EB5 Investors Magazine - Page 20

Continued from page 17 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. Conclusion 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 3 ★ Dillon Colucci Matthew Galati See 8 C.F.R. 204.6(e), under the definition of “capital.” 18 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.