by Catharine Yen and Christian Triantaphyllis
Because of the stringent requirements of the EB-5 program, documenting the source of funds used for an EB-5 investor’s investment can be a challenging task. An investor must not only prove that he has the funds to make the investment, but he must also prove that those funds came from legal sources. Therefore, the goal is to thoroughly and credibly document the investor’s source of funds to the satisfaction of the USCIS officer. When analyzing source of funds documentation, the officer follows the preponderance of the evidence standard, which means determining that it is “more likely than not” that the claims in the immigrant petition are true.
The process of demonstrating an investor’s lawful source of fund is complex, as the investment often consists of merging funds from various bank accounts, salaries, and real estate sales that add up to the total EB-5 investment. For this reason, once the investor has accumulated his investment amount into one account, a one lump-sum wire transfer of the capital contribution, rather than multiple wire transfers of smaller amounts from multiple bank accounts, can oftentimes be more straightforward from a paperwork standpoint when documenting source of funds. Nonetheless, it must be proven that all funds put toward an EB-5 investment have originated from lawful sources, whether invested in a lump sum or piecemeal.
Along with the investment capital, investors also pay ancillary fees, including an administrative fee to the regional center handling the EB-5 investment, which may come under USCIS scrutiny. Though current EB-5 regulations do not extend the lawful source of funds requirement to the administrative fee, USCIS nonetheless requires such documentation. In this article, we will discuss the documentation that current EB-5 regulations require of the source of funds and actual USCIS practices. Based on USCIS-issued requests for further evidence, it is clear that USCIS is analyzing the source of administrative fees irrespective of what the regulations say. As such, this article will trace the implications and offer practice tips for professionals operating in the field.
According to USCIS regulations, “[a] petition submitted for classification as an alien entrepreneur must be accompanied by 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 not fewer than 10 qualifying employees. The amount of capital necessary to make a qualifying investment of capital is defined by USCIS regulations as $1 million, or $500,000 if the investment is in a targeted employment area within the United States. Therefore, it can be concluded that the EB-5 investment of $1 million or $500,000 that is used to invest in the new commercial enterprise is the actual capital contribution that must be properly documented as originating from lawful sources. USCIS regulations do not require USCIS to probe further about the source of funds used to pay for the administrative fee; however, USCIS practices have demanded documentation of the source of the fee.
Current USCIS practices and procedures
Despite clear USCIS regulations, confusion arises on the part of the investor and attorney when USCIS requires the EB-5 investor to prove the lawful source of the administrative fee charged in addition to the actual investment. Administrative fees typically range from $35,000 to $100,000, depending on the regional center, and go toward covering operational costs, marketing expenses, etc. This fee is distinctly not part of the capital contribution made to the new commercial enterprise.
Despite not being stipulated in the official regulations, USCIS has shown its interest in the source of the administrative fee through requests for further evidence (RFEs). Our practice has received RFEs issued by USCIS stating the following:
- "Provide a detailed explanation and substantiating evidence regarding the sources of the remaining $50,000 difference between the amount the petitioner exchanged from foreign currency to United States dollars and what was sent to the escrow agent;”
- "Provide evidence identifying the source of the administrative fee.“
As evidenced above, USCIS adjudicating officers are requiringEB-5 investors to provide evidence showing lawful source of funds beyond the minimum capital contribution by extending the regulatory source of funds requirements to the administrative fee. The issue here is that the administrative fee is not spent towards investing in the new commercial enterprise, but instead is paid to the regional center to offset a variety of costs. These costs are easily distinguishable and separate from the investor’s capital contribution paid to the regional center. The funds used to pay the administrative fee should not be subject to the same review as the investor’s capital contribution, per USCIS regulations, yet USCIS is ultimately requiring the same documentation.
Practice tips for EB-5 stakeholders
EB-5 investors and attorneys should be aware of this type of RFE because it requires that the administrative fee be well documented and originate from a lawful source of funds. As a practice tip, attorneys should advise EB-5 investors to adequately document the source of funds for the administrative fee in the same manner and with the same diligence as documenting the capital investment because USCIS is applying the same preponderance of the evidence standard toward examining the administrative fee as they do when reviewing the capital investment.
One approach used to reduce the possibility of getting an RFE on this issue has involved sending the capital contribution and the administrative fee in two separate payments to the regional center. This approach prevents the co-mingling of funds with the EB-5 investment, as we know that any funds mixed with the investment funds can be subject to review by USCIS during source of funds review.
However, although this strategy is intended to simplify the transaction, separating the administrative fee from the EB-5investment can actually create a more complex source of funds report if the administrative fee derives from a different source than the capital contribution (which itself already may be derived from multiple sources). If this is the case, the investor must provide documentation for each source. Negligence to properly document the source of the administration fee can lead to a situation in which the entire investment transaction must bere done because the EB-5 investor was not aware of the potential RFE that may arise, leading to easily preventable delays in the adjudication process and longer wait times. Though a separate transaction can help to clearly show the distinction between the investment and the fee, this strategy does not negate the need to follow strict source of funds requirements for each payment.
Some EB 5 investors will attempt to wire the administrative fee from their company’s bank account or their family member’s bank account. In light of the example below, we would highly advise against this type of action in order to avoid RFEs and further scrutiny from USCIS. Instead, investors should be advised to transfer funds to their personal bank account first, and then transfer the fee from that account to the regional center—a simple solution to save further inquiries later in the visa application process.
For example, if an investor transfers the administrative fee from his company’s bank account to the regional center, an issue may arise when USCIS considers the source of funds. Since the United States considers corporate entities to be separate, legal entities, USCIS would declare that the company, and not the investor, paid for the administrative fee. Because regulations require that all capital investments and fees originate from the investor, such a transaction could be used to argue that the investor did not truly meet the EB-5 investment requirement of the investor having actual possession and control of funds.
Similar to requirements for the capital investment, the administrative fee should also originate from the investor’s personal bank account in order to show that the investor has sole, absolute possession and control of the funds. That same personal bank account will already have been thoroughly documented in order to demonstrate the lawful source of the capital contribution, which is more convenient for the investor and straight forward for the adjudicating USCIS officer.
If such a transaction has already taken place, it can be remedied by requesting that the regional center refund the administrative fee to the investor and then directing the investor tore-wire his administrative fee from his personal bank account, all the while showing that the funds came from the same bank account where he receives his well-documented personal funds, such as salaries and bonuses. Or, to avoid such time-consuming maneuvering, attorneys can advise their clients to ensure that the source of the administrative fee meets EB-5 requirements and the de facto requirement that the source of the administrative fee be properly documented before filing their application.
Furthermore, in order to document the source of the administrative fee, several of our clients have been successful in submitting a signed letter to USCIS, along with supporting evidence, stating that the source of their administrative fee originated from their salary and savings, just as the investor’s capital contribution originated from his salary and savings. Trends indicate that USCIS will inquire about the source of the administrative fee, so it is important to consider this when paying any fees.
Based on our reading and analysis of the regulations and Immigration and Nationality Act (INA), USCIS should not be questioning the source of funds for the administrative fee because it is not part of the capital investment, which is the component of the transaction subject to USCIS scrutiny. However, in practice, USCIS is closely examining administrative fees and it is still advisable for investors, agents, and regional centers to ensure that the investor’s administrative fee comes from his own personal bank account. Additionally, the investor will need to attest and evidence how he obtained lawful funds for the administrative fee. Until USCIS follows the regulations and INA,EB-5 attorneys should be prepared to document the source and trail of funds for the administrative fee.
8 CFR § 204.6(j)