Proposed EB-5 Legislation and Potential Impact on Proving Lawful Source of Funds
July 1, 2015
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By: Cindy P. Jen
Last month, Senators Patrick Leahy of Vermont and Chuck Grassley of Iowa introduced S.1501, the “American Job Creation and Investment Promotion Reform Act of 2015”, proposing some sweeping alterations to the existing EB-5 Immigrant Investor Visa Program. There are a number of provisions introduced in the bill which attempts to provide stronger oversight, greater transparency and deterrents to fraudulent behavior. While much of the bill focuses on the changes in TEA designation and regional center organization and management, it also hones in on some very specific requirements for the investor, namely in proving the lawful source and path of funds.
In an effort to repair and improve what the Senators see as weaknesses in the current program, the bill introduces additional parameters as to what would constitute acceptable evidence to establish lawful source of funds for a foreign investor. If the bill is passed in it’s current form, it would result in a number of changes in the way investors may prove their source of funds; however, a few of the modifications may prove to be simply a codification of what is already being observed in practice through adjudications at the USCIS.
Source of ALL Funds
The bill proposes expanding the obligation of the investor to prove not only the lawful source of funds for the capital investment, but also, “any funds used to pay administrative costs and fees associated with the alien’s investments.”[1] This language can be read to include legal fees, government filing fees and other transactional costs that the investor might be paying to successfully file the I-526. It was always debatable whether sourcing administrative fees were necessary, but practitioners who previously received RFEs from USCIS on this issue were likely already advising their clients to include this in their I-526 petitions.
Path of Funds: Those Who Help the Investor
The bill mandates disclosure of the identity of individuals who may help the investor transfer money into the United States. And this includes transfers all funds, including any funds associated with the investment beyond the capital.
Tax Returns Reaching Back 7 Years
The proposed bill changes the original request of producing five years of tax returns to mandating seven years of tax returns. While this change may not seem terribly significant, upon close reading of the proposed statutory language, it appears that the tax return requirement would be absolutely required when presently, it is one among a list of possible acceptable evidence. The current regulations indicate that:
… the petition must be accompanied, as applicable, by:(i)Foreign business registration records;(ii)Corporate, partnership … and personal tax returns including income, franchise, property… or any other tax returns of any kind filed within five years, with any taxing jurisdiction in or outside of the United States by or on behalf of the petitioner;(iii)Evidence identifying any other source(s) of capital; or(iv)Certified copies of any judgments or evidence of all pending government civil or criminal actions … involving monetary judgment against the petitioner from any court in our outside the United States within the past fifteen years.[2]
The language makes it evident that the petitioner may chose what evidence to include to best support the case to evidence lawful source of funds, and that may or may not include tax returns. The proposed bill appears to be drafted deliberately to require this evidence:
The Secretary of Homeland Security shall require, as applicable, that an alien entrepreneur petition under this paragraph contain –(i)business and tax records, including—a.foreign business registration records;b.corporate or partnership tax returns (or any other entity in any form that has filed in any country or subdivision there of any return described in this subpart), and personal tax returns including income, franchise, property (whether real, personal, or intangible), or any other tax returns of any kind filed within 7 years, with any taxing jurisdiction in or outside the United States by or on behalf of the alien entrepreneur; andc.evidence identifying any other source of capital or administrative fees;[3]
By changing the current placement of the “or” to an “and”, the proposed bill begins to require the inclusion of tax documents in all I-526 petitions, regardless of whether the tax record is probative in proving the lawful source.
Gift Restrictions
Based on the proposed bill, gifted funds put towards an investment must be made in good faith and must by gifted by the investor’s spouse, parent, child, sibling, or grandparent. Furthermore, if a “significant portion” of the invested funds come from the family member making the gift, then the provision regarding seven years of tax returns will apply to that donor.
Loan Restrictions
Under the new bill, investment funds that is derived from loans must be secured by the investor’s assets and issued by a “reputable” bank. Many practitioners may already realize that loans secured by collateral that is not solely owned by the investor has been in disfavor by the USCIS recently. In a common fact pattern, investors own property jointly with a parent or sibling or other family member (not a spouse), and that family member gifts the use of the property as collateral for the loan that is later used for the investment. In previous years, this was an acceptable structure to the USCIS, but has recently been resulting in adverse adjudications, perhaps foreshadowing this provision in the proposed legislation.
Finally, the bill requires loaned funds to be issued by a “reputable” banking or lending institution, ending any possibility of investors securing loans from the family business or individuals. It is unclear how an investor is to properly determine if a bank is “reputable” to fit this requirement, however, according to the proposed bill, DHS will attempt determine reputability by consulting relevant commercial and government databases, including OFAC, TFFC, and FinCEN.
While it is difficult to know if and when this proposed legislation will be passed, but as it applies to an investor’s source of funds, the bill is probably a good indication of current USCIS sentiment and a roadmap of what to anticipate from USCIS adjudications in the future.
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[1] S.1501 - American Job Creation and Investment Promotion Reform Act of 2015, 114th Congress (2015-2016), proposed amendment to INA
[2] 8 CFR §204.6(j)(3)
[3] S.1501 - American Job Creation and Investment Promotion Reform Act of 2015, 114th Congress (2015-2016), proposed amendment to INA
