By: Joseph Barnett
A week and a half after USCIS’ July 24, 2020 guidance was issued, Wolfsdorf Rosenthal LLP now provides some simple thoughts to assist EB-5 investors, Regional Centers, and new commercial enterprises navigating the changing waters of EB-5 redeployment.
- Financial Instruments. The EB-5 Policy Manual’s discussion regarding the use of EB-5 capital “directly or through any financial instrument” is no longer only related to redeployment (or what USCIS now refers to as “further deployment”), even though its older language discussing new issue municipal bonds did. Instead, it is under a separate subsection in the Policy Manual labeled “Deployment of Capital”. USCIS appears to have sanctioned the use of EB-5 capital to purchase securities directly from a company (like an initial public offering) or municipality (infrastructure bond), as long as all other EB-5 requirements are met. And although not specifically in the subsection related to “further deployment,” it appears that a new commercial enterprise can redeploy repaid capital into financial instruments so long as applicable requirements are satisfied. Without further detail from USCIS, however, the water is murky on this investment option and what USCIS will consider compliant.
- Further Deployment After Job Creation Requirement Satisfied. USCIS has clarified that after the jobs have been created and funds returned to the new commercial enterprise, the entity must “further deploy such capital” “consistent with the purpose of the new commercial enterprise” in order to satisfy EB-5 requirements. The Policy Manual states that a new commercial enterprise may amend offering documents to describe the further deployment into such activities, a process that may require EB-5 investor approval/consent (check with a securities attorney!) and may not go as swimmingly as desired. It is important for Regional Centers and EB-5 project managers to review their PPMs and managerial authority in company agreements to see what type of “further deployment” is contemplated.
- Additional Requirements. The “further deployment” must be through the same new commercial enterprise and within the Regional Center’s designated geographic area (including any amendments to the regional center’s geographic area approved before the further deployment), but not within a Targeted Employment Area. The Policy Manual does not restrict whether it must be the same type of financing (equity or debt) or even in the same industry, as long as it “is consistent with the purpose of the new commercial enterprise to engage in the ongoing conduct of lawful business.” Will there be enough pushback from EB-5 stakeholders to force USCIS to backstroke on the retroactive application of this guidance?
- Within a Reasonable Amount of Time. The “further deployment” must occur “within a reasonable amount of time,” which USCIS generally considers to be 12 months. USCIS will consider evidence that a longer period is reasonable under the totality of the circumstances. Certain factors which may impact what is reasonable include (a) changing business/investment realities due to COVID-19, (b) lack of investment options in Regional Center’s designated area, for those with smaller or rural geographic designations.; and (c) good faith efforts by a new commercial enterprise to get approval/consent from EB-5 investors to further deploy that have not succeeded. There’s a deep pool of possibilities that can be used with the “totality of the circumstances” test, which will be evaluated by USCIS on a case-by-case basis.
- Material Change if Stuck in Visa Backlog. The Policy Manual no longer includes this sentence: “Further deployment of capital that occurs before the immigrant investor becomes a conditional permanent resident must be adequately described in the Form I-526 record.” We would argue unreservedly that if EB-5 capital was used to create jobs in accordance with the business plan submitted in an investor’s Form I-526 petition, and if the new commercial enterprise updates its offering documents to allow for further deployment consistent with this new guidance, there is not a material change. If USCIS rules otherwise, expect a tidal wave of litigation.
Before jumping into the deep end, contact a Wolfsdorf Rosenthal LLP attorney to schedule a consultation on this complicated EB-5 topic. Also, we invite you to watch our webinar on the topic (link below).