An EB-5 escrow is a critical part of the overall EB-5 process. From an investor perspective, it provides security that funds are being held safely and can be refunded promptly in the event of an I-526 Petition denial or withdrawal. The EB-5 escrow also offers benefits to the issuers. With numerous EB-5 investment options available to investors today, proper structuring of the EB-5 escrow will significantly improve the marketability and similarly the funding rates of a project. This has the added benefit of lowering overall marketing costs for the issuer. However, when it comes to escrows, one size does not fit all.
According to the most recently updated USCIS data, I-526 Petition processing times now average 14.3 months. Holding investor funds in escrow that long may be detrimental to many projects, so alternative arrangements are imperative. When processing times were much shorter, the most commonly used escrow structure was the Hold-Until-Approval (HUA) model, where funds would be released into a project upon the approval of the investor’s I-526 Petition. But with current processing times, the use of Early-Release escrow models is often becoming a necessity. NES Financial has worked with experts from leading immigration and securities firms to develop a variety of such escrow solutions that satisfy the needs of both the investors and the issuers, while supporting compliance with all of the applicable regulations.
To determine the suitability of different escrow structures, it is important to examine the risk inherent in why an I-526 Petition might be denied in the first place. At a high level, review of an I-526 Petition includes the evaluation of two main components – the project and the investor. The petition could be denied because there is something insufficient in either one of these components. On the other hand, when a petition is approved, it can be presumed that both the project and the individual investor are approved.
The infamous May 30, 2013 memorandum discussed the USCIS’ position on deference. Essentially, the approval of an exemplar petition or a single investor’s I-526 Petition on any given project would mean that the project component of all subsequent investors on the same project, as long as that component was filed identically to the first, would also be approved. This would substantially lower the risk of an escrow structure allowing for an earlier release of funds from escrow. Likewise, if an investor’s I-526 Petition is denied due to a project issue, all subsequent petitions on that same project will be denied, so the risk is very high unless the funds are held in escrow long enough to accommodate refunds to the affected investors. Obtaining project approval is key to mitigating the risk level and thus maximizing the flexibility of a well-balanced escrow solution.
The investor specific portions of the petition can be denied for a multitude of reasons — from an inability to prove the legal source of funds to a failed criminal or medical background check. Because this industry is so highly specialized, the attorneys and agents are motivated to maintain extremely high I-526 success rates in order to remain competitive. As such, they are incentivized to filter out investor petitions they are not certain will be approved long before anything is filed with the USCIS. Consequently, the depth of the EB-5 experience of the players that are involved with a project can be a mitigating factor in evaluating the level of risk of any escrow structure.
By balancing the risk of I-526 denials with the timing of releasing funds from escrow, NES Financial has designed and implemented a wide range of possibilities to meet the early release needs of most issuers and developers, while simultaneously meeting the security needs of the investors.
In an industry that continues to evolve, it is crucial to work with a partner that is flexible and can adapt to market changes. NES Financial is that partner. We are always one step ahead of the curve. By working with NES Financial, you can streamline the entire EB-5 process from start to finish and focus on ensuring your project success – which, when it comes down to it, is really the most important goal for all parties.
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