EB-5 Investor Due Diligence

By Mark Ivener

What is Due Diligence and Why is it Important for EB-5 Immigration? 

Due diligence is the care and research a person should undertake before entering into an agreement or a transaction with another party to ensure they are making a good investment. The purpose is to avoid unnecessary harm that could occur if they were to enter into a transaction blindly or ill-informed. In the business world, it is the first step to being a prudent investor and ensuring long term financial health. 

The background of EB-5 investors runs the gamut in professional fields and industries. From real estate developers to bankers, executives to doctors, EB-5 investors are usually well-accustomed to conducting due diligence in their respective fields. In fact, due diligence is a big reason why each investor has been able to accumulate the wealth to make an EB-5 investment. However, when confronted with having to conduct EB-5 due diligence for the first time, many find themselves uncertain on where to begin.  

For EB-5 immigration, there are three types of due diligence: the investor’s due diligence on the EB-5 project; the investor’s immigration due diligence, or questions about how the regional center has fared regarding approved and denied applications; and the investor’s due diligence of the regional center itself. 

In summary, the first due diligence issue is about the project, the second is about the immigration consequences, and the third is about the regional center itself. 

Why is Due Diligence So Critical to Investors?

The reason due diligence is so critical is there are two major considerations investors have about their investment. First, they want to make sure the project they choose will ultimately lead to them obtaining a permanent Green Card. Secondly, they want to make sure they’re going to get their money back.

The driving force behind the EB-5 Program is the desire for a foreign investor to not only come to the U.S., but to immigrate as a permanent resident.  There are two steps to getting a permanent Green Card through EB-5. The first step is the initial petition (Form I-526) where the investor shows they’ve made the investment and prove their source of funds to obtain a two-year conditional Green Card. At the end of the two-year period, they apply for Removal of the Conditions (Form I-829). The whole process takes five to six years to get a permanent Green Card, and even longer if the investor is from China due to visa retrogression issues (around 10 years). That means they have to be comfortable that the project will be viable and long-lasting for around 10 years. Substantial due diligence is critical to ensure they are choosing a project with such a long time frame. 

Secondly and almost equally as important, no investor wants to lose the whole investment amount of $500,000 plus an average of $50,000 administrative fee to get their Green Card.  With so many projects on the market, investors want to make sure they choose an investment that has the best chance to ensure they get their money back. This is another critical reason why checking out a project and regional center in advance is crucial.   

What Steps Should Someone Take When It Comes to Due Diligence for Immigration Issues?

When it comes to due diligence for immigration, one must first look at the regional center. The investor will look at when the regional center has been approved by USCIS, how long they have been in business, how many I-526 approvals they have if any, and if there are any denials. If there are denials, they should learn the reasons behind the denials, whether those denied cases were taken to federal court and the outcome, and how many conditional Green Cards got approved.    

How long a regional center has been in business is also relevant as the investor and the regional center are tied together through the whole five- to six-year process. The longevity of the regional center can be evidence that they know what it takes to ensure the project is going to have staying power to sustain the investment, create the jobs, and maintain the jobs up until the investor receives a permanent Green Card. 

A regional center with previous approved I-526 petitions in other projects is not a definitive predictor of future success. However, a positive track record is a good start and regional centers with good reputations have a vested interest in ensuring that reputation stays unblemished.

On the other hand, denials of previous I-526 petitions may not be a conclusive predictor of future success either. One must look at the reason for previous I-526 denials within a project. It could be a source of funds issue or the investor could have had a past conviction they never disclosed -- neither have anything to do with the regional center. If the denial was due to a project issue, one must look closely into the circumstances causing the denial, whether the regional center took the cases to federal court and whether they were ultimately successful.  

Whether the regional center project has been approved or not has a bearing on the timeframe for the investor. If the regional center project has not been approved yet, then it may create delays for adjudicating the investor’s I-526. This is because USCIS will have to adjudicate the regional center project on the first I-526 that they review.  The current average adjudication time is 15-and-a-half months. I-526 applications can take over two years to adjudicate completely.

Another thing an investor needs to look at, is where he or she is in line in comparison to the other investors in the project. If they are one of the last investors in the project, they risk there not being enough jobs left to meet their 10-job requirement. This is because jobs are usually allocated in order of investors filing their I-829, absent another job allocation agreement at the outset. Where there is no other job allocation agreement, if there are 100 investors in a project, and the investor is one of the last investors, USCIS must be satisfied that the project created 1,000 jobs by the time the I-829 is adjudicated.  If there are only 900 jobs by that time, the investor may be out of luck.  This risk can be curtailed by a thorough analysis of the job reports before the investor invests.  A strong job report which shows a nice “cushion” in job creation can serve as a buffer if the project faces some contingencies that lowers the job creation total.

Many foreign investors would be best served by going through a professional EB-5 financial advisor in order to assist in financial due diligence. These professionals will help the investor detect fraud, financial misrepresentation, accounting irregularities, or any other financial misconduct from the project. Since immigration attorneys are usually the main contact with foreign investors, they usually look to attorneys for financial advice. However, attorneys are not usually licensed financial advisors and are not permitted to give investors financial advice. 

Is Business Common Sense Enough?

Some clients feel that because they have business common-sense, they are well-equipped to make their own decisions. Indeed, the cost of hiring a financial professional, which runs anywhere from $4,000-$8,000 on top of their EB-5 investment, administrative fees, and attorney fees, further motivates the investor to try and avoid paying for more additional services. However, EB-5 offering documents are comprehensive, sometimes running over several hundred pages covering complex job creation, financial projections, and economic models. The fact of the matter is, very few people are well equipped to fully comprehend EB-5 offering documents. Common sense in business is not enough. The best way to ensure they are getting involved in the right project is professional financial due diligence assistance. 

What Are Some Questions That Investors Should Answer When Considering Investing in a Regional Center?

An investor will want to seek a number of answers including, but not limited to: if the regional center has been approved for the specific activity and geography it intends to operate in; if the project is located in a Targeted Employment Area (TEA) for the current year; if the regional center has a financial stake in the project; and what the exit strategy is. 

Regional Centers are designated for particular geographic regions and industries. Investors must confirm that their investment project falls within the regional center’s approved area. If it does not, the regional center will have to file an amendment with immigration to make sure the project can fall within the scope of the regional center.

For the TEA, many regional centers will provide a letter proving that the project is located in a high unemployment area thus qualifying it for the lower investment amount of $500,000. However, these must be renewed each year as they are based on the most current unemployment figures. Investors should make sure the letter uses the most up to date data.

Many investors also want to ensure that the regional center has some “skin in the game,” meaning that they have some financial stake in the project. This usually is evidence that they have proper incentive to ensure the project is successful. 

All EB-5 investments must be sustained until the I-829 is approved. Therefore, they cannot receive a distribution of their principal investment (although they can receive profits) for around six years after their investment. Furthermore, a project that needlessly holds on to the investors’ money past I-829 approval, or one that does not clearly articulate the method the investor will receive their money back should be concerning.   

How Closely Should Attorneys Work With the Regional Center?

The immigration attorney’s involvement with the regional center starts after the investor has made their investment decision. This is because the immigration attorney is almost never a registered broker dealer and thus cannot give investment advice. Once the investor has made their investment selection, the attorney needs to coordinate with the regional center to receive documentary proof that the investment has been made. This is done by obtaining executed project documents, bank statements, wire advice slips, etc.  The immigration attorney also performs their own immigration due diligence of the project offering documents to make sure they are in compliance with the immigration regulations.  After this is all complete, the I-526 is filed with the investor’s source of funds documentation.

Down the road, when it is time to file the I-829, the immigration attorney works closely with the regional center to make sure that the jobs have been created and the investment has been sustained throughout the entire process. 


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