The recent Silicon Valley Bank (SVB) and Signature Bank failures sent a chill through the investment community in the United States and elsewhere. The Signature bank failure was particularly a source of concern since that bank was an escrow agent for foreign investor funds deposited for use by EB-5 regional center immigration projects. Since many EB-5 investors had deposits of more than $250,000 in that bank, the maximum deposit amount protected by the Federal Deposit Insurance Corporation (FDIC), the investors were worried about the safety of their investment capital. Fortunately, the FDIC, Federal Reserve, and Department of the Treasury stepped up to assure investors that the U.S. will guarantee the full deposits at the Signature Bank as well as SVB Bank. President Biden further assured the public that it should “have confidence that the banking system is safe."
1. Unforeseen Risks
The bank fiasco was largely an unforeseen risk foreign investors faced in taking advantage of the EB-5 program. Other such unforeseen risks are part of life: earthquakes, hurricanes, floods, etc. Not much can be done by investors to guard against that kind of largely unpredictable risk. However, in view of the bank experience in particular, it may be helpful for foreign investors to have a checklist of matters that are more predictable to consider when investing in an EB-5 project. Most of these items are obvious, but some may not be on top of mind.
The viability of a regional center project is a major factor in whether or not an EB-5 investment is successful. Investors may lose their money if the project doesn't work out, which could harm their chances of getting a green card. Some EB-5 regional center projects have a history of fraud and poor management, which has led to the loss of investments and jeopardized investors' immigration status. To make sure they are choosing wisely, investors should carefully consider the regional center, the project, and the management team. Advice from immigration attorneys, and financial, and tax advisors is necessary. It would be imprudent not to seek such advice.
2. Creation Of Jobs
The EB-5 program requires the creation of at least 10 full-time jobs for U.S. workers for every investor. Investors might not be eligible for permanent residency if a project doesn't meet this stipulation. Reliance on regional center projects is heavy in this regard so the choice made after due diligence is crucial. Attention to the number of jobs to be created compared to the number of investors to be included in the project will be the key. Sufficient extra jobs to safeguard against insufficient employees to be counted should be included.
3. Processing Times
The EB-5 program and the criteria for the eligibility of investors may be impacted by projected changes to immigration laws, regulations, or policies and in particular processing times. Permanent residency applications may be substantially delayed and it is critical to know how long approvals for applicants will take as best can be determined by the U.S. Citizenship and Immigration Services (USCIS) before the investment is made. Applying inside the U.S. to adjust one’s status to EB-5 from another status such as a student or work visa is highly desirable because of early access to employment authorization and a travel document making continuing stay in the U.S. possible while the application is pending. Also, choosing regional center projects with so-called set-asides for quicker processing such as those dealing with infrastructure, rural or high unemployment areas is an important consideration here. The timing of embarking on an EB-5 project is important, for example, these set-asides are available this year but may not be in future years.
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Liquidity of funds can be a problem when money is needed.GETTY
4. Liquidity and Currency Risks
EB-5 investments typically have a long investment horizon and are illiquid. If investors unexpectedly need to access their money, they might not be able to easily sell or liquidate their investment. When investing in the U.S., foreign investors are also subject to currency risks. Changes in the exchange rate between their local currency and the U.S. dollar could impact the value of their investment and potential returns.
6. Interest Rate, Market Risks, And Tax Repercussions
Variations in interest rates can impact the cost of borrowing and the overall returns on an EB-5 investment. The success of an EB-5 project and the ability of the regional center to meet job creation requirements can also be impacted by general economic conditions, industry-specific factors, and market fluctuations. Foreign investors should also think about the tax repercussions of making investments in the U. S. American taxes on the worldwide income of permanent residents and estate taxes on death for permanent residents can be substantial so advice from an accountant should be obtained before an investment is made. Careful consideration of these factors is advised.
7. Source And Path Of Funds
EB-5 investors are required to show that the money they are investing was acquired legally. Employment income, business profits, dividends, capital gains, gifts, and inheritance are a few examples of how one can prove a legitimate source of funds. It is important at the outset not to mix such funds legally earned with any other funds held in bank accounts. Even one dollar of undocumented earnings can pollute the entire amount of funds mixed in with its bank account and used to make an investment. Care must be taken to keep clean funds earned from a recent sale of an asset for example, away from other funds owned. Such clean earnings should be invested in a new bank account to be used for the EB-5 investment. Investors also need to demonstrate an unbroken flow of funds from the source to the EB-5 project. This entails offering proof of wire transfers, bank statements, and other financial records that show the movement of funds. The legitimacy of the investment may be questioned if there are any gaps or inconsistencies in the documentation, or if the funds pass through the hands of an unacceptable intermediary which may result in the investor's application being denied.
Proper Perspective
To put these matters into perspective, every day we take risks in our lives. We travel on airplanes, walk the streets when they are full of traffic, and take all sorts of medications. Each risk is something we knowingly assume for the sake of making progress in our lives. The same is true in the field of EB-5 investor immigration. While investors should do due diligence on the regional center, the project, and the management team and comprehend the various risks involved that does not mean they should shy away from a program that has endured since 1990 and helped tens of thousands of investors successfully immigrate to the United States. The key is an adequate professionally assisted understanding of all the risks involved.