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Recent EB-5 Denials
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Recent AAO Decisions Continue Trend of LimitingImmigrant Investor Visas We recently reviewed 10 decisions decided by the INS’Administrative Appeals Office (AAO) between August 1999 and May 2000concerning immigrant investor petitions. None of the petitioners wassuccessful. As background, Congress created the employment-based fifthpreference (EB-5) immigrant visa category in 1990 for immigrantsseeking to enter the United States to engage in a commercialenterprise that will benefit the U.S. economy and create at least 10full-time jobs. This visa category has always been controversial, andvery few people have immigrated to the United States as investors.Even fewer have qualified as immigrant investors since the AAO issuedfour precedent decisions in summer 1998 that imposed new restrictionson eligibility for this visa category: Matter of Soffici, 22 I.& N. Dec. __, 19 Immigr. Rep. B2-25 (Int. Dec. 3359, Assoc. Comm’r,Examinations June 25, 1998); Matter of Izumii, 22 I. & N.Dec. __, 19 Immigr. Rep. B2-32 (Int. Dec. No. 3360, Assoc. Comm’r,Examinations July 13, 1998); Matter of Ho, 22 I. & N. Dec.__, 19 Immigr. Rep. B2-99 (Int. Dec. 3362, Assoc. Comm’r,Examinations July 31, 1998); and Matter of Hsiung, 22 I. &N. Dec. __, 19 Immigr. Rep. B2-106 (Int. Dec. 3361, Assoc. Comm’r,Examinations, July 31, 1998). A review of AAO cases decided sincethose precedent decisions reveals that it is harder than ever forpetitioners to qualify for the immigrant investor category. The recent AAO cases raise similar issues. These include: whetherthe petitioner formed the enterprise; whether the funds used tocapitalize the enterprise can be traced to the petitioner; whether thefunds are derived from a lawful source; whether the petitioner hasidentified all other sources of capitalizing the enterprise; whetherthe capital is at risk in the sense of earmarking all capital for"profit-generating, employment-creating activities"; andwhether the petitioner has a credible business plan for creating therequired employment. Of the reviewed AAO decisions, the AAO concludedthat each of the petitioners failed to satisfy prevailing standards.Although the recent AAO decisions are not precedent decisions, thecases represent a continuing trend of limiting eligibility for theimmigrant investor category. Summaries of each of the 10 AAO decisions follow. AAO decision, February 4, 2000 The California Service Center (CSC) approved the I-526 petition forEB-5 immigrant investor classification and issued a written decisionin support of the approval. The CSC certified the case for AAO review,however, due to the "complexity" of the case. The AAOreversed the CSC, concluding that the petitioner failed to presentsufficient evidence to prove that his investment would create therequisite employment, that he had established the new commercialenterprise, that he invested the requisite capital, that the capitalwas at risk, and that the petitioner’s funds derived from a lawfulsource. Authority of the AAO The AAO first articulated the basis for its authority:
Creation of Employment The petitioner is one of nine limited partner investors who eachinvested $500,000 in a limited partnership which has as its generalpartner a limited liability company (LLC) that had been designated bythe INS as a regional center under the immigrant investor pilotprogram. Accordingly, proof of the requisite job creation in this casedepended on evidence of indirect employment creation. The regional center is focused on redevelopment of closed federalmilitary bases in the state of California. The partnership consistedof $4.5 million equity cash, invested in units of $500,000 by each ofthe nine investors. The partnership had already placed $2.65 millionof partnership capital for use at the former Norton Air Force Base inSan Bernardino, California. The sum of $2 million was used by thepartnership to purchase stock that would enable a Canadianmanufacturer and its California subsidiary (PPII) to build amanufacturing plant at the closed military base. PPII forecasted 58new jobs in the first year of operations in California, and double theamount in the second year. The sum of $650,000 was loaned by thepartnership to the military base redevelopment agency (IVDA) toimprove infrastructure and to attract new businesses to the militarybase. The IVDA projected that new businesses would relocate to thebase and that several hundred jobs would be created as a result of theinfrastructure improvements. The partnership intended to investanother $1.5 million in similar uses at the closed military base. The AAO found that the petitioner failed to demonstrate whatportion of PPII’s future sales would constitute "exportsales" and failed to establish the connection between the loan tothe IVDA and increased export sales. Therefore, the indirectemployment principles of the pilot program could not be relied upon bythe petitioner. Insofar as the partnership was not an employer,moreover, the petitioner was unable to sustain his burden of provingthe requisite employment creation. Establishment of the new commercial enterprise The petitioner contended that he, the other eight limited partners,and the LLC established the partnership as an original business inAugust 1998, when the partnership agreement was completed, agreed uponand executed. The AAO concluded, however, that the partnership was notestablished by the petitioner because a certificate of limitedpartnership had been filed with the State of California by the LLC(not the petitioner) in March 1998, at least five months earlier. Thepetitioner had argued to the CSC in support of the I-526 petition thatthe AAO precedent decisions of summer 1998 had required him to startfresh in August 1998, and that in any event no partnership businesshad been conducted prior to August 1998, when the new partnershipdocuments were executed. The AAO disagreed: "Merely revising apartnership agreement or business plan of an already formedpartnership does not make the partnership an original business as ofthe latest revision. A business is created as original at only onetime....The petitioner here did not create an original business."Although petitioner did not argue, alternatively, that he hadestablished the enterprise by way of reorganization or expansion, theAAO also dismissed those possibilities by noting that the enterprisemust be a "fully operational business prior to the purchase orexpansion" and the partnership in this case was not fullyoperational at the time of petitioner’s investment. Therefore, thepetitioner did not prove that he had established the enterprise. Targeted employment area The petitioner submitted evidence that San Bernardino, Californiais a high unemployment area. The AAO did not contest the fact, andnoted that the $2.65 million already spent by the partnership wasdirected to uses at the former military base in San Bernardino.However, the AAO concluded that the partnership would not necessarilybe principally doing business in San Bernardino, for two reasons.First, although the partnership agreement restricted use ofpartnership assets to targeted areas, the partnership agreement couldbe amended and the remaining $2 million of partnership assets could beplaced for investment outside San Bernardino in "nontargeted"areas. Second, the mailing address of the general partner was inCorona, California, not in San Bernardino. Accordingly, the AAOdecided that the petitioner did not invest in a targeted employmentarea and instead had to invest $1 million to qualify for immigrantinvestor classification. Investment of the required capital The AAO also found that the petitioner failed to document theorigin of the $500,000 transferred to the partnership. The petitionerpresented a wire transfer record but the AAO was not convinced:
The AAO also decided that the capital invested by the petitioner inthe partnership was not at risk. According to the AAO, the regulationsrequire that "at the time of filing, the petitioner must alreadyhave placed the full requisite amount of capital at risk inprofit-generating, employment-creating activities." The AAO foundthat the petitioner did not meet this standard because: (1) thepartnership agreement permitted the petitioner to exit the partnershipand receive a pro rata distribution of the then-present value ofpartnership assets if he could not obtain the desired immigrationbenefits, and (2) the partnership had not yet expended all $4.5million of its capital. The AAO commented, "it is more thanpossible that the remaining funds will never be invested." Source of funds The petitioner claimed that he had sold stock in his United Kingdomcompany for approximately $15 million and that a portion of the saleproceeds was used to invest in the partnership. He presented assupporting evidence a letter from Coopers & Lybrand describing thestock transaction, a stock purchase agreement, a stock transfer form,minutes of directors meetings describing the transaction, a letterfrom his bank describing his assets, and two years of individualincome tax returns that also referred to the stock transaction. TheAAO dismissed this evidence, stating that there was no independent,objective evidence that the stock transaction ever occurred.Specifically, there was no corroborating evidence the stock transferform had been filed with the U.K. Registrar of Companies, the U.K.income tax returns were unsigned, and petitioner had not explained thetax treatment of the two-step stock transaction. "Share purchaseagreements and minutes of purported director’s meetings, absentcorroborating evidence and particularly when occurring informally andamong family members, are not sufficient to meet the petitioner’sburden of proof." The AAO also noted the absence of "fiveyears of signed personal tax returns that had actually been submittedto the British taxing authority." The AAO also found that the petitioner failed to satisfy 8 C.F.R.§ 204.6(g)(1) because he failed to furnish documentation concerningthe sources of funds contributed by the LLC and the other eightlimited partners. AAO decision, March 21, 2000 The CSC denied the I-526 petition for EB-5 classification on fourgrounds: (1) the petitioner failed to establish a new commercialenterprise; (2) the petitioner failed to prove she invested therequisite amount of capital; (3) the petitioner failed to prove thefunds she invested were derived from a lawful source, and (4) thepetitioner failed to prove her investment would create 10 new jobs. Onappeal, counsel argued that the CSC ignored evidence or failed toproperly weigh the evidence. The AAO dismissed the appeal. Establishment of the new commercial enterprise The son of the petitioner formed Tiger Realty Limited Inc., aproperty management and real estate investment firm, on December 22,1997. The petitioner invested $999,000 nearly one year later onDecember 3, 1998, and was issued stock on February 17, 1999. The AAOobserved that "petitioner did not play a role in the organizationof the enterprise, but instead made her investment after theenterprise had been operational for almost a year." Thepetitioner did not present evidence to support a"reorganization" or "expansion" theory. The AAOheld that the petitioner did not prove she had established theenterprise. Petitioner’s investment of the required capital The AAO held that the petitioner failed to prove that she hadinvested the required amount of capital, failed to clarify the amountof capital invested, and failed to persuade that the capital is atrisk. According to the AAO, the petitioner submitted conflictinginformation on how much capital she invested. For example, counselstated $1,833,916; the I-526 petition indicated $988,150; the businessplan referred to $1,263,150; and the wire transfer record is for$999,000. The AAO also faulted the record for unexplained details suchas the number of shares actually issued (for instance, the petitionerclaimed she received 2,593,909 shares, but the articles ofincorporation limit the corporation to 1,000,000 shares). The AAOtherefore raised the question of whether the investment by petitionerwas in fact a loan. The AAO concluded: "It is incumbent upon thepetitioner to resolve any inconsistencies in the record by independentobjective evidence, and attempts to explain or reconcile suchinconsistencies, absent competent objective evidence pointing to wherethe truth, in fact, lies, will not suffice." The petitioner claimed she wired $999,000 from the bank account ofa solely-owned company, Lampitania Limited. She submitted a bankletter indicating she was the sole owner of the company and that awire transfer was made by the bank. However, the letter did not statethe amount of the wire transfer, and no organizational or ownershipdocuments of the solely-owned company were presented. Therefore,according to the AAO, the petitioner failed to prove she owned thecompany. Regardless, according to the AAO, "any contribution ofcapital made by a corporation may not be considered the contributionof the individual petitioner, despite a showing that the petitioner isthe sole shareholder of the entity." The AAO also concluded that there was no proof the funds investedby petitioner were at risk. The petitioner had submitted a businessplan indicating that "[t]he sum of $1,263,150 has beentransferred from personal and family resources for use in theinvestment. A minimum of $1,000,000 of this sum shall be invested,including a modest cash reserve, although the balance of the moneywill continue to be available in case of need." Citing 8 C.F.R.§ 204.6(j)(2), the AAO stated: "The petitioner’s unsupportedstatements that the sum "shall be invested" is notsufficient. Evidence of mere intent to invest, or of prospectiveinvestment arrangements entailing no present commitment, will notsuffice to show that the petitioner is actively in the process ofinvesting." Specifically, the AAO dismissed the petitioner’s claim that the$160,000 stipulated in the business plan for operating expenses suchas wages, payroll taxes, worker compensation insurance, and rent, wascapital at risk. The AAO found that there was no documentary evidenceto support this claim. The AAO also dismissed the petitioner’s argument that $475,000was capital at risk because it would be used to purchase a residentialhotel. The AAO found that there was insufficient evidence to provethat such funds were contributed by the petitioner. Also, thepetitioner did not dispel the suspicion that the funds were borrowedand that their repayment was secured by the hotel. The AAO dismissed the petitioner’s claim that $353,150 of capitalwas at risk on the theory that it was used by Tiger Realty to purchasea 34% interest in a limited partnership that owned an apartmentcomplex. The petitioner also owned 64% of the partnership as anindividual owner. The AAO noted that the petitioner had received adistribution of $250,000, meaning "there was no infusion of newfunds." Finally, a reserve fund of $275,000 had been set aside in businessaccounts. Citing Matter of Izumii, the AAO found that"where the creation and maintenance of reserve funds takespriority over any other use of capital contribution, the funds are notavailable for job creation and therefore cannot be considered capitalplaced at risk for the purpose of generating a return on the capitalbeing placed at risk." Capital obtained through lawful means The petitioner sought to prove the lawful source of her investedcapital by presenting evidence of her sale of a multimillion dollarbusiness in the United Kingdom. The petitioner submitted a bankletter, a resume, and her personal statement. Counsel argued that thepetitioner was not required to submit all forms of evidence indicatedin the regulation. The AAO disagreed:
The AAO also concluded that the petitioner did not prove shereceived the proceeds of sale of the family business in the UnitedKingdom, because she did not submit copies of business registrationrecords to show she was the owner of the company sold, or copies oftax returns to establish the amount of her income on sale of thebusiness. Creation of employment The AAO dismissed the petitioner’s claims of job creation.Pre-existing employment could not be counted because the business hadnot been in existence for 2 years. Therefore she could not claim thatshe was investing money in a "troubled business." Also,according to the AAO, the petitioner’s nine- page business plan wasnot comprehensive enough to enable the Service to conclude that atleast 10 new jobs would be needed by the enterprise. For instance, theAAO found petitioner’s evidence to be unpersuasive, as she claimed"no fewer than 4 additional positions shall be created, accordingto the following timetable, or as close as possible, but in no eventshall there be fewer than 10 full time persons to be onboard as ofMarch 1, 2001." There was no market analysis, comparison of thecompetition, or plans for developing the enterprise’s target market."The plan does not elaborate on the means by which the companywill achieve these goals." Lacking a detailed plan, thepetitioner had not "clearly established that the business willcreate the requisite employment." AAO decision, May 4, 2000 The Vermont Service Center (VSC) denied the EB-5 petition on fourgrounds: (1) the petitioner failed to establish a new commercialenterprise; (2) the petitioner failed to prove that she had investedin a targeted employment area; (3) the petitioner failed to prove sheinvested the requisite amount of capital; and (4) the petitionerfailed to prove her investment would create 10 new jobs. The AAOagreed, and dismissed the appeal. Establishment of the new commercial enterprise The petitioner submitted the Articles of Incorporation of MaulinCorporation as evidence of the new commercial enterprise. However, theI-526 petition and the accompanying business plan indicated the nameof the business as Wah Keung Fishery and Pasture Co. The lattercompany also was listed as a prior owner of the real estate on whichpetitioner claimed she would operate a farm for producing bamboo,guava trees and catfish for the domestic market. The Service concludedthat the commercial enterprise was a pre-existing business. The AAOdismissed the petitioner’s claim that she had made an excusablemistake in mentioning the company that previously owned the land.Citing Matter of Ho for the rule that a petitioner must cite"independent objective evidence" to resolve inconsistenciesin the record, the AAO held that there was no such evidence to resolvethe inconsistencies and to support the petitioner’s claim she hadestablished an original business. Moreover, as there was no evidencethat the petitioner had substantially reorganized or expanded thebusiness, the petitioner did not establish that she had established anew commercial enterprise. The AAO also commented that Service recordsindicated that prior owners of the property obtained conditionalpermanent residence status via investment, and speculated that bothcases might be based on the same business. Targeted employment area The petitioner had purchased property near Thermal, RiversideCounty, California. The petitioner presented such evidence as atourist map, which was dismissed by the Service as inadequate to provethat the business would be located in a rural or high unemploymentarea. On appeal the petitioner submitted excerpts from the Bureau ofLabor Statistics web page and an economic survey from an undisclosedsource. Both items of evidence, however, were not specific to the areaof petitioner’s investment and therefore petitioner failed tosustain her burden of proof. Petitioner’s investment of the required capital The petitioner’s evidence supported the conclusion that the realestate had been purchased directly by the petitioner, not by theenterprise, but that the real estate had not been contributed by thepetitioner to the enterprise. Also, the AAO observed that withoutadditional evidence such as a recorded deed or the escrow closingpapers, there was insufficient evidence to conclude that the purchaseof real estate for $400,000 had actually occurred. The petitioner did not submit copies of stock certificatesrepresenting her ownership interest in the commercial enterprise. Nordid she present an audited financial statement or tax returns. The AAOconcluded there was insufficient basis for determining whether atransfer of $200,000 to Maulin Corporation was a capital contributionor a loan from the petitioner. The AAO also dismissed evidence of certain expenditures for thereason that the evidence supported the conclusion that theexpenditures were made by the previous owner of the property ratherthan by the enterprise. Therefore such evidence was not probative of acapital contribution made by the petitioner. Creation of employment The petitioner submitted a one-page description of the businessincluding a projection of 13 employees within one to three years.Citing Matter of Ho’s requirement of a detailedbusiness plan, the AAO concluded that although the petitioner statedthe goals of the enterprise, she failed to elaborate the means bywhich the company would achieve such goals. Therefore the petitionerfailed to clearly establish that the business would create therequisite employment. AAO decision, February 29, 2000 The CSC denied the I-526 petition because the petitioner failed todemonstrate she invested or was in the process of investing therequisite capital obtained by lawful means. On appeal, counselsubmitted additional evidence that the petitioner contributed $1million and that the source of capital was the savings petitioner andher husband had accumulated during their marriage and from hisbusiness. The AAO dismissed the appeal. Petitioner’s investment of the required capital The petitioner claimed to have purchased a 50% ownership interestin an existing enterprise through a stock purchase of 500,000 sharesof common stock for $1 million. The petitioner stated she wired $1million to a business account. As evidence of the investment the petitioner submitted documents toshow a total investment of $1,010,000 in two sequential transactionsof $490,000 and $520,000. As proof of each transaction the petitionersubmitted a bank letter, wire transfer, cashier’s check and depositslip. The AAO found evidentiary problems with both transactions. Forexample, the two bank letters from Citibank failed to identify theaccount number or source of the wire transfers. One wire transfer hadbeen ordered by a third party. Both cashiers checks reflected thepetitioner as the remitter but did not demonstrate a direct transfer.Moreover, the deposit slips failed to identify whether the depositswere actually made to the business account of the petitioner. The petitioner also submitted a brief letter from a bank inCalifornia confirming the transfers. The AAO dismissed that evidence,finding that the bank letter did not "confirm the source of theinvested funds or their actual deposit." Specifically, the AAOfound that the letter failed to identify the source of the claimedcapital or the specific accounts in which the two claimed depositswere made. The petitioner also submitted two documents in English titled"Notes" that indicated face amounts, a maturity date, andthat the amount was payable to the petitioner or her husband. The AAOcommented that the notes failed to include descriptions of terms orevidence of being standard commercial notes. On appeal, counsel explained: "[b]ecause of the control offoreign remittance in China [the petitioner’s] investment wastransferred . . . to [the petitioner’s] personal account . . . inthe United States." The AAO interpreted counsel’s statement tomean that the transfer was made by a third party in an effort tocircumvent the foreign exchange controls of China. If so, "[c]ounsel’sstatement raises questions regarding the source of the petitioner’sfunds, the legitimacy of the ‘notes’ which were the source of thewired funds, and the potentially unlawful transfer of the funds fromthe petitioner’s home country." Citing Matter of Izumii, the AAO determined the petitionerfailed to document the path of the funds and therefore failed to meetthe burden of establishing that the capital investment was made withher own funds. Without submitting copies of consecutive monthly bankstatements for the commercial enterprise, the Service could not ensurethat the petitioner’s two payments did not involve the withdrawaland redeposit of the same funds. Moreover, minutes of the special shareholder’s meeting statedthat the petitioner contributed $1 million to obtain 500,000 shares ofcommon stock. However, the petitioner claimed to have actuallyinvested $1,010,000. According to the AAO, this discrepancy raisedquestions about the validity of the evidence submitted. The petitioner claimed that the money she invested in the UnitedStates was lawfully acquired through years of diligent work andsavings by both she and her husband. The AAO was not impressed,finding that the documents did not report any income that thepetitioner or the petitioner’s husband acquired through theirbusiness in China. Nor did the evidence document the petitioner’slevel of income or support the petitioner’s claim to have usedpersonal savings for the investment capital. Citing 8 C.F.R. § 204.6(j)(3) and noting the petitioner’sfailure to submit any copies of her or her husband’s personal incometax statements, the AAO held that the petitioner failed to show thather capital investment was obtained by lawful means. Citing Matter of Ho, the AAO also stated:
Job-creation requirement The AAO found that the petitioner’s business plan was notcomprehensive enough. The petitioner’s plan consisted of a five-pagedescription of the commercial enterprise that stated that the company’sgoal was to increase gross sales by $500,000 a year for three years,while maintaining a gross margin of 10 percent. However, the plan didnot elaborate on the means to hire10 additional employees for fourdepartments. Nor did the plan explain how the petitioner’s capitalinvestment would be used to achieve these goals. Citing language in Matterof Ho that: "[m]ere conclusory assertions do not enable theService to determine whether the job-creation projections are any morereliable than hopeful speculation," the AAO found that thepetitioner did not clearly establish that the business would createthe requisite employment. Establishment of a new commercial enterprise The AAO held that the petitioner failed to establish a newcommercial enterprise. The petitioner claimed that her investment inan existing business increased the net worth of the enterprise by morethan 40 percent. The AAO held that the petitioner failed to complywith 8 C.F.R. § 204.6(j)(1), which specifically requires submittingcertified financial reports or similar evidence to prove an increasein the net worth of the enterprise. The petitioner submitted copies ofinternally produced balance sheets for the period immediatelypreceding the petitioner’s investment and for the month immediatelyfollowing the investment. The balance sheets contained anomalies suchas a lack of entries for the company’s inventory or utilitypayments. Nor was there evidence that the balance sheets had beenprepared by a certified public accountant or were based on an audit ofthe firm’s financial records. AAO decision, September 27, 1999 On April 3, 1999, the VSC issued a notice of revocation of anapproved I-526 petition. The petitioner’s appeal was received by the Service on May 5,1999. On appeal, counsel argued that the VSC’s refusal to considerevents that occurred after the petition had been filed, such as thepurchase of stock and the alleged investment in an additional store,was erroneous. The AAO rejected the appeal, holding that: (1) thepetitioner’s appeal was untimely filed; (2) the appeal could not beconsidered a motion to reopen because counsel failed to state any newfacts or provide new evidence; and (3) the appeal could not beaccepted as a motion to reconsider because counsel failed to cite anynew law or case. AAO decision, August 19, 1999 The CSC denied the I-526 petition because the petitioner failed toprove he had invested or was in the process of investing the requisiteamount of capital. The AAO dismissed the appeal on numerous grounds. Establishment of the new commercial enterprise On December 29, 1989, Bluesound Electronics filed its articles ofincorporation with the State of California. On January 15, 1990, thepetitioner obtained a share certificate for 250 of the 15,000authorized shares. The petitioner claimed that he invested in a"new" commercial enterprise. The AAO disagreed, noting that8 C.F.R. § 204.6(e) defines "new" as established afterNovember 29, 1990. Bluesound was formed before that date. Petitioner’s investment of the required capital The AAO concluded that the petitioner failed to demonstrate that heinvested any personal capital in the business. The petitioner claimedhe originally paid $25,000 for his 250 shares of stock. The AAO notedthat there was no evidence of the actual payment of the $25,000,however. The petitioner also claimed that he invested $1,000,000later, consisting of $550,000 of "all indebtedness of thecorporation" and a $450,000 loan to the corporation. The bankloans were evidenced by a letter setting forth "dates and amountsof increases/decreases…in the…credit line." The AAO held thatthe assignments of the certificates of deposit and financialstatements showed that the bank loans were actually secured bycorporate assets. The AAO pointed to a continuing guarantee statingthat the petitioner personally guaranteed Bluesound’s payment of itsindebtedness to the bank. For indebtedness to be considered an investment, the petitionermust be personally and primarily liable for the indebtedness and noneof the business’s assets may be used as security. 8 C.F.R. §204.6(e). Since Bluesound, not the petitioner, was the entity thatobtained the lines of credit, Bluesound was primarily liable on theloans. Citing Matter of Soffici for the proposition that "[p]ersonalguarantees do not transform corporate debts into personal debts,"the AAO held that the liability of a personal guarantor does not makehim "primarily" liable because the guarantor’s liabilityarises as a last resort, only in the event the corporation defaults.The AAO also stated that "theoretical exposure to potentialliability is not the same as an actual commitment of any specificamount of funds." The AAO added: "If Bluesound were tocontinue paying its debts without incident, the petitioner couldultimately pay nothing under the guarantee." On appeal, the petitioner argued that he should not be penalized byelecting to do business as a corporation and that all of the fundsinvested in the business were his personal funds. The petitionerargued that had he not incorporated his business, there would be noissue as to where he invested funds which would be at risk to himpersonally. The AAO responded that the choice andbenefits/consequences lie with the petitioner:
Source of funds The AAO held that the petitioner failed to document his allegedpayment of the $25,000 for shares of stock. The petitioner also failedto document the actual movement of the $450,000 from himself to thecorporation. Nor did the petitioner explain how he had sufficientfunds in 1995 to advance a $450,000 loan. "It is not known ifthese funds originated from the petitioner’s personal bank account(s),originated from another person’s bank account, or were themselvesthe proceeds of another loan." Employment creation The petitioner indicated that he started the business with threeemployees, but now had seven. He claimed he would create another threeto five positions. He furnished quarterly wage reports for thequarters ending June 30, 1997, and September 30, 1997. The AAO notedthat the petitioner failed to provide any Forms I-9 or evidence ofwhen employees were hired. The AAO pointed out inconsistencies in the wage reports. Forexample, the first wage report contained eight names, including thoseof the petitioner and his wife, and a third person who earned only$1,000 during the quarter and therefore could not have workedfull-time. All three failed to qualify as employees within 8 C.F.R. §204.6(e). The petitioner also failed to prove that the other employeesworked full-time. Total wages earned do not by themselves reveal theprecise number of hours worked, held the AAO. Since the petitioner had not already created 10 qualifyingfull-time positions as of the date of filing, the AAO held that"he must submit a comprehensive business plan from which it isclear that the business will in fact require 10 full-time employeeswithin the next two years." The petitioner failed to do so. ____________ Note: The following four cases all stem from the samepartnership, known as SCRM. The partnership, which involved poolinginvestments from a number of foreign investors, planned to buildretirement homes. The four cases raised many of the same issues onappeal. For that reason, only the first summary below addresses all ofthe issues. The other three summaries address individual issues notraised in the other SCRM appeals. AAO decision, March 20, 2000 The CSC denied this EB-5 petition filed by an investor in SCRM onfour grounds: (1) the petitioner failed to establish a new commercialenterprise; (2) the petitioner failed to prove he had invested in atargeted employment area; (3) the petitioner failed to prove heinvested the requisite amount of capital; and (4) the petitionerfailed to trace the source of his invested funds. The AAO agreed withthe CSC and dismissed the appeal. Establishment of the new commercial enterprise The general partner started the partnership in February 1998. Thepetitioner became a limited partner in the partnership on either March31, 1998, when he delivered a check or on April 16, 1998, when he wiretransferred funds to the account of the limited partnership. Citing Matterof Izumii, the AAO concluded that the enterprise "wasoriginally created in February 1998, while this petitioner did notjoin until more than a month later. Therefore, the petitioner was notpresent at the inception of the partnership, nor did he participate inits formation." The petitioner claimed that the enterprise was structured forpurposes of raising a pool of capital for developing and building tworetirement homes. For that reason a staggered admission of limitedpartners was important to the success of raising capital for theventure. The AAO countered that a staggered admission impeded jobcreation (noting that construction of the retirement homes still hadnot commenced), which is "precisely the problem anticipated in Matterof Izumii."
The AAO also rejected the argument that the start-up operations ofa partnership be defined as "one continuous activity"resulting in the establishment of a new commercial enterprise uponobtaining sufficient capital to commence construction. "[T]heService does not interpret establishment to be a process.Establishment of an original business occurs at one point in time; inthe case of an original partnership, establishment occurs no laterthan the date on which the initial certificate of limited partnershipis filed with the state." Targeted employment area The petitioner contended that the "administrative office"of the business was located in a high-unemployment census tract.However, his petition, filed on May 29, 1998, was based on 1995 censustract data, which the AAO considered out of date. Also the AAO heldthat the location of an administrative office is not controlling.Rather, for purposes of the targeted employment area issue, it is thelocation where the enterprise will be principally doing business thatis important. The petitioner failed to establish that the enterprisewill be principally doing business in a targeted employment area. Petitioner’s investment of the required capital The petitioner had presented a check for $150,000, drawn on theaccount of a different partnership. Notwithstanding the petitioner’sargument that the funds were drawn from the unrelated partnershipaccount because petitioner had previously filed a petition based onthat partnership, the AAO concluded there was no evidence to establishthat the funds were contributed by the petitioner. The petitioner alsopresented evidence of a wire transfer for $349,982 that he hadordered. However, the AAO questioned whether the petitioner "hadmerely presented funds belonging to someone else to the bank fortransfer." The AAO concluded that the petitioner failed toestablish that any portion of the $499,982 constituted funds belongingto him. In a footnote the AAO also observed that $18 processing andlike charges subtracted by banks could not count toward the requiredcontribution of capital. The petitioner claimed that the invested funds were at risk becauseit was in the form of cash in a trust account to be released upon theapproval of the petition. Citing Matter of Ho the AAOdisagreed, finding that "a petitioner must present some evidenceof the actual undertaking of meaningful, concrete business activity;otherwise, no assurance exists that the funds will in fact be used tocarry out the business of the commercial enterprise." In thiscase, the business had not yet started construction or acquired anyland. Furthermore, the AAO observed that only a small portion of totalanticipated equity capital would be needed to fund the constructionprojects, and that the petitioner had not explained how the extramillions of dollars of equity capital would be applied."Therefore, it cannot be concluded that the petitioner’s fundsare being, or would ever be, used for the retirement facilities." The AAO also indicated that reimbursement of start-up costs out ofcapital contributions would not be considered to be at risk. The AAO included other reasons for holding that petitioner’scapital was not at risk, such as a provision for an annual preferredreturn, a provision for a sale of partnership assets, and a provisionfor dissolution in 2006,on the grounds that the limited partners wouldreceive a refund of most if not all of their funds by a certain date. Source of funds The petitioner claimed that his work as a medical doctor in Taiwanand subsequent investments were the sources of funds used to invest.The petitioner presented excerpts from a bank book (which the AAOdismissed as unpersuasive because the bank book lacked an accountnumber, bank name, or account holder’s name); individual income taxcertificates for five years (which the AAO dismissed because thecertificates did not include the petitioner’s name); and proof ofpurchase of mutual-fund shares (which the AAO found to be irrelevantbecause a large investment account balance in 1999 does not explainhow petitioner could invest $500,000 in April 1998). The AAO concludedthat the petitioner did not prove the source of the invested capitaland did not prove that funds were lawfully acquired. The AAO also concluded that the petitioner failed to comply with 8C.F.R. § 204.6(g)(1) because he failed to identify the sources ofcapital invested by other partners in the partnership. Creation of employment The AAO found that the five-page summary business plan did notprovide sufficient basis for the employment projections made by thepetitioner, and did not constitute a comprehensive business plan. The AAO observed that if the project could be completed withalternative financing, without use of the petitioner’s capital, thenno nexus would exist between capital and job creation and petitionercould not claim credit for the employment created. The AAO found that construction jobs could not be counted becausethey are not permanent jobs. And if the enterprise is not the employerof the workers, that would be another reason not to count theconstruction jobs. AAO decision, March 27, 2000 The CSC denied this SCRM investor petition on numerous grounds. TheAAO agreed with the CSC and dismissed the appeal. This summary focuseson two grounds of denial: a loan issue and the source of thepetitioner’s funds. Petitioner’s investment of the required capital The petitioner transferred $500,000 from his individual account tothe partnership’s account. The funds had been borrowed. The AAOacknowledged that loan proceeds can constitute qualifying capital thatcan be invested in a commercial enterprise. Citing 8 C.F.R. §204.6(e), the AAO concluded, however, that the contribution of theloan proceeds did not constitute a qualifying investment in this casebecause the loan was not secured. By footnote, the AAO also observedthat $20 processing and like charges subtracted by banks could notcount toward the required contribution of capital. Source of funds The AAO faulted the petitioner’s evidence for lack of specificityon the identity of the actual transferor of funds to the petitioner.Although petitioner had indicated that the funds were loaned to him byan identified third party, the documentation of the transfer wasunclear. The AAO also questioned whether the purported lender hadsufficient assets to make such a loan, whether the loan would ever beenforced if petitioner decided not to repay the lender (i.e., for lackof evidence concerning the relationship between the borrower andlender), and whether the petitioner, a 25-year-old from China, hadresources to repay the loan. AAO decision, March 20, 2000 The CSC denied this SCRM investor petition on three grounds. TheAAO agreed with the CSC, added further reasons for denial, anddismissed the appeal. This summary focuses on three issues unique tothis case: the petitioner’s investment of the required capital, thesource of the funds, and a management issue. Petitioner’s investment of the required capital The petitioner had presented a cashier’s check for $150,000.Notwithstanding the notation on the check indicating the check hadbeen purchased by the petitioner, the AAO concluded there was noevidence to establish that the funds were contributed by thepetitioner. The AAO questioned whether the petitioner "had merelypresented funds belonging to someone else to the bank" fortransfer. The petitioner also executed a promissory note for $350,000, bywhich he agreed to pay in full within five days of demand by thegeneral partner. The petitioner executed a security agreement wherebyhe granted a lien and security interest in shares of a company locatedin China. Citing Matter of Hsiung, the AAO observed that apromissory note must place a sufficient level of petitioner’s assetsat risk. The AAO concluded that the promissory note did not constitutea qualifying capital contribution because the petitioner failed toestablish that the security agreement would be enforceable in China.The AAO noted that Chinese law gives Chinese courts full discretionwhether or not to enforce a U.S. judgment. The AAO also held that thepetitioner failed to show that the value of the collateral wassufficient. The petitioner claimed that the stock was worth $840,000,but the AAO held that share values can fluctuate. The AAO also notedthat the general partner might not ever demand payment on the note.Furthermore, it was irrelevant for petitioner to claim on appeal thatthe general partner had in fact demanded payment, because petitionerwas ineligible for the EB-5 classification at the time the petitionwas filed. Source of funds The petitioner claimed that his work in China and subsequentinvestments were the sources of the funds he used to invest in thepartnership. The petitioner presented evidence of a bank account inChina, real property in China and stock accounts. The AAO interpretedthe evidence to mean that the petitioner had no more than $120,000 ofcash and stocks combined. The AAO also questioned whether even thatmodest balance was only temporary: "For example, temporarilydepositing funds belonging to someone else into one’s own personalaccount, in order to inflate one’s financial position, would not beacceptable." The AAO dismissed the evidence concerning realestate holdings because the Chinese-English translations were notcertified in accordance with 8 C.F.R. § 103.2(b)(3). The petitionersubmitted a letter from the accountant of his company in Chinaconcerning the petitioner’s income. However, the letter was unclearabout the precise income level of the petitioner. He also presenteddocumentation concerning the taxes paid by the company in China.Importantly, noted the AAO, the petitioner did not present individualincome tax information. The AAO concluded that the petitioner did notprove the source of the invested capital and did not prove that hisfunds were lawfully acquired. The AAO also concluded that the petitioner failed to comply with 8C.F.R. § 204.6(g)(1) because he failed to identify the sources ofcapital invested by other partners in the partnership. Management The AAO concluded that the petitioner was a purely passive investorand therefore did not satisfy the requirement that he will be engagedin the management of the enterprise. Significantly, the limitedpartnership agreement severely curtailed the participation of alimited partner in the management of the business. Although thelimited partnership agreement referred to the INS regulation and theUniform Limited Partnership Act, the AAO nonetheless concluded that itwas merely a superficial reference. "The regulatory provision isnot intended to render the management requirement completelymeaningless with respect to limited partners. Retaining the rights ‘normallygranted to limited partners’ under the ULPA does not mean retainingjust one or two of those rights." AAO decision, March 1, 2000 The CSC denied this SCRM investor petition on numerous grounds. TheAAO dismissed the appeal. This summary focuses on three issuesaddressed by the AAO: family loans, whether the funds were at risk,and the source of loaned funds. Family loans As part of his investment the petitioner presented a cashier’scheck for $150,000, which he claimed was part of a $576,000 loan fromhis father. The AAO noted that the cashier’s check did not mentionthe petitioner’s name and it was not clear that it had been given tothe partnership on the petitioner’s behalf rather than on anotherlimited partner’s behalf. The AAO also noted that loans betweenclose family members might not be enforced. For that reason they failto place a petitioner debtor at personal risk of loss as requiredunder 8 C.F.R. § 204.6(j)(2). The AAO determined also that thepetitioner failed to provide documentation that the loan was secured,that the property securing the loan belonged to him, that thepetitioner was personally and primarily liable on the loan, and thatnone of the assets of the commercial enterprise secured any portion ofthe loan. For these reasons the loan proceeds did not constitute aqualifying investment of the petitioner’s capital. The AAO also rejected the petitioner’s argument that a $350,000promissory note executed by the petitioner constituted a qualifyinginvestment of capital, particularly because the petitioner hadactually paid the $350,000 to the enterprise. The AAO declared thatthe subsequent payment was irrelevant; at the time the I-526 petitionwas filed the promissory note was non-complying because it was notsecured by the petitioner’s assets. Funds at risk The AAO also held that the petitioner’s capital was not at risk.The petitioner claimed that $500,000 was already committed to thepartnership. Of that amount, $150,000 was in a trust account to bereleased to SCRM upon the approval of the petition. The other $350,000was in an operating account for use as contemplated by thepartnership. Citing Matter of Ho and emphasizing that the partnership hadnot begun construction or other meaningful concrete business activityas of the time of filing, the AAO held that none of the money was atrisk:
The AAO opined that even at the time of the appeal, "thepetitioner’s funds were idle and not at risk." Based on thefinancial documents reviewed, the AAO doubted that the petitioner’sfunds would ever be used for the retirement facilities. The AAOconcluded that even if the construction had already begun, thepetitioner’s funds would still not be at risk because the petitionerhad not explained how the "extra" $4 million based oncontributions of $500,000 from each of the limited partners would beapplied. Source of loaned funds The petitioner claimed he had obtained the money for his investmentfrom his father, who sold a hotel in Japan for approximately $5.4million and then lent the petitioner approximately $576,000. The CSC director pointed out that the petitioner failed to presentany documentation to prove his relationship to the lender, his father.The petitioner argued that the relationship was irrelevant,considering the existence of a loan agreement. The AAO disagreed:"In fact, the existence of a family relationship facilitates thecreation of convenient documents, whether genuine or not. All elementsof a petitioner’s claim must be corroborated by objectiveevidence." The petitioner also failed to provide income tax information forfive years as required under 8 C.F.R. § 204.6(j)(3)(ii). The AAOwanted such documentation from both the petitioner and the lender. The CSC director also found no bank records to show the movement offunds from the father to the petitioner. On appeal, the petitionerattempted to demonstrate the path of the funds from the hotel sale andfrom bank accounts to the petitioner’s Japanese and U.S. bankaccounts. The AAO agreed with the CSC, however, that the documentssubmitted were of "questionable authenticity" and were notcredible. _____ Lincoln Stone (lstone2000@aol.com)earned his law degree from the University of Notre Dame. Following afederal court clerkship and employment with the INS, Mr. Stone nowpractices immigration law in Los Angeles, California. Ruth K. Oh (rko@ksglaw.com)practices immigration and corporate law with Kobayashi, Sugita &Goda in Honolulu, Hawaii. She graduated from Boston College LawSchool. She has served on the Executive Committee of the HawaiiChapter of the American Immigration Lawyers Association since 1998. Onthe national level, Ms. Oh has been an active member of the INSCalifornia Service Center-AILA Liaison Committee for three years. Shecurrently serves as the chair of that committee. Stephen Yale-Loehr (syl@millermayer.com)is co-author of Immigration Law and Procedure, the leading immigrationlaw treatise, published by Matthew Bender & Company, Inc. He alsoteaches immigration law and refugee law at Cornell Law School, and isof counsel at Miller Mayer(http://www.millermayer.com)in Ithaca, NY. He currently chairs the AILA Investors Committee. This article originally appeared in 5 Bender’s ImmigrationBulletin 1031 (Dec. 15, 2000) (http://www.bender.com/).The authors thank Matthew Bender for permission to reprint thearticle. For further information on these or any other immigration matter, please contact Miller Mayer.
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