Author: Bonnie Cao
Apart from the few policies memorandums USCIS publishes on important policy matters, EB-5 practitioners and community’s insight into the USCIS mind is usually through RFEs (request for evidence) issued on individual cases. As such, even with robust information sharing in the EB-5 community, it is very difficult to clearly dissect USCIS policy changes. The USCIS quarterly stakeholder engagement calls are therefore very welcomed as it provides an opportunity to ask questions and better understand policy shifts. That all said, unfortunately more often than not, these calls end with more questions left unanswered than not.
On the EB-5 stakeholders call held on April 22, 2015, USCIS announced its staffing progress and, most importantly, that it will soon be publishing a draft policy memorandum for public comment. This policy memorandum is expected to address a number of urgent issues including how to address the affects of the Chinese visa backlog on project loan repayment structures.
In addition, an important topic related to using collateralized loans as investor’s source of funds was discussed during yesterday’s engagement. This is a topic that is sure to affect existing and prospective EB-5 investors:
- Gift Scenario
When the source of investment funds is a loan that is not issued to the petitioner and/or is not secured by the petitioner’s assets, always include a gift agreement from the borrower to the petitioner that clearly indicates there is no expectation of repayment.
Putting aside whether the USCIS is properly interpreting the meaning of “capital” as defined in 8 C.F.R. § 204.6(e), a practice pointer is that when the petitioner is gifted funds for purposes of investing, the petition should a gift agreement that includes unambiguous language that the gift is unconditional, irrevocable, and without expectation of repayment. See our previous post related to gifts by parents to children for purposes of EB-5 investment.
- Purpose/Use of the Loan on Loan Agreement
The purpose/use of the loan cannot be restricted to preclude EB-5 investment. At the beginning of the engagement, USCIS alerted us to a new issue regarding the use/purpose of the loan documented on the loan agreement: USCIS is aware that some Chinese loan agreements has restrictions on the use of loan proceeds that will prevent the borrower from using it for EB-5 investment. USCIS’s concern is that if the borrower disregards such restriction and uses the loan proceeds as EB-5 investment, the funds could be deemed to have been obtained through “unlawful means” as defined in the regulations. In the Q&A session, USCIS clarified that they do not require the loan to be issued with a specific purpose for EB-5 investment. Practical guidance for the investor is that they must be aware of any restrictions on the purpose and use of the loan when negotiating with the lender. A loan issued with a specific non-EB-5 investment purpose such as home purchase or business operating cash will not be accepted by the USCIS as lawful funds for EB-5.