EB5 Investors Magazine Volume 2 Issue 2 | Page 9

EB-5 regulations
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 .” 1 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 . 2 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 requiring EB-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
8 CFR § 204.6 ( j ). 2 8 CFR § 204.6 ( f ). 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-5 investment 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 be redone 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 straightforward for the adjudicating USCIS officer .
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