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The EB-5 Immigrant Investor Program offers foreign nationals a unique opportunity to permanently relocate to the United States with their immediate family members. Created in 1990, the program offers foreign investors the chance to obtain a U.S. green card in exchange for a qualifying investment in an EB-5 project. Despite the program having notoriously long wait times, it is still considered one of the fastest and easiest ways to permanently relocate to the United States.
Until 2014, the EB-5 process was rather straightforward and presented very few complications. Then, in 2014, EB-5 demand grew, especially in China, which created an extensive Chinese backlog. As of February 2021, the backlog still exists and does not look like it will end anytime soon. Countries like India and Vietnam have also faced severe backlogs, which have led to longer processing times and could potentially put many EB-5 investments in jeopardy, as one of the key requirements of the EB-5 program is that investors must keep their EB5 investment capital “at risk” until the end of the two-year conditional residency period. When investors from backlogged countries face wait times anywhere from two to five years, they are left with no option but to consider redeploying their EB-5 capital.
EB-5 Investment Capital Redeployment
Because of the EB-5 “at risk” requirement, many investors are left with no option but to redeploy their EB-5 investment capital after a successful investment. Even if their initial EB5 investment satisfied all the investment and job creation requirements, it cannot be withdrawn until the conditional residency period is up. Because EB-5 backlogs had not been predicted when the program was first conceptualized, United Stated Citizenship and Immigration Services (USCIS) had not published any real guidelines for EB-5 capital redeployment.
To the relief of several EB-5 professionals and investors, USCIS finally published guidance on EB-5 capital redeployment in June 2017. This revision confirmed that EB-5 investment capital only has to remain at risk until the investor files their I-829 petition to remove the conditions of their permanent residency. The investment capital is not required to remain at risk during the adjudication process of the I-829 petition. This confirmation was extremely helpful to investors. Nonetheless, the published guidelines still created some confusion around EB-5 capital redeployment.
The new guidelines stated that an investor’s EB-5 capital must be reinvested in commercial activity “consistent with the scope of the new commercial enterprise’s ongoing business.” This stipulation did not clarify whether the EB-5 investment capital needs to be reinvested through the same EB-5 regional center or whether the commercial activity must be similar to that of the original new commercial enterprise (NCE). Additionally, if the original NCE was in a targeted employment area (TEA), it was unclear whether the redeployment must also be in a TEA.
USCIS’s Clarification Introduces New Policy Changes
It took until July 2020, but USCIS finally published a clarification to the EB-5 redeployment regulations, though the response was not all positive. The agency stated that the new policy changes included in the “clarification” would be enforced retroactively because the new policy changes “would not have a significant impact on EB-5 investors.” This news was troubling for many EB-5 investors who had redeployed their EB5 investment capital before the new regulations were published. However, if these investors pursue legal action against USCIS for a wrongful denial, it is possible that the court will rule in their favor as long as they reinvested their EB-5 capital in accordance with the prior guidelines.
The six main updates in the new EB-5 redeployment regulations are as follows:
- Capital must be redeployed through the same NCE.
- The redeployment does not need to be in a TEA if the job creation requirement has already been met.
- If the EB-5 capital is not redeployed within 12 months, USCIS needs evidence that justifies the delay.
- Capital can be deployed in any commercial activity consistent with the NCE’s goal to engage in the “ongoing conduct of lawful business.”
- The redeployment cannot involve the purchase of financial instruments on the secondary market—USCIS views this as a “financial” activity instead of a “commercial” activity.
- Capital must be redeployed in the approved jurisdiction of the EB-5 regional center as of the date of redeployment.
There are many policy changes in this update that can negatively impact EB-5 investors. Unfortunately, many EB-5 investors who followed through with redeployments under the 2017 regulations do not meet the requirements of the clarification, which means that their EB-5 petitions will most likely be denied for not meeting the new requirements. The most prominent reason for wrongful denials will likely be the new requirement that prohibits redeployment in “financial” activity. This is a substantial change from the 2017 guidelines, which approved redeployment in “new issue municipal bonds.”
The new requirement that EB-5 capital must be redeployed in the EB-5 regional center’s approved jurisdiction is also likely to cause issues for many EB-5 investors. Not only will this rule lead to many undeserved petition denials, but it is also likely to restrict the NCE’s business freedom. Furthermore, the requirement to reinvest capital in the same NCE immediately invalidates any investor who worked with an NCE that has already closed. This puts investors in backlogged countries at a much higher risk of being rejected due to the long wait times that they face.
There is still hope that USCIS’s policy changes may not hold up in court. A 2018 court case previously deemed policy updates from USCIS as unlawful and prevented them from being enforced retroactively. If this is any indication of how future courts may rule, EB-5 investors may be able to overturn any wrongful denials and save EB-5 investors’ dream of immigrating to the United States.
