NAVIGATING THE LAWFUL SOURCE REQUIREMENT FOR EB-5 IMMIGRATION by Elsie Hui Arias and Lincoln Stone * For foreign nationals with the means to invest a substantial amount of capital into a U.S. commercial enterprise, and who do not qualify for or wish to endure the extensive backlog of certain family- or employmentbased categories, EB-5 immigration may be an attractive and increasingly-popular option. However, prospective EB-5 petitioners should be advised of the complex requirements concomitant with this immigrant visa category, including the need to identify and document thoroughly the origin of their investment funds. As reflected in the regulations concerning EB-5 petitions, the investor is required to show that he or she "has invested, or is actively in the process of investing, capital obtained through lawful means 1 (emphasis added). Since 1998, the Administrative Appeals Office (AAO) has demonstrated a clear pattern of adhering to a stringent standard for documentation of lawful source of funds. This article discusses how based on the author s experience diverse types of sources of capital can be addressed in * Elsie Hui Arias is an associate attorney at Stone & Grzegorek LLP, an immigration law firm in Los Angeles. Certified as a specialist in Immigration and Nationality Law by the California State Bar, Ms. Arias practices all areas of immigration law and has served as a conference speaker on various immigration topics. She is a graduate of the University of California at Berkeley and the University of California at Davis School of Law. Lincoln Stone practices immigration law in Los Angeles with Stone & Grzegorek LLP, www.lskglaw.com. 1 8 CFR 204.6(j)(3). immigrant investor petitions. It is important to note that in documenting this requirement, practitioners should be flexible an approach for one client may be different from that suited to another client, depending on the client s background and what documentation the client can produce. Also, due diligence is critical in this practice area of immigration law. Conduct a background check on your client using public sources such as online research as U.S. Citizenship and Immigration Services (USCIS) will conduct similar background investigation of the petitioner. 2 REGULATORY REQUIREMENTS FOR DOCUMENTATION The regulation concerning the contents of an immigrant investor petition includes a distinct provision addressing what the petitioner must present as evidence [t]o show that the petitioner has invested, or is actively in the process of investing, capital obtained through lawful means. 3 The structure of the regulation is stated in the alternative: The petitioner may present evidence of business records, tax returns, or any other evidence of lawful source of funds. In practice, however, we respond to the regulation by instructing our clients to produce evidence of tax returns and business records as a minimum, and then extracting from our clients adequate information to articulate the actual source of funds. Also, where applicable, the petitioner should present evidence of any pending civil, criminal, or administrative actions, or proceedings, and of any monetary judgments against the petitioner within the past 15 years. 4 USCIS conducts background investigations of EB-5 petitioners and their 2 See, e.g., http://www.bis.doc.gov/complianceand enforcement/liststocheck.htm. 3 Id. 4 8 CFR 204.6(j)(3)(iv).
dependents in regard to this latter requirement. In one particular case, USCIS issued a request for evidence regarding a charge of embezzlement pending against the petitioner's spouse in his home country, raising the question of whether the investment funds were derived from improper conduct. In preparing the client's documents, the practitioner should keep in mind another important regulation which applies to all immigration-related applications and petitions 8 CFR 103.2(b)(3). Foreign documents must be supported by a certified English translation otherwise, USCIS will not consider the document as evidence. While this would appear to be an obvious requirement, a surprising number of the AAO's nonprecedent decisions concerning immigrant investor petitions reflected the AAO's consternation over the presentation of foreign documents without English translations. Consequently, these documents were not included as part of the AAO record. Even financial documents such as bank statements and tax returns, in which the key data appears in numerical form, must be translated so terms such as account number, debit/credit, and balance will be accurately understood. Income Tax Returns USCIS expects the petitioner to submit five years of income tax returns, both for the individual petitioner and businesses owned, in any jurisdiction where tax returns have been filed. 5 In practice, we require all clients to present evidence of five years of income tax returns or offer an explanation as to why a petitioner has not filed. Information reflected in the tax returns, such as reported proceeds from employment or a specific financial transaction, can serve as further evidence of the lawful source of funds. The evidence of income tax returns is not 5 8 CFR 204.6(j)(3)(ii). intended to prove that the petitioner has paid taxes in the home country or in the United States, if applicable. Whether the petitioner has paid or failed to pay income taxes should not serve a basis for approval or denial of an investor petition. Reasons as to why income tax returns have not been filed may include: income tax returns have not been prepared and filed yet; the petitioner was not obligated to file income tax returns for the period of time in question; or the foreign country in which the petitioner resides does not have income tax return requirements. 6 These reasons should be supported by the petitioner's declaration, and where possible, a letter from an accountant or tax attorney familiar with taxation requirements in the petitioner's country of residence. Business Records The regulation also requires that the petitioner submit foreign business registration records, 7 which we interpret to mean documentation concerning any businesses the petitioner owns. Thus, the petitioner should submit copies of registration certificates, articles of incorporation, share certificates, and other like documentation concerning the business. ACTUAL SOURCE OF FUNDS Beyond providing income tax returns (and business records, if applicable), the petitioner must provide an explanation and supporting evidence of the actual source of the investment capital whether it is employment or business earnings, loan or gift from a relative or friend, proceeds from a specific transaction, or a combination of these sources. 6 See, e.g., www.deloitte.com/view/en_gx/global/ services/tax/international-tax/international-tax-andbusiness-guides/index.htm for information on tax reporting requirements worldwide. 7 8 CFR 204.6(j)(3)(i).
As the AAO has admonished throughout its nonprecedent decisions in the last 12 years, a petitioner's failure to explain the source of the investment capital and present sufficient supporting evidence may result in a determination that the petitioner did not demonstrate that the investment capital was obtained through lawful means. 8 The AAO has held that merely submitting bank letters or statements documenting the deposit of funds may not establish the lawful source of investment capital. 9 It is important to remind practitioners that in presenting evidence of the investor's source of funds (as well as other requirements of EB-5 immigration not addressed in this article) unsupported assertions of counsel are not considered evidence by USCIS. Facts presented in the petition must be supported by documentary evidence. Facts that cannot be supported by documents can be presented by declaration of the investor and/or any other relevant party. Where primary evidence is not available, the petitioner must document this fact. 10 In our experience, declarations by the petitioner and by parties with personal knowledge about the source or tracing of the investment capital have been invaluable in summarizing succinctly the transactions that may have occurred in accumulating or transferring the investment funds, or generally filling in evidentiary holes where documents may not be available. Successful petitions that relied in part on declarations are weaved throughout our discussion below. 8 See, e.g., Matter of [name redacted] (AAO April 20, 2009). 9 Matter of Izumii, 22 I&N Dec. 169, 195, 19 Immig. Rptr. B2-32 (AAO July 13, 1998); Matter of Ho, 22 I&N Dec. 206, 210-211, 19 Immigr. Rptr. B2-99 (AAO July 31, 1998). 10 8 CFR 103.2(b)(2)(i). We now address the types of documentation and challenges that may emerge with specific sources of investment capital. Earnings From Business Owned by Petitioner Where the investor derives the source of the investment funds from earnings of a business he or she owns (as opposed to earnings from employment), documentation about the earnings and business should be submitted with the petition. First, the petitioner should establish the lawful nature of the business. As described earlier in this article, the regulations indicate that documentation of a business owned by the petitioner should include income tax returns, registration certificates, business license, articles of incorporation, stock holdings list (reflecting equity percentage), and other similar documentation. Where available, we also include further details about the business, such as website printouts, marketing materials, and evidence of products or services offered by the business. Second, the petitioner should characterize the nature of any earnings received from the company, whether the earnings are salary, profit distributions, and/or bonuses. Evidence of earnings received by the petitioner should be also included, such as tax records. If tax records are not available, evidence of these earnings may include bank statements reflecting deposits into the petitioner's individual bank account, distributions of earnings reflected in the business income tax returns or financial statements, and/or corporate minutes or resolutions. For example, a cardiac surgeon that we successfully represented derived his investment capital from dividend payments he received from a company that he jointly established to develop and manufacture
medical devices in Brazil. Documentation submitted in support of the petition included: his individual and company bank statements confirming the payment and receipt of the dividend payments; business registration and license of the company; income tax returns filed by the company; and background information about the petitioner, such as his medical degree and license. Difficulties will likely arise where the petitioner transfers investment capital directly from the account of his business to the account of the EB-5 commercial enterprise. Some investors consider this route possibly to avoid taxation or to expedite the transfer of the investment funds. USCIS personnel have stated informally that the agency has denied I-526 petitions where the investment funds were sent directly to the EB-5 commercial enterprise from the bank account of the petitioner s business. The denials were made on the basis that the investment appeared to be made by the business, not by the individual. USCIS has cited several administrative decisions in support of its view that a corporation is a separate and distinct legal entity from its owners or shareholders, 11 and therefore, the funds transferred directly from the petitioner s business should not be credited to the petitioner. However, the USCIS personnel also indicated that if the petitioner provides evidence that the wired funds reflected the petitioner s personal funds such as confirmation from the company s other shareholders USCIS may 11 See, e.g., Matter of M, 8 I&N Dec. 24 (BIA 1958), and Matter of Aphrodite Investments, Ltd., 17 I&N Dec. 530 (Comm.1980). credit the investment capital to the petitioner. 12 Loan In the case where the petitioner is deriving his or her investment capital from the proceeds of a loan, there are several issues to consider. Principally, the law is clear that if the petitioner uses the proceeds of a loan to invest in the commercial enterprise, repayment of the loan cannot be secured by the assets of the enterprise otherwise, the USCIS will not count the investment of the loan proceeds as capital for EB-5 purposes. 13 If repayment of the loan, on the other hand, is secured by other assets of the petitioner, the loan proceeds that are invested as capital in the commercial enterprise can be counted toward the minimum capital requirement. We have also represented successfully EB-5 petitioners who invested the proceeds of unsecured loans into U.S. commercial enterprises. Petitioners without apparent financial means to repay a sizeable loan may receive additional scrutiny. 14 In regard to the supporting documents for the I-526 petition: The petition should include documentation reflecting the terms of the loan arrangement, such as the written agreement and promissory note. If the loan 12 It should be noted that in unpublished nonprecedent decisions, the Administrative Appeals Office (AAO) has indicated that it does not view the contribution of retained earnings as an investment of "capital" for EB-5 purposes. Retained earnings refers to a company s net earnings that are not paid out as dividends to shareholders but are retained by the company for other purposes, such as reinvestment in its core business or to pay off debt obligations. 13 8 CFR 204.6(j)(2)(v); see Matter of Soffici, 22 I&N Dec. 158, 19 Immig. Rptr. B2 25 (AAO June 25, 1998). The same rule applies in E-2 visa adjudications. See 9 FAM 41.51 N8.1-2. 14 See, e.g., Matter of [name redacted] (AAO April 16, 2009).
arrangement was made verbally or a formal written agreement was not drafted, then declarations from both the lender and petitioner addressing the loan terms should be submitted. Similarly, if the loan is unsecured and the loan documentation is silent with respect to security, this issue should be clarified with declarations. Another critical requirement in documenting this form of investment source is to provide evidence about the lender where the lender is an individual (as opposed to a bank or lending institution). We usually submit documentation about the individual lender s background, including relationship to the petitioner, and provide detail regarding how the lender obtained the capital that they loan to the EB-5 petitioner. How far back does the petitioner have to reach to document the lawfulness of the lender s funds? In a nonprecedent case in which the source of investment funds was a gift (although the same guidance would logically apply to a loan), the AAO stated that [if] the original source is a gift, the petitioner must establish that the individual gifting the funds obtained those funds through lawful income. 15 Fortunately, the AAO also indicated that the petitioner need not trace back the specific funds transferred by the [donor] to their previous source, but that the petitioner must provide at least basic evidence that [the donor] has lawful income or a legitimate business or investment interest that could account for the lawful accumulation of significant cash. 16 In light of this guidance, such documentation should include income tax returns (and business income tax returns, if applicable), evidence tracing the funds from the lender to the petitioner/borrower, and an explanation (perhaps by declaration) 15 Matter of [name redacted] (AAO April 20, 2009). 16 Id. regarding the circumstances of the loan, for example, the lender and petitioner are family members. Sufficient documentation regarding the lender will help alleviate concern that unlawful funds originating from the petitioner were funneled through the lender, and then returned to the petitioner under the auspices of a "loan." Specific case examples shed light on what has constituted sufficient evidence for USCIS approval. In one particular case, a petitioner invested the proceeds of an unsecured loan from her uncle, the president of a manufacturing facility in Japan. The uncle indicated that the loan was derived from accumulated employment earnings. The initial petition included proof of the familial relationship, loan agreement, bank statements reflecting the transfer of the loan proceeds from the uncle to the petitioner, and evidence of the uncle s background, including individual and business income tax returns. Observing that the uncle s bank statement reflected a small balance of funds over a period of several years, but revealed a single large deposit of funds approximately one month before the loan proceeds were transferred to the petitioner, USCIS requested additional evidence regarding the uncle s source of income. In response, the petitioner submitted her uncle s income certificates and record of tax withholdings from his employment earnings. She also submitted a declaration from the uncle explaining that he held his earnings in several bank accounts, and that he consolidated some savings in a single transaction through the bank account from which he ultimately wired the proceeds to the petitioner. Based on this additional evidence, USCIS approved the I-526 petition. Gift If the actual source of the petitioner s investment funds is the proceeds of a gift,
the petitioner should submit documentation similar to those required where the source of the EB-5 investment capital is a personal loan. Appropriate documents should include: background information regarding the donor; income tax returns; details of how the donor accumulated sufficient assets; evidence of the path of funds from the donor to the petitioner; and a summary of why the gift was made (again, a declaration should be sufficient). Our experience with this type of transaction has indicated that the I-526 petition may be approved even though the petition is not supported with evidence that the donor has paid a gift tax that may or may not be due under the laws of a certain jurisdiction. Of course, if a gift tax has been paid, evidence of the payment should be included in the petition. In one particular case that was approved by USCIS, a client aggregated her employment earnings with substantial gifts she received from her parents. Substantial background documentation from the parents included income tax returns and lease agreements of properties they owned and from which they derived significant rental income. Due to the banking regulations in India at that time, individuals could not transfer annually more than $200,000 overseas. As the EB-5 investment amount exceeded the regulatory limit, the petitioner s parents sent individual wires directly to the U.S. commercial enterprise with a notation that the transfers were solely for the credit of the petitioner. As further support of these transfers, the petitioner included regulations from the Reserve Bank of India that referred to the currency transfer restrictions. Inheritance A successful petition also may be based on investment of funds that were received by inheritance. The petition should be supported with evidence concerning the relationship between the petitioner and the decedent, probate court documents, bank statement reflecting deposit of proceeds, and death certificate of the decedent. Additionally, background information regarding how the decedent accumulated the estate assets should be included. It is not uncommon where the inheritance was received many years prior and documentation such as probate court documents or financial information of the decedent are not readily available. Also, the events may be so remote that the petitioner lacks documentation that would trace funds from the decedent s estate to the petitioner. In these circumstances, the petition should be supported with declarations of the petitioner and other parties with personal knowledge of the decedent, estate assets, and/or inheritance transfer, such as a statement from the probate attorney. These statements should explain thoroughly the assets inherited by the petitioner (and value of the assets, if possible), background information of the decedent, and other relevant facts concerning the inheritance. In one illustrative case, the petitioner received an inheritance upon the death of his father, but documentation of the will was not available. The documentation filed in support of the petition included the death certificate, evidence of the investor s receipt of the inherited funds, certification of payment of inheritance tax, receipts for payment of inheritance tax, and a declaration from the attorney-executor listing the beneficiaries and describing the contents of the estate. Transaction The actual source of funds may be based on the proceeds of a certain transaction such as a sale or a loan involving real property, stocks, or a business.
When the actual source of funds can be isolated to a specific transaction, most petitioners can pull together documentation concerning the surrounding circumstances, including deeds, closing statements, account statements, and like documentation. The petitioner also should address how and when they acquired or purchased the subject asset of the transaction, e.g., residence, business, stocks, or retirement account. Real estate In a transaction involving real estate, it is common for the petitioner to have purchased the home with employment earnings and bank financing many years ago. Often following substantial appreciation of the property s value, the petitioner obtains a significant line of credit or realizes substantial capital gains following the sale of the home. Where the petitioner sold a residence or obtained a home-equity loan and has used the proceeds of the transaction to invest, the petitioner should produce documentation such as the purchase or loan agreement, final settlement statement, and verification that the proceeds were received in the petitioner s individual bank account. Documentation of the sale of property may vary between countries. For example, in the United Kingdom, investors often are able to provide a solicitor s statement confirming completion of the sale and amount of the net proceeds. This documentation can be supplemented with the investor s bank statement showing the deposit of the proceeds. For other countries, documentation of the sale of real estate may be more difficult to obtain. For example, an investor using proceeds from the sale of real estate in Iran may only have the real estate sales contract as evidence of the completed transaction. In this case, the petition should be supported by an explanation as to how the funds were transferred, and documentation as to the petitioner s general sources of income. To complicate the matter, in Iran, the payment of property transfer taxes is sometimes made before the recording of the property transfer. In this event, it would be helpful to include documentation regarding Iranian tax obligations in the form of a declaration from a professional with expertise in the area. As an alternative to selling their home, a petitioner may obtain a bank loan secured by their residential or commercial real estate, and use the proceeds for investment purposes. As indicated earlier, many petitioners have benefited from the significant appreciation in real estate markets worldwide, and are able to obtain a loan or line of credit against the equity in their real property. In such cases, the EB-5 petitioner should provide documentation supporting this transaction, such as the loan or line-of-credit agreement, settlement statement, and personal bank statement (and related bank documents) confirming receipt of funds from the lending institution. An appraisal of the property should be submitted as well, if available. Stocks A substantial stock portfolio is also often the actual source of the investment capital. Petitioners may opt to sell their securities which may have increased in value over a lengthy period of time or obtain institutional loans that are secured by assets contained in their securities portfolio. In one particular case, a retired investment banker from the United Kingdom regularly invested his employment earnings in an equities account held at a major brokerage firm. To enable his wife to invest in a commercial enterprise, he obtained a loan of $530,000 from the brokerage firm, for which his securities portfolio of approximately $5 million served as collateral. The petition included the loan
agreement between the spouse and the brokerage firm, the spouse's brokerage statement reflecting a balance of $5 million, the petitioner's account statement reflecting deposit of the loan proceeds, and a declaration from the petitioner detailing the circumstances in which she obtained the proceeds. The petitioner also included evidence of her husband s prior earnings, including income tax returns. In another case that was also approved by USCIS, the petitioner sold stocks held in different companies in the United States and Korea. To document the proceeds she received from both stock sales, she submitted her passbook which reflected the deposits, stock purchase and sale agreement, stock ledger, and a detailed declaration confirming how she acquired the stocks. Sale of Business Assets Where the petitioner obtained proceeds from the sale of his or her business assets, supporting documents should include copies of the purchase agreement, bank statement reflecting the receipt of sale proceeds, evidence that the petitioner owned the business (such as corporate registration and business license), and evidence of the business' value, such as financial statements and tax records. If the sale occurred many years ago and such documents are not readily available, the practitioner will need to work with the petitioner in identifying other types of reliable documentation that can evidence the sales transaction and receipt of proceeds. In an illustrative case, to document the sale of assets in a Nigerian company in which he held 10% interest, a client provided substantial evidence, including: the asset purchase agreement, wire instructions directing the deposits of the proceeds, bank statement reflecting a credit from the sale, and various corporate documents (registration, memorandum and articles of association). As the client s father established the company and held a majority interest, background information of the father was also included, such as news articles discussing his accomplishments and business interests, as well as a detailed declaration. Retirement funds Successful EB-5 petitioners have also derived their investment capital from accumulated funds in their retirement accounts. In these cases, the petitioner should present evidence of their employment, periodic contributions to their retirement account, application or written request to withdraw the funds, and their individual bank statement reflecting the deposit of the proceeds. In cases we have prepared that have utilized this form of investment capital, the proceeds often were not credited into the petitioner's bank account but directly transferred to the commercial enterprise by the pension management company on the petitioner's behalf. To avoid the appearance that the company is the investor, it is imperative to submit evidence that the transfer reflected personal funds owned by the petitioner, and that the transfer was conducted for the benefit of the petitioner. Evidence may include the petitioner's account statement and wire instructions directing the transfer of the retirement funds to the enterprise on behalf of the petitioner. General Wealth Accumulation For some investors, the income reported on their income tax returns in the last five years may demonstrate that they earned sufficient income to invest in the commercial enterprise. Alternatively, as described earlier, the petitioner may be able to isolate a specific event or transaction that demonstrates the receipt of sufficient funds for the EB-5 investment.
For other investors, the income reported on the last five years of tax returns may not obviously reflect a "level of income" that would allow investment of the capital amount they invested into the commercial enterprise. These individuals may have accumulated their wealth from more modest employment, business, and/or investment earnings over a period of many years. In these cases, the investor will need to be able to provide other forms of reliable evidence that demonstrate how the capital was accumulated over time from lawful sources. Based on our experience, USCIS has been reasonable in considering a petitioner's overall financial background without imposing an onerous demand for a detailed analysis of historical earnings over a particular period of time. Two AAO precedent decisions Matter of Izumii 17 and Matter of Ho 18 addressed the issue of level of income." The petitioner in Izumii claimed he earned sufficient income in a jeans-trading business, but he presented only two years of income tax returns and scant further evidence, leading the AAO to reason that he lacked sufficient evidence of having discretionary funds that could be used for investment. The petitioner in Ho claimed he earned income as a medical doctor. However, the AAO noted that he presented no evidence supporting this assertion, and thus, it determined that the record did not contain evidence of his income. With respect to the requirement that the investment capital originated from a lawful source, these AAO precedent decisions are significant for illustrating that a petitioner cannot succeed by presenting little or no evidence of financial background. In noting the paucity of evidence in these cases, the AAO did not establish a rule requiring petitioners to prove by way of evidence of earnings as well as evidence of the cost of living that the level of income only in recent years is sufficient for the EB-5 investment. Rather, the AAO has indicated that USCIS examiners can consider evidence of lifetime earnings, if such evidence is probative of general wealth accumulation. In a telling nonprecedent EB-5 case, the AAO approved the petition, remarking: While the petitioner has not demonstrated an unusually large income, she has demonstrated a pattern of steady income and 26 years of professional employment that is not inconsistent with the accumulation of $500,000 at the time of retirement. 19 One particularly challenging case we prepared involved a French citizen who invested in small residential properties in France, and parlayed the capital gains into other real estate and stock investments. The client produced a list of the properties that he could recall purchasing and selling over the last 20 years in France. Because he conducted numerous transactions over the years, he determined it would be nearly impossible to produce evidence of all proceeds that he received. However, he was able to retrieve a representative sampling of real estate transactions. Coupled with a detailed declaration, a letter from an accountant examining his tax records, and letters from his real estate attorneys in France, the petition was ultimately approved by USCIS following the response to a request for additional evidence. In preparing the source documentation for these petitions, the practitioner should take note that the burden on the petitioner in visa petition proceedings is usually that of a 17 Supra note 9. 18 Id. 19 Matter of [name redacted] (AAO Dec. 30, 2004).
preponderance of the evidence, 20 and that "preponderance of the evidence" means more likely than not. 21 Where a petitioner presents credible evidence in support of proving a particular fact and no contradicting evidence is available, USCIS should conclude that the petitioner has satisfied his or her burden of proving that fact. 22 TRACING In addition to providing evidence of the lawful source of the investment capital, the petitioner must document carefully the path of funds from the petitioner to the EB-5 enterprise. The AAO has held that without documentation of the path of funds, the petitioner cannot meet his burden of establishing that the funds are his own funds. 23 The AAO also has stressed that if the U.S. enterprise receives invested funds from an account that is not clearly identified as the account of the petitioner, the petitioner will be requested to provide further evidence. To trace the funds to the petitioner, documentation should reflect that the petitioner transferred personal funds to the commercial enterprise. Such evidence would typically include the bank statement of the enterprise confirming receipt of the petitioner s investment funds, and the petitioner s bank statement reflecting a 20 Matter of Soo Hoo, 11 I&N Dec. 151 (BIA 1965); Matter of Patel, 19 I&N Dec. 774 (BIA 1988); Matter of Martinez, 21 I&N Dec. 1035 (BIA 1997). 21 Matter of J-E, 23 I&N Dec. 291 (BIA 2002). 22 See, e.g., Young China Daily v. Chappell, 724 F. Supp. 552 (N.D. Cal. 1989); Augat, Inc. v. Tabor, 719 F. Supp. 1158 (D. Mass. 1989); Globenet, Inc. v. Att'y Gen., Civil Action No. 88-1261 (HHG), 1989 U.S. Dist. LEXIS 7154 (D.D.C. Jan. 10, 1989); Hong Kong T.V. Video Program, Inc. v. Ilchert, 685 F. Supp. 712 (N.D. Cal. 1988) (petitioner's proof was sufficient to establish eligibility for H-1B classification). 23 Supra note 7. corresponding transfer or withdrawal of funds to the enterprise. Where applicable, other related bank documentation, such as cancelled checks or wire receipts and instructions should also be submitted. Currency transfer laws Tracing the investment funds from the enterprise to the petitioner will be more difficult to document in some cases due to various factors, such as the currency transfer laws of the petitioner s home country. Certain countries have laws that restrict the transfer of funds out of the country. This has the effect of encumbering the investor s ability to freely transfer funds held in a personal bank account to a U.S. commercial enterprise. It is not advisable to counsel the investor to transfer the funds in a particular manner to the U.S. commercial enterprise, or to be directly involved in the transfer of funds, such as accepting the transferred funds into the attorney s account. Engaging in any of these practices may result in a money-laundering charge against the attorney and/or the client, and/or civil or criminal penalties for the client in his or her home country. Clients seeking assistance with transferring funds overseas should be advised to consult local counsel on this matter. In our experience, petitioners often transfer their investment capital to the United States by employing the assistance of third-party intermediaries. USCIS has not withheld approval of I-526 petitions in which the petitioner has used this practice but did not submit documentation reflecting compliance with currency transfer laws. We have stressed in earlier publications that it would be ultra vires action to require such proof. 24 USCIS personnel have informally expressed that examiners will not insist on 24 See L. Stone & S. Yale-Loehr, Evidence of Source of Capital in Immigrant Investor Cases, 6 Bender s Immigration Bulletin 972 (Oct. 1, 2001).
compliance with such foreign laws, which is on a par with E-2 visa adjudication in regards to this particular consideration. 25 Copies of bank statements, wire receipts and instructions, and cancelled checks should be included to demonstrate the path of funds. Where some documents may not be available, declarations have been invaluable in detailing how and why the funds were transferred in a particular manner. Declarations are also helpful in confirming that the third parties involved in coursing the funds to the United States are not equity investors in the U.S. commercial enterprise. We counsel clients that transparency is paramount to show that the funds originated from the petitioner, and remained within the petitioner s control and direction at all times. With Iranian investors, for example, it is a common practice for funds to be transferred to intermediaries who in turn will transfer funds to the United States for the credit of the particular Iranian national. The petition should be supported with ample documentation concerning the transfers to and from the intermediary entities, as well as an explanation as to this common practice of transferring funds out of Iran. The People s Republic of China (PRC) also has laws restricting the transfer of currency overseas. Currently, the PRC limits the annual overseas remittance per individual to $50,000. 26 To transfer investment capital of $500,000 to the United 25 See, e.g., INA 101(a)(15)(E)(ii), and 9 FAM 41.51 N.8.1-1, which lack any mention of compliance with laws of the foreign country as a requirement for E-2 visa issuance. 26 See Circular of the State Administration of Foreign Exchange on Printing and Distributing the Detailed Rules on the Implementation of the Measures for the Administration of Individual Foreign Exchange (July 13, 2009), published in English on the website of the State Administration of Foreign Exchange (SAFE), at www.safe.gov.cn/model_safe_en/ (last visited March 31, 2010). States, some of our Chinese clients have enlisted the assistance of 10 individuals to facilitate the transfer of funds. In one illustrative case, a Chinese national asked 10 friends and family members to each transfer $50,000 to his son (the petitioner), an F-1 student in the United States who wished to obtain conditional resident status through an EB-5 investment. Evidence submitted in support of this petition included: the father s bank book reflecting 10 withdrawals of $50,000 each; the bank books and outgoing wire remittance receipts of the 10 individuals, confirming receipt of the funds from the father and outgoing transfer to the petitioner; and the petitioner s U.S. bank statement, reflecting 10 deposits totaling $500,000. The father also provided a declaration confirming that the funds represented a gift, and detailing how and why the gift funds were transferred to his son through third parties. 27 Another country with restrictive transfer laws is India. 28 In one particularly challenging case, an Indian national sold his company for approximately $29 million, which was deposited into an account shared with his wife, the petitioner. To transfer investment funds to the U.S. commercial enterprise, she consulted tax professionals in India about Indian laws that regulate overseas transfers of personal funds. They advised her to course the investment funds held in her joint account through an Indian company s second level investment, e.g., wholly-owned subsidiary. 27 The ability to transfer the funds through third parties may now be more difficult, in light of a recent directive issued by the PRC government. See Circular of the State Administration of Foreign Exchange Settlement and Sale Business for Individuals (December 23, 2009), published in English on the website of SAFE, at www.safe.gov.cn/model_safe_en/ (last visited March 31, 2010). 28 See www.rbi.org.in.
Following this advice, she transferred the funds through another Indian company she fully owned and controlled, and set up a U.S. subsidiary of this Indian company. She subsequently transferred her personal investment funds through the account of the Indian company, and then onto the account of the U.S. subsidiary, from which she eventually wired the investment funds to the EB-5 enterprise. USCIS issued a request for evidence that the funds reflected the petitioner s personal funds not the funds of the business. After submitting a detailed letter from her tax advisor, excerpts of the relevant currency transfer laws in India, and a declaration from the petitioner in response to the request for evidence, USCIS approved the petition. CHALLENGES SPECIFIC TO CERTAIN COUNTRIES In addition to country-related tracing issues, sources of investment capital originating from certain countries such as China and Iran may invite closer scrutiny by USCIS examiners, presumably due to national security and documentation challenges. Petitioners from these countries may lack evidence of income tax filings, which are often viewed as reliable documentation concerning individual wealth accumulation. Due to currency transfer laws as discussed above, transfers of funds to the United States are not typically straightforward. There may also be cultural attitudes towards the government, such as a desire to keep financial information confidential. Although USCIS has been approving meritorious cases on behalf of petitioners from these countries, practitioners should be advised that all of these factors in the aggregate can present formidable challenges in documenting evidence of the lawful source of investment capital. 29 For example, documentation of the transfer of funds and business transactions in Iran is often sparse. In one particular case, the petitioner received a gift from his father, who derived the capital from the sale of commercial property in Iran. The father could only produce a transaction letter, which provided details of property sale, and a document entitled Property Deliver Minute, confirming transfer of the assets and receipt of the sale proceeds. The documents tracing the gift funds directly to the father were also intermittent. To address the evidentiary holes in the petition, the petitioner provided a detailed declaration that served as a narrative of the events that transpired, including the source of the gift funds. Clients from Iran also should be counseled to consult an attorney knowledgeable about the Iranian Transaction Regulations and Related Executive Orders enforced by the U.S. Department of Treasury s Office of Foreign Assets Control (OFAC) which prohibit the receipt of funds that pass through certain banks in Iran. 30 Petitions on behalf of Iranian investors that include an approval letter from OFAC have been approved by USCIS. For EB-5 petitions involving Chinese nationals, practitioners will discover that tax filing requirements will differ, depending on when and how the income was earned. 31 29 See, e.g., K. White, Russian EB-5 Investors Unwrapping the Mystery, for a detailed discussion of Russian nationals and EB-5 immigration, elsewhere in this volume. 30 See www.treas.gov/offices/enforcement/ofac/ programs/iran/iran/pdf. For a detailed discussion of these regulations and executive orders, see E. Krauland and J. Hayes, Anti-Money Laundering and OFAC Sanctions Concerns for Immigration Practitioners Assisting Foreign Investors, elsewhere in this volume. 31 See R. Gaffney, Country-Specific Issues and Challenges in Representing EB-5 Petitioners from the
Chinese clients may be able to provide tax payment receipts as evidence that they earned income that was taxable by the Chinese government. In other situations, employers may have paid income taxes on behalf of the Chinese employee. In these instances, we request a letter from the employer attesting to the wages earned by the petitioner and taxes paid on behalf of the petitioner, as well as evidence of the tax payments. UNLAWFUL STATUS OBSTACLE TO EB-5 IMMIGRATION? Certain nonprecedent AAO decisions have raised the question of whether a petitioner who has resided unlawfully in the United States may be able to qualify for the EB-5 category. 32 Such cases suggest that a petitioner in unlawful status must prove that the invested funds were not earned as the result of unauthorized stay or unauthorized employment in the United States. Note that this is merely a question of lawful status, not a question of whether the invested funds must come from abroad; legacy Immigration and Naturalization Service has stated clearly that invested funds need not originate from abroad. 33 In adjudicating EB-5 petitions, USCIS will note whether the petitioner is in lawful status in the United States. This information is elicited on Form I-526, specifically: the status the petitioner currently holds in the United States; when the status will expire; and whether the petitioner has ever worked People s Republic of China, elsewhere in this volume, for a detailed discussion about Chinese taxation laws and complications for Chinese EB-5 investor cases. 32 See Matter of [name redacted] (AAO Apr. 7, 2009); see also cases reviewed in L. Stone, Immigrant Investment in Local Clusters: Part II, Interpreter Releases 946, 948 (July 14, 2003). 33 56 Fed Reg. 60897, 60902 (Nov. 29, 1991); see also Department of State E-2 visa guidance at 9 FAM 41.51 N8.1-1. without authorization in the United States. Where the petitioner claims that the investment funds were derived from employment earnings, USCIS may question whether the investment funds were earned without authorization. If so, USCIS may characterize such funds as not lawfully obtained. In this situation, it would be advisable to explore with the petitioner whether he has alternative sources of investment capital other than employment income that may have been earned without proper authorization from USCIS. Bearing this issue in mind, we have successfully represented clients who were in the United States unlawfully, but had the means to invest in a commercial enterprise and were otherwise eligible to adjust their status to conditional resident under INA 245(i). 34 In one such case, the petitioner had overstayed the period authorized to him as a tourist. While in the United States, he was severely injured in an automobile accident and received a settlement of several million dollars, from which he derived his investment funds. Documentation of the lawfully-obtained funds included copies of the settlement checks, account statement from the court acting as trustee of the settlement funds, and court order confirming settlement of the lawsuit. In another case, the petitioner obtained his investment capital from the sale of real estate that he had inherited from his lawful permanent resident mother, and a personal 34 Notwithstanding failure to maintain lawful status or engagement in unauthorized employment, some petitioners may be eligible to adjust status to conditional or permanent resident status under INA 245(i). Practitioners should note that INA 245(k) which authorizes adjustment of status for certain employmentbased immigrants who failed to maintain lawful status for less than 180 days does not include EB-5 petitioners.
loan from his U.S citizen domestic partner. Supporting documents included evidence tracing the funds from the real estate sale and loan transaction to the petitioner s bank account, real estate sale agreement, promissory note issued by the domestic partner, and evidence of the domestic partner s U.S. citizenship. RAMIFICATIONS FOR I-829 PETITION Towards the end of the two-year conditional resident period, the EB-5 petitioner will be required to file Form I-829 to remove the conditions from his or her resident status. It is important to note that the law governing the adjudication of I-829 petitions does not require submission of evidence that the source of the investment capital was lawful. 35 CONCLUSION Successfully representing the EB-5 petitioner requires careful review of the legal and regulatory requirements, as well as close collaboration with the petitioner in identifying and documenting thoroughly the source and tracing of his or her investment capital. Addressing this requirement early in the planning stages will help guide client expectations and address clearly one of the more thorny requirements of EB-5 immigration. If USCIS questions the source of funds during the adjudication of the I-829 petition, it must detail with particularity why this evidence is being requested. Specifically, the regulations state that if "it becomes known to the government that the entrepreneur obtained his or her investment funds through other than legal means (such as through the sale of illegal drugs)," USCIS shall offer the alien entrepreneur the opportunity to rebut such information. 36 If the petitioner fails to overcome such derogatory information or evidence that the source of funds was unlawful, USCIS may deny the I-829 petition, terminate resident status, and issue a notice to appear in removal proceedings. 37 35 For a detailed discussion of the requirements for removal of conditions of EB-5 investors, see L. Stone, Conditional Permanent Residence and Immigration Risk for Investors, elsewhere in this volume. 36 8 CFR 216.6(c)(2). 37 Id.