INS on EB-5s and Invested Funds in Escrow

August 28, 1998

Memorandum For: Regional Directors
District Directors (Including Foreign)
Regional Counsels
Officers-In-Charge (Including Foreign)
Port Directors
Service Center Directors
Directors, ODTF-Glynco, GA and Artesia, NM

From: Robert L. Bach
Executive Associate Commissioner
Office of Policy and Planning

Subject: Immigrant Investor Petitions - Placement of Invested Funds in Escrow and Extension of Time to Withdraw a Held Petition and File a New Petition in its Place

This memorandum provides Service Center officers with instructions regarding the placement of invested funds in escrow by a petitioner seeking classification as an alien entrepreneur. In addition, the Service has determined to extend the time during which a petitioner may withdraw a clearly identified petition from the "hold" and file a new petition in its place with the "tiger team" assembled at the California Service Center. In the August 4 field memorandum on this issue, petitioners were given until August 31 to withdraw and refile such a petition.

The Service has determined to extend to September 14 the time for withdrawing a petition from the "hold" and filing a new petition with the "tiger team" assembled at the California Service Center. This final extension will provide its customers with sufficient time to consider recent guidance.

Service Officers are advised that terms of an escrow in a petition for alien entrepreneur classification, as well as all other aspects of the petition, must comport with the requirements of section 203(b)(5) of the Immigration and Nationality Act (the Act), as well as 8 CFR 204.6 and 216.6.

Consistent with field memorandum of August 4 and June 26, the Service remains committed to encouraging investment by immigrants who meet the requirements of the law. These instructions are also consistent with prior guidance entitled "Policy Questions of Investors" issued on July 21, 1993 by the Office of Adjudications (Jaime Cabanilla).

In accordance with 8 CFR 204.6(j), a petition submitted on Form I-526 for classification as an alien entrepreneur (EB-5) must contain evidence that the alien has invested or is actively in the process of investing lawfully obtained capital in a new commercial enterprise in the United States which will create full-time positions for 10 qualifying employees. To show that the petitioner has invested or is actively in the process of investing the required amount of capital, 8 CFR 204.6(j)(2) requires that the petition be accompanied by "evidence that the petitioner has placed the required amount of capital at risk for the purpose of generating a return on the capital placed at risk… The alien must show actual commitment of the required amount of capital."

The regulations at 8 CFR 204.6 do not address directly the use of an escrow prior to visa issuance. An escrow is a legal mechanism that places the funds of one person (called the grantor, promisor, or obligor) in the hands of a third party (called the escrow holder) to be delivered to another person (called the grantee, promisee, or obligee) upon the occurrence of some event or the meeting of some condition. In the case of an alien entrepreneur, an escrow enables the required initial capital investment to be held by a third party escrow holder and released to the new commercial enterprise when the petition is approved and the visa has been issued or, if the alien is located in the United States, adjustment has occurred. If the petition, or the visa, or adjustment application is denied, the escrow holder will return the money to the alien. In this way the alien's investment is made contingent on the alien's ability to assume the status of alien entrepreneur and enter or remain in the United States to oversee his or her investment.

Service adjudicators are familiar with escrow arrangements, as the use of escrow is authorized by the regulations at 8 CFR 214.2(e)(12) for nonimmigrant (E-2) investors who, like the immigrant (EB-5) investors, must place their own capital at risk and demonstrate that the investment capital is committed to the enterprise.

The use of escrow arrangements in the alien entrepreneur category is, however, distinct from that in the nonimmigrant E category due to the terms of section 203(b)(5) of the Act and implementing regulations. The Service has become aware of examples of escrow accounts used by petitioners seeking alien entrepreneurs classification whose terms either obviously fail to comport with the requirements of section 203(b)(5) of the Act, are never realized, or appear to reduce the likelihood that the petitioner's job creation requirements will be realized within the two-year conditional period. In certain cases, petitioners have recited the requirements of the nonimmigrant E classification to justify escrows which fail to comport with section 203(b)(5) of the Act.

For this reason, Service officers are cautioned that they must examine closely the terms of an escrow to ensure that the terms comport with section 203(b)(5) of the Act. For purposes of the alien entrepreneur classification, an escrow must state that the required initial capital contribution is actually committed to the new commercial enterprise, where it will be available and put to use for job creation purposes immediately and irrevocably upon approval of the petition and visa issuance, or adjustment. The escrow must unequivocally release the funds into the operations of the job creation enterprise (i.e., into the enterprise's United States business accounts) for job creation purposes.

Capital in escrow may not be counted as investment capital unless such funds are immediately and irrevocably committed to the investment enterprise for job creation purposes upon petition approval and visa issuance or, in the case of adjustment, upon granting of the adjustment application. A mere statement that the funds are available from the escrow agent is not acceptable evidence of commitment. It is not sufficient if the funds are released into a limited partnership, trust fund, trust agreement or other vehicle where they are not truly at risk, have not been committed, and may be diverted from the job creation purposes which are essential to this classification. Service officers are reminded that a petitioner bears the burden of demonstrating that his or her investment meets the requirements of section 203(b)(5) of the Act. If necessary, Service officers may require an additional statement that the petitioner will not enter into any agreements that would prevent the escrow funds from achieving the statutory purposes or that would otherwise have the effect of circumventing the requirements of section 203(b)(5) of the Act. If officers have any doubts as to the amount, terms, or existence of an escrow, they should contact the escrow holder directly for written confirmation of the escrow account and agreement.

Finally, to ensure that the escrow agreement is a genuine arms-length transaction, the escrow holder must be a bank or similar entity that has no relationship other than that of escrow holder to the alien or the new commercial enterprise or their legal representatives. The escrow agreement should further permit the alien the return of his or her money upon either the denial of the petition or its withdrawal by the alien.

Questions regarding these field instructions, may be directed to Katherine A. Lorr at HQADN, 202/514-5014. The Immigration Service Division has concurred with this memorandum.