EB5 INVESTORS M AGAZINE
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While perhaps not deliberately, IPO considers the
phrase “indirect source” broadly in its adjudication
process. Consider adjudications from the robust
Chinese market of a few years ago. Many investors
used the “loan model,” whereby a refinanced real
property was often the investor’s only significant
asset and subjected t he investor to a huge debt
service. Many investors operated very close to the
bone. Adjudicators at IPO were often skeptical and
employed a World Ba n k-publ i shed subsi stence
living calculator to dispel the suspicion that there
might be undisclosed unlaw ful income that was
a idi ng t he chosen l i fest yle a nd t hus i ndi rect ly
f undi ng t he i nvest ment. Adjudicators used t he
World Bank poverty levels as a litmus test to see
if it was credible that the Chinese investors would
i nve s t su c h huge pr op or t ion s of t he i r o ve r a l l
wealth in EB-5.
INTEGRITY OF THE PROGRAM
E x a m i n i n g t he s o u r c e o f a d m i n i s t r at i v e fe e s
i s p r o b a b l y a l s o a f a i r e x p r e s s i o n o f U S C I S’
responsibi l it y to ensure prog ra m i nteg r it y. “It
i s c r it i c a l t o o u r m i s s i o n t h at w e a d m i n i s t e r
t h e E B-5 p r o g r a m w i t h u t m o s t v i g i l a n c e t o
e n s u r e p r o g r a m i n t e g r i t y,” i t s a y s i n P o l i c y
Memorandum 602-0083 (May 30, 2013). Arguably,
a l low i ng un law ful ly obta i ned funds to be used
for administrative fees v iolates the integrit y of
t he prog ram, as does allow ing an investor who
is ot her w ise a suspected criminal to use his or
her lawfully obtained funds for EB-5 while living
in sumptuous surroundings t han k s to criminal
proceeds. The e x tension of t hat a rg ument is
t hat, if crimi na l it y or fraud is i nstr umenta l —
a prox imate cause — in mak ing the investment
p ossible, t hen it i s a n i nd i re c t sou rce of
t he i nvest ment a nd t he a f fected pa r t of t he
investment will not be considered capital.
For example, an investor who funds through the
loan model might be asked whether the term on the
loan is so short and the interest rate so high, that the
loan is an obvious sham, or whether it is usurious
and therefore an affront to the integrity of the EB-5
program. Clearly, the integrity of the program may
be considered compromised if the loan is issued
based on an investor’s fraud or misrepresentation to
a bank. Or the adjudicator may see that the investor’s
child is attending a $40,000 per-year university
and living off-campus and ask how it is funded in
order to verify that the representations made to the
Department of State at F-1 visa processing regarding
the source of tuition payments do not encumber the
same money that the investor claims as his/her EB-5
investment capital.