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Volume XI, Number 110


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Fill for the Funding Dip: EB-5 Visas

Despite a recent uptick in IPO filings, which may eventually trickle down to improve private investor confidence, the economic downturn that began in 2008 has left many companies clamoring for elusive investment dollars. Entrepreneurs and their service providers have had to get creative―or at least consider funding sources that might have seemed too burdensome in the past. Additionally, the economic slump has prompted the federal government to seek ways to stimulate the economy, promote job creation and circulate money back into the United States.

Re-Enter the EB-5 Visa Program

For nearly two decades, the EB-5 employment-based immigrant investor program remained relatively unknown to U.S. entrepreneurs and non-immigration lawyers. However, a revamping of the program, coupled with the global financial crisis, has made the EB-5 appear more interesting to companies seeking capital, especially in the past two to three years.

Launched in 1990, the EB-5 program was developed by the U.S. Citizenship and Immigration Services (USCIS) to stimulate the economy by attracting foreign investment in domestic projects that would create jobs in the United States. While often incorrectly considered strictly an immigration program, EB-5 is, at its core, an employment initiative. In fact, its name is derived from the fifth category of employment-based (EB) visas, which requires each investment to create at least 10 new jobs that are sustainable for five years.

In addition to job creation, the EB-5 program was intended to attract foreign dollars from wealthy immigrants from Hong Kong before the colony was transferred from Britain to China in 1997. In order to compete with other countries that had developed similar programs targeting this talent and wealth, the United States set aside 10,000 visas annually for immigrants, their spouses and unmarried dependents under the age of 21―provided they invested at least $1 million in a business that created 10 U.S. jobs. If the effort proved successful and met the job-creation requirement in its first two years, an EB-5 visa holder could apply for permanent residency.

While EB-5 did not attract much attention initially, the USCIS overhauled it in 1992 and introduced the Immigrant Investor Pilot Program, which is currently extended through Sept. 30, 2012. Requirements for an investor are essentially the same as in the original EB-5 program, except that the newer pilot program provides for investments that are affiliated with an economic unit known as a "Regional Center." The USCIS defines a Regional Center as any economic entity that is involved with the promotion of economic growth, improved regional productivity, job creation and increased domestic capital investment.

Although an initial EB-5 investment remains "at risk" (i.e., it cannot be guaranteed) until all residency restrictions are lifted (typically for five years), the minimum amount required by a Regional Center is only $500,000―half the requirement specified by the original EB-5 program. Most foreign investors consider this an affordable entry fee for both the business opportunity and the potential for permanent residency. Another advantage of working with a Regional Center is a more expansive definition of job creation that includes direct, indirect and induced jobs.

Regional Centers Growing

The benefits associated with Regional Centers have helped generate renewed interest among business owners and developers―both foreign and domestic―
in EB-5 visas as a way to raise capital.

For wealthy foreign nationals, it seems that social and political instability worldwide has also contributed to this increasing interest. Furthermore, investors are factoring in better property protection, improved living conditions and high-quality education for their children as additional benefits of immigrating to the United States through the EB-5 program. Accordingly, the rate at which foreign nationals applied for permanent residency through the EB-5 program in 2011 was double that of 2010 and 10 times greater than 2007 numbers.

U.S. entrepreneurs seem to be embracing the Regional Center concept as well. According to data provided during the EB-5 Forum, hosted by the USCIS California Service Center in March 2010, about 95 percent of all EB-5 cases are filed at the Regional Center level. And the numbers are growing each year.

For example, in 2007, only 11 Regional Centers were authorized to offer visas through the EB-5 program. After the market collapse, bank financing for projects dried up, giving the program fresh appeal. In January 2009, there were around 30 Regional Centers approved by USCIS. That number reached nearly 100 in May 2010, and rose to 171 by mid-August 2011.

Setting Up and Running a Successful Regional Center

By way of background, to become designated as a Regional Center, organizers must submit a proposal showing the following:

  • How the Regional Center plans to focus on a geographical region within the United States and promote economic growth in that region;
  • How, in verifiable detail (using economic models in some instances), jobs will be created directly or indirectly through capital investments made in accordance with the Regional Center's business plan
  • The amount and source of capital committed to the Regional Center and the promotional efforts made and planned for the business project; and
  • How the Regional Center will have a positive impact on the regional or national economy.

Those wishing to establish a Regional Center to attract foreign investors can expect to spend between $50,000 and $150,000 and wait five to eight months to obtain approval from USCIS. Contrary to popular belief, anyone can obtain a Regional Center designation. However, successfully operating a Regional Center is another matter altogether.

As is the case with any other new business model, a well-executed plan and the right team of professionals from different backgrounds and with varying skills cannot be underestimated. Ultimately, a Regional Center may not be the easiest way to attract investor dollars, but once established, it provides a stable framework.

Success Not Guaranteed

Although the EB-5 program has increased in popularity in terms of the number of applications filed, it remains unclear how successful it will be in achieving its ultimate goals of sustainable job growth and permanent residency for foreign investors. Over the years, critics have proclaimed this program to be nothing more than an expensive ticket into the United States for those who can afford it. But this assessment sells the program short. If the underlying business receiving the investment fails to sustain 10 jobs over five years, the foreign investor and his or her family will be deported.

One way to ensure success is to treat the EB-5 program like any other form of investment, which would typically involve engaging appropriate professional counsel. Recent trends show that more business lawyers are becoming involved in the EB-5 process, and this certainly improves the odds for success.

Responsible immigration lawyers can often spend a significant amount of time debating whether or not an EB-5-related investment is worthwhile and whether or not permanent residency will ultimately be achieved. But a more effective approach would be to single out the residency issues for the immigration attorney and bring in a business attorney to evaluate the investment's potential for producing a successful venture...

Skeptics may ask, "Why add more lawyers? Doesn’t that just cost more?" But success within the EB-5 program is more about making a viable investment than navigating the legalities of U.S. immigration. Therefore, professionals with the requisite experience can guide the process to maintain the integrity of the program while also protecting the entrepreneurs involved.

In addition, the U.S. Securities and Exchange Commission, not the USCIS, is the appropriate source for guidance regarding whether an entity and/or particular capital investment instrument is subject to SEC regulations. The USCIS has no role in regulating the non-immigration aspects of an EB-5 capital investment; therefore, it does not oversee compliance by Regional Centers with SEC regulations.

Multiple other federal government agencies are usually involved in the oversight of business entities and capital instruments utilized for investments within the United States. Many of the current applicants in the EB-5 program have used form documents and have invested in businesses that may satisfy the USCIS standards, but not necessarily those of other regulatory bodies.

Therefore, it is wise for immigration and business attorneys to work together to not only increase the efficiency and effectiveness of the process, but also avoid risking malpractice by operating outside their own areas of practice. This approach satisfies the original intent of the EB-5 legislation, the investor and the business seeking capital.

A Welcome Tool in a Tough Environment

The resurgence of the EB-5 program has significant potential to stimulate the current and future investment climate. After all, wealthy foreigners who make EB-5 investments may go on to either create their own separate businesses (thereby developing more jobs and further stimulating the U.S. economy) or invest in other domestic businesses. Furthermore, having another vehicle to fund new ventures, even if somewhat complex and difficult to navigate, is a welcome tool for many entrepreneurs and developers.

© 2021 Much Shelist, P.C.National Law Review, Volume II, Number 142



About this Author

Sheryl Jaffee Halpern, Much Shelist Law firm, Labor Employment Attorney

Sheryl Jaffee Halpern, chair of the firm's Labor & Employment group, helps employers make important decisions about their employees in a way that is designed to minimize risk. counsels clients on a wide range of employment matters, providing clear, direct guidance designed to promote compliance with the law, while remaining cognizant of the practical workplace realities her clients face. She counsels employers on a wide range of employment matters, providing clear and direct guidance that promotes legal compliance, while remaining cognizant of the practical...