Legitmate funds key to program


The future of EB5 was most significantly at stake towards the end of 2015 when it was decided by the Senate that the program needed review.  Investors eagerly awaited news from 16th December 2015 onward, when the program was officially put on hold, and breathed a sigh of relief when the Government announced continuous existence of the program in its original form until summer 2016.

One of the many reasons for the proposed reviews were the qualifying source of funds and investment projects that were not compliant with the rules of the program, and on which the successful conclusion of the EB5 applications often failed.

The concept of the EB5 program is built upon the idea of job creation and stimulation of a capital investment by foreign investors via either passive or active investment, i.e. direct investment and regional centre investment, which must be capable of creating at least 10 full time jobs for U.S. nationals.

For a successful EB5 application, an investor must direct their investment to a specific EB5 project, a project considered to be a new commercial project (created after November 29, 1990) in a designated regional centre and which must be approved by USCIS (U.S. Citizenship and Immigration Services). Other projects may qualify if the E-B5 investment leads to substantial business restructuring or increases the number of employees or the net worth of an existing business by at least 40%.  Therefore, the necessity of an investment into a project that is compliant with the USCIS criteria whilst projecting job creation cannot be stressed enough since the investor’s permanent residency is dependent on the ability of that project to create jobs and to adhere to USCIS criteria.  Thus, an investor must investigate the investment project and consider if the project itself qualifies under EB5 visa application before going through EB5 application process.

A good starting point before investing in to qualifying  projects would be for the investors to conduct thorough research as to the available EB5 enterprises and to find out:

  • How many EB5 investors are already committed to the project?
  • How many jobs are created?
  • How they are allocated to each investor?
  • What risks are associated with the project?
  • What is the exit strategy from the project once permanent residency is awarded?
  • What are the credential of the projects or if the project meets the USCIS criteria to determine and forecast the required job creation.

Congress also reported that EB5 applications often failed on the point of the right type and source of investment funds. The EB-5 regulations state that investors must prove that their investment funds are generated from legitimate sources, i.e. they must not have been obtained through criminal activity. In order to comply with the USCIS rules  the investors must also prove lawful source and lawful path of funds.  This is specifically relevant in cases where the investor is charged processing and marketing fees by agents, or an attorney in addition to the minimum investment amount and where investors transfer their funds into the projects from overseas. Thus, if an investor invests $500,000 in a new commercial enterprise and the project in charge of the commercial enterprise charges an additional $50,000 administrative fee, the investor should provide documentation to prove that the total $550,000 was obtained from a lawful source and that the transferred funds arrived in the investment project by lawful means.

In other words, when assessing EB5 application an USCIS officer must determine that it is ‘more likely than not’ that the claims in the petition in respect of the source of funds are true and that it is ‘clear and convincing’ and ‘beyond reasonable doubt’ that the path of funds followed the correct method of transfer from a legitimate source.  Failure to adhere to these standards of proof will always result in denial of I-526 petition and subsequently refused application for a green card.

Investors are therefore prompted to be extra vigilant in respect of the correctly identified EB5 projects an application procedural rules, and strict USCIC criteria to secure a successful outcome of an application.



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