USCIS compliance issues, redeployment
Apr 27, 2020
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Kurt Reuss
Kurt Reuss
Kurt Reuss is a registered securities broker who has been specializing in EB-5 since 2012. He offers advice on investment structuring and market conditions related to EB-5 investments.

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Redemption and Redeployment of EB-5 Capital

Redeployment of EB-5 Capital

An important consideration facing EB-5 investors, especially those from countries that don't have EB-5 visas currently available, is how they can maintain their investment at risk, in order to satisfy their 'at-risk' program requirement, when the job creating enterprise (JCE) is ready to repay the loan made to them by the entity representing investors. Failure to do so would jeopardize their I-829 approval for permanent green cards.

To some extent the issue puts the immigration interest of investors at odds with the investor's economic interest, as well as complicating matters for the Manager of the investor's enterprise and the JCE, who wants to liquidate the investment and pay the loan back.

EB-5 investors are required to maintain their investment at risk until he or she obtains conditional permanent resident status and through their 2-year conditional permanent residency status.

So the concern is if there's a liquidity event as either a sale or a refinancing by the JCE, then the investor’s money will be paid back through distribution or loan repayment to the new commercial enterprise NCE. There are quite a few risk management tools to deal with.

The documents don’t allow for redistribution

Sometimes the documents don't account for this happening, that is that there will be no liquidity event before the end of the conditional residence period, and in some cases not before the adjudication of all investor's I-829’s. But that can be a very long time. It's unpredictable and a lot of borrowers won't necessarily put up with it.

A carve-out

Therefore other strategies can be employed. One would be kind of a carve-out where the JCE could be sold to somebody else but, the loan from the NCE stays in place with the buyer so the foreign investor's money is still at risk in that enterprise and they just have new owners of the JCE to depend on to repay that loan. This obviously introduces a new set of risks to investors. 

Hold money in NCE

Another strategy is to hold the money at the NCE level and not distribute it to the investors. Just as it's not good enough to just put the money in the NCE and leave it there at the outset, in order to remain at-risk it can not just sit in the NCE (usually a partnership or LLC).

Reinvest investor funds somewhere else: Redeployment

The NCE might receive the liquidation and reinvest it somewhere in another, similar, project. USCIS guidance has been that redeployment of capital should be in a similar project to the approved one, so that usually means into another job creating enterprise, to maintain the argument that the funds remain "at risk".

That dovetails nicely with what documents often include to meet cautiously the requirement that the NCE be an "ongoing business" -- they say if and when money is repaid to the NCE, the NCE could, with the agreement of whatever investors want to stay in, redeploy that money in another project. The language often gives the investor the choice whether to join in the reinvestment, but if the liquidation from the JCE precedes that investor's end of conditional residence, ostensibly he will choose to try to protect the green card and stay in for another round.

To avoid a problem of making a material change through the reinvestment, the documents should say from the beginning that this is the plan: if the money gets repaid, the NCE will be redeploying.

Shared Risk Management

The important point here is how to write an EB-5 business plan documents to best deal with those issues at the end or what might come along. And the investor who is evaluating these offerings has to realize that he (the investor) is participating in a risk management exercise that the issuer is leading.

The issuer is deciding whether it is going to limit itself to not have a liquidity event before the end of conditional residence or whether it is going to allow itself to be more flexible. If the issuer takes the more flexible path, then the issuer is sort of foisting onto the investor a risk management approach that is not risk avoidance. The investor just needs to evaluate what kind of immigration risk he or she is willing to be involved with.

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