INS on EB-5 Investors
Date: October 20, 1997
To: All Regional Directors
All District Directors (Including Foreign) (HQADN)
All Officers-In-Charge (Including Foreign)
All Port Directors
All Service Center Directors
Director, Office of Administrative Appeals
Director, ODTF-Glynco, GA and Artesia, NM
All Regional Counsels
The purpose of this memorandum is to provide necessary guidance with respect to adjudicating Form I-526, Petition for Alien Entrepreneur, under section 203(b)(5) of the Immigration and Nationality Act, as amended (the Act), and existing regulations. In addition, this memorandum provides instructions on the proper procedures for handling a number of immigrant investor petitions which were returned recently at the request of certain consulates.
Background
The great majority of immigrant investor petitions are filed by aliens who are seriously committed to investing their capital in United States businesses, often in targeted areas of high unemployment or in struggling businesses, and creating jobs in the United States. These investments involve a genuine commitment on the part of the prospective immigrant investor, as evidenced by, among other things, the placing of the full statutory amount at risk, as is required by current regulations. See 8 CFR 204.6(j)(2). On the other hand, a limited number of petitions appear to involve investment programs designed to eliminate the "at risk" requirement of the current regulations. This memorandum discusses certain kinds of financial agreements underlying immigrant investor (EB-5) petitions that require particular scrutiny to determine compliance with the statutory requirements.
General Guidelines for Adjudicating Immigrant Investor Petitions.
The following general guidelines apply primarily to the adjudication of Form I-526, Petition by Alien Entrepreneur. Service officers are reminded, however, that all approved investments should be scrutinized anew when investor files the Form I-829, Petition to Remove Conditions, to ensure that the full statutory capital amount has remained truly at risk during the entire period of the alien’s conditional residence. Should an adjudicator determine at that time that the investor has not, "in good faith, substantially met the capital investment requirement of the statute and maintained his or her capital investment over the two year conditional residence," as well as complied with the other requirements of 8 CFR 216.6(c)(1)(iii), the adjudicator should deny the petition.
1. Proper method for determining whether an investment is "at risk for the purpose of generating a financial return."
All investments must meet the requirement of 8 CFR 204.6(j)(2) that the fully statutory amount be placed at risk for the purpose of generating a financial return on the capital. The Service is aware that not all investments enterprises will generate a return and that, despite every effort, some will continue to operate at a loss for a period of time. However, the essence of an investment is the entrepreneurial use of capital to create more capital.
When the capital ultimately invested and used in, or made fully available to, a company is so minimal as to preclude the possible generation of a financial return, an investment cannot be considered to meet the above requirement. This is apparent, of example, when, after subtracting commissions, fees, and funds placed in a trust to which a particular business purportedly has access, the particular company cannot be reasonably deemed to be in control of enough of the required capita qwl to meet its stated objectives. Similarly, in certain cases, funds which are guaranteed to an investor by a limited partnership may be otherwise unavailable to the business and, therefore, cannot be considered capital placed at risk for the purposes of generating a financial return. Because each new commercial enterprise is unique, the determination of what constitutes too little available capital must be made on a case-by-case basis.
A. Trusts.
Investments must meet the statutory capital requirements provided at 8 CFR 204.6(f). Specifically, while under current regulations a petitioner is not precluded from investing capital in a new commercial enterprise by means of a business trust agreement, the terms of such a trust agreement may not prevent the "actual commitment of the required amount of capital." See 8 CFR 204.6(j)(2). Before a petition involving a trust may be approved, the alien must establish that the trust funds are fully available to the business for its use; there should no attempt by a partnership or trustee to exercise undue control over, otherwise limit access to, or pre-condition normal business use of the funds. If it appears to an adjudicating officer that the use of a particular trust agreement may in fact preclude the use of the full statutory capital amount by the new commercial enterprise, the adjudicating officer should require the alien to revise the trust agreement to clarify that the capital will be fully available for use by the business upon approval of the petition. Moreover, as previously noted, agreements containing trust accounts must be closely scrutinized at the time a petition on Form I-829 is filed to remove conditions in order to determine whether the funds were actually made available, i.e., distributed from the trust, to the business.
B. Promissory Notes and Balloon Payments with Sell or Buy-Out Options
Current regulations allow investors to use promissory notes to demonstrate that the requisite capital has been place at risk. See 8 CFR 204.6(j)92)(v). For this reason, if all other statutory and regulatory requirements are met, an adjudicating officer may approve a petition involving a small initial down payment (e.g. $125,000) and execution of a promissory note to the new commercial enterprise for the balance of the requisite statutory amount. Further, under current regulations, the mere existence of a balloon payment even after the two year conditional period has lapsed does not by itself mean that a petition should be denied. To ensure that the alien investor has placed the full statutory capital amount at risk as required by the regulations, however, all investment arrangements involving a promissory note which provides for a balloon payment to be made some time after the conditional residency is remove must specifically prove that an investor may not exercise a sell option (and the new commercial enterprise cannot exercise a buy-out option) until the promissory note is paid in full. Moreover, as this office has previously instructed, no portion of the minimum capital investment may be used to make a payment on a promissory note. (See prior field instructions provided by this office in a memorandum dated December 16, 1996.)
Where an agreement specifically provides for redemption of the investment prior to the promissory note having been paid in full, the adjudicating officer should deny the petition. On the other hand, absent evidence to the contrary, where the agreement does not specifically grant the investor the option to sell or the new commercial enterprise to buy out the investment before the balloon payment is due, an adjudicator may not deny the petition based on a finding that the investor will not exercise a sell (or the new commercial enterprise a buy-out) option before the due date on the balloon payment.
2. Business Plans for Troubled Businesses.
Service officers must ensure that all petitions, including those involving investments in a troubled business, demonstrate that the new commercial enterprise will become a productive, successful enterprise that will generate a return on capital for the investor. See 8 CFR 204.6(j)(2). A petitioner must therefore establish that the investment is genuine and not merely designed to provide the alien with temporary repository of capital which the new commercial enterprise has no intent of using. In the case of a troubled business, the comprehensive business plan submitted in support of the petition pursuant to 8 CFR 204.6(j)(4)(ii) should clearly establish that the requisite capital has been, or will in fact be, made available for use by the new commercial enterprise.
3. Proceeds of Certain Lottery Schemes.
Investments must meet the requirement that the requisite capital is "owned by the alien entrepreneur" as provided by the definition of capital in 8 CFR 204.6(e). The current regulations do not specify, however, what constitutes "ownership" for purposes of this provision. Further, with the exception of the requirement that the statutory capital amount must have been obtained by lawful means, the current regulations do not place any restriction on the means by which an alien may have obtained such capital.
The Department of State has informed this office that certain prospective immigrant investors have invested money obtained through various heavily promoted overseas lottery schemes which are advertised to be used exclusively for the purposes of obtaining a green card through the alien entrepreneur classification. Under the current regulations, proceeds from such lotteries, if lawfully obtained, may count toward meeting the requisite capital amount, despite the fact that their use is restricted to investment in a new commercial enterprise.
Under current regulations, where a Department of State consular officer determines the investment program itself is fraudulent, or that the capital invested, or to be invested therein, was unlawfully obtained, then the consular office may appropriately return a petition to the Service for review and revocation pursuant to State Department guidelines.
4. Guaranteed Interest Payment Schemes
This office is aware of certain investment schemes involving promissory notes payable over a multi-year period which promise the investor "guaranteed interest payments" on the capital invested. Under the terms of such agreements, such guaranteed interest payments are applied toward meeting the alien’s subsequent annual installment obligations. In some cases, the new commercial enterprise makes the "guaranteed interest payment" with funds received through outside loans or from capital contributed by other investors, and not generated directly from the business itself. This office recognizes that not all new businesses can be expected to become profitable immediately, and that therefore, a contractual provision for such guaranteed payments may, in certain cases, be consistent with a genuine investment. On the other hand, in certain instances, such guaranteed interest payment plans may be evidence that the business is not intended to generate a profit, and therefore, fails to meet the regulatory definition of a "commercial enterprise" set forth in 8 CFR 204.6(e). For this reason, adjudicators should scrutinize with care petitions involving the use of such "guaranteed interest payments" to ensure the legitimacy of the underlying investment scheme.
5. Promissory notes "secured" by property in the People’s Republic of China.
Based on discussions with representatives of the State Department and the Department of Justice, Office of the Legal Adviser, it appears that real estate assets in the People’s Republic of China (PRC) owned by an alien entrepreneur may not be used to secure a promissory note since a Untied States promissory note does not appear to be directly enforceable against Chinese real property by a United States Court. It also appears that the PRC and the United States have no judicial agreements providing for full faith and credit of court judgments, and that therefore, a United States enterprise is not enforceable in the PRC. Based on this information, adjudicators should presume that such promissory notes are unsecured and therefore fail to meet the definition of "capital" at 8 CFR 204.6(e) or the "at risk" requirements of 8 CFR 204.6(j)(2)(v). In such cases, since the burden is on the petitioner to establish eligibility for classification under section 203(b)(5) of the Act, and the question of interpretation of foreign law is one of fact, an adjudicator should deny an EB-5 petition which relies on a promissory note secured by real estate in the PRC as "capital" unless the petitioner can overcome this presumption by submitting affidavits from experts in Chinese law, or other authoritative documentation, establishing that such real property is in fact "at risk."
There may be cases, however, in which PRC real property as well as other types of property or assets are used to secure a promissory note applied toward meeting the statutory capital requirement. In such cases, the fact that "unreachable" PRC real property is listed in addition to other assets does not, standing alone, warrant denial of the petition. Service Officers must carefully examine whether the value of the other properties and assets used to secure the note, together with any other invested capital, is sufficient to meet the minimum statutory capital requirement. In addition, Service Officers should determine whether the assets securing the note are truly "at risk," i.e., may be enforced against by the new commercial enterprise. If so, and the alien is otherwise eligible for classification under section 203(b)(5) of the Act, the petition should be approved.
(Courtesy of David Hirson)