Eight Major Issues in Source of Funds Document Preparation

By Hansi Men

Visa Bulletins. Higher investment levels. Program reform. News of possible reforms to the U.S. Immigrant Investor program is seen by mainland Chinese investors daily. The requirements for investors to rapidly prepare source of funds documents are on the rise; and attorneys are facing new challenges in verifying the documentation. If investors aren’t careful, underprepared or hastily-completed documents can pose substantial risks to their I-526 application. This article explores eight issues that warrant close attention while preparing source of funds documentation. While this article does not encompass everything, it does address the most common problems that attorneys face.

Using the most accessible documents to provide the clearest evidence for source of investment funds

An investor normally possesses a large amount of internal familial assets. Therefore, before document preparation, it is crucial to identify which asset type has the easiest provable source within their asset pool. According to requirements set forth by U.S. immigration law[1], applicants need only prove the legality of the source of their investment funds and are not required to prove the legality of their entire income. Since the first person to contact the investors is usually an immigration agent, it is the agent’s responsibility to clearly and concisely convey this idea to investors. This way the investors, fully understanding the entire process, can perform the procedure with the aid of a specialized team. Generally speaking, selling previously purchased real estate or collecting on mortgage loans from previously purchased real estate are considered simple solutions.

I (Hansi Men) have worked with Chinese businessmen who had been employed in Western countries for many years. They were only required to provide tax forms and certificates of employment to validate their source of their funds. 

Today in China, many records are incomplete, missing, or even inaccessible. During the preliminary stage of document preparation, this situation should be avoided if possible. The USCIS does not take into consideration the reality of conditions within China when investigating the I-526. The U.S. simply applies American legalities when investigating the documents provided by Chinese applicants. Even though attorneys have written articles criticizing the USCIS for not  taking into account the conditions of an investor’s country or government, no substantial reform has been proposed. Under these circumstances, anything that is hastily completed without proper screening will hinder the client’s application, and may result in failure of their immigration application.

Evidentiary Standards: Officials claim "most likely approved,” but in all reality that’s not the case

In the 2013 policy memorandum, the USCIS quoted the views of the Administrative Appeal Office[2], pointing out that as long as applicants can prove their claims are likely to be true, the USCIS should accept them. In reality, the USCIS holds higher standards for evidentiary proof.

A source of funds report that can easily pass a USCIS investigation should consist of a complete logical chain. Moreover, every branch of this chain should be backed with solid evidence and documentation. Generally speaking, evidentiary standards for older events are lower, and evidentiary standards for more recent events are higher.

The Optimal Evidence: Third-party testimony is the best option

What type of evidence is the best? When investigating EB-5 applicants, the USCIS follows a basic principle for both project documents and source of funds documents: self-serving statements are not credible, and statements provided by a third-party are more likely to be credible. This principle in a way reflects how the U.S. Federal Rules of Evidence negates the value of self-serving statements.

Therefore, during document preparation, it is best to use third-party testimony as evidence. The value of a house should be determined by an appraisal company, and the financial conditions of a company should be evaluated in an audit from a CPA firm. The equity value of a non-listed company should be supported by objective and verifiable evidence, and it is not advisable to risk anything just for cost reduction.

Within administrative appeal cases related to rejections of I-526 applications in 2014, a great number of final verdicts stated that in terms of providing evidence for source of funds, many applicants provided only self-serving statements and failed to back up their personal claims with solid evidence. 

Personal Investment: You are not entitled to your family assets by default

U.S. laws[3] require an “individual” investor to be the main and primary person to take investment risks. In other words, the principal amount of investment should be owned by that individual. I believe the original intention of this legislation is to prevent investors from embezzling public funds for personal purposes. Filing an immigration application is an individual act and using a company's funds to pay for an individual’s immigration will hurt the rights and interests of the company's stakeholders. Unfortunately, the USCIS has not acted in accordance with the spirit of this legislation. Instead, in pursuance of this clause, the USCIS has been mechanically rejecting a large number of applications from mainland Chinese investors.

Among mainland Chinese investors, a popular practice is to use real estate mortgages to acquire a loan, then use this loan to invest in their immigration. The problem is that within a Chinese family, property rights registration of assets is normally convoluted. Parents’ assets can be registered under their children’s names and vice versa. This is a rather common practice among Chinese families.

If one chooses loans to obtain an EB-5 Visa, two methods are relatively reliable. The main applicant or his or her spouse is the property owner, and uses their property to apply for a loan they will use for investment. In the second method, the property owner applies for a loan, gives this loan to the main applicant or his or her spouse, and the main applicant uses the loan for investment in an EB-5 visa. Children are not permitted to use their parent’s assets as collateral to obtain a loan to use as the investment. The USCIS considers this type of behavior unlawful.

During the teleconference for stakeholders on April 22, 2015, the deputy director of the EB-5 Program office, Julia Harrison, specifically mentioned problems concerning the use of mortgage loans. She stressed that "applicants must prove that the debt is indeed collateral from the applicant’s assets." Therefore, the safest mortgage loan is one that belongs to the applicant, or at least the mortgage should be the joint property of the applicant and his orher spouse. If the loan is obtained based on someone else’s assets, there must be a clear evidence that proves the loan is a gift to the main applicant.

Contract Terminology: Be cautious with mortgage terms and loan usage

In cases that utilize mortgage loans as their major source of funds, mortgages and loan usage clauses should be clearly specified and translated. If real estate is used for collateral, the mortgage clause should clearly indicate the specific location of the real estate, property ownership certificate number, the owner of the property, and all related details. The loan usage clause cannot restrict the applicant from using the loan for the EB-5 visa; otherwise the USCIS may suspect loan fraud.

In some cases, the USCIS questioned the differences between "mortgage" and "collateral.” As Julia Harrison pointed out, the loan must be based on the personal assets of the applicant to be viewed as the “mortgage.” In the original statement, 8 C.F.R. §204.6 requires the investors to use their personal assets to obtain a mortgage and that is not considered “collateral.” Many Chinese cannot tell the difference between mortgage loans and collateral guarantees. However, under U.S. law, a mortgage loan implies that when a borrower cannot fulfill his or her responsibility to repay the loan, the property rights of that real estate are transferred to the court. Collateral guarantees refer to the case where if the loan cannot be repaid, the borrower promises to use his or her personal assets as repayment. The terms should be clearly stated, applied, and translated.

The Routing of Funds: The easiest and most troublesome

Routing funds is the simplest step, yet it is likely to produce issues within the source of funds documentation. Simply put, the USCIS requires investors to prove that the invested funds come from the investors themselves. However, due to the foreign currency restriction in China, many investors have to rely on relatives or friends to transfer the funds into American bank accounts. A large number of banking records will be produced during the transfers, and attorneys reviewing the documents must pay particular attention to this section. Information -- such as which funds from which account have what destination, and on which day were the funds transferred to which bank account,  -- needs to be documented with 100 percent accuracy. In administrative appeals related to I-526 in 2014, several appeals mentioned omission of details in the funds routing documents. As soon as an unexplainable interruption occurs during routing funds, trouble is close by for the investor’s I-526 application, and extra documentation may be needed to explain the missing details.

Consistency: The devil is in the details

Language in source of funds documentation should remain consistent throughout, and explanations should be provided where inconsistencies occur. This is the most tedious step in the document preparation phase. Attorneys must ensure that related source of funds documents remain consistent: for example, the translation of an address. Since the document package is quite large, the translation may be performed by different translators. Taking into account that each translator has his or her own mindset while  translating, there may be variations in translation of the same address, which can spark USCIS’s suspicion.

Measure and Evaluate: Looking for perfection in the imperfect

Consider document translation. Translating source of funds documents is different from translating nearly any other text. While translations should be accurate, it is unnecessary to pay attention to any artistic connotation behind the text. An argument over the translation differences between "shall" and "must" in a contract is a total waste of time for the client. However, the translation must be complete in its entirety. If the original document consists of 27 pages, the translator cannot simply choose to translate what they consider to be the most important 20 pages. A translator must prove that their translation is based on the original text, which is a mandatory requirement from the USCIS. No matter how much extra trouble this causes the translator, this proof of validity from the translator must be included. In the final verdict of the administrative appeals related to rejected I-526 applications, at least three of the cases mentioned incomplete translations, and more verdicts mentioned missing proofs of validity from the translators.

Source of funds documents from mainland Chinese investors are far from perfect. Therefore, anyone who strives for complete perfection in their source of funds documents may end up disappointed. For attorneys, the challenge is to determine how much the imperfections in the documents may impact the clients' applications. This process needs an accurate prognosis, which requires attorneys to use their own experiences and understanding about the USCIS standards of document investigation in order to make a final decision.

In sum, the preparation of source of funds documents is no easy feat. It is a complex and complicated task that requires a person’s undivided attention. At the same time it requires teamwork, which must include an immigration agent, copywriters, and attorneys in order to produce the best result possible. In this process, the immigration agent acts as a window. A good agent can help clients understand the basic requirements for the source of funds documents during the preliminary consultation services. That way, the clients can have a general understanding and good mental preparation about the whole process. A good team of copywriters should be patient and thoughtful, and should be able to diligently prepare, organize, and translate the materials provided by their clients. As the gatekeeper of the document preparation stage, attorneys should be very familiar with the laws and regulations, as well as the similarities and differences between operational procedures in the U.S. and China. It is through this that attorneys can provide effective and reasonable advice to clients.

Hansi Men is an attorney at Streit & Su in the Seattle area and holds licenses in both Washington and New York. His specialty is EB-5, corporate law, and securities law compliance, and he has submitted a substantial number of EB-5 applications. In his free time, he has served as a panel judge for several Jessup International Moot Court Competitions.

[1]  8 C.F.R. §204.6

[2] Matter of Chawathe, 25 I&N Dec. 369, 375-376 (AAO 2010)

[3] Refer to 8C.F.R. §204.6

Hansi Men

Hansi Men