenholz, Partner, Kutak Rock 

Redeployment of EB-5 investments continues to be a focus for EB-5 stakeholders as EB-5 investors face visa backlogs while EB-5 immigration requirements, such as “at risk” and “sustainment,” remain. The EB-5 Program’s own success is partially to blame for the redeployment necessity and the situation had been concerning from an immigration law standpoint because of a lack of clear redeployment guidance. In a “Policy Alert” released in July 2020, the USCIS issued updates to its Policy Manual clarifying certain redeployment requirements. In summary, the update provided that EB-5 capital may be redeployed through the original new commercial enterprise (“NCE”), within the territory of the original regional center (“RC”), provided that it be redeployed “in commerce,” and consistent with the NCE’s ongoing purpose of conducting lawful business activity. Redeployment does not have to be within a targeted employment area (“TEA”) if the required number of jobs have been created, even if the original investment was within in a TEA. Additionally, the guidance provides that the USCIS considers twelve months to be a reasonable time to redeploy capital. While this guidance is helpful for future redeployments, it leaves open the issue of whether these requirements are to be applied retroactively to redeployments that have already occurred. Regardless, redeployment must be approached in light of the existing securities laws and compliance obligations that are the focus of this article.

Before analyzing the current redeployment situation, a quick review of EB-5 basics and common deal terms prior to the emergence of the current visa backlog is merited. In the typical RC investment scenario, the EB-5 investor-applicant subscribed to a RC-sponsored NCE and contributed her capital investment. That transaction involved the sale of securities and triggered U.S. securities law compliance. The NCE then aggregated the capital of all its EB-5 applicants and made a single loan or equity investment into a single job creating entity (“JCE” or “Project”) typically for a five-year term. Assuming the JCE was successful and that the investment was timely repaid to the NCE at the end of the five-year term, the long-held assumption was that the EB-5 applicants should have, by that time, completed all immigration processing steps and should be eligible for exit from the NCE. And in fact, that paradigm served the EB-5 industry well from 1990 until about 2014. Generally, EB-5 applicants were able to achieve conditional resident status and file their I-829 petitions within a five-year timeframe. But in 2014, with a deluge of applicants from countries like China, India, and Vietnam overwhelming the limited supply of EB-5 visas available, visa backlogs started to significantly delay immigration processing for many years. Among many EB-5 eligibility requirements are two of relevance to duration — that the investment must be “at risk” and “sustained” throughout the process of initial petition and two years of conditional permanent residence. But, if the EB-5 investor must wait for six or more years just to start conditional permanent residence, due to petition processing and visa backlogs, then the historical assumptions about a five-year term investment are wildly out of sync with the realities of the EB-5 visa application process.

The timeline for each EB-5 investor’s immigration process is dependent upon a host of variables including visa backlogs, processing times at the USCIS, and in many cases the National Visa Center and various Consular posts, therefore, it is difficult to accurately predict how long an EB-5 investor might be required to sustain his or her EB-5 investment, or for how long the associated NCE might be required to continue to redeploy the EB-5 capital. In addition to such significant wait-times, note that the sustainment period runs throughout the full two years of the initial grant of conditional permanent residence. Therefore, two more years should be added to the above wait-time estimates and potential investment exit dates. As visa wait times have increased, so too have the “sustainment” requirement and mandatory timeframe during which the EB-5 investment funds must be “at risk.” In an effort to comply with these USCIS requirements some NCEs have elected not to repay EB-5 investors when EB-5 loans are repaid by the JCE, but instead, to redeploy EB-5 investment funds when permitted by their organizational documents to do so…

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Learn More About Redeployment During Todays Virtual EB-5 Industry Forum! 

The Virtual IIUSA EB-5 Industry Forum is the industry’s premier educational, advocacy, and business development programming of the fall! The five-day webinar event will provide listeners with leading educational and business development content all through an easy to navigate virtual platform.

Redeployment focused programming includes: 

  • RFE and Denial Trends: What to Anticipate and How to Respond to KEep Your Project in Motion
  • Redeployment: How the {olicy Manual Update Affects Current and Future Investors & Projects 

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