EB-5 Due Diligence Questions

There are hundreds of EB-5 Regional Centers approved by the USCIS, however the approval is not an endorsement that the investment itself is sound or that participation will lead to an I-526 and I-829 approval.  It is wise for the investor to remember that the lawyer that he or she employs cannot give investment advice, and that it is prudent to consult with both a financial adviser as well as an experienced immigration lawyer before making any decisions as to investing in a particular EB-5 Regional Center. The following are a list of questions that are important to contemplate before trusting you money and future with an EB-5 Regional Center:

1.  What is the record for I-526 approvals and I-526 denials received by the Regional Center?  For denials, what is the reason or reasons for the denial?
The number of I-526 approvals and I-526 denials is a good indicator (but not the only indicator) as to whether or not a particular Regional Center is worthy of consideration.  Other indicators can be discussed with experienced immigration lawyers, such as the lawyers at Hilf & Hilf, PLC.
2.  What is the record for I-829 removal of conditions approvals I-829 denials encountered by the regional center?
The largest concern for most investors is obtaining a green card and later becoming a United States citizen.  A Regional Center that does not produce results should not be considered, however some Regional Centers may be too new to properly gauge this result.
3.  How long has the Regional Center been approved by the USCIS?
The length of time of USCIS approval may help ease fears as to the stability of the investment, and the success of the investor in terms of gaining United States immigration benefits.
4. Who are the other investors?
Some investors may feel more comfortable with a variety of investors including banks, the government, and persons not seeking United States immigration benefits. Do the project directors invest their own money into this investment?
The United States government’s involvement in an investment may give credibility to the soundness of the investment and the job creation methodology.
5.  What is the total amount that the investor needs to pay?
The investment amount is usually $500,000 United States dollars, but also can be $1,000,000 United States dollars.  However, the Regional Center always have additional costs that range anywhere from $25,000 United States dollars to $75,000 United States dollars.
Sometimes these fees also include the attorney fees.  Regional Centers that provide their own attorneys should be viewed cautiously for a few reasons:
First, the attorney’s loyalty may be  with the Regional Center which could call into question the advice that the investor receives. If there are any red flags concerning the business model, the creation of jobs, or the investment that the attorney is aware of, those concerns may end up concealed from the investor.
Second, the attorney fee may be an unreasonable amount when it is predetermined by the Regional Center.  The Regional Center may get a referral fee from the attorney when that is ethically allowed, which drives up the cost of the fees charged.  The ethical standards for an attorney may vary from State to State as it relates to the issue of attorney fees.
Third, the attorney that is provided from a Regional Center may be unavailable to give you the attention that you need and deserve, and you and your family are reduced to a file that simply gets processed.  When the attorney fee is a cost through a Regional Center, the full amount of the attorney fee may be non refundable and non negotiable.  If the Regional Center insists that a lawyer of its choosing is involved, this often does not prevent the investor from having his or her own private independent counsel to monitor and work for the investor’s benefit.
It is also important to know whether or not any management fees are capped, or there are any other expenses for which the investor may need to contribute in the future.
6.   What is the job creation methodology?  Are there any issues as it relates to job creation that lead to I-526 denials?
The investor needs to know what steps the EB-5 Regional Center will take to ensure that the requisite number of jobs are created.  If there is a determination that the investment did not create the necessary number of jobs, the petition will be denied.
There are different economic models to demonstrate direct and indirect job creation.  Direct job creation, as opposed to indirect job creation, may affect the security of obtaining a green card.  If there is a concern about job creation, perhaps the investor should consider a different project or a different Regional Center.  The investor should look towards Regional Centers with a job projection over and above the minimum 10 jobs to have assurances that this requirement will be met.
The bottom line is that the job creation methodology must be sound.  If the job creation is not shown to the satisfaction of USCIS, the investor will have wished that he or she invested elsewhere when a denial is received.
7.  What current projects are available?
The EB-5 Regional Center’s past track record might not be significant if the current investment being offered differs from previous projects offered.  The current investment may have a different expected investment return, it might have a different, untested job creation methodology, it might not have adequate funding to be successful, or there might be a number of other concerns.
It is important to know how many investors there are concerning a particular project, and how many investors will be needed to fund the project?  The lack of investment in a project may provide clues as to how viable the project actually is.  If there are not enough investors, it is possible that the project never even gets off the ground.  It is suggested that the investor finds out how many projects that the company has actually completed in the past.
If there is a large number of investors, there may be a concern as it relates to providing enough job creation.
Certain types of investment may be better able to sustain changes in financial markets or other economic downturns.
8.  What is the step by step process for the investor to invest in a particular Regional Center?
Knowing what is going to happen during each step in the process helps eliminate the stresses and frustrations which may develop along the way.  The investor may have a relationship with the Regional Center that will continue for several years.
9.   What is the amount of return expected?
For any EB-5 investment the funds must be at risk.  This means that the money is subject to being fully or partially lost, and the investor is not guaranteed to make a profit or to even break even.
The investor needs to know if the return on the investment is paid on a weekly basis, a monthly basis, a yearly basis, or at the end of the project.  How is the return determined?  Who makes decisions as to how the money is invested?  How does the investor find out how the investment is performing?  Is there a contact person that the investor can reach concerning the investment?  The investor should receive regular information as to the progress of the project, including job creation.
The investor needs to be aware of the exit strategy for the investment.  This means that there is an agreement as to when the investor can sell or otherwise extract him or herself from the investment.  Some Regional Centers may require the investor to keep his or her money with the investment for a number of years.
Again, I cannot stress the importance of reviewing the investment in advance with a financial advisor.  The financial advisor can help the investor understand how secure his or her investment is, are there any concerns about recovering the investment, and what kind of return (if any) should the investor expect.  The track record of the investment may provide some guidance as to this issue.
10.  What is the escrow procedure used relevant to the EB-5 investment?
The EB-5 project money is usually held in escrow until it is invested into a project.    There should be safeguards in place to protect the escrowed funds.  The investor should also be aware if he or she receives any interest on the money while it held in escrow.  It also should be clear to the investor how much money he or she is refunded of the I-526 is denied.  There should be a written agreement that is clear and unambiguous as to the amount that will be refunded, and the amount that the Regional Center will keep.
Many investors are also interested to find out if there is an escrow account set up in his or her home country.  An investor may feel more comfortable working through local channels than with a foreign bank that may have both distance and language barriers.  On the other hand, the investor may feel more comfortable with a United States bank that maintains better safeguards than are available in the investor’s home country.
11.  Who are the partners or principals for the EB-5 project?
The investor should try to find out whether there have been any prior civil or criminal lawsuits concerning the partners or principals?  Criminal convictions or partners or principals for theft or dishonesty is of large concern.  Any litigation concerning the investment should be reviewed if the investor becomes aware of any such history.  It is important to try and find out if any of the partners, principals, or advisors to a Regional Center project have had any negative results such as business failures and defaults.
12.   How secure is the Investment?
Has the Regional Center’s projects lost money or previously defaulted?  What is the money being invested actually going to be used for?  Again, the investor should look to see what occurred as it relates to past projects that the Regional Center was involved with.  What were earlier clients repaid as it relates to their investment?
Will the investor face liability for any actions taken by the Regional Center? Is the investor a limited partner under the Uniform Limited Partnership Act?
The investor should take a look at the business plan for the project, and consider whether or not that business plan makes sense.
13.   Where is the project located?
Is it actually in a Target Employment Area?  How did the Regional Center obtain the Target Employment Area designation?  Investments outside of a Target Employment Area must be for $1,000,000 United States dollars.  Many investors only have a desire or ability to invest $500,000 United States dollars, and the failure to obtain a green card based upon the investment’s location would be devastating.
14.  What documentation can the Regional Center provide?
Documents that the attorney and a financial advisor may wish to review in advance include a copy of the contract, escrow agreement, bank references, Dunn and Bradstreet on general partners and principals, a business plan, financial records, documentation of returns on past EB-5 investment projects.
15.  Can it be established that the investor’s money came from a legitimate source?
It is ultimately up to the investor to show that the money invested came from a legitimate source.  Money gained through unlawful sources such as illegal gambling, drug transactions, theft, embezzlement, etc., cannot be used for purposes of an EB-5 investment.  If the money for the investment cannot be documented and proven as legitimate, the investor will not prevail regardless of how reputable he or she really is. There should be a clear paper trail starting from how the investor generated the money that he or she invested all the way through its deposit into the escrow account for the EB-5 Regional Center.  The responsibility for this is upon the investor.
Evidence of investment money originating from a gift may include (but are not limited to): documents that prove the funds came from the donor to the investor, gift taxes paid, affidavits providing detailed information as to the nature of the gift, documents from the gift giver proving that the money came from a legitimate source, etc.
Evidence of investment money originating from lawful income may include (but are not limited to): personal tax returns, personal bank account statements, letters from employers to verify salary, business tax returns, business registration documents, business bank accounts, etc.
Evidence of investment money originating from inheritance include (but are not limited to): death certificate, will or trust documents, inheritance tax paid, affidavits providing detailed information as to the nature of the inheritance, etc.
Evidence of investment money from a loan include (but are not limited to): loan agreement documents, proof of collateral regarding your assets, documentation showing the transfer of the loan funds from the source to you, lenders documents such as tax records to show the lender’s funds are legitimate.
Evidence of investment money from the sale of a business include (but are not limited to): closing statements, bank records, tax records, registration records, letters from an accountant documenting the transaction, evaluations by a CPA as to the value of the business, evidence of the transfer of funds related to the sale, etc.
Evidence of investment money from the sale of real estate include (but are not limited to): purchase agreement, title transfer documents, payment of real estate taxes for the property, appraisals, evidence of the transfer of funds related to the sale, etc.
Evidence of investment money from the sale of stock include (but are not limited to): share purchase agreement, evidence of the transfer of funds related to the sale, tax records, corporation documents related to incorporation or registry, etc.
The USCIS is strict when it comes to the issue of the legitimacy of the funds used.