Recent EB-5 Denials

We recently reviewed 10 decisions decided by the INS’Administrative Appeals Office (AAO) between August 1999 and May 2000 concerning immigrant investor petitions. None of the petitioners was successful.

As background, Congress created the employment-based fifth preference (EB-5) immigrant visa category in 1990 for immigrants seeking to enter the United States to engage in a commercial enterprise that will benefit the U.S. economy and create at least 10 full-time jobs. This visa category has always been controversial, and very few people have immigrated to the United States as investors. Even fewer have qualified as immigrant investors since the AAO issued four 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 since those precedent decisions reveals that it is harder than ever for petitioners to qualify for the immigrant investor category.

The recent AAO cases raise similar issues. These include: whether the petitioner formed the enterprise; whether the funds used to capitalize the enterprise can be traced to the petitioner; whether the funds are derived from a lawful source; whether the petitioner has identified all other sources of capitalizing the enterprise; whether the capital is at risk in the sense of earmarking all capital for"profit-generating, employment-creating activities"; and whether the petitioner has a credible business plan for creating the required employment. Of the reviewed AAO decisions, the AAO concluded that each of the petitioners failed to satisfy prevailing standards. Although the recent AAO decisions are not precedent decisions, the cases represent a continuing trend of limiting eligibility for the immigrant investor category.

Summaries of each of the 10 AAO decisions follow.

AAO decision, February 4, 2000
File # redacted

The California Service Center (CSC) approved the I-526 petition for EB-5 immigrant investor classification and issued a written decision in 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 present sufficient evidence to prove that his investment would create the requisite employment, that he had established the new commercial enterprise, that he invested the requisite capital, that the capital was at risk, and that the petitioner’s funds derived from a lawful source.

Authority of the AAO

The AAO first articulated the basis for its authority:

"[T]he regulations provide that the AAO is the administrative body that has been delegated the Commissioner’s authority to interpret the immigration laws and regulations. Thus, clarifications from the Commissioner’s office are in fact communicated through the AAO....The AAO performs its delegated duty of interpreting the regulations through the adjudication of appeals and certifications; no other means exists for the AAO to express its opinions of Service interpretations."

The petitioner is one of nine limited partner investors who each invested $500,000 in a limited partnership which has as its general partner a limited liability company (LLC) that had been designated bythe INS as a regional center under the immigrant investor pilot program. Accordingly, proof of the requisite job creation in this case depended on evidence of indirect employment creation.

The regional center is focused on redevelopment of closed federal military bases in the state of California. The partnership consisted of $4.5 million equity cash, invested in units of $500,000 by each of the nine investors. The partnership had already placed $2.65 million of 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 Canadian manufacturer and its California subsidiary (PPII) to build a manufacturing plant at the closed military base. PPII forecasted 58 new jobs in the first year of operations in California, and double theamount in the second year. The sum of $650,000 was loaned by the partnership to the military base redevelopment agency (IVDA) to improve infrastructure and to attract new businesses to the military base. The IVDA projected that new businesses would relocate to the base and that several hundred jobs would be created as a result of the infrastructure improvements. The partnership intended to invest another $1.5 million in similar uses at the closed military base.

The AAO found that the petitioner failed to demonstrate what portion of PPII’s future sales would constitute "export sales" and failed to establish the connection between the loan to the IVDA and increased export sales. Therefore, the indirect employment principles of the pilot program could not be relied upon by the petitioner. Insofar as the partnership was not an employer, moreover, the petitioner was unable to sustain his burden of proving the 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 in August 1998, when the partnership agreement was completed, agreed upon and executed. The AAO concluded, however, that the partnership was not established by the petitioner because a certificate of limited partnership had been filed with the State of California by the LLC(not the petitioner) in March 1998, at least five months earlier. The petitioner had argued to the CSC in support of the I-526 petition that the AAO precedent decisions of summer 1998 had required him to start fresh in August 1998, and that in any event no partnership business had been conducted prior to August 1998, when the new partnership documents were executed. The AAO disagreed: "Merely revising apartnership agreement or business plan of an already formed partnership 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 had established 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 fully operational at the time of petitioner’s investment. Therefore, the petitioner 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, and noted that the $2.65 million already spent by the partnership was directed to uses at the former military base in San Bernardino. However, the AAO concluded that the partnership would not necessarily be principally doing business in San Bernardino, for two reasons. First, although the partnership agreement restricted use of partnership assets to targeted areas, the partnership agreement could be amended and the remaining $2 million of partnership assets could be placed for investment outside San Bernardino in "non targeted"areas. Second, the mailing address of the general partner was in Corona, 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 immigrant investor classification.

Investment of the required capital

The AAO also found that the petitioner failed to document the origin of the $500,000 transferred to the partnership. The petitioner presented a wire transfer record but the AAO was not convinced:

"[W]hile the petitioner was the party ordering the transfer of the $500,000..., it is not clear whether the $500,000 had been withdrawn from the petitioner’s account or whether the petitioner had merely presented the funds, from an unknown source, to the bank for transfer. The wire-transfer record does not reveal the originating bank account number, and the petitioner has not furnished any bank statements for himself."

The AAO also decided that the capital invested by the petitioner inthe partnership was not at risk. According to the AAO, the regulations require that "at the time of filing, the petitioner must already have placed the full requisite amount of capital at risk in profit-generating, employment-creating activities." The AAO found that the petitioner did not meet this standard because: (1) the partnership agreement permitted the petitioner to exit the partnership and receive a pro rata distribution of the then-present value of partnership assets if he could not obtain the desired immigration benefits, and (2) the partnership had not yet expended all $4.5 million of its capital. The AAO commented, "it is more than possible that the remaining funds will never be invested."

Source of funds

The petitioner claimed that he had sold stock in his United Kingdom company for approximately $15 million and that a portion of the sale proceeds was used to invest in the partnership. He presented as supporting evidence a letter from Coopers & Lybrand describing the stock transaction, a stock purchase agreement, a stock transfer form, minutes of directors meetings describing the transaction, a letter from his bank describing his assets, and two years of individual income tax returns that also referred to the stock transaction. The AAO 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 transfer form had been filed with the U.K. Registrar of Companies, the U.K.income tax returns were unsigned, and petitioner had not explained the tax treatment of the two-step stock transaction. "Share purchase agreements and minutes of purported director’s meetings, absent corroborating evidence and particularly when occurring informally and among family members, are not sufficient to meet the petitioner’s burden of proof." The AAO also noted the absence of "five years of signed personal tax returns that had actually been submitted to 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 concerning the sources of funds contributed by the LLC and the other eightlimited partners.

AAO decision, March 21, 2000
File # redacted

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 the requisite amount of capital; (3) the petitioner failed to prove the funds she invested were derived from a lawful source, and (4) the petitioner failed to prove her investment would create 10 new jobs. On appeal, counsel argued that the CSC ignored evidence or failed to properly 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 AAO observed that "petitioner did not play a role in the organization of the enterprise, but instead made her investment after the enterprise had been operational for almost a year." The petitioner did not present evidence to support a"reorganization" or "expansion" theory. The AAO held that the petitioner did not prove she had established the enterprise.

Petitioner’s investment of the required capital

The AAO held that the petitioner failed to prove that she had invested the required amount of capital, failed to clarify the amount of capital invested, and failed to persuade that the capital is atrisk.

According to the AAO, the petitioner submitted conflicting information on how much capital she invested. For example, counsel stated $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 petitioner claimed she received 2,593,909 shares, but the articles of incorporation limit the corporation to 1,000,000 shares). The AAO therefore raised the question of whether the investment by petitioner was in fact a loan. The AAO concluded: "It is incumbent upon the petitioner to resolve any inconsistencies in the record by independent objective evidence, and attempts to explain or reconcile such inconsistencies, absent competent objective evidence pointing to where the 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 bank letter indicating she was the sole owner of the company and that awire transfer was made by the bank. However, the letter did not state the amount of the wire transfer, and no organizational or ownership documents of the solely-owned company were presented. Therefore, according to the AAO, the petitioner failed to prove she owned the company. Regardless, according to the AAO, "any contribution ofcapital made by a corporation may not be considered the contribution of the individual petitioner, despite a showing that the petitioner is the sole shareholder of the entity."

The AAO also concluded that there was no proof the funds invested by petitioner were at risk. The petitioner had submitted a business plan indicating that "[t]he sum of $1,263,150 has been transferred from personal and family resources for use in the investment. A minimum of $1,000,000 of this sum shall be invested,including a modest cash reserve, although the balance of the money will continue to be available in case of need." Citing 8 C.F.R.§ 204.6(j)(2), the AAO stated: "The petitioner’s unsupported statements that the sum "shall be invested" is not sufficient. Evidence of mere intent to invest, or of prospective investment arrangements entailing no present commitment, will not suffice to show that the petitioner is actively in the process of investing."

Specifically, the AAO dismissed the petitioner’s claim that the $160,000 stipulated in the business plan for operating expenses such as wages, payroll taxes, worker compensation insurance, and rent, was capital at risk. The AAO found that there was no documentary evidenceto support this claim.

The AAO also dismissed the petitioner’s argument that $475,000 was capital at risk because it would be used to purchase a residential hotel. The AAO found that there was insufficient evidence to prove that such funds were contributed by the petitioner. Also, the petitioner did not dispel the suspicion that the funds were borrowed and that their repayment was secured by the hotel.

The AAO dismissed the petitioner’s claim that $353,150 of capital was at risk on the theory that it was used by Tiger Realty to purchase a 34% interest in a limited partnership that owned an apartment complex. The petitioner also owned 64% of the partnership as an individual owner. The AAO noted that the petitioner had received a distribution of $250,000, meaning "there was no infusion of newfunds."

Finally, a reserve fund of $275,000 had been set aside in business accounts. Citing Matter of Izumii, the AAO found that "where the creation and maintenance of reserve funds takes priority over any other use of capital contribution, the funds are not available for job creation and therefore cannot be considered capital placed at risk for the purpose of generating a return on the capital being placed at risk."

Capital obtained through lawful means

The petitioner sought to prove the lawful source of her invested capital by presenting evidence of her sale of a multi million dollar business 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:

"Contrary to the requirements of 8 C.F.R. § 204.6(j)(3), the petitioner did not submit copies of business registration records, tax returns, or evidence of other income sources.....If the petitioner has filed either personal or business tax returns in any tax jurisdiction in or outside the United States in the five years prior to filing the immigrant petition, the petitioner must submit copies of the documents... [otherwise it] would allow an individual with felony money laundering convictions to satisfy the regulations by submitting business records rather than evidence of the criminal record. The petitioner must affirmatively demonstrate the lawful source of the funds through the submission of all four types of evidence, or by demonstrating that such evidence is not applicable."

The AAO also concluded that the petitioner did not prove she received the proceeds of sale of the family business in the United Kingdom, because she did not submit copies of business registration records to show she was the owner of the company sold, or copies of tax returns to establish the amount of her income on sale of the business.

Creation of employment

The AAO dismissed the petitioner’s claims of job creation. Pre-existing employment could not be counted because the business had not 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 was not comprehensive enough to enable the Service to conclude that atleast 10 new jobs would be needed by the enterprise. For instance, the AAO 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 event shall there be fewer than 10 full time persons to be on board as of March 1, 2001." There was no market analysis, comparison of the competition, or plans for developing the enterprise’s target market."The plan does not elaborate on the means by which the company will achieve these goals." Lacking a detailed plan, the petitioner had not "clearly established that the business will create the requisite employment."

AAO decision, May 4, 2000
File WAC 98 117 54374

The Vermont Service Center (VSC) denied the EB-5 petition on four grounds: (1) the petitioner failed to establish a new commercialenterprise; (2) the petitioner failed to prove that she had invested in a targeted employment area; (3) the petitioner failed to prove sheinvested the requisite amount of capital; and (4) the petitioner failed to prove her investment would create 10 new jobs. The AAO agreed, 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 name of the business as Wah Keung Fishery and Pasture Co. The latter company also was listed as a prior owner of the real estate on which petitioner 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 AAO dismissed 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 inconsistencies in the record, the AAO held that there was no such evidence to resolve the inconsistencies and to support the petitioner’s claim she had established an original business. Moreover, as there was no evidence that the petitioner had substantially reorganized or expanded the business, the petitioner did not establish that she had established a new commercial enterprise. The AAO also commented that Service records indicated that prior owners of the property obtained conditional permanent residence status via investment, and speculated that both cases might be based on the same business.

Targeted employment area

The petitioner had purchased property near Thermal, Riverside County, California. The petitioner presented such evidence as a tourist map, which was dismissed by the Service as inadequate to prove that the business would be located in a rural or high unemployment area. On appeal the petitioner submitted excerpts from the Bureau of Labor Statistics web page and an economic survey from an undisclosed source. Both items of evidence, however, were not specific to the area of petitioner’s investment and therefore petitioner failed to sustain her burden of proof.

Petitioner’s investment of the required capital

The petitioner’s evidence supported the conclusion that the real estate had been purchased directly by the petitioner, not by theenterprise, but that the real estate had not been contributed by the petitioner to the enterprise. Also, the AAO observed that without additional evidence such as a recorded deed or the escrow closing papers, there was insufficient evidence to conclude that the purchase of real estate for $400,000 had actually occurred.

The petitioner did not submit copies of stock certificates representing her ownership interest in the commercial enterprise. Nor did she present an audited financial statement or tax returns. The AAO concluded there was insufficient basis for determining whether a transfer of $200,000 to Maulin Corporation was a capital contributionor a loan from the petitioner.

The AAO also dismissed evidence of certain expenditures for the reason that the evidence supported the conclusion that the expenditures were made by the previous owner of the property rather than by the enterprise. Therefore such evidence was not probative of a capital contribution made by the petitioner.

Creation of employment

The petitioner submitted a one-page description of the business including 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 by which the company would achieve such goals. Therefore the petitioner failed to clearly establish that the business would create the requisite employment.

AAO decision, February 29, 2000
File # redacted

The CSC denied the I-526 petition because the petitioner failed to demonstrate she invested or was in the process of investing the requisite capital obtained by lawful means. On appeal, counsel submitted additional evidence that the petitioner contributed $1million and that the source of capital was the savings petitioner and her husband had accumulated during their marriage and from his business. 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 shares of common stock for $1 million. The petitioner stated she wired $1 million 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 the account number or source of the wire transfers. One wire transfer had been ordered by a third party. Both cashiers checks reflected the petitioner as the remitter but did not demonstrate a direct transfer. Moreover, the deposit slips failed to identify whether the deposits were actually made to the business account of the petitioner.

The petitioner also submitted a brief letter from a bank in California confirming the transfers. The AAO dismissed that evidence,finding that the bank letter did not "confirm the source of the invested funds or their actual deposit." Specifically, the AAO found that the letter failed to identify the source of the claimedcapital or the specific accounts in which the two claimed deposits were made.

The petitioner also submitted two documents in English titled"Notes" that indicated face amounts, a maturity date, and that the amount was payable to the petitioner or her husband. The AAO commented 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 was transferred . . . 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 to circumvent the foreign exchange controls of China. If so, "[c]ounsel’sstatement raises questions regarding the source of the petitioner’s funds, 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 petitioner failed to document the path of the funds and therefore failed to meet the burden of establishing that the capital investment was made with her own funds. Without submitting copies of consecutive monthly bank statements for the commercial enterprise, the Service could not ensure that the petitioner’s two payments did not involve the withdrawal and redeposit of the same funds.

Moreover, minutes of the special shareholder’s meeting stated that the petitioner contributed $1 million to obtain 500,000 shares of common stock. However, the petitioner claimed to have actually invested $1,010,000. According to the AAO, this discrepancy raised questions about the validity of the evidence submitted.

The petitioner claimed that the money she invested in the United States was lawfully acquired through years of diligent work and savings by both she and her husband. The AAO was not impressed, finding that the documents did not report any income that the petitioner or the petitioner’s husband acquired through their business in China. Nor did the evidence document the petitioner’sl evel of income or support the petitioner’s claim to have used personal savings for the investment capital.

Citing 8 C.F.R. § 204.6(j)(3) and noting the petitioner’s failure to submit any copies of her or her husband’s personal income tax statements, the AAO held that the petitioner failed to show that her capital investment was obtained by lawful means.

Citing Matter of Ho, the AAO also stated:

"[I]f the petitioner is to use assets claimed to belong to his or her spouse, the petitioner must establish the lawful source of the funds held by his or her purported spouse and establish that the funds are available to the job creating enterprise. Furthermore, if a petitioner claims to have worked in a certain occupation and has accumulated the investment capital over time, the petitioner must establish that he or she actually was engaged in that occupation and show that they met this burden."

The AAO found that the petitioner’s business plan was not comprehensive enough. The petitioner’s plan consisted of a five-page description of the commercial enterprise that stated that the company’s goal was to increase gross sales by $500,000 a year for three years,while maintaining a gross margin of 10 percent. However, the plan did not elaborate on the means to hire 10 additional employees for four departments. Nor did the plan explain how the petitioner’s capital investment would be used to achieve these goals. Citing language in Matterof Ho that: "[m]ere conclusory assertions do not enable the Service to determine whether the job-creation projections are any more reliable than hopeful speculation," the AAO found that thepetitioner did not clearly establish that the business would create the requisite employment.

Establishment of a new commercial enterprise

The AAO held that the petitioner failed to establish a new commercial enterprise. The petitioner claimed that her investment in an existing business increased the net worth of the enterprise by morethan 40 percent. The AAO held that the petitioner failed to comply with 8 C.F.R. § 204.6(j)(1), which specifically requires submitting certified financial reports or similar evidence to prove an increasein the net worth of the enterprise. The petitioner submitted copies of internally produced balance sheets for the period immediately preceding the petitioner’s investment and for the month immediately following the investment. The balance sheets contained anomalies such as a lack of entries for the company’s inventory or utility payments. Nor was there evidence that the balance sheets had been prepared by a certified public accountant or were based on an audit of the firm’s financial records.

AAO decision, September 27, 1999
File # redacted

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 consider events that occurred after the petition had been filed, such as the purchase of stock and the alleged investment in an additional store,was erroneous. The AAO rejected the appeal, holding that: (1) the petitioner’s appeal was untimely filed; (2) the appeal could not be considered a motion to reopen because counsel failed to state any new facts or provide new evidence; and (3) the appeal could not be accepted as a motion to reconsider because counsel failed to cite any new law or case.

AAO decision, August 19, 1999
File # redacted

The CSC denied the I-526 petition because the petitioner failed toprove he had invested or was in the process of investing the requisite amount 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 of incorporation with the State of California. On January 15, 1990, the petitioner 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 that 8 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 he invested any personal capital in the business. The petitioner claimed he originally paid $25,000 for his 250 shares of stock. The AAO noted that there was no evidence of the actual payment of the $25,000, however. The petitioner also claimed that he invested $1,000,000 later, consisting of $550,000 of "all indebtedness of the corporation" and a $450,000 loan to the corporation. The bankloans were evidenced by a letter setting forth "dates and amounts of increases/decreases…in the…credit line." The AAO held that the assignments of the certificates of deposit and financial statements showed that the bank loans were actually secured by corporate assets. The AAO pointed to a continuing guarantee stating that the petitioner personally guaranteed Bluesound’s payment of its indebtedness to the bank.

For indebtedness to be considered an investment, the petitionermust be personally and primarily liable for the indebtedness and none of the business’s assets may be used as security. 8 C.F.R. §204.6(e). Since Bluesound, not the petitioner, was the entity that obtained the lines of credit, Bluesound was primarily liable on the loans.

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 make him "primarily" liable because the guarantor’s liability arises 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 specific amount 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 by electing to do business as a corporation and that all of the funds invested in the business were his personal funds. The petitioner argued that had he not incorporated his business, there would be no issue as to where he invested funds which would be at risk to him personally. The AAO responded that the choice and benefits/consequences lie with the petitioner:

"The petitioner here elected to operate his business in the corporate form, whether for tax purposes, to limit personal liability, or for some other reasons. He cannot now ignore this choice in order to obtain an immigration benefit; he is bound by his selection. Corporate indebtedness is not personal indebtedness, and corporate assets are not personal assets."

The AAO held that the petitioner failed to document his alleged payment of the $25,000 for shares of stock. The petitioner also failed to document the actual movement of the $450,000 from himself to the corporation. Nor did the petitioner explain how he had sufficient funds in 1995 to advance a $450,000 loan. "It is not known if these funds originated from the petitioner’s personal bank account(s),originated from another person’s bank account, or were themselves the proceeds of another loan."

Employment creation

The petitioner indicated that he started the business with three employees, but now had seven. He claimed he would create another three to five positions. He furnished quarterly wage reports for thequarters ending June 30, 1997, and September 30, 1997. The AAO noted that the petitioner failed to provide any Forms I-9 or evidence of when employees were hired.

The AAO pointed out inconsistencies in the wage reports. For example, the first wage report contained eight names, including those of 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 employees worked full-time. Total wages earned do not by themselves reveal the precise number of hours worked, held the AAO.

Since the petitioner had not already created 10 qualifying full-time positions as of the date of filing, the AAO held that "he must submit a comprehensive business plan from which it is clear that the business will in fact require 10 full-time employees within the next two years." The petitioner failed to do so. The following four cases all stem from the same partnership, known as SCRM. The partnership, which involved pooling investments from a number of foreign investors, planned to build retirement homes. The four cases raised many of the same issues on appeal. For that reason, only the first summary below addresses all of the issues. The other three summaries address individual issues not raised in the other SCRM appeals.

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Note

AAO decision, March 20, 2000
File WAC 98 167 52786

The CSC denied this EB-5 petition filed by an investor in SCRM on four grounds: (1) the petitioner failed to establish a new commercial enterprise; (2) the petitioner failed to prove he had invested in atargeted employment area; (3) the petitioner failed to prove he invested the requisite amount of capital; and (4) the petitioner failed to trace the source of his invested funds. The AAO agreed with the CSC and dismissed the appeal.

Establishment of the new commercial enterprise

The general partner started the partnership in February 1998. The petitioner became a limited partner in the partnership on either March 31, 1998, when he delivered a check or on April 16, 1998, when he wire transferred funds to the account of the limited partnership. Citing Matterof Izumii, the AAO concluded that the enterprise "was originally created in February 1998, while this petitioner did not join until more than a month later. Therefore, the petitioner was not present at the inception of the partnership, nor did he participate in its formation."

The petitioner claimed that the enterprise was structured for purposes of raising a pool of capital for developing and building two retirement homes. For that reason a staggered admission of limited partners 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."

"Accomplishment of a business’s purposes is too speculative if it is based on successfully attracting future, unidentified investors. Whether intended or not, a petitioner’s two-year period of conditional residence could expire without any employment creation taking place; a partnership could potentially extend the period of inactivity indefinitely, claiming that it still needed one more investor. In order to succeed in their claims of establishing an original partnership together, all of the alien limited partners have to be present at the inception of the partnership. If all of the limited partners contribute their capital at the beginning of the partnership, the partnership would not be in the situation of SCRM II today. The instant petition illustrates exactly why Matter of Izumii is correct.... The immigrant-investor program, however, does require that employment be created within two years. No assurance exists that this deadline will be met if the process of the joining the partnership is open-ended."

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]he Service 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 census tract data, which the AAO considered out of date. Also the AAO held that the location of an administrative office is not controlling. Rather, for purposes of the targeted employment area issue, it is the location where the enterprise will be principally doing business that is important. The petitioner failed to establish that the enterprise will 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 the account of a different partnership. Notwithstanding the petitioner’s argument that the funds were drawn from the unrelated partnership account because petitioner had previously filed a petition based on that partnership, the AAO concluded there was no evidence to establish that the funds were contributed by the petitioner. The petitioner also presented evidence of a wire transfer for $349,982 that he had ordered. However, the AAO questioned whether the petitioner "had merely presented funds belonging to someone else to the bank for transfer." The AAO concluded that the petitioner failed to establish that any portion of the $499,982 constituted funds belonging to him. In a footnote the AAO also observed that $18 processing and like charges subtracted by banks could not count toward the required contribution of capital.

The petitioner claimed that the invested funds were at risk because it was in the form of cash in a trust account to be released upon the approval of the petition. Citing Matter of Ho the AAO disagreed, 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 to carry out the business of the commercial enterprise." In this case, the business had not yet started construction or acquired any land.

Furthermore, the AAO observed that only a small portion of total anticipated equity capital would be needed to fund the construction projects, and that the petitioner had not explained how the extra millions of dollars of equity capital would be applied."Therefore, it cannot be concluded that the petitioner’s funds are being, or would ever be, used for the retirement facilities."

The AAO also indicated that reimbursement of start-up costs out of capital 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 preferred return, a provision for a sale of partnership assets, and a provision for 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 Taiwan and 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 account number, bank name, or account holder’s name); individual income tax certificates for five years (which the AAO dismissed because the certificates did not include the petitioner’s name); and proof of purchase of mutual-fund shares (which the AAO found to be irrelevant because a large investment account balance in 1999 does not explain how petitioner could invest $500,000 in April 1998). The AAO concluded that the petitioner did not prove the source of the invested capital and 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 of capital invested by other partners in the partnership.

Creation of employment

The AAO found that the five-page summary business plan did not provide sufficient basis for the employment projections made by the petitioner, and did not constitute a comprehensive business plan.

The AAO observed that if the project could be completed with alternative financing, without use of the petitioner’s capital, thenno nexus would exist between capital and job creation and petitioner could not claim credit for the employment created.

The AAO found that construction jobs could not be counted because they 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
File WAC 98 153 51766

The CSC denied this SCRM investor petition on numerous grounds. TheAAO agreed with the CSC and dismissed the appeal. This summary focuses on two grounds of denial: a loan issue and the source of the petitioner’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 AAO acknowledged that loan proceeds can constitute qualifying capital that can be invested in a commercial enterprise. Citing 8 C.F.R. §204.6(e), the AAO concluded, however, that the contribution of the loan proceeds did not constitute a qualifying investment in this case because the loan was not secured. By footnote, the AAO also observedthat $20 processing and like charges subtracted by banks could not count toward the required contribution of capital.

Source of funds

The AAO faulted the petitioner’s evidence for lack of specificity on the identity of the actual transfer or of funds to the petitioner.Although petitioner had indicated that the funds were loaned to him by an identified third party, the documentation of the transfer was unclear. The AAO also questioned whether the purported lender had sufficient assets to make such a loan, whether the loan would ever be enforced 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, had resources to repay the loan.

AAO decision, March 20, 2000
File WAC 98 111 53508

The CSC denied this SCRM investor petition on three grounds. The AAO agreed with the CSC, added further reasons for denial, and dismissed the appeal. This summary focuses on three issues unique to this case: the petitioner’s investment of the required capital, the source 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 had been purchased by the petitioner, the AAO concluded there was no evidence to establish that the funds were contributed by the petitioner. The AAO questioned whether the petitioner "had merely presented funds belonging to someone else to the bank" for transfer.

The petitioner also executed a promissory note for $350,000, by which he agreed to pay in full within five days of demand by the general partner. The petitioner executed a security agreement whereby he granted a lien and security interest in shares of a company located in China. Citing Matter of Hsiung, the AAO observed that a promissory note must place a sufficient level of petitioner’s assets at risk. The AAO concluded that the promissory note did not constitute a qualifying capital contribution because the petitioner failed to establish that the security agreement would be enforceable in China.The AAO noted that Chinese law gives Chinese courts full discretion whether or not to enforce a U.S. judgment. The AAO also held that the petitioner failed to show that the value of the collateral was sufficient. The petitioner claimed that the stock was worth $840,000,but the AAO held that share values can fluctuate. The AAO also noted that the general partner might not ever demand payment on the note. Furthermore, it was irrelevant for petitioner to claim on appeal that the general partner had in fact demanded payment, because petitionerwas ineligible for the EB-5 classification at the time the petition was filed.

Source of funds

The petitioner claimed that his work in China and subsequent investments were the sources of the funds he used to invest in the partnership. The petitioner presented evidence of a bank account in China, real property in China and stock accounts. The AAO interpreted the evidence to mean that the petitioner had no more than $120,000 of cash and stocks combined. The AAO also questioned whether even that modest balance was only temporary: "For example, temporarily depositing funds belonging to someone else into one’s own personal account, in order to inflate one’s financial position, would not be acceptable." The AAO dismissed the evidence concerning real estate holdings because the Chinese-English translations were not certified in accordance with 8 C.F.R. § 103.2(b)(3). The petitioner submitted a letter from the accountant of his company in Chinaconcerning the petitioner’s income. However, the letter was unclear about the precise income level of the petitioner. He also presented documentation concerning the taxes paid by the company in China. Importantly, noted the AAO, the petitioner did not present individual income tax information. The AAO concluded that the petitioner did not prove the source of the invested capital and did not prove that his 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.

Management

The AAO concluded that the petitioner was a purely passive investor and therefore did not satisfy the requirement that he will be engagedin the management of the enterprise. Significantly, the limited partnership agreement severely curtailed the participation of alimited partner in the management of the business. Although the limited partnership agreement referred to the INS regulation and theUniform Limited Partnership Act, the AAO nonetheless concluded that it was merely a superficial reference. "The regulatory provision is not intended to render the management requirement completely meaningless with respect to limited partners. Retaining the rights ‘normally granted to limited partners’ under the ULPA does not mean retaining just one or two of those rights."

AAO decision, March 1, 2000
File WAC-98-156-52438

The CSC denied this SCRM investor petition on numerous grounds. TheAAO dismissed the appeal. This summary focuses on three issues addressed 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 mention the petitioner’s name and it was not clear that it had been given to the partnership on the petitioner’s behalf rather than on another limited partner’s behalf. The AAO also noted that loans between close family members might not be enforced. For that reason they fail to place a petitioner debtor at personal risk of loss as required under 8 C.F.R. § 204.6(j)(2). The AAO determined also that the petitioner failed to provide documentation that the loan was secured, that the property securing the loan belonged to him, that the petitioner was personally and primarily liable on the loan, and that none of the assets of the commercial enterprise secured any portion of the loan. For these reasons the loan proceeds did not constitute a qualifying investment of the petitioner’s capital.

The AAO also rejected the petitioner’s argument that a $350,000 promissory note executed by the petitioner constituted a qualifying investment of capital, particularly because the petitioner had actually paid the $350,000 to the enterprise. The AAO declared that the subsequent payment was irrelevant; at the time the I-526 petition was filed the promissory note was non-complying because it was not secured 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 the partnership. Of that amount, $150,000 was in a trust account to be released to SCRM upon the approval of the petition. The other $350,000 was in an operating account for use as contemplated by the partnership.

Citing Matter of Ho and emphasizing that the partnership had not begun construction or other meaningful concrete business activity as of the time of filing, the AAO held that none of the money was at risk:

"Simply placing funds in a business account and formulating an idea for future business activity are not the same as placing the funds at risk in profit-generating, employment-creating activities. Before it can be said that capital made available to a commercial enterprise has been placed at risk, a petitioner must present some evidence of the actual undertaking of meaningful, concrete business activity; otherwise, no assurance exists that the funds will in fact be used to carry out the business of the commercial enterprise."

The AAO opined that even at the time of the appeal, "the petitioner’s funds were idle and not at risk." Based on the financial documents reviewed, the AAO doubted that the petitioner’s funds would ever be used for the retirement facilities. The AAO concluded that even if the construction had already begun, the petitioner’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 be applied.

Source of loaned funds

The petitioner claimed he had obtained the money for his investment from his father, who sold a hotel in Japan for approximately $5.4 million and then lent the petitioner approximately $576,000.

The CSC director pointed out that the petitioner failed to present any 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 elements of a petitioner’s claim must be corroborated by objective evidence."

The petitioner also failed to provide income tax information for five years as required under 8 C.F.R. § 204.6(j)(3)(ii). The AAO wanted such documentation from both the petitioner and the lender.

The CSC director also found no bank records to show the movement of funds from the father to the petitioner. On appeal, the petitioner attempted to demonstrate the path of the funds from the hotel sale and from bank accounts to the petitioner’s Japanese and U.S. bank accounts. The AAO agreed with the CSC, however, that the documents submitted were of "questionable authenticity" and were not credible.

_____

* About the authors:

Lincoln Stone (lstone2000@aol.com) earned his law degree from the University of Notre Dame. Following a federal court clerkship and employment with the INS, Mr. Stone now practices 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 Law School. She has served on the Executive Committee of the Hawaii Chapter of the American Immigration Lawyers Association since 1998. On the national level, Ms. Oh has been an active member of the INS California Service Center-AILA Liaison Committee for three years. She currently serves as the chair of that committee.

Stephen Yale-Loehr (syl@millermayer.com) is co-author of Immigration Law and Procedure, the leading immigration law treatise, published by Matthew Bender & Company, Inc. He also teaches immigration law and refugee law at Cornell Law School, and is of counsel at Miller Mayer   in Ithaca, NY. He currently chairs the AILA Investors Committee.

This article originally appeared in 5 Bender’s Immigration Bulletin 1031 (Dec. 15, 2000) (http://www.bender.com).The authors thank Matthew Bender for permission to reprint the article.

For further information on these or any other immigration matter, please contact Miller Mayer.

 

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