Regarding EB-5 investment capital, I understand that the money comes in before the investor''s application is sent in. Can the project use this or does it have to wait until the investor obtains the visa?
This would severely delay most projects.
The answer depends on the terms of the agreement. Commonly, funds are held in an escrow account and are contingent on I-526 approval. However, the funds may also be used by the regional center prior to filing the I-526 petition in the terms of the agreement. It is common for investors to require regional centers to provide an agreement that states the funds will be returned if the I-526 petition is denied.
The investment money should be available upon approval of the visa. I do share your view that most projects could be severely delayed by the U.S. Citizenship and Immigration Services (USCIS) processing delay. However, there are a few steps that can be taken to prevent the delay. One of those steps is for the project developer to seek an expedited processing of the EB-5 application. There is no generalized premium processing, expedited processing is strictly done on case-by-case basis. Furthermore, in order to be successful, an expedited case must meet one or more of the seven (7) requirements. This question seems to suggest that an investor''s money can be used prior to visa''s approval, that is not a wise move. Keep investors money in an escrow account until their visas are approved and if the visas are denied always return the money.
The timing for release of funds into the project is primarily market driven. Many projects will hold the investor funds in escrow until the I-526 has been approved. With the ongoing delays in I-526 adjudication new options and alternatives are being tried. We would be happy to discuss strategies.
That would depend on whether the invested funds were placed in escrow with the condition of accessing the funds upon I-526 petition approval, which is an acceptable arrangement as far as USCIS is concerned. This is something you need to discuss and negotiate when considering whether to invest in the project.
When an investor subscribes to a new commercial enterprise (NCE), he also signs the escrow agreement and operating/partnership agreement. These documents provide details as to when the NCE can take the investor''s funds from escrow and when the NCE can re-investment them (as equity or loan) to the job creating entity or project. Release of the escrow varies among the regional centers, but some of the more common release events include: a. upon the NCE reaching a certain minimum raise of capital; b. upon approval of the investor''s I-526 petition; c. upon approval of any three I-526 petitions of any subscriber to the project; or upon the investor being issued the immigrant visa. Under USCIS rules, however, the escrow funds must be "irrevocably committed" to the NCE and may only be returned in case of USCIS or consular denial.
Although there is no specific rule on when the investor should transfer all of the required capital to the new commercial enterprise, USCIS tends to expect that all the required capital should be transferred to the new commercial enterprise''s account by the time I-526 petition is filed.
The money has to be invested or be in the process of being invested and, hence, investment that is out of the investor''s hands and in an escrow account with stipulation that funds will be released to the project/company as soon as the I-526 is approved. The standard seen in the industry is that most investors would like to see their money safe in an escrow account until they receive the benefit of a conditional legal permanent status in the U.S,. but there is no legal barrier to have the investor invest the full or part of the qualified investment in the company before their conditional green card is issued.
EB-5 investment funds must be fully committed to a project prior to filing the I-526 petition. The regulations anticipate that funds will be available to the project as soon as they are invested. However, USCIS appear to make a concession for escrowed funds. Now that processing times for I-526 petitions are so much longer, it is often impractical to maintain an escrow and funds will usually be available to the project once the I-526 has been accepted by USCIS. The precise terms of the offering will depend on what has been agreed between the parties rather than what is mandated by USCIS.
Like in any business transactions, there has to be a balance of the interests of the seller and the buyer. Neither party wants to take all the risks. Investors have legitimate reasons to worry that once the money is used before their petitions are even filed, the EB-5 project organizers will have less of an interest to even file the petitions. EB-5 project organizers also have legitimate concerns that they can''t wait until the investors have received their visas just like you said, it may take too long for the investors to get visas and thus waiting too long may delay the projects. Therefore, many EB-5 projects organizers include in their subscription agreements provisions stating that investment funds will be released once the USCIS approves the petitions. This is probably the best middle-of-the road risk sharing solution. If you have any questions or concerns about this matter, please feel free to contact me.
The EB-5 rules and policies allow the foreign national investor to invest funds in the new commercial enterprise and the new commercial enterprise may commit and utilize these investment funds before the investors I-526 petition is approved or before the investor obtains a conditional permanent residency visa.
You can use escrow or not. It really depends on the deal you make with the investors. Your interests are slightly in conflict. The investor wants protection in case the I-526 is denied. You (the project) want the capital as soon as possible so that you can start the project. In most cases, a compromise can be reached. Use escrow for the first few investors and include a "trigger" for a certain amount of time or a certain number of approvals before the funds are released from escrow. As long as the funds go into the project and are at risk, either before the I-526 approval or automatically upon I-526 approval, then it should be fine.
EB-5 Regional Centers and projects may actually have some flexibility in when the funds can be used, depending on their relationship and agreements with investors. Investors must have invested or be in the process of investing in the new commercial enterprise to be eligible for an approval, so using the money before an approval or even an application being filed can be probative evidence of this requirement being met. Of course, the investor will have to approve of this, and may insist on refunds if their petitions or applications are denied. Our law firm has experience with these types of arrangements, and we recommend retaining a law firm experienced as such to assist with any EB-5 project.