The employment-based, fifth preference immigrant visa (EB5) is an increasingly popular way for foreign nationals to immigrate to the United States by making a business investment that creates jobs for American workers. EB5 is also an important source of business investment for local governments and entrepreneurs in search of funding for business development. Lengthy processing times by US government agencies and the types of escrow terms used on many projects have delayed the creation of jobs for American workers, and increased the likelihood of denial of the EB5. Now is the time to better understand and re-evaluate the EB5 escrow.
Here is a list of frequently asked questions regarding EB5 escrow intended to help Regional Centers, developers, and foreign investors to better understand how use of an escrow can hurt the chances of getting conditional residence and getting the condition removed two years later for the permanent residence.
Frequently Asked Questions – EB5 Escrow
What are escrow provisions for EB5?
For those EB5 projects that have escrow provisions, the escrow typically works as follows:
First, each immigrant’s funds are held by a financial institution and are not directly received by the new commercial enterprise (NCE) in which the immigrant invested. The funds remain there and cannot be accessed by the NCE to create the jobs for American investors required for EB5.
Second, the immigrant’s investment funds are released to the NCE only after the US Citizenship and Immigration Services agency (USCIS) finally completes its long, slow process to make a final decision on the Form I-526 immigrant petition.
This process is repeated for each individual immigrant. The result is that funds trickle into the NCE slowly. USCIS processing times vary, but are always very slow. The USCIS web site reports an average processing time of 13.4 months as of June 30, 2014, but that only reflects how long it takes before the agency begins to work on a petition. The USCIS also reports that investor petitions awaiting adjudication are at an all-time high. Requests for Further Evidence (RFE) are very common and the time it takes for the agency to prepare the RFE, for the immigrant to prepare a response to the RFE, and for the USCIS to then make a final decision often means the I-526 approval often takes 2 years. If funds are held in escrow during that time, then the funds are unavailable to create the jobs and the project is delayed for all investors.
There are many reasons why an RFE may be issued, but one of the most common is because the USCIS wants further documentation to show how the funds will be used to create the required jobs. In cases where the funds are immediately available and job creation starts sooner, it is easier to minimize the risk of an RFE and to successfully respond to an RFE by showing how the funds are already being used to create jobs. In contrast, the USCIS has delayed/denied I-526s where a business plan timeline is substantially delayed, even though the delay is a result of funds being held in escrow longer than intended due to slow USCIS processing times.
Does US law require escrow provisions for EB5?
The USCIS regulation 8 Code of Federal Regulations Section 204.6(j)(2) requires documentation that the required amount of capital be placed at risk and actually committed to the NCE. There is no endorsement or requirement of escrow provisions in the statute or regulations.
Can escrow provisions hurt the chances of obtaining approval of the conditional or permanent green card?
Escrow provisions delay the release of funds that NCEs need to create the jobs for American workers that are required for EB5 success. Ten new, full-time equivalent jobs for American workers are generally required to be created for each immigrant.
These jobs must be created before (or reasonably soon thereafter) the USCIS will grant the Form I-829 petition for the removal of the conditional residence and approve permanent residence. If all ten jobs are already created before the I-829 is filed, then the petition is much easier and faster for the USCIS to approve. If a delayed release of funds slows the required job creation, then the USCIS is more likely to deny the I-829 and then resident status can be lost.
Can escrow provisions be waived?
An immigrant can waive escrow provisions and authorize the escrow agent to release funds to the NCE at any time. The NCE can then apply the funds to the required job creation activities and issue documentation faster. The documentation can then be submitted in support of the I-526 when it is filed, used to supplement an I-526 already pending and/or used to better respond to an RFE.