EB5 Escrow Account

1. What is the meaning of an EB-5 Escrow Account?

An EB-5 escrow is a contractual arrangement between an EB-5 issuer (Regional Centre for the sake of understanding by a laymen), an EB-5 investor, and an Escrow Agent. Escrow Account is neither mandatory under the law nor required by USCIS, but is a healthy practise that has been developed by Regional Centres over a period of time. There are several service providers like NES Financial (now known as JTC), Signature Bank, etc. who will open an Escrow Account on the instructions of the entity raising EB-5 funds (RC). When an investor wires funds from India, or locally from USA, or from anywhere in the word, the amount first goes to the secured Escrow Account maintained for the project for which it is being wired

2. Till how long do funds lie in an escrow account?

This depends on the agreement between the EB-5 issuer and its Escrow Agent, which is ruled by an escrow agreement. As an investor, you MUST be aware about these terms because it directly impacts when and how your invested funds shall be released to the developer / project / RC.

3. What are the typical escrow agreement terms?

Purely from an eb-5 investor perspective, you should specifically check which of the following situation exists in your chosen project / regional centre:

1. Pre-release & prior to I-526 filing: this method permits release of funds the moment it touches the escrow account. This is not being followed due to the risk it involves. Escrow agents will not normally agree to it because it permits the regional centre to solicit your funds for deployment even before you have filed the I-526. This would be a clear red flag.
2. Release after I-526 filing but before receipt: this means that funds can be released immediately after an I-526 is filed, without waiting for an acknowledgment receipt. An investor would need to sign an “early release” for this to happen; in absence of which, a Regional Centre is not authorized, and the hence escrow agent shall not permit the withdrawal.
3. Release after the I-526 acknowledgment receipt: this is by far the most widely used method, although not the best and safest from an investor perspective. Investors funds are eligible for being released by the escrow agent to the regional centre / project immediately on receipt of the I-526 filing confirmation receipt. Generally, the receipt takes 10 to 14 days and which thus means that immediately after 2 weeks from your filing date (priority date), your funds can be picked up for use.
4. Partial release of funds after I-526 filing: this means that funds can be released up to a specified percentage, with the balance amount of investor’s money being made available to the regional centre only after one’s I-526 is approved. This is the most neutral approach one can adapt but is not frequently seen to be followed. This approach sits between serial number iii. & v. below, in terms of fairness and neutrality between the investor vis-à-vis a RC / Project. It reasonably safeguards the investor in the event of a denial, and at the same time, makes bare minimum capital available to the project for their usage.
5. Restricted release of funds: this is by far the most conservative approach and rarely have regional centres followed it. Under this mechanism, an investor’s funds are not permitted to be deployed for usage anytime before the I-526 stands approved of that investor. Hence, only for those investors whose I-526 stand approved, the funds corresponding to those investors can be used. This approach is not adapted in current times as the adjudication time has increased not by weeks and months but by years. Hence, for all practical purposes, the regional centre may not be able to leverage and use the monies as they would have intended. This is the safest approach from an EB5 investor’s perspective. Needless to mention, there are way to remediate the non-existence of this mechanism; for e.g., by way of an I-526 denial guarantee. The irony is that the phrase “I-526 denial guarantee” has been used so loosely in the recent past that almost everyone claims to have one. A careful reading of PPM (private placement memorandum) is a must to assess the underlying facts.

4. What is the specific consideration to be kept in mind in case of a partial eb-5 investment (part funding)?

Escrow agreement plays the SINGLE MOST IMPORTANT ROLE if one is doing a partial investment. Anyone investing US$ 500,000 (in place of US$ 900,000 under the extant rules as on the date of this article being published) must remember that if the funds so invested are deemed to be “partial” AND if such funds are already released by the escrow, then not on earth will you succeed to get them back should you decide to withdraw from the call of funding the balance US$ 400,000 (to make it a total of US$ 900,000). This must be clarified with the regional centre you choose, in writing. A side letter may be obtained only if permissible. Needless to mention, if you are mentally prepared to go for the balance funding of US$ 400,000, then this shall hold no importance, whatsoever.

5. When shall the escrow bank refund my funds in case of a withdrawal request?

The first thing to find out would be if your funds are lying in an escrow, should they have been already released, there is absolutely nothing that can bring those funds back from the escrow unless you found a replacement investor or a specific denial guarantee has kicked-in. Presuming the funds are available, withdrawal is generally smooth. A simple written request has to be made to the regional centre who shall direct the escrow to refund the amount to your bank account. Refund can be obtained as quickly as 2 weeks in such cases if proper planning is done with the help of a professional EB-5 consultant.

Above information is for sharing knowledge only. Get in touch with your hired advisor who can advise you on your EB-5 matters.

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All the answers have been written by the team at EB5 India Advisory Pvt. Ltd. and is intended for educational purposes only. We are an EB5 consulting firm with a 100% exclusive focus on EB5 visa investments for Indian investors. Feel free to visit one of our offices in India.