Risk Factors for EB-5 Investors Under the EB-5 Reform and Integrity Act of 2022: What the RIA Doesn’t Cover

The EB-5 Reform and Integrity Act of 2022 (the “RIA”) was the result of years of congressional and industry efforts to reform the EB-5 investment industry and introduce stricter oversight and transparency policies for EB-5 projects and regional centers. Nearly a year since the RIA was signed into law, the EB-5 industry has had to adjust to several new procedures, new USCIS applications, and, generally, a much more demanding regulatory environment.

These measures primarily benefit foreign nationals who make an EB-5 investment with a view to immigrating to the United States on a Green Card. Regional centers and EB-5 projects must now provide investors with an unprecedented degree of transparency on how their funds are used. A few instances of fraud among EB-5 offerings have shown investors the importance of avoiding unscrupulous actors and making sure that their capital will be used for legitimate job-creating purposes. The RIA significantly reduces the likelihood of fraud in EB-5 offerings.

At the same time, the RIA has by no means eliminated all of the financial and immigration risk associated with an EB-5 investment. EB-5 funding must, per USCIS policy, remain at-risk—that is, irrevocably invested with chances of either gains or losses. Moreover, an investor’s immigration outcome is not guaranteed, either; it depends on the EB-5 project’s compliance with the job-creation requirement. This, in turn, largely depends on an EB-5 project’s financial viability.

These restrictions mean that, despite the many beneficial policies introduced by the RIA, an EB-5 investor’s immigration and financial success are still very much in the balance. The best practice for foreign nationals interested in immigrating through the EB-5 program is to conduct careful due diligence on potential EB-5 projects and regional center sponsors. Both entities play a crucial role in managing the flow of EB-5 funding and ensuring compliance.

In this article, we examine the RIA and identify the areas of the EB-5 process where investors still face significant risk despite the new safeguards against fraud. We first provide an overview of the RIA’s new regulations for protecting EB-5 investors.

Mandatory Disclosures Under the RIA

The primary objective of the RIA’s new policies is to protect EB-5 investors from outright fraud—that is, misappropriation of their funds.

The RIA now requires regional centers to submit the following reports and notifications to USCIS or to their investors:

  • Notices of proposed changes to the business structure or management team.
  • Annual financial reports for USCIS and EB-5 investors (these reports must be verified either through audited financial statements or a third-party fund administrator).
  • Notices of material changes to USCIS.
  • All EB-5 promoters involved in marketing EB-5 offerings must now register with USCIS.
  • Form I-956F—a “project request” form—must be submitted to USCIS before investors can file Form I-526E.

USCIS may fine a non-compliant regional center by up to 10% of its raised capital. USCIS may also suspend or terminate regional center licenses and debar (that is, exclude from the EB-5 program) any individuals involved in non-compliance.

Further, the agency is conducting more in-person site visits to regional center-sponsored projects and thorough background checks on every person with significant involvement with a regional center. Anyone who has been involved in a case of fraud with a liability of more than $1 million is banned from participating in the regional center component of the EB-5 program.

Under the RIA, regional centers must also disclose any conflicts of interest with the project developer.

Areas Where the RIA Does Not Require Disclosure

While USCIS now monitors the flow of EB-5 investment capital more closely, the RIA generally does not protect investors against actors who are not compliant with program requirements or have a poor financial and operational record.

Under the RIA, EB-5 projects and regional centers are not required to disclose the following:

  • Past foreclosures.
  • Past breaches of fiduciary duty toward investors.
  • Past lawsuits of any type.
  • Past loan defaults.
  • Past loss of EB-5 investment capital.
  • Past fines by the SEC, USCIS, or other government agencies.
  • Past USCIS project denials.

The presence of any of these factors in an EB-5 offering should be a major red flag for prospective EB-5 investors; it indicates a failure to comply with USCIS regulations and keep EB-5 projects financially viable.

Given the high stakes involved, the best practice for prospective EB-5 investors is to ask the regional center and project developer in writing—and get written responses— about the seven items above. If the entity in question has any of these issues, investors should undertake more extensive, independent due diligence. In some cases, the safest option will be to invest in a different EB-5 project.

Investors should also be aware that a regional center’s or project developer’s past success in raising EB-5 funding—even throughout numerous projects— is not necessarily an indicator that their current project will have a positive immigration and financial outcome. The regional center or developer may have lost EB-5 funding in the past or may be sponsoring an economically unrealistic project.

Another important takeaway for EB-5 visa applicants is to look at each investment opportunity in its wider economic context and consider whether the project’s capital structure and asset class can truly succeed financially. Does the project’s industry rely on future revenue projections or on current demand? Is it operationally flexible as demand fluctuates?

In 2023, for instance, many real estate developments are hard-pressed to secure senior loan financing due to soaring interest rates. EB-5 projects that are not already fully financed pose a significant risk.

Making an EB-5 Investment Under the RIA

Even though EB-5 investors still need to conduct due diligence and determine whether projects are economically viable, the RIA provides an unprecedented level of safety and oversight. We expect the RIA’s stringent new policies to significantly reduce fraudulent or misleading activity in the industry, and investors can rest assured that their hard-earned capital will be monitored closely and used for legitimate purposes.

We invite prospective EB-5 investors to schedule a free consultation with EB5AN for more information on how to find low-risk EB-5 projects and immigrate successfully.

Excerpts from “RIA: EB-5 Industry Experts Help You Prepare for New Changes”

EB5AN founder and managing partner Sam Silverman was recently a panelist at the EB-5 seminar “RIA: EB-5 Industry Experts Help You Prepare for New Changes”. His remarks cover the gaps in the RIA and the need for investors to conduct due diligence, as well as other topics of interest regarding the new regulations of the RIA.