An escrow is an agreement that sets conditions for the transfer of investor funds to an EB-5 project.
While most investors know to look for projects that use escrow to receive initial subscription funds from their investors, it’s also important to evaluate the conditions upon which funds will be released into the project.
Though in some projects EB-5 funds remain in escrow until all I-526 petitions are approved, lengthy I-526 processing times have made it a financial necessity for many projects to use early release escrow structures, which allow some portion of investor funds to be released prior to I-526 approval.
Projects that allow all EB-5 funding to be released as soon as the I-526 has been filed pose a higher risk to investors; many early release escrow structures retain a portion of investor funds in escrow to repay investors if their I-526 petition is denied after funds have been released into the project. Investors should carefully evaluate the project’s strategy for refunding investors who have been denied.
The best way to determine the viability of a project’s escrow structure is to look for projects working with an established EB-5 escrow administrator. An escrow administrator not only helps the issuer work with the escrow agent to ensure the right escrow structure, but also documents that the escrow remains compliant with USCIS requirements.
After the release of funds from escrow, projects should have 3rd party controls in place to monitor the movement of funds and ensure the capital is released to the legitimate job creating expenditures outlined in the project’s offering documents.
For the immigration process to be successful, the project must document that funds have been deployed in accordance with the job creation plan approved for the project.
Without these controls, funds are vulnerable to mismanagement or misuse, particularly if the job creating project and New Commercial Enterprise are controlled by the same entities.
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