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Foreign nationals all over the world dream of relocating to the United States with their family members to enjoy a safer, better future. Fortunately, the EB-5 Immigrant Investor Program provides the perfect opportunity to make their dreams a reality. The program offers foreign nationals the chance to receive a U.S. green card in exchange for a qualifying investment in an EB-5 project. Since its creation in 1990, the EB-5 program has continued to grow in popularity for foreign nationals all over the world.
To successfully complete an EB-5 investment and become eligible for an EB-5 visa, applicants must meet many requirements. To begin with, they must invest a minimum of $1.8 million in a new commercial enterprise (NCE), or $900,000 if the NCE is located in a targeted employment area (TEA). The applicant must also prove that their EB5 investment led to the creation of 10 new full-time jobs for U.S. workers. Typically, EB-5 investors invest their funds in their chosen NCE for a five-year period, and then, after fulfilling the necessary EB-5 requirements, they exit their investment at the end of the five years. This was the standard EB-5 process for decades, until things began to get more complicated in 2014. The EB-5 program grew increasingly popular in 2014 throughout countries like China, Vietnam, and India. The demand for EB-5 visas grew larger than the available annual supply of visas, resulting in an EB-5 backlog in the three countries. As of January 2021, China and Vietnam are still subject to EB-5 visa backlogs. The backlogs also led to an increase in processing times, which have made it extremely difficult for EB-5 investors from backlogged countries to satisfy all of the requirements with the five-year period.
One of the EB-5 program’s requirements is the “at risk” requirement, which requires investors’ capital to remain at risk for the duration of the investment period. This means that investors who do not fulfill the necessary requirements within the investment period must redeploy their EB-5 investment capital so that they do not violate the “at risk” requirement. If they fail to redeploy their capital, they could put their EB-5 eligibility at risk.
The U.S. Securities and Exchange Commission (SEC) is a governing body that serves to protect domestic and foreign investors in the United States. The SEC has strict rules and regulations regarding EB-5 redeployment, which can make matters fairly complicated. Additionally, the Investment Companies Act of 1940, along with the redeployment policy update published by United States Citizenship and Immigration Services (USCIS) in July 2020, creates even more obstacles for those redeploying EB-5 investment capital.
Regulation for Investor Advisers
According to the Advisers Act, it is permitted for a general partner or managing member of the NCE to act as a “private fund adviser.” However, the rules and regulations differ depending on whether the adviser is offering advice to the entire body of limited partners or to individual EB-5 investors. If the private fund adviser offers advice to the entire body of limited partners, the SEC will not take action because the adviser is considered to be furthering the objective of the NCE. The adviser is also permitted to ask if a limited partner wants distributions paid out in cash or in kind. However, if the adviser offers advice to individual EB-5 investors based on their specific goals, they would then be subject to more rigorous SEC regulation.
NCE Exemptions under the Investment Companies Act
The majority of assets for most NCEs are made up of a promissory note that represents the deployment of EB5 investment capital to the job-creating entity (JCE). Because this classifies most NCEs as investment companies under the Investment Companies Act of 1940, they must fall into an exemption category to participate in the EB-5 program. The two key exemption categories that most NCEs fall into are Section 3(c)(1) and Section 3(c)(5)(C). The first states that if a securities issuer has fewer than 101 investors and doesn’t offer its securities publicly, then it will not be considered an investment company. The latter allows securities issuers to be exempt if their promissory note is secured by qualifying real estate assets.
NCEs must make sure that the exemption granted to them is still applicable at the time of redeployment. If the NCE can no longer satisfy the requirements for the granted exemption, it must find another exemption under the Investment Companies Act that could apply.
USCIS’s Redeployment Policy Update
EB-5 investors should be aware that SEC rules and the Investment Companies Act of 1940 must be met before USCIS regulations. USCIS cannot override SEC regulations. In July 2020, USCIS updated its EB-5 redeployment policy to stipulate that any redeployment must be through the same NCE for the purpose of furthering the objectives of the NCE. Additionally, if an investor chose to invest through an EB-5 regional center, the redeployment must be through the same regional center. However, the location of the project, commercial activity, and JCE can all be different. If the initial EB-5 investment was in a TEA, the redeployment can be in an area not designated as a TEA.
