Three leading experts explain compliance, challenges, and success strategies for potential EB-5 investor visa applicants
By Jill Jones, Ronald R. Fieldstone and Rohit Kapuria
The EB-5 Visa Program has long been a gateway for foreign investors to secure U.S. green cards while contributing to significant American development projects, such as New York’s Hudson Yards, Pacific Park, and Miami Worldcenter. The EB5 Reform and Integrity Act of 2022 (the “RIA”) has significantly enhanced the credibility of the EB5 program for the benefit of participants in the industry and provided safeguards against fraud and abuse. However, recent actions by USCIS, including the substantially increased costs and USCIS’s fee increases together with the unexpected notice to terminate some EB-5 Regional Centers due to non-payment of an integrity fee (the “Integrity Fee”), have created uncertainty and impediments to the Program. However, on July 30, 2024, the U.S. District Court judge in Montana issued a temporary restraining order preventing the termination of RC’s at this time due to the non-payment of the Integrity Fee. These developments could impact the cost and timetable of obtaining U.S. residency.
Current challenges in the EB-5 industry
Currently, USCIS’s termination of RC’s have been stayed following the lawsuit through an appeal, although it seems unlikely that they will be successful. If an RC is terminated for other reasons, such as failure to file the annual I-956G Petition in a timely manner, then the RC would be terminated. Thankfully, under the RIA, in the event of a Regional Center termination, the new commercial enterprise (the “NCE”) has a chance for up to 180 days to associate with another RC to maintain compliance with the RIA, which process would continue the viability of the project for immigration purposes.
READ: New EB-5 changes present both opportunities and risks for foreign investors pursuing US residency (July 23, 2024)
To ensure you are investing with a Regional Center or an EB-5 sponsor that fully complies with the RIA, it’s crucial to conduct thorough due diligence on both the project, the sponsor, and the Regional Center itself.
In an era where USCIS is taking a zero-tolerance approach to certain violations, it is more crucial than ever to ensure that the Regional Center can, either directly or through the engagement of qualified professionals, comply with the RIA.
The growing momentum of the EB-5 program
Despite these challenges, the EB-5 program is experiencing renewed growth. Recent data shows a 42% year-over-year increase in visas issued between October 2023 and June 2024. This surge in interest underscores the program’s ongoing potential to drive investment in U.S. real estate businesses and environmental projects that include hotels, healthcare facilities and alternative energy projects, offering lucrative opportunities for investors.
READ: How to safeguard your EB-5 visa investment (June 29, 2022)
The USCIS policy release on October 11, 2023, posted a binding new rule on its website, which repealed a 30-year practice of calculating the minimum sustainment period and replaced it with a minimum sustainment period of two years from the time that the funds are deployed in the Project and the jobs are created. This has allowed some projects to offer returns within this new shorter timeframe, making EB-5 more attractive. However, an industry organization has challenged the USCIS’s policy release, claiming that the 2-year sustainment period should only begin when conditional residence is begun. In addition, a shorter-term project fitting this two-year sustainment period may come with additional risks, such as depending upon a future refinancing or sale to repay the loan or preferred equity investment within the shortened time period. The most common EB-5 investments have been structured with holding periods of 4-6 years, offering a better balance of risk and reward.
Ensuring compliance: Best practices for investors
As an investor, understanding the compliance landscape is key to protecting their EB-5 investment. The RIA’s rules require regional centers, sponsors, and even developers to implement comprehensive compliance measures that directly impact the security of the investment.
Program sponsors should not only meet basic compliance requirements but also ensure appropriate Project underwriting and financial disclosures. This includes partnering with third-party fund administrators who can monitor transactions in real-time and protect the disbursement of Funds to the developer pursuant to the applicable legal documents, and jobs are created. While some sponsors might choose an annual audit to meet the compliance requirements, a third-party fund administrator provides additional protection by addressing issues as they arise rather than highlighting them after the fact.
READ: What the new reformed EB-5 visa program brings along (March 18, 2022)
Investors should also require clear communication from their sponsors about the confirmation of ongoing compliance and the status of the Project. As this issue becomes more complex, the role of experienced third-party professionals becomes even more valuable. By partnering with well-regarded service providers, Regional Centers demonstrate their commitment to protecting EB-5 investors’ investment and navigating the intricate regulatory landscape.
Successful pathway to US residency
The EB-5 program has been a successful pathway for foreign investors to achieve U.S. residency while contributing to viable American projects. However, the recent enforcement of RIA rules by USCIS means that due diligence and compliance are more important than ever.
RC’s need to either hire staff to ensure proper maintenance or hire professionals to provide these services. The Form I-956F for the project provides significant disclosure obligations and the USCIS examiners tend to be better trained to review and make comments to enhance the due diligence and feasibility obligations.
As the Program evolves, investors’ proactive approach in selecting the right partners and projects will be key to insuring the ability to obtain permanent U.S. residency and receive a return of the investment made in the Project.
About the Authors
Jill Jones serves as General Counsel of Institutional Client Services USA for JTC Group, offering extensive EB-5 services such as fund administration, escrow, and cosignatory support. With over 20 years of experience in corporate and compliance roles, Jill has been involved in more than 600 EB-5 projects and is highly esteemed as a thought leader in the EB-5 sector.
Ronnie Fieldstone is a partner at Saul Ewing LLP and serves as corporate, securities, and real estate counsel for EB-5 projects in various industries, representing developers and Regional Centers. He has managed over 450 EB-5 projects, raising more than $8 billion in capital.
Rohit Kapuria is a partner at Saul Ewing LLP, specializing in general corporate and securities law with a focus on private offerings under the EB-5 investor visa program. He frequently represents EB-5 lenders, borrowers, banks, regional centers, real estate developers, investors involved in direct EB-5 projects, and migration brokers. Rohit has been involved in over 200 EB-5 transactions across the country, managing a combined capital development cost exceeding $5 billion.