by Madhavi Chopra-Bhutani
Demystifying the Process, Promises and Pitfalls of the EB-5 Immigrant Investor Program
Immigrating to the United States, and living the legendary American Dream, is an alluring prospect that unswervingly continues to inspire millions around the world. The Immigrant Investor Program—popularly known as the EB-5 program—is one such prospect that has been fairly successful in allowing the affluent and the entrepreneurial beyond U.S. borders to legitimately invest their way to lawful permanent residency in the country.
Statutorily conceived under the Immigration Act of 1990, the EB-5 program was planned and strategized to “infuse new capital” and “provide new employment,” with the underlying and ultimate objective of benefitting the U.S. economy. Around 10,000 visas are allocated under the EB-5 program during each fiscal year, which, in theory, are anticipated to “bring in fresh investment funds totaling an estimated $4 billion and creating 40,000 jobs annually.” Although the 10,000 visa allocation cap under the EB-5 program has never been exhausted to date, there has been a “drastic increase” in the number of EB-5 visas issued since the fiscal year 2011, with Chinese nationals reportedly acquiring 75 to 80 percent of such visas annually.
Administered by United States Citizenship and Immigration Services (USCIS), the EB-5 program stipulates a minimum foreign investment of $ 1 million in a “new commercial enterprise.” This amount is reduced to $ 500,000 if such commercial enterprise is located in a “rural area” or a “targeted employment area.” It is further required that the establishment of the new commercial enterprise must lead to the creation of at least 10 full-time jobs, which may be “direct” or “indirect,” or maintain existing jobs that might otherwise be lost if the investment is made in a “troubled business.”
The EB-5 program allows foreign investors to invest in a business project either directly or through designated “regional centers.” While investing directly enables foreign investors to assume direct control of their investment and their business plan, investment through designated regional centers entails such regional centers assuming direct management of the business project. Moreover, investments made directly are allowed to create only direct jobs, whereas investments through regional centers are allowed to create both direct and indirect jobs. As foreign investors typically like to steer clear of assuming the primary responsibility of fulfilling the investment and job creation requirements of the EB-5 program, more than 90 percent of EB-5 investments are reportedly made through regional centers.
The EB-5 program clearly presents a win-win opportunity for both the U.S. economy as well as potential foreign investors. As a quid pro quo for stimulating the U.S. economy by bringing in capital investment and creating jobs, qualifying investors under the EB-5 program, investors are provided lawful permanent residency along with their spouses and children less than 21 years of age. They enjoy the same benefits as other U.S. residents in matters of education, employment and healthcare.
The most important promise of the EB-5 program lies in its built-in flexibility of the amount of capital that can be invested, the dual pathways through which the capital can be invested, the multiple types of commercial enterprises into which that capital can be invested, and the manner in which the resulting jobs can be created. As succinctly stated in the USCIS Policy Memoranda of May 30, 2013, it is this flexibility that “serves the promotion of investment and job creation and recognizes the dynamic of the business world in which the EB-5 program exists.”
The road to securing lawful permanent residency through the EB-5 program is not a one devoid of pitfalls. Documenting the source of funds used for investment is the proverbial Achilles’ heel in EB-5 investments. Accurately and adequately documenting the source of funds is largely a fact-finding exercise, and even where the source of funds seems straightforward, delving into the details of the paper trail can protract the entire filing process.
Another pitfall that may arise is when an immigration attorney comes across a conflict of interest situation that may further impair the attorney from ethically representing a client. Such a situation may arise, for instance, when a potential investor, while approaching an immigration attorney for representation in EB-5 filing, ends up investing in the same regional center from where the attorney receives a referral fee. In such a situation, the relevant Bar regulations prohibit the attorney from representing the client if there is a risk that the attorney’s personal interest in the referral fee will materially impair his professional representation of the client. In certain conflict of interest situations, the attorney may also ask the client to sign a waiver for potential conflict of interest or a risk disclosure agreement.
The pitfalls in filing an EB-5 petition notwithstanding, the EB-5 program overall makes both political and economic sense, and means good to both the U.S. economy as well as potential foreign investors seeking a lawful permanent resident status in the United States.
The letters EB in the expression“EB-5” stand for “Employment-Based”. The EB-5 program is so named because foreign investors seeking to immigrate in the United States are placed in the fifth preference category of the five-fold system of preferential allocation of employment-based visas issued each fiscal year. See generally, United States Citizenship and Immigration Services, “Permanent Workers–Permanent Worker Visa Preference Categories”, available at http://www.uscis.gov/working-united-states/permanent-workers (last visited Dec. 6, 2013).
The Immigration Act of 1990, Pub. L. No. 101-649 (Nov. 29, 1990).
S. Rep. No. 55, 101st Cong., 1st Sess. at 21 (1989).
U.S. Department of Homeland Security, Employment Creation Immigrant Visa (EB-5) Program Recommendations, at p. 1 (March 2009).
Id., at p. 4.
The EB-5 Program: Creating Jobs in America, The Beacon: The Official Blog of USCIS, available at http://blog.uscis.gov/2011/05/eb-5-program-creating-jobs-in-america.html (last updated May 19, 2011).
EB5investors.com, The EB-5 Basics – How Many EB-5 Visas are Issued Each Year?, available at <http://www.eb5investors.com/eb5-basics/what-is-eb5> (last visited Dec. 6, 2013).
H. Ronald Klasko, “The EB-5 Quota Backlog: Will it Happen and What It Will Mean?”, Vol. 1, EB5 Investors Magazine, at p. 39 (Fall 2013).
A “commercial enterprise” is “any for-profit activity formed for the ongoing conduct of lawful business”, and may include a sole proprietorship, partnership (whether limited or general), holding company, joint venture, corporation, business trust, or other entity which may be publicly or privately owned”, but does not include “a non-commercial activity such as owning and operating a personal residence”. 8 C.F.R. §§ 204.6 (e) (2008).
 A “rural area” is any area other than an area within the metropolitan statistical area or within the outer boundary of any city or town having a population of 20,000 or more (based on the most recent decennial census of the United States)”. 8 U.S.C § 115(b)(5)(B)(iii).
 A “targeted employment area” is, “at the time of the investment, a rural area or an area which has experienced high unemployment (of at least 150 per cent of the national average rate)”. 8 U.S.C § 115(b)(5)(B)(ii).
 8 C.F.R. § 204.6 (j)(4)(i) (2008).
 While a “direct job” is “directly created by the new commercial enterprise”, an “indirect job is created collaterally or as a result of capital invested by an investor in a commercial enterprise affiliated with a regional center”. See United States Citizenship and Immigration Services, “EB-5 Immigrant Investor Job Creation Requirements”, available at http://www.uscis.gov/working-united-states/permanent-workers/employment-based-immigration-fifth-preference-eb-5/eb-5-immigrant-investor (last visited Dec. 6, 2013).
 A “troubled business” is an enterprise that has been in existence for at least two years and has incurred a net loss exceeding 20 per cent of its net worth during the 12- or 24-month period prior to the priority date on the foreign investor’s Form I-526 (Petition by Alien Entrepreneur). 8 C.F.R. §§ 204.6 (e), 204.6 (j)(4)(i)(B)(ii)(2008).
 A “regional center” is “any economic entity, public or private, which is involved with the promotion of economic growth, improved regional productivity, job creation and increased domestic capital investment”. As of November 1, 2013, USCIS had approved approximately 400 regional centers. See United States Citizenship and Immigration Services, “EB-5 Regional Center”, http://www.uscis.gov/working-united-states/permanent-workers/employment-based-immigration-fifth-preference-eb-5/eb-5-regional-center (last visited Dec. 6, 2013).
 EB5investors.com, The EB-5 Basics –EB-5 Regional Centers, available at http://www.eb5investors.com/eb5-basics/what-is-eb5 (last visited Dec. 6, 2013).
See Angelo A. Paparelli, et al., Investing in America through the E-2 EB-5 and Visa Categories, available at http://www.seyfarth.com/dir_docs/news_item/99a26645-200c-4102-88cb-0de377fe5e6c_documentupload.pdf (last visited Dec. 6, 2013).
 See Nicolai Hinrichsen, et al., When Good EB-5 Cases Go Bad, available at http://www.millermayer.com/content/view/when-good-eb-5-cases-go-bad.html (last visited Dec. 6, 2013).
 The American Bar Association Model Rules of Professional Conduct, Rule 1.7
 See Rachel Lew, Recently Answered EB-5 Visa Questions: Why do Companies choose certain attorneys for EB-5 Investors?, available at http://www.eb5investors.com/qa/why-do-companies-choose-certain-attorneys-for-eb5-investors (last visited Dec. 6, 2013).