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IMPORTANT MEMOS REGARDING BUSINESS ARRANGEMENTS


Table of Contents:

1. December 19, 1997 INS General Counsel memorandum on various financial relationships utilized in EB-5 investor cases, and their respective permissibility. This memorandum has shaken up the green card investor area of US Immigration law.

2. March 11, 1998 INS field memorandum which forwards the December 19, 1998 General Counsel memorandum and summary, and advises INS Service Centers to hold certain petitions and prepare certifications to the Administrative Appeals Office, and to alert field offices to the return to certain immigrant investor petitions by U.S. consulates abroad.

3. June 26, 1998 INS memo provides instructions on handling EB-5 cases being held or certified to the AAO, as well as handling conditional resident situations.

4. Matter of Soffici (June 30, 1998). AAU Precedent decision on EB-5 Investors (Head notes)

5. Matter of Izumii (July 13, 1998). AAU Precedent decision on EB-5 Investors (Head notes)

6. Matter of Ho (July 31, 1998). AAU Precedent decision on EB-5 Investors (Head notes)

7. Matter of Hsiung (July 31, 1998) AAU Precedent decision on EB-5 Investors (Head notes)

8. August 28, 1998 INS memo with instructions on placement of invested funds in escrow by petitioner seeking classification as an alien entrepreneur.


Note to reader: This is a portion of the December 19, 1997 INS General Counsel memorandum on various financial relationships utilized in EB-5 investor cases, and their respective permissibility. This memorandum has shaken up the green card investor area of US Immigration law.


HQCOU 70/6.1 & 70/9-P

Memorandum

Date: December 19, 1997

Subject: Sections 203(b)(5) (EB-5) and 216A of the US Immigration an Nationality Act

To:Paul W. Virtue, Acting Executive Associate Commissioner, Office of Programs

From: Office of the General Counsel

Background

Under section 203(b)(5) of the Immigration and Nationality Act, as amended (the "Act"), an alien entrepreneur may file a petition for an immigrant visa if he or she seeks to enter the United States to establish a new commercial enterprise. Over the last several years, a number of serious issues have arisen regarding the legality of certain types of business arrangements which have been used to qualify aliens as immigrant investors under section 203(b)(5) of the Act and current regulations of the Immigration and Naturalization Service (the "Service"). This office has been asked to examine a number of petitions which are based on these kinds of arrangements and to provide an opinion as to whether these plans comport with the current statute and Service regulations. In addition, we have been asked to provide appropriate recommendations for handling cases involving such business plans.

The plans in question involve some combination of the following provisions: (1) the use of a down payment of cash with the remainder of the alien's contribution in the form of a promissory note; (2) a multi-year installment payment plan on a promissory note with a substantial balloon payment after the conditions on the alien's lawful permanent resident status are removed; (3) an option given to the alien to sell his or her investment for a fixed price that may be less than, equal to or greater than the alien's cash contribution (usually exercisable before or at approximately the same time as the balloon payment on the promissory note is due); (5) an option given to the enterprise or limited partnership to buy the investment at a fixed price (usually exercisable before or at the same time as the balloon payment on the promissory note is due); (6) a provision that allows or requires the commercial enterprise to place sufficient cash into a bank account to guarantee that funds will be available to repay the alien if the alien exercises the sell option; (7) withholding of a portion of the alien's capital contribution for attorneys' and finders' fees and other administrative costs; and (8) a guaranteed return on the cash portion of the alien's "investment". [1]

These business plans generally involve the creation of a limited partnership that pools the money of alien investors to invest n either a new or troubled business in the United States, frequently in a "regional center." One basic problem with these plans is that the new commercial enterprise being established involves a partnership that is supposed to serve as a conduit for placing the aliens' capital to start-up or existing businesses that will create or sustain employment, but, because of various provisions in the investment or limited partnership agreements, only a small amount of the alien investor's money or other capital is actually able to reach the operations of the employment- creating or preserving business. In addition, these types of arrangements appear to give the alien relatively risk-free debt interests rather than equity interests in the new business. As will be discussed in more detail below. the plans use agreements and investor agreements to permit investments with a minimum of cash provided by the alien are to insulate the alien's cash from the business risks associated with the new commercial enterprise. Because of the complexity of these arrangements, it is difficult to determine in the brief time we have had to review the plans, the full extent to which they violate the Act and the Service's current regulations. Nevertheless, a careful review of current law and several EB-5 petitions which were forwarded to our office from the Texas Service Center clearly demonstrates that these plans do not comply with the existing statute and regulations.

Legal Questions Presented

1. Do investment plans that involve guaranteed interest payments, buy and sell options at a fixed price other than fair market value, and other debt features comport with the statutory and regulatory requirements?

2. Do investment plans involving different combinations of provisions designed to reduce or eliminate the risk to the alien's capital by limiting the amount of capital actually available for the operations of the job-creating enterprise comport with the statutory and regulatory requirements?

3. Do investment plans that allow an alien to earn a fixed return on his investment at the same time that he or she continues to make installment payments on a promissory note comport with statutory and regulatory requirements?

4. Should the Service request that the Department of State cease issuing visas and return petitions for revocation based on investment plans involving these terms.

5. Do plans like those reviewed by our office comport with existing law? 6. Is the Service estopped or otherwise precluded from denying or revoking petitions filed by aliens investing in the plans like those under review based on past approval of petitions earlier policy statements, or informal statements by Service officials?

7. Is the Service estopped or otherwise precluded from terminating the status of a conditional resident alien who has invested in plans like those under review based on past approval of petitions, policy statements, or informal statements by Service officials?

Summary Conclusions

1. No. Such plans appear in fact to constitute "loans" or other debt agreements, and therefore fail to meet the definition of "invest" in our regulations. The regulations expressly prohibit the use of debt arrangements as part of contributions of capital being invested.

2. No. Such plans impermissibly prevent the alien from placing the required amount of capital at risk of loss in the employment-generating business. This is equally true where the new commercial enterprise is in the business of lending capital to job creating businesses and acting as a mere conduit between the alien and the job-creating business. Such plans use a number provision to shield the alien's capital from risk including the deposit of cash in bank accounts to guarantee repayment of the alien's money, the use of promissory notes with large final "balloon" payments combined with the option to "sell" the alien's investment in the business at a fixed price and guaranteed returns on the alien's cash outlays. Such plans appear to continue to allow the alien to withdraw his or her capital prior to the time the balloon payment is due. In addition, the use of promissory notes in such plans fails to meet the requirement that an aline invest "capital" having a fair market value equal to or greater than the amount required in the statute.

3. No. These plans effectively permit the alien to reinvest his or her return on the initial cash contribution in the new commercial enterprise. Therefore the alien is not infusing new capital into the enterprise or the U.S. economy in the statutorily required amount.

4. Yes, for the reasons stated in summary conclusions 1, 2 and 3.

5. No. Based on our review of a number of approved and pending petitions filed with the Texas Service Center, we have concluded that they fail to meet the requirements of the statute or the Service's regulations. Any plans which involve similar terms would also fail to meet current statutory and regulatory requirements.

6. No. Under the Administrative Procedure Act and relevant cases, the Service is not bound by its pervious decisions in adjudicating visa petitions. We recommend, however, that the Service issue a memorandum to the field consistent with this memorandum and publish that memorandum in the Federal Register.

7. No. Under the Administrative Procedure Act and relevant case law, the Service is not bound by its initial grant of a petition when terminating conditional residence status based on a visa petition that was granted in error or based on the fact that the alien is subject to termination under section 216A of the Act. We recommend, however, that the Service issue a memorandum to the field consistent with this memorandum and publish that memorandum in the Federal Register.

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Note to Reader: This is a March 11, 1998 INS field memorandum which forwards the December 19, 1998 General Counsel memorandum and summary, and advises INS Service Centers to hold certain petitions and prepare certifications to the Administrative Appeals Office, and to alert field offices to the return to certain immigrant investor petitions by U.S. consulates abroad.

Date: March 11, 1998

To: Regional Directors
All Service Center Directors District Directors (Including Foreign)
All Officers in Charge (Including Foreign)
All Port Directors Directors, ODTF-Glynco, GA and Artesia, NM
Office of General Counsel
Regional and District Counsel
Administrative Appeals Office
Office of Policy and Planning
Office of Naturalization Operations
Chief of Staff
Office of Congressional Affairs
Office of Public Affairs

The purpose of this field memorandum is to forward the attached legal memorandum and summary, advise Service Centers to hold certain petitions and prepare certifications to the Administrative Appeals Office, and alert field offices to the return to certain immigrant investor petitions by U.S. consulates abroad.

Legal Opinions

The attached legal memorandum, responding to questions from the Texas Service Center, reflects a review of a representative sampling of pending and approved petitions pertaining to immigrant investors under 8 CFR 204.6 and 8 CFR 216.6 and section 203(b)(5) and 216A of the Immigration and Nationality Act. The INS General Counsel concludes that certain business agreements in petitions for immigrant investor classification, although they originally appeared to constitute acceptable investment arrangements, do not, as a factual matter, comport with the law.

Accordingly, the legal memorandum provides guidance to adjudicators in applying existing regulations to complex business arrangements presented in certain investor petitions that include some combinations of the following provisions: (1) the use of a down payment of cash with the remainder of the alien's contribution in the form of a promissory note; (2) a multi-year installment payment plan on a promissory note with a substantial balloon payment after the conditions on the alien's lawful permanent resident status are removed; (3) an option given to the alien to sell his or her investment for a fixed price that may be less than, equal to or greater than the alien's cash contribution (usually exercisable before or at approximately the same time as the balloon payment on the promissory note is due), or to be released from the obligation under the promissory note in the event of the insolvency of the partnership; (4) an option given to the enterprise or limited partnership to buy the investment at a fixed price (usually exercisable before or at the same time as the balloon payment on the promissory note is due); (5) a provision that allows or requires the commercial enterprise to place sufficient cash into a bank account to guarantee that funds will be available to repay the alien if the alien exercises the sell option; (6) withholding of a portion of the alien's capital contribution for attorneys' and finders' fees and other administrative costs; and (7) a guaranteed return on the cash portion of the alien's "investment."

Hold on Certain Immigrant Investor Petitions

On December 1, 1997, the Office of Adjudications requested that Service Centers refrain from adjudicating petitions involving the complex financial arrangements addressed in the legal memorandum. Subsequently, at the Service's request, the Department of State instituted a similar "hold" of visa applications containing these arrangements. With the exception of the preparation of decisions for certification referenced below, the current hold remains in place for all initial petitions seeking immigrant investor classification, petitions returned from consulates, petitions for removal of conditions filed under section 216A of the Immigration and Nationality Act, and related matters containing provisions addressed in the attached legal opinion.

The hold does not apply to all EB-5 petitions. Service Centers are instructed to continue to adjudicate immigrant investor petitions that are not subject to the hold. Petitions subject to the hold may be withdrawn and new petitions that are not subject to the hold may be filed and adjudicated.

Any such new petitions, however, should be treated in the same manner as any other newly filed petition.

New Returns by Consulates of Investor Petitions

On February 22, 1998, the Department of State instructed that all approved Form I-526 petitions held at consular posts be returned to the appropriate Service Center. As requested by the Service, consular officers were instructed to forward the held petitions by air courier, flagged with the name of the forwarding consulate, directly to the Business and Trade Product Line Managers along with evidence submitted by the applicant, a brief cover memorandum describing the reasons for the return, and a copy of the February 22 cable. Service Centers are instructed to track these returns by using the courier receipt numbers provided and forward to this office a list of all cases returned by the consulates for review and revocation which are subject to the hold.

 

Communication About Petitions Subject to the Hold

All Service personnel are instructed to discontinue communication with petitioning companies (including their legal or other representatives) whose petitions are subject to the hold. Requests for communication shall be forwarded to David M. Dixon, Acting Deputy General Counsel, Headquarters INS (telephone 202/514-2895).

 

Preparation of Cases for Certification

Each Service Center is instructed to select approximately four Form I-526 petitions from among the held cases for certification to the Administrative Appeals Office. Decisions may be approvals or denials but should reflect, if possible, the range of provisions addressed in the legal memorandum and not isolate any one or two petitioners.

In addition, each Service Center is instructed to adjudicate two clearly approvable Form I-526 petitions not subject to the hold and prepare them for certification to the Administrative Appeals Office. Both categories of cases prepared for certification should be forwarded to the Administrative Appeals Office and clearly addressed to the attention of Edward H. Skerrett no later than two weeks from the date of this memorandum.

Your assistance is greatly appreciated. Please refer questions regarding this policy to Katherine A. Lorr, HQBEN 202/514-5014.

Micheal D. Cronin
Acting Associate Commissioner

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Note to reader: This June 26, 1998 INS memo provides instructions on handling EB-5 cases being held or certified to the AAO, as well as handling conditional resident situations.

REVISED FIELD INSTRUCTIONS

MEMORANDUM FOR Regional Directors
District Directors (Including Foreign)
Regionals Counsels
Officers-In-Charge (Including Foreign)
Port Directors
Service Center Directors
Directors, ODTF-Glynco, GA and Artesia, NM

FROM: Joseph R. Greene
Acting Associate Commissioner for Programs

SUBJECT: Immigrant Investor Petitions ñ Recent Actions And Procedures for Eliminating the Hold


REVISED JUNE 12 MEMORANDUM

This memorandum supersedes the June 12 field memorandum on this subject. Due to a clerical error, the June 12 distribution should be destroyed and replaced by these instructions. Please note the changes to this memorandum in the last 2 sentences of the second paragraph of the section entitled
"FORWARDING PETITIONS TO THE TIGER TEAM."

GENERAL INFORMATION

This memorandum provides Service Centers with the procedures that are to be followed for adjudicating immigrant investor petitions (Forms I-526 and I-829) that have been placed in the hold pursuant to the March 19, 1998, memorandum from this office.

Pursuant to the instructions in the March 11, 1998, field memorandum, the Administrative Appeals Office (AAO) received 19 immigrant investor petitions (I-526) on certification from the four Service Centers and is preparing decisions on these cases. The Immigration and Naturalization Service (Service) will designate from among these 19 certified cases certain precedent decisions.

During the week of July 6, 1998, the Service will provide intensive supplemental training on these precedent decisions and related EB-5 matters to select adjudicators.

After the training, the Service will assemble a "tiger team" to adjudicate the cases currently in the Headquarters-directed hold. The "tiger team" will operate from the California Service Center from July 15 through August 13.

FORWARDING PETITIONS TO THE TIGER TEAM

Service Centers are instructed to forward all Form I-526 and I-829 petitions in the hold, clearly marked in red marker EB-5 HOLD CASES," to the California Service Center by Federal Express, return receipt requested, by July 1, at the following address: 24000 Avila Road, 2nd floor (P.O. Box 10526), Laguna Niguel, California 92607-10526. The records point of contact is Lydia Lundquist, Program Assistant (949-360-2820). Petitions which fall within the terms of the hold should continue to be forwarded until August 1. Each Service Center should keep a complete list of transferred hold cases, with shipping receipts and tracking numbers.

Service Centers must notify petitioners whose cases have been forwarded to the California Service Center that their case has been forwarded for adjudication under the terms of decisions by the AAO and this field memorandum. This notification shall be by the Form I-797 transfer notice generated when transfer is made in CLAIMS and electronic jurisdiction is transferred to the California Service Center. In addition, petitioners shall be advised that if they seek to withdraw a petition and file a new petition and the request for withdrawal, clearly marked in red marker "HOLD WITHDRAWAL" to the above address by July 30. After July 30, new petitions should be filed with the Service Center with jurisdiction over the new commercial enterprise for adjudication under normal procedures.

FORM I-526 ADJUDICATION

The "tiger team" is to adjudicate the approximately 680 initial cases currently being held, namely, newly field Form I-526 petitions, Form I-526 petitions approved by the Service but returned by the Department of State for revocation before visa issuance, and related approved Form I-526 petitions with pending Form I-485 adjustment of status applications.

Aliens who wish to withdraw a petition from the hold and file a new Form I-526 petition may proceed in two ways. First, in accordance with the May 21 field memorandum, an alien who withdraws a petition from the hold prior to the AAO decisions may file a new petition which, if it does not contain features that subject it to the hold, will be adjudicated under standard procedures. Assuming that there is no need for additional evidence, a certification for review, or other questions, the new petition will be adjudicated within the average processing time for this type of petition (currently 60 days). This group of petitions will be processed in chronological order by date of receipt (or date of fee acceptance) in accordance with O.I. 103.2(q).

Second, the Service continues its responsibility to promote job- creating and job-preserving investments and is permitting a petitioner to withdraw a petition within the hold after July 1, and file a new petition which clearly identifies the alien's withdrawn petition. Such newly filed petitions will be reviewed by the "tiger team" in the order in which they are filed. The "tiger team" may approve or deny petitions unless they require additional evidence. Where additional evidence is needed in order to complete the adjudication, the "tiger team" shall issue a Request for Evidence, directing the alien to submit the evidence to the Service Center having jurisdiction over the new commercial enterprise, and return the file to that Service Center.

If necessary, the "tiger team: shall forward for advice any new questions about eligibility under the law and the regulations that arise from complex financial or economic arrangements to Headquarters Adjudication (Business and Trade Services Branch) and return the file to the appropriate Service Center to complete the adjudication. A request for advice shall include a memorandum discussing the specific issues which need to be addressed, relevant research, background or other information, and shall, if possible, provide clear recommendations.

FORM I-829 ADJUDICATION

The "tiger team" shall adjudicate petitions on Form I-829 to remove conditions, filed at the end of an alien's 2-year period of conditional resident status, and in the hold, in accordance with the AAO decisions. In this regard, the Office of Legal Counsel of the Department of Justice has verified that, under the plain language of INA section 216A, the Service lacks authority to approve petitions to remove conditions for aliens who have entered the United States as conditional residents and whose petitions to remove conditions are subject to denial because they fail to meet the requirements of the law.

The Service, however, has determined that an alien whose Form I-829 petition fails to comport with the law may be provided with the opportunity to file, within 90 days of the date of the Notice of Intent to Terminate Status, a new petition that does not contain the defects in their original filing.

Before a Notice of Intent to Terminate Status is sent, the petition should be screened to determine eligibility to file a new Form I- 526. Eligible aliens shall be directed to file new petitions to the Service Center with jurisdiction over the new commercial enterprise. This process is not available to aliens whose petitions to remove conditions are denied because the business in which the alien originally invested has ceased to operate or has failed to create or preserve 10 full-time jobs in the United States or to an alien seeking to invest in a different business. This process is available only where the petition involves aspects of the December 19, 1997, General Counsel legal memorandum.

If an alien is determined to be eligible, the Notice of Intent to Terminate Status shall advise the alien that, if a new petition is filed within the specified time period and if it is approved, the alien will be deemed to have remained in lawful conditional status, provided the alien has withdrawn the old petition to remove conditions and agreed to file an immigrant visa application with the Department of State to begin a new 2- year period of conditional resident status.

The Notice of Intent shall further advise the alien that, as section 245(f) of the INA prohibits these immigrant investor visa conditional residents from adjusting status in the United States, he or she must apply for an immigrant visa at a consular post abroad in order to initiate the new 2-year period of conditional resident status. In addition, the alien must be advised that, to establish eligibility for this process, the alien must demonstrate that he or she: 1) fully complied with the business plan in the original initial petition; 2) sustained the investment throughout the 2-year conditional resident period; 3) was denied the request to remove the conditions on his or her status because his or her original petition did not comply with the law and the regulations, and ; (4) is basing the new petition on the same job-creating or job-preserving United States business as the original petition.

LAWFUL PERMANENT RESIDENTS (EB-5 INVESTORS) WHOSE CONDITIONS HAVE BEEN REMOVED BY THE IMMIGRATION AND NATURALIZATION SERVICE

Absent a finding of fraud or other improper acts, the Service will not initiate recession proceedings in the cases of aliens who have obtained lawful permanent residents status (without conditions) based on petitions that may have not complied with the statue and regulations, as discussed in the General Counsel's memorandum of December 19, 1997. Finally, Service officers are reminded that, as stated in the field of memorandums of March 11 and May 21, 1998, immigrant investor petitions not subject to the hold should be adjudicated in the same manner as any other newly filed petition; they are not covered by this field memorandum. Pursuant to the May 21 field memorandum, petitioners whose cases do not fall within the terms of the hold are to be advised of this determination through routine procedures.

Questions regarding these field instructions, may be directed to Katharine A. Lorr at HQ AND, (202) 514-5014. The Offices of Naturalization Operations and Field Operations have concurred with this memorandum.

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Note to reader: This is the head notes of a precedent case regarding EB-5 investments.

FOR PUBLICATION

MATTER OF SOFFICI

In Visa Petition Proceedings

A76 472 614

Designated as a precedent by the Commissioner, June 30, 1998.

(Decided by the Associate Commissioner, Examinations, June 25, 1998.)

(1) A petitioner under Section 203(b)(5) of the Immigration and Nationality Act cannot establish the requisite investment of capital if he lends the money to his new commercial enterprise.

(2) Loans obtained by a corporation, secured by assets of the corporation, do not constitute capital invested by a petitioner. Not only is such a loan prohibited by 8 C.F.R. 204.6(e), but the petitioner and the corporation are not the same legal entity.

(3) A petitioner's personal guarantee on a business's debt does not transform the business's debt into the petitioner's personal debt.

(4) A petitioner must present clear documentary evidence of the source of the funds that he invests. He must show that the funds are his own and that they were obtained through lawful means.

(5) A petitioner who acquires a pre-existing business must show that the investment has created, or at least has a reasonable prospect of creating, 10 full-time positions, in addition to those existing before acquisition. The petitioner must, therefore, present evidence concerning the pre-acquisition level of employment. Simply maintaining the pre-acquisition level of employment is not sufficient, unless the petitioner shows that the pre-existing business qualifies as a "troubled business."

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Note to reader: This is the head notes of a precedent case regarding EB-5 investments.


FOR PUBLICATION

MATTER OF IZUMII

In Visa Petition Proceedings

A76 426 873

Decided by the Associate Commissioner, Examinations, July 13, 1998

(1) Regardless of its location, a new commercial enterprise that is engaged directly or indirectly in lending money to job-creating businesses may only lend money to businesses located within targeted areas in order for a petitioner to be eligible for the reduced minimum capital requirement.

(2) Under the Immigrant Investor Pilot Program, if a new commercial enterprise is engaged directly or indirectly in lending money to job-creating businesses, such job-creating businesses must all be located within the geographic limits of the regional center. The location of the new commercial enterprise is not controlling.

(3) A petitioner may not make material changes to his petition in an effort to make a deficient petition conform to Service requirements.

(4) If the new commercial enterprise is a holding company, the full requisite amount of capital must be made available to the business(es) most closely responsible for creating the employment on which the petition is based.

(5) An alien may not receive guaranteed payments from a new commercial enterprise while he owes money to the new commercial enterprise.

(6) An alien may not enter into a redemption agreement with the new commercial enterprise at any time prior to completing all of his cash payments under a promissory note. In no event may the alien enter into a redemption agreement prior to the end of the two-year period of conditional residence.

(7) A redemption agreement between an alien investor and the new commercial enterprise constitutes a debt arrangement and is prohibited under 8 C.F.R.204.6(e).

(8) Reserve funds that are not made available for purposes of job creationcannot be considered capital placed at risk for the purpose of generating a return on the capital being placed at risk.

(9) The Service does not pre-adjudicate immigrant-investor petitions; each petition must be adjudicated on its own merits.

(10) Under 8 C.F.R. 204.6(e), all capital must be valued at fair market value in United States dollars, including promissory notes used as capital. In determining the fair market value of a promissory note, it is necessary to consider, among other things, present value.

(11) Under certain circumstances, a promissory note that does not itself constitute capital may constitute evidence that the alien is "in the process of investing" other capital, such as cash. In such a case, the petitioner must substantially complete payments on the promissory note prior to the end of the two-year conditional period.

(12) Whether the promissory note constitutes capital or is simply evidence that the alien is in the process of investing other capital, nearly all of the money due under the promissory note must be payable within two years, without provisions for extensions.

(13) In order for a petitioner to be considered to have established an original business, he must have had a hand in its actual creation.

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Note to reader: This is the head notes of a precedent case regarding EB-5 investments.


FOR PUBLICATION July 31, 1998

MATTER OF HO

In Visa Petition Proceedings

WAC-98-072-50493

Decided by the Associate Commissioner, Examinations, July 31, 1998

1. Merely establishing and capitalizing a new commercial enterprise and Signing a commercial lease are not sufficient to show that an immigrant-investor petitioner has placed his capital at risk. The petitioner must present, instead, evidence that he has actually undertaken meaningful concrete business activity.

2. The petitioner must establish that he has placed his own capital at risk, that is to say, he must show that he was the legal owner of the invested capital. Bank statements and other financial documents do not meet this requirement if the documents show someone else as the legal owner of the capital.

3. The petitioner must also establish that he acquired the legal ownership of the invested capital through lawful means. Mere assertions about the petitioners financial situation or work history, without supporting documentary evidence, are not sufficient to meet this requirement.

4. To establish that qualifying employment positions have been created, INS Forms I-9 presented by a petitioner must be accompanied by other evidence to show that these employees have commenced work activities and have been hired in permanent, full-time positions.

5. In order to demonstrate that the new commercial enterprise will create not fewer than 10 full- time positions, the petitioner must either provide evidence that the new commercial enterprise has created such positions or furnish a comprehensive, detailed, and credible business plan demonstrating the need for the positions and the schedule for hiring the employees.

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Note to reader: This is the head notes of a precedent case regarding EB-5 investments.

FOR PUBLICATION July 31, 1998

MATTER OF HSIUNG

In Visa Petition Proceedings

A76 854 232

Decided by the Associate Commissioner, Examinations, July 31, 1998

(1) A promissory note secured by assets owned by a petitioner can constitute capital under 8 C.F.R. 204.6 (e) if: the assets are specifically identified as securing the note; the security interests in the note are perfected in the jurisdiction in which the assets are located; and the assets are fully amenable to seizure by a U.S. note holder.

(2) When determining the fair market value of a promissory note being used as capital under 8 C.F.R. 204.6 (e), factors such as the fair market value of the assets securing the note, the extent to which the assets are amenable to seizure, and the present value of the note should be considered.

(3) Whether a petitioner uses a promissory note as capital under 8 C.F.R. 204.6(e) or as evidence of a commitment to invest cash, he must show that he has placed his assets at risk. In establishing that a sufficient amount of his assets are at risk, a petitioner must demonstrate, among other things, that the assets securing the note are his, that the security interests are perfected, that the assets are amenable to seizure, and that the assets have an adequate fair market value.

(4) A petitioner engaging in the reorganization or restructuring of a pre-existing business may not cause a net loss of employment.

 

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Note to reader: This is an August 28, 1998 INS memo with instructions on placement of invested funds in escrow by petitioner seeking classification as an alien entrepreneur.


August 28, 1998

Memorandum For:
Regional Directors District Directors (Including Foreign)
Regional Counsels Officers-In-Charge (Including Foreign)
Port Directors
Service Center Directors
Directors, ODTF- Glynco, GA and Artesia, NM

From: Robert L. Bach Executive Associate Commissioner Office of Policy and Planning

Subject: Immigrant Investor Petitions - Placement of Invested Funds in Escrow and Extension of Time to Withdraw a Held Petition and File a New Petition in its Place.

This memorandum provides Service Center officers with instructions regarding the placement of invested funds in escrow by a petitioner seeking classification as an alien entrepreneur. In addition, the Service has determined to extend the time during which a petitioner may withdraw a clearly identified petition from the "hold" and file a new petition in its place with the "tiger team" assembled at the California Service Center. In the August 4 field memorandum on this issue, petitioners were given until August 31 to withdraw and refile such a petition.


EXTENSION OF TIME TO WITHDRAW AND FILE A NEW PETITION

The Service has determined to extend to September 14 the time for withdrawing a petition from the "hold" and filing a new petition with the "tiger team" assembled at the California Service Center. This final extension will provide its customers with sufficient time to consider recent guidance.


ESCROW - GENERAL INFORMATION

Service Officers are advised that terms of an escrow in a petition for alien entrepreneur classification, as well as all other aspects of the petition, must comport with the requirements of section 203(b)(5) of the Immigration and Nationality Act (the Act), as well as 8 CFR 204.6 and 216.6. Consistent with field memorandum of August 4 and June 26, the Service remains committed to encouraging investment by immigrants who meet the requirements of the law. These instructions are also consistent with prior guidance entitled "Policy Questions of Investors" issued on July 21, 1993 by the Office of Adjudications (Jaime Cabanilla).

In accordance with 8 CFR 204.6(j), a petition submitted on Form I-526 for classification as an alien entrepreneur (EB-5) must contain evidence that the alien has invested or is actively in the process of investing lawfully obtained capital in a new commercial enterprise in the United States which will create full-time positions for 10 qualifying employees. To show that the petitioner has invested or is actively in the process of investing the required amount of capital, 8 CFR 204.6(j)(2) requires that the petition be accompanied by "evidence that the petitioner has placed the required amount of capital at risk for the purpose of generating a return on the capital placed at riskÖ The alien must show actual commitment of the required amount of capital."


ESCROW BY ALIEN ENTREPRENEUR TO COMMIT INVESTMENT FUNDS

The regulations at 8 CFR 204.6 do not address directly the use of an escrow prior to visa issuance. An escrow is a legal mechanism that places the funds of one person (called the grantor, promisor, or obligor) in the hands of a third party (called the escrow holder) to be delivered to another person (called the grantee, promisee, or obligee) upon the occurrence of some event or the meeting of some condition. In the case of an alien entrepreneur, an escrow enables the required initial capital investment to be held by a third party escrow holder and released to the new commercial enterprise when the petition is approved and the visa has been issued or, if the alien is located in the United States, adjustment has occurred. If the petition, or the visa, or adjustment application is denied, the escrow holder will return the money to the alien. In this way the alien's investment is made contingent on the alien's ability to assume the status of alien entrepreneur and enter or remain in the United States to oversee his or her investment.


ESCROW TERMS THAT COMPORT WITH SECTION 203(b)(5) OF THE ACT

Service adjudicators are familiar with escrow arrangements, as the use of escrow is authorized by the regulations at 8 CFR 214.2(e)(12) for nonimmigrant (E-2) investors who, like the immigrant (EB-5) investors, must place their own capital at risk and demonstrate that the investment capital is committed to the enterprise.

The use of escrow arrangements in the alien entrepreneur category is, however, distinct from that in the nonimmigrant E category due to the terms of section 203(b)(5) of the Act and implementing regulations. The Service has become aware of examples of escrow accounts used by petitioners seeking alien entrepreneurs classification whose terms either obviously fail to comport with the requirements of section 203(b)(5) of the Act, are never realized, or appear to reduce the likelihood that the petitioner's job creation requirements will be realized within the two-year conditional period. In certain cases, petitioners have recited the requirements of the nonimmigrant E classification to justify escrows which fail to comport with section 203(b)(5) of the Act.

For this reason, Service officers are cautioned that they must examine closely the terms of an escrow to ensure that the terms comport with section 203(b)(5) of the Act. For purposes of the alien entrepreneur classification, an escrow must state that the required initial capital contribution is actually committed to the new commercial enterprise, where it will be available and put to use for job creation purposes immediately and irrevocably upon approval of the petition and visa issuance, or adjustment. The escrow must unequivocally release the funds into the operations of the job creation enterprise (i.e., into the enterprise's United States business accounts) for job creation purposes.

Capital in escrow may not be counted as investment capital unless such funds are immediately and irrevocably committed to the investment enterprise for job creation purposes upon petition approval and visa issuance or, in the case of adjustment, upon granting of the adjustment application. A mere statement that the funds are available from the escrow agent is not acceptable evidence of commitment. It is not sufficient if the funds are released into a limited partnership, trust fund, trust agreement or other vehicle where they are not truly at risk, have not been committed, and may be diverted from the job creation purposes which are essential to this classification. Service officers are reminded that a petitioner bears the burden of demonstrating that his or her investment meets the requirements of section 203(b)(5) of the Act. If necessary, Service officers may require an additional statement that the petitioner will not enter into any agreements that would prevent the escrow funds from achieving the statutory purposes or that would otherwise have the effect of circumventing the requirements of section 203(b)(5) of the Act. If officers have any doubts as to the amount, terms, or existence of an escrow, they should contact the escrow holder directly for written confirmation of the escrow account and agreement.

Finally, to ensure that the escrow agreement is a genuine arms-length transaction, the escrow holder must be a bank or similar entity that has no relationship other than that of escrow holder to the alien or the new commercial enterprise or their legal representatives. The escrow agreement should further permit the alien the return of his or her money upon either the denial of the petition or its withdrawal by the alien.

Questions regarding these field instructions, may be directed to Katherine A. Lorr at HQADN, 202/514-5014. The Immigration Service Division has concurred with this memorandum.

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