The EB-5 law, enacted in 1990, is intended to generate employment-creation, as well as foreign investment, in the United States. The law can be found at Immigration and Nationality Act Section 203(b)(5) and Section 216A. The EB-5 regulations can be found at 8 C.F.R. 204.6 and 8 C.F.R. 216.6.
The law and regulations are quite general and vague. Therefore, on the one hand, there is what the law and regulations say at face value, and on the other hand is how USCIS interprets those requirements.
New commerical enterprise
What the law and regulations say:
The investor must invest in a new commercial enterprise, that is, any company formed after November 29, 1990.
A company formed before that date may still qualify if it has been restructured or reorganized such that a new commercial enterprise results OR if it has been expanded so that the net worth or net employees have increased by at least 40 percent.
What USCIS requires:
A new commercial enterprise (“NCE”) must be formed after November 29, 1990. The restructuring/reorganizing/expanding provision is rarely used because it is unclear how USCIS interprets this provision (not that it has never been done successfully, but it is rare to see one approved).
Required investment amount
What the law and regulations say:
The investor must have invested or be in the process of investing the required amount of capital.
What USCIS requires:
Invest all of the required capital upfront or show that any remaining capital is irrevocably committed to be invested in the NCE.
What the law and regulations say:
The required amount of capital depends upon the unemployment rate or population where the investment and job creating entity is located. If the population is less than 20,000, the area is considered a “rural” area. If the unemployment rate is at least 50 percent higher than the national unemployment rate, then the area is considered a “targeted employment area.” For rural areas or targeted employment areas, the required amount of investment is $500,000. For all other areas, the minimum amount required is $1,000,000.
What USCIS requires:
It is best to have the appropriate state agency issue a targeted employment area (“TEA”) designation letter. There should be some rational basis or support for how the state designated the geographic area; no gerrymandering.
Lawful source of funds
What the law and regulations say:
The investor must prove that the investment capital came from a lawful source. Tax returns, sale of property or business records can be shown to prove that the capital was obtained lawfully. A gift or a loan is a lawful source of funds as long as the gifted or loaned money was lawful.
What USCIS requires:
You better be prepared to document how the capital was lawfully obtained and trace its movement from the source to the investor to the EB-5 project. Even though the standard is a “more likely than not” preponderance of the evidence burden, USCIS treats this like a “beyond a reasonable doubt” standard. Many investors provide third-party source of funds reports that are hundreds of pages long.
Also, be prepared to show several layers of the lawful source of funds. If the money came as a gift from a parent who sold property, USCIS will ask not only for the documents of the property ownership and sale, but also documents to prove how the parent lawfully earned the funds to purchase the property, even if it was many years ago.
Job creation
What the law and regulations say:
The investor must prove that the investment will create 10 new full-time jobs for U.S. workers within two years.
If the investor invests in a “troubled business,” which is one that has experienced a net loss exceeding 20 percent of its net worth in the past one or two years, the investor need only show that his investment maintains/sustains the level of employment in existence prior to the investment.
What USCIS requires:
Again, there is so little information available about how USCIS interprets the troubled business provision (it is rarely used). This also could be due to the fact that not many people are willing to invest in a troubled business.
The real issues arise with indirect job creation. What USCIS considers “reasonable economic methodologies” has evolved to some extent. The tenant occupancy model, for example, was first accepted by USCIS, then fell out of favor, and now is making a comeback, but not without many requests for evidence by USCIS. It took some time for stakeholders to understand the nature and extent of USCIS’ objections.
Then, there is the matter of the business plan. A comprehensive business plan must be credible and feasible. USCIS considers such a plan to be something between a prediction and a promise, with the emphasis on promises that can be demonstrated as likely (almost guaranteed) to happen.
Management of the Enterprise
What the law and regulations say:
The investor must be engaged in the management of the new commercial enterprise; he or she may not be a passive investor. The investor may be a member of the board of directors, a corporate officer, or a limited partner.
What USCIS requires:
Same.
Removal of the two-year condition
What the law and regulations say:
The investor must create the required employment within two years and must have maintained the investment during that time period. A petition to remove the condition must be filed prior to the expiration of the two-year period. Upon approval, the investor receives a permanent green card.
What USCIS requires:
A material change that occurs between the approval of the conditional green card and the filing of the petition to remove the condition will render the second petition unapprovable. The investor has the option to file the petition anyway and argue no material change or to file a new first petition and start the two-year conditional period all over again.
Fredrick W. Voigtmann is an EB-5 immigration lawyer at the Law Offices of Fredrick W. Voigtmann and Thomas F. Kranz in Beverly Hills, California.
