EB-5 Immigration Investment Projects and Effective Due Diligence Strategy for Wealthy Investors

Last Updated on April 4, 2017

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Created in 1990 to boost job creation and capital investment in the US economy, the EB-5 immigrant investment program did not initially attract demand from wealthy investors. In 2007, INS authorities issued just 700 EB-5 visas, out of a total limit of 10,000 visas, to investors from all over the world. Demand was stagnant with investors preferring other options like the Canadian immigrant investor program and the program offered by the Province of Quebec.

However a combination of factors including the suspension of Canada’s Federal program, funding crunch faced by businesses during the 2008 recession, and rising interest among Chinese investors had given rise to a surge in demand since 2007-08.

The annual quota of 10,000 visas was reached in 2014 and 2015 with the cap for the latter year being met in the first month of the fiscal year itself. There are more than 13,000 applications pending and applicants face a waiting period in excess of 24 months.

Despite growing processing delays, an increasing number of high net worth investors are hoping to avoid the anticipated increase in minimum investment requirements that the EB-5 program will undergo in the near future.  Stakeholders in the field believe the investment requirements for regional centers will be raised from $500,000 to $800,000.

EB-5 Investment Options for Applicants

The EB-5 program offers two investment options for applicants. Investors can choose the passive option of contributing funds to USCIS-approved Regional Centers. There are more than 700 centers in the country that utilize funds received from applicants to execute projects and create jobs in the country. Alternatively, investors can actively participate in the establishment, management or takeover of a commercial enterprise.

The former option allows investors to benefit from creation of direct as well as indirect jobs. However, investors must be prepared to cede operational control and face the risk of reduced returns on their investment or even termination of the Center if it fails to fulfill economic growth parameters.

Role and Importance of Proper Due Diligence

The structure of a standard EB-5 investment project involves the following documents:

• Private Placement Memorandum (PPM)
• Limited Partnership agreement
• Escrow agreement
• Subscription agreement

The PPM defines the various aspects of the transaction in detail, and must be vetted and reviewed carefully before finalization of the investment. Investors considering an EB-5 project must conduct proper due diligence on their own or through a qualified professional and verify all information and details with government sources or past investors before proceeding ahead.

Underestimating the importance of due diligence can put the entire investment at risk. Further, the applicant may fail to qualify for permanent residence in the USA. As a part of effective due diligence, investors must consider the following factors before choosing a specific EB-5 project.

• The project’s track record of obtaining I-526 and I-829 approvals
• Availability of refund in event of rejection of the I-526 petition
• Number of EB-5 projects managed by the promoters
• Whether the project is being executed in a Targeted Employment Area
• Management or administration fee charged by the promoter.
• Identity of promoters along with their track record and experience.
• Identity, qualification, and financial condition of the individual or corporate body entrusted with the fiduciary duty of managing the investment
• Job-creation potential of the project.
• Existence of alternate plans in event of non-achievement of the job forecast.
• Participation of non-EB-5 investors in the project.
• Remuneration or compensation offered to promoters for recommending the project and existence of any other potential cause for conflict of interest.

Conclusion

Potential applicants are encouraged to carefully evaluate a potential regional center project.  A hasty decision when comparing and finalizing EB-5 projects can result in complications that extend beyond mere financial losses. With the program enjoying substantial demand amongst investors, a flawed decision may render it impossible for the applicant to qualify for permanent residence in the USA.

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About the author:

Colin R. Singer is immigration counsel for www.immigration.ca. He is one of Canada’s foremost senior corporate immigration attorneys. He is recognized as an experienced authority on Canadian immigration matters as well as the international residence-by-investment industry through investmentimmigration.com. He is a licensed immigration lawyer in good standing with a Canadian Law Society during the past 25+ years.