USCIS Issues Clarifying Guidance for Redeployment of EB-5 Capital

USCIS issued a policy alert (PA-2020-11) (the “Policy Alert”) on July 24, 2020, to disclose recent amendments to its internal policy manual governing the “redeployment” of EB-5 capital. The Policy Alert applies expressly to all Form I-526 and Form I-829 petitions pending on or after the date of publication. The Policy Alert lacks any language indicating that redeployments occurring before July 24, 2020, are grandfathered under prior guidance, which is quite worrisome.

Why this Matters. Recall that on June 14, 2017, USCIS updated its Policy Manual with very welcome guidance regarding the job creation and at-risk requirements for Form I-526 and Form I-829 petitions in Policy Alert 2017-01. Policy Alert 2017-01 blessed the concept of redeployment or reinvestment of capital proceeds when a project has an early exit, but job creation has occurred. Policy Alert 2017-01 confirmed what we knew, which is that to remain eligible for the EB-5 visa classification, the investor’s investment must remain at risk throughout the adjudication of the Form I-526 and until receipt of conditional permanent resident.

Policy Alert 2017-01 authorized redeployment to meet the capital at-risk requirement if the job creation requirement has been met. It provided that investors’ capital is properly at risk if it is used in a manner related to engagement in commerce, which the Policy Manual described as the exchange of goods or services consistent within the scope of the NCE’s ongoing business.  The ensuing three years have been met with countless reinvestments in reliance on this initial, flexible language without limits on geography or through which entity the redeployment occurred. Now, three years and many redeployments later, USICS’ new Policy Alert invokes many requirements; the following summarizes the Policy Alert’s new guidance and potential consequences:

Use of Same New Commercial Enterprise. USICS’ new Policy Alert provides that EB-5 capital must be redeployed through the original new commercial enterprise (“NCE”) in which the EB-5 investors made their original capital contribution. This requirement means that the redeployment should not occur through the job creation entity, the original borrower, or an affiliate of the NCE. It is likely that the substantial majority of redeployments to date have occurred through the NCE; the validly of all pending Form I-526 and Form I-829 petitions where the funds have been redeployed following an early exit, are now in question unless USCIS issues additional guidance to grandfather redeployments occurring before July 24, 2020 or allow them time to cure, which may not be possible if invested in non-liquid projects.

Same Geographic Area of Original Regional Center. USICS’ new Policy Alert provides that EB-5 capital must be redeployed within the territory of the same regional center, which means within the regional center’s approved geographic area, as amended. Policy Alert 2017-01 made no such geographic limitation whatsoever thus it is fair to say that proceeds from an approved project in one state may have been reinvested multiple times in other states. The validly of all pending Form I-526 and Form I-829 petitions where the funds have been redeployed outside of the original regional center’s approved geographic area are now in question as well.

Limits on Financial Instruments. USICS’ new Policy Alert provides limits on redeployment of capital through a financial instrument purchased on the secondary market. USCIS states clearly that such redeployments will generally not satisfy the at-risk requirements.

The scope of Commercial Activity is Broad.  USICS’ new Policy Alert clarifies that capital may be further deployed into any commercial activity that is lawful and consistent with the purpose of the NCE. The 2017 guidance left questions as to what “consistent” really meant. If the NCE raised funds and invested in a hospitality project then had an early exit, could it redeploy capital in a residential project or a venture capital investment?  The new guidance provides that the NCE can redeploy the EB-5 capital in nearly any lawful business activity, so long as it is in commerce, and not a purely financial activity, which is a welcome and broad view.

Reasonable Period Defined as Twelve Months. USICS’ new Policy Alert provides that 12 months is a reasonable amount of time to further deploy capital, but it will consider evidence showing that a longer period was reasonable.

*****

Again, the Policy Alert applies to all Forms I-526 and I-829 pending on or after July 24, 2020.  This means that USICS changed policy and issued the Policy Alert without advance notice, a transition period or express grandfathering of redeployments of EB-5 capital that occurred before publication.  Nevertheless, the Policy Alert expressly states that

“USCIS considered potential impacts to petitioners and determined that such impacts, if any, would be minimal because this is merely a clarification of continuing eligibility requirements.  USCIS is not changing any substantive requirements.”

We respectfully disagree and urge further guidance by USCIS to “grandfather” redeployments of EB-5 capital occurring before publication.  Absent such additional guidance, those redeployments that do not comply with the Policy Alert may be found to not to have maintained risk with respect to the investors whose pending Forms I-526 and I-829 petitions relied on the redeployment.  These Forms I-526 and I-829 petitions may ultimately receive denials by USCIS.

Rimon Law will continue to monitor these developments and publish additional updates.

Debbie represents private investment funds and investment advisers in connection with fund structuring, advertising, private placement procedures, compliance policies and procedures, side letters, placement contracts, related agreements and issues. Debbie’s experience includes private equity funds, venture capital funds complex partnership reorganizations, domestic and offshore hedge funds, Opportunity Zone Funds, real estate investment funds and trusts, EB-5 funds, and large master-feeder structures.  Debbie has extensive experience with private securities offerings and financial products, including through crowdfunding, domestic and international joint ventures, global equity offerings, where she represents placement agents, issuers, broker-dealers, public and private companies, investment banks, financial institutions, private funds, and investment advisers. Read more about Debbie Klis here.

Attorney Advertising. This document is not intended to be and is not considered to be legal advice. The transmission of this document is not intended to create, and receipt does not establish an attorney-client relationship. Prior results do not guarantee a similar outcome.