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would likely lead to fraud in the program and failed projects.
Securing “cash,” on the other hand, is nonsensical given that
U.S. dollars are legal tender and have defined value.
may handle internal transactions without corporate formality.
Accordingly, the investor may not be used to documenting
business transactions to USCIS standards.
But because USCIS is taking the position that loans bearing
cash investments need to be collateralized in the same vein as
indebtedness, prior to filing of the I-526 petition, an investor
should negotiate the terms of the loan with the bank to make
it clear that the s/he is “personally and primarily responsible”
for repaying the loan. Another option might be to execute a
contract between the friend and the investor to provide that the
use of the collateral is exchanged as consideration for liability
to repay the loan, or a gift affidavit between the friend and the
investor stating the friend has gifted the proceeds to the investor
without an expectation of return. If the loan is already made,
a clarifying statement from the bank, if available, clarifying
the investor as being personally responsible for the RMB 3.5
million, or a g ift affidavit may be dated after the actual gift was
received, provided that it reflects the parties’ intention at the
time of the gift so as not to run afoul of the “approvable when
filed issues,” as discussed in Matter of Izummi.
Shareholder loan documentation should provide, at a minimum, information of (a) what the collateral is that secures
the loan, (b) signatures of the investor and the company, (c)
material terms of the loan such as maturity date, interest rate,
loan amount, and (d) rights of the investor and the company
in the event of default. It is important that the loan be secured
by sufficient collateral, or USCIS will likely take the view
the loan is not adequately secured by the investor’s assets and
does not meet the definition of capital under the regulations.
Signatures of the investor and the company, as well as using
formal company letterhead is also important to demonstrating
that the loan is, in fact, bona fide. Furthermore, USCIS will not
believe the loan is credible without material terms included in
the loan contract, such as the maturity date, interest rate, loan
amount and a delineation of the rights and obligations of each
party. Providing USCIS a document that is properly drafted
and executed will help alleviate these issues.
Proving lawful funds beyond
the EB-5 investment
The applicable regulation provides that assets acquired, “directly or indirectly, by unlawful means (such as criminal activities) shall not be considered capital” for the EB-5 investment.3
Using the common home equity loan model, investors oftentimes document that they had earned enough in wages to enable the purchase of the mortgaged property, but nothing more.
However, USCIS has taken an increasingly stringent approach
on documenting that the investor possessed enough in funds to
purchase an asset liquidated for EB-5 capital. Beyond proving
that s/he earned enough to purchase the asset, the investor is
also required to prove that his/her earnings were sufficient to
live on, which appears to be beyond the scope of the regulation.
Nonetheless, investors would be prudent to document the lawful source of capital beyond the purchase of the real property
by including more historical employment documents. Further,
investors can deflect criticisms by explaining that funds to live
on may have come from another source, such as the earnings of
a spouse, parent, or inheritance. These ancillary sources should
not, under any of the regulations or guidance, need to be as
thoroughly documented. It may be worth reminding USCIS
that the cost of living in China, especially 10-20 years ago,
was much lower than it is today, using publicly available data
from the Internet. And finally, it may be worth using published
sources on the cultural differences between Chinese investors
and amero-centric adjudicators to illustrate that, as a society,
the Chinese generally have a higher propensity to save their
incomes compared to their U.S. counterparts.
The above is a summary of the recent trends in tracing an
investor’s source of funds and examples of what USCIS has
been flagging through recent issuance of requests for evidence.
However, this list is not comprehensive and each investor may
have unique issues. Following these simple tips can help make
the adjudication process of an I-526 petition smoother.
Shareholder loan documentation
Too often, an investor obtains a shareholder loan for his or her
EB-5 investment without the proper documentation—another
point that USCIS has been stressing in recent months. Much of
this problem stems from the fact the investor is the sole shareholder or the company is a closely held family company, which
See 8 C.F.R. 204.6(e), under the definition of “capital.”
EB5 INVESTORS MAGAZINE
Dillon Colucci is an associate in Greenburg
Traurig’s Irvine, California office. In the
EB-5 realm, Dillon works extensively with
investors, regional centers
and developers. Employmentbased immigration cases are
the focus of his practices and
he works as part of the firm’s
dedicated EB-5 team.
Matthew Galati is an attorney in the business
immigration & compliance practice of
Greenberg Traurig, LLP. Matthew’s practice
concentrates on the representation of international investors and regularly assisting foreign
nationals in obtaining permanent residency
through EB-5 investment. Matthew also counsels investors and stakeholders
in EB-5 compliance, devoting
efforts to meeting requirements
for successful I-829 adjudication for removal of conditions.