EB-5 PROCEDURES: INITIAL EVIDENCE

The regular EB-5 program and the pilot program have similar requirements to begin the process. The distinction between the two processes is that the former requires the petitioner to submit all of the described evidence; the latter requires the designated regional center to certify that the investor has met its criteria.

In either case the investor files for EB-5 classification using Form I-526. The petition must be signed by the investor, not someone acting on his or her behalf. If the EB-5 commercial enterprise will primarily do business in a location within the ordinary jurisdiction of the Vermont or Texas Service Centers, the petition is filed with the Texas Service Center; otherwise it is filed with the California Service Center.[1]

Initial Evidence for the Regular EB-5 Program

The following paragraphs detail the evidence that should be submitted with an I-526 petition for EB-5 classification under the regular program.

The New Commercial Enterprise—To qualify for EB-5 classification an investor must show that an investment has been made in a qualified commercial enterprise. The applicant should include:

§           An organizational document for the new enterprise, including articles of incorporation, certificates of merger and consolidation, or partnership agreements;

§           A business license or authorization to transact business in a state or city, if applicable; and

§           For investments in an existing business, proof that the required amount of capital was transferred to the business after November 29, 1990, and that the investment has increased the net worth or number of employees by 40 percent or more.[2]

Capitalization—To show that the petitioner has invested (or is actively in the process of investing) the required amount of capital, the petition must be accompanied by evidence that the petitioner has placed the required amount of capital “at risk.” A mere intention to invest will not demonstrate that the petitioner is actively in the process of investing. The investor must show actual commitment of the required amount of capital. Such evidence may include:

§           Bank statements showing deposits in the U.S. account of the enterprise;

§           Evidence of assets purchased for use in the enterprise;

§           Evidence of property transferred from abroad;

§           Evidence of funds invested in the enterprise in exchange for stock, except for stock redeemable at the holder’s request; or

§           Evidence of debts secured by the investor’s assets and for which the investor is personally and primarily liable.[3]

The AAO has held that merely putting cash into the corporate account of a business does not show that the capital is “at risk” for the purpose of generating a return.[4] The AAO has also held that the full amount of the required capital must be expended by the enterprise directly toward job creation; otherwise that capital is not at risk of loss.[5] Based on these statements, it is difficult to know what a petitioner must do to show that the money is truly at risk.

Legal Acquisition of Capital[6]—The regulations require filing the following types of documentation to establish that capital used in the new enterprise was acquired by legitimate means:

§           Foreign business registration records;

§           Personal and business tax returns, or other tax returns of any kind filed anywhere in the world within the previous five years;

§           Documents identifying any other source of money; or

§           Certified copies of all pending governmental civil or criminal actions and proceedings, or any private civil actions involving money judgments against the investor within the past 15 years.[7]

Although the regulations list these requirements in the disjunctive, meaning that submission of any one type of document should suffice, the AAO requires investors to submit tax returns for the previous five years.[8] This interpretation makes it harder for investors to qualify for EB-5 status, and appears to violate the regulations.

The regulations further define “capital” as only those assets acquired through lawful means.[9] The AAO has held that money earned or assets acquired while in the United States in an unlawful status are not considered lawful means to acquire capital.[10] This interpretation goes far beyond Congress’ original concern to prevent drug smugglers or other criminals to use their ill-gotten gains to be able to obtain permanent residents status in the United States through the EB-5 category.

Earned income is generally the most straightforward source of funds, but it is necessary to document exactly how the money was earned and to provide tax returns documenting that all due taxes were paid in full. An example of a more complex earned income scenario our office handled involves a French academic with 20 years of tax-exempt public sector service,. The French academic provided tax returns, an accountant’s letter explaining the tax-exempt income, and income receipts accounting for five years of earned income.

Gift money usually requires more complex documentation of source of funds, as the donor must document lawful obtainment of funds, as well as providing tax returns. Additionally, all gift taxes due, as applicable, must be paid on the gift by the donor and/or investor.

“Old money” also present challenges in documenting how funds obtained by inheritance, were lawfully obtained.[11]

The importance of tracing funds is present in all of the above scenarios. The sticky issues involving gifting, disposition of a trust, inheritance, and other complex fact patterns must be accompanied by full documentation of the history of the funds and objective confirmation that all taxes have been paid on the acquisition and disposition of the funds.

Creating Employment—To show that a new commercial enterprise will create at least 10 full-time positions for qualified employees, the petition must be accompanied by:

§           Photocopies of relevant tax records, Forms I-9, or similar documents for 10 qualifying employees; or

§           A comprehensive business plan showing the need for at least 10 qualifying employees, and when the employees will be hired.[12] The plan should include a description of the business; the business’ objectives; a market analysis including names of competing businesses and their relative strengths and weaknesses; a comparison of the competition’s products and pricing structures; a description of the target market and prospective customers; a description of any manufacturing or production processes, materials required and supply sources; details of any contracts executed; marketing strategy including pricing, advertising, and servicing; organizational structure; and sales, cost and income projections and details of the bases therefore. In addition, specifically with respect to employment, the business plan must set forth the company’s personnel experience, staffing requirements, job descriptions for all positions, and a timetable for hiring.[13]

Troubled Business—To show that a new enterprise, established through capital investment in a troubled business, meets the statutory requirement, the petition must show that the number of existing employees will be maintained at no less than the pre-investment level for a period of at least two years. The applicant should include photocopies of the I-9 forms, tax records or payroll documents, and a comprehensive business plan.[14]

Managerial Capacity of the Investor—An EB-5 immigrant must be involved in the management of a new commercial enterprise to qualify for a visa. The petitioner must either be involved in the day-to-day managerial control of the enterprise, or manage it through policy formulation. These requirements may be evidenced by:

§           A comprehensive job description for the position occupied by the investor. The petitioner’s title should also be indicated;

§           Evidence that the petitioner is a corporate officer or on the board of directors; or

§           Evidence that the petitioner is involved in direct management activities or policymaking activities of a general or limited partnership. A limited partner must also show that he has rights, powers and duties commensurate with those normally granted under the Uniform Limited Partnership Act (ULPA).[15] The AAO, however, has found that merely calling the investor a limited partner pursuant to the ULPA in a partnership agreement does not automatically mean that the person is involved in the management of the new commercial enterprise.[16]

Designation of a High Unemployment Area—The state government may designate a particular geographic or political subdivision as an area of high unemployment (at least 150 percent of the national average rate). Evidence of such designation may be provided with Form I-526. Such evidence should include:

§           Boundaries of the subdivision;

§           The date of the designation; and

§           The methods by which the statistics were gathered.[17]

Creation of Employment in a Targeted Employment Area—To show that the new commercial enterprise has created, or will create, employment in a targeted employment area, the petition must be accompanied by:

§           For a rural area, evidence that the new commercial enterprise is not located within any standard metropolitan statistical area, or within any city or town having a population of 20,000 or more; or

§           For a high unemployment area, evidence that the metropolitan statistical area, or the county in which a city or town with a population of 20,000 or more is located, in which the new commercial enterprise is principally doing business has experienced an average unemployment rate of 150 percent of the national average rate; or a letter from the state in which the new commercial enterprise is located which certifies that the area has been designated as a high unemployment area.[18]

Regional Centers

An investment under the EB-5 pilot program must be made in a commercial enterprise located within a “regional center,” defined as “any economic unit, public or private, which is involved with the promotion of economic growth, including increased export sales, improved regional productivity, job creation, or increased domestic capital investment.”[19]

A center seeking USCIS approval must submit a proposal showing how it plans to focus on a geographical region within the United States and to achieve the required growth by the means specified.[20]

 The proposal must show “in verifiable detail how jobs will be created indirectly through increased exports,” as well as the amount and source of capital committed and the promotional efforts made and planned.[21] The Appendix at the end of this article contains a list of designated regional centers. However, only about 17 of the approved regional centers are actually functioning. Another dozen or more applications for regional center designation are pending.

The USCIS is backlogged in reviewing applications for regional center designation under the pilot program. Many applications for regional center designation have remained pending for over a year. In 2000, the INS issued five decisions on regional center applications, denying or remanding all of them.[22] The decisions set forth restrictive new requirements to qualify as a regional center.[23]

To counteract this trend, in 2002 Congress amended the EB-5 regional center designation provisions.[24] Under the 2002 law, USCIS should approve applications for EB-5 regional center status as long as the applications are based on a general prediction concerning: (1) the kinds of commercial enterprises that will receive capital from investor; (2) the jobs that will be created directly or indirectly as a result of the investment of capital; and (3) the other positive economic impacts that will result from the investment of capital.[25]

USCIS is currently stepping up its review of new regional center applications and increasing oversight of existing regional centers to ensure that the EB-5 program grows in a responsible way.[26] For example, in June 2007, Maurice Berez, Program Manager for the USCIS Foreign Trader, Investor & Regional Center Program, sent an advisory letter to the Metropolitan Milwaukee Association of Commerce (MMAC), a regional center in Wisconsin.[27] The letter outlines 17 types of information that approved regional centers must track to keep their regional center designation.

The reporting requirements set forth in the MMAC letter mirror recent regional center decisions, which are growing ever longer and more detailed. In essence the USCIS is exercising greater oversight of regional centers in all aspects of the EB-5 process: (1) in granting or denying regional center status; (2) in maintaining regional center status; and (3) in monitoring compliance through immigrant investors’ I-526 and I-829 petitions filed through regional centers.

Assuming a regional center application has been approved, an applicant seeking EB-5 status under the pilot program must make the qualifying investment (i.e., the amount required under the regular program) within an approved regional center. However, the requirement of creating at least 10 new jobs is met by a showing that as a result of the new enterprise, such jobs will be created directly or indirectly.[28]

To file an I-526 form under the pilot program, attach a copy of the INS or USCIS letter designating the regional center. The petitioner’s new commercial enterprise must be within the area specified in that letter. If the commercial enterprise is involved directly or indirectly in lending money to job-creating businesses, it may only lend money to businesses located within targeted employment areas to take advantage of the lesser capital requirement ($500,000).[29] The businesses receiving the loans must be within the geographic limits of the regional center if the enterprise is to qualify under the pilot program. Otherwise the enterprise is not promoting economic growth through “improved regional activity” as required by the regulations.[30]

In 2003 Congress gave USCIS discretion to “give priority” to EB-5 petitions filed through a regional center.[31] USCIS exercises this authority judiciously, and specific criteria must be met before USCIS will expedite an I-526 petition filed through a regional center.

EB-5 PROCEDURES: REMOVING CONDITIONS

Assuming USCIS approves an investor’s I-526 petition under either the regular or pilot program, he or she becomes a conditional resident for two years following the approval of an adjustment application or admission under an immigrant visa.[32] The procedure to remove the conditions is analogous to that followed by people who obtain conditional residence through marriage to a U.S. citizen or lawful permanent resident.[33] An immigrant investor’s petition to remove the conditions should be filed on Form I-829 with the relevant service center.[34] It must be accompanied by evidence that the individual invested or was in the process of investing the required capital, and that the investment created or will create 10 full-time jobs. These jobs may be filled by eligible U.S. workers with payroll records, relevant tax documentation, and Forms I-9.[35] The individual also must show that he or she “sustained the actions” required for removal of conditions during the person’s residence in the United States. An entrepreneur will have met this requirement if he or she has “substantially met” the capital investment requirement and has continuously maintained this investment during the conditional period.[36]

Failure to File Form I-829

An immigrant investor in conditional resident status must submit Form I-829 to the appropriate service center within the 90-day period immediately preceding the second anniversary of his or her admission to the United States as a conditional permanent resident.[37] Failure to do so will result in automatic termination of the conditional resident’s status and initiation of removal proceedings.[38]

Working with a Regional Center to Prepare Form I-829

If an immigrant investor has an approved I-526 petition by investing in a regional center, it is important to work with the regional center well in advance to prepare the I-829 documentation. The regional center should provide each immigrant investor with verification of employment for the employees hired because of the immigrant investor’s investment, as well as documentary proof of the immigrant investor’s complete deposit of funds.

Adjudication of Form I-829 by a Service Center

Initial Review of Form I-829—An immigration service center may (1) approve an I-829 petition without review, (2) issue a request for further evidence, or (3) refer it for an adjudication (with or without the interview) by a district office.[39]

Approval of Form I-829 by the USCIS Service Center—A service center may approve an I-829 petition if the petition establishes the requirements for removing the conditions outlined above. If approved, the service center director will remove the conditions on the conditional resident’s status as of the second anniversary of his or her admission as a conditional resident.[40] The approval notice will instruct the conditional resident to report to the appropriate district office for processing for a new permanent resident card (Form I-551). At the district office, the conditional resident will surrender any permanent resident card previously issued and receive interim documents valid for 12 months in the form of either a temporary I-551 stamp in his or her unexpired foreign passport, or a Form I-94 containing a temporary I-551 stamp and his or her photograph.[41]

Request for Further Evidence—A service center may also issue a request for further evidence (RFE). An RFE must be based on a determination by the service center director that the conditional resident must provide further documentation or answer certain questions in writing.[42] If the questions cannot be answered in writing, the petition must be referred for an interview. An RFE will not be issued if the petition is clearly deniable on grounds other than those for which the RFE might be issued. A conditional resident has up to 12 weeks to respond to an RFE.[43] Upon receipt of the RFE, the service center director must either approve or refer the Form I-829 petition to the district office.[44]

An RFE may be issued for many reasons. One issue that sometimes arises in I-829 adjudications is whether the proper number of jobs has been created. The regulations state that an investor must submit evidence that he or she created or can be expected to create 10 jobs "within a reasonable time."[45] Asked to define that phrase, USCIS responded:

"USCIS cannot articulate a bright line rule to define what constitutes a “reasonable period of time” as such period will depend on the factors of each individual case. USCIS will consider all appropriate evidence that would (a) clearly justify not having completed the job creation by the end of the two years of conditional residence (e.g., the nature of the investment, the industry involved, etc.) and (b) show that the full number of requisite new jobs will be created within a clear, defined and credible period of time."[46]

Determination that Referral to District Office is Appropriate—A service center will refer the petition to a district director if the initial review of the petition or the response to a request for additional evidence reveals that (1) the requirements for removal of conditions have not been met and the case should be denied without an interview, or (2) an interview is necessary to approve or deny the petition.[47]

Adjudication of Form I-829 by the District Office

Approval of Form I-829 by the District Director—A district office may approve an I-829 petition if it is satisfied that the petition satisfies the requirements for removing the condition outlined above.[48]

Denial of Form I-829 by the District Director—A district director must deny an I-829 petition if the petition does not establish the requirements for removing the condition. There is no appeal from this decision. The conditional resident may seek review of the district director’s decision in removal proceedings.[49]

Status of Conditional Residents While I-829 is Pending

Immigrant investors remain in valid status while their I-829 petition is pending. Their status is supposed to be extended automatically in one-year increments until USCIS acts on the petition. During that time they are authorized to travel.[50] Practitioners have complained, however, that many offices are unaware of this procedure. Extending conditional resident status, obtaining re-entry permits, and proving authorization to travel can be particularly difficult for spouses and children of EB-5 investors.

USCIS issued a memo in January 2005 intended to help conditional residents with pending or denied I-829 petitions that might benefit from the 2002 law discussed below.[51] The memo instructs USCIS adjudicators to extend conditional resident status for affected EB-5 petitioners. The memo also instructs agency officials to assist pending I-829 petitioners with travel and parole requests.[52]

Conditional permanent residents with pending I-829 petitions should travel with an attorney “pocket letter” describing their status with a copy of the January 2005 memo validating their claims.

TERMINATION OF EB-5 STATUS

The statute provides three separate grounds for terminating an EB-5 investor’s status during the two-year conditional period.[53] Immigrant status will be terminated if USCIS determines that:

§           The investment in the new commercial enterprise was to evade the immigration laws of the United States.[54] This provision requires termination only if the investment of the enterprise was “solely” to evade immigration laws. This suggests that if the investment was made with legitimate intentions, in addition to an intention to fraudulently procure permanent resident status, termination would not be proper under this ground;

§           The investor failed to invest (or was not in the process of investing) the requisite capital, or failed to sustain the investments during the two-year conditional period;[55] or

§           The individual was otherwise not conforming to the requirements of the employment-creation status provisions of INA §203(b)(5).[56] This catch-all provision is dangerous because it does not define the conduct giving rise to termination of status. USCIS could potentially apply this provision broadly to terminate the investor status of an applicant for any infraction of the section. Fortunately, however, it does not appear that USCIS has ever invoked this provision to terminate the status of an immigrant investor.

An EB-5 investor admitted under the pilot program is also subject to the same conditions and restrictions.

DETERRING FRAUDULENT INVESTEMENTS

In enacting the EB-5 program, Congress expressed concern about the possibility of fraudulent investments. To deter such fraud, establishing a commercial enterprise for the purpose of “evading any provision of the immigration laws” is a felony punishable by up to five years imprisonment.[57] One reason Congress provided for two-year conditional permanent residency status for EB-5 investors is to aid in this deterrence. This two-year continuum for business activity and investment requires a significant investment and is a strong deterrent to fraud. Nonetheless, should fraud be discovered by USCIS before the two-year conditional period ends, the investor’s status will be terminated.[58] So far it appears that USCIS has not prosecuted any EB-5 investors for fraud.[59]

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