This article will lead you through EB-5 regional centers and their investment requirements. If you are wanting more information about the regional center investment program, for obtaining a Green Card, then this is the article for you! So let’s get into the basics of EB-5 regional centers.
Around 3,000 of the 10,000 annually issued EB-5 Visas, are set aside for immigrants who invest in a new commercial enterprise within a USCIS-designated “regional center.” A large majority of EB-5 investors invest in this program.
EB-5 regional centers are United States-based service organizations in which individual foreign investors and companies, are able to invest and pool money together, toward a private or public economic entity (business) that is involved in: the promotion of domestic capital, job creation, regional productivity, and economic growth. The idea is that Regional Centers foster projects and business ventures that are good for the United States’ economic development. These regional centers also assist immigrant investors in receiving permanent resident status (Green Cards), by working to satisfy all of the EB-5 requirements for USCIS on the Immigrant Investor’s behalf. As of March 8, 2018, there were 919 approved regional centers, with several in each state.
Direct vs. Regional Center Investments
For investors primarily interested in obtaining legal permanent resident status, rather than achieving a maximum return on their investment, regional center investment is preferable because of its more relaxed requirements for the investor. Unlike direct investments, regional center investors may invest a minimum of $500,000, have a reduced managerial role in the investment project, and count indirect as well as induced jobs towards the strict job creation requirement. Direct investors must find or create their own investment projects, and take a direct managerial role in overseeing the project; regional center investors do not have this burden.
Instead of managing the day-to-day responsibilities of the business, regional center investors can be involved in the policy formation of the investment. Typically, the investment is organized as an LP or LLC, and the investor can become a limited partner or member; this is sufficient involvement for the investor to qualify for an EB-5 Visa under the regional center program. Additionally, the investor does not need commit to spending a certain amount of time directing the business.
Regional centers are also responsible for adhering to EB-5 program regulations, which means that individual investors are not responsible for meeting program requirements on their own (unlike Direct Investments). Regional centers assist EB-5 investors and project developers because they largely alleviate the difficulty of meeting qualifying job creation requirements under the EB-5 program rules. Another advantage for regional center investors is that immigrant investors may also rely on indirect job creation demonstrated through reasonable methods, which is a lot easier to satisfy than creating full-time “direct jobs,” by starting their own businesses (if they were to make “direct investments”).
Unlike direct and indirect jobs, induced jobs are those which are created in the larger geographic community, rather than within the investor or regional center’s business network. Workers employed or involved in EB-5 projects, who increase their own spending in the community based on having an income, may produce induced jobs. Induced jobs can be counted as “indirect” jobs for USCIS EB-5 purposes. In order to document induced and indirect jobs, they can be estimated by an expert economist using economic models.
Regional Center Formation
In order to become a regional center, a business requesting authorization must have completed the I-924 form and satisfied the requirements established by USCIS. A business may be any entity that “is involved with the promotion of economic growth, including increased export sales, improved regional productivity, job creation, and increased domestic capital investment within the EB-5 program. Eligible businesses may include government agencies, partnerships, corporations, and any other existing U.S. commercial entity. The applicant must provide specific evidence that his or her plan for the regional center has satisfied each requirement, including:
- A geographic position for the regional center and a corresponding detailed map of the exact location of the proposed regional center;
- At least 10 jobs will be created by the investment through the proposed regional center, which may be shown by a business plan, economic reports, and/or financial projections for the proposal that will demonstrate how the funds will be spent;
- A description of the promotional activities the business seeks to use must be provided, including a plan for all promotions, the amount of funds to be allocated for promotions, and/or a strategy of how the business plans to attract potential investors;
- A detailed strategy or method to prevent fraud, and ensure that the investment has been legally acquired, is part of the application. This often includes the regional center acquiring previous bank statements from the immigrant investor; and,
- Proof that the proposed regional center will comply with all EB-5 regulations, by providing “documentation of the business structure of both the regional center and the new commercial enterprises that will be affiliated with the regional center.”
Regional Center Fraud
Despite the regional center program’s advantages and popularity amongst immigrant investors, there is some risk of fraud. Since 2013, the SEC has brought enforcement actions against several EB-5 regional centers. As a result of these fraudulent activities, a majority of the investors involved lost, or are likely to lose some, if not all, of their $500,000 investment; in addition to placing their Lawful Permanent Residency status at risk.
It is always the best practice to speak with an immigration attorney before investing in a regional center. However, there are certain things to look for when considering regional centers for investments.
First, programs with no independent or third-party oversight can create environments in which fraudulent parties can divert investor funds and use them for purposes unrelated to satisfying the EB-5 job creation requirements. Independent oversight also protects investors from fraud that arises from conflicts of interest. This is evidenced most clearly in the case SEC v. Liu, in which the defendant applied for his company’s designation (a proton therapy center and commercial office space) as a regional center, which pooled EB-5 investment funds of $500,000 per investment as well as an “administrative fee.” After EB-5 approval, the defendant began raising money under the guise that these investments would finance the proton therapy center, and then the defendant ultimately misused the funds to the detriment of the foreign investors.
Second, immigrant investors should be wary of programs that offer little to no transparency regarding the use and movements of investment funds. Regional Centers that provide more transparency to their investors and communities regarding their projects are less likely to be engaging in fraud. Also, increased transparency makes it easier for investors to monitor their money, so they may detect anything fraudulent or illegal that could be taking place.
If after reading this article you believe Regional Centers may be a good option for you, it is best to speak with an attorney prior to investing. Doing so will help to find the best program to fit your needs.