8 Issues that must be Addressed When Documenting Source of Funds for Chinese EB-5 Cases

by Bernard P. Wolfsdorf, Esq., Minjie Xu, Esq., and Ellen Fan

1. Many EB-5 applicants use one or more aged assets as collateral to secure loans. If the applicant acquired property more than seven years ago, it is possible to document the lawful source of the funds used to acquire the property and submit that evidence with the I-526 petition. However, when such assets were purchased with a large lump-sum payment in the last two to three years, USCIS often issues Requests for Evidence (RFE).  These requests have typically sought bank statements corroborating the retained income to the date of purchase for the property. If available, these statements should be included with the I-526 filing in order to avoid an RFE and consequent delay in processing. However, if such statements show large inward transfers prior to the transaction, the lawful source of the transfers must also be documented and explained.

2. Cases in which the investor earned a significant amount over the past 20 years, but used the majority of total income, say 80%, in purchasing the property used for the investment funds, can be problematic. USCIS is likely to issue an RFE seeking an explanation of how the investor’s family was supported financially, given that the majority of the investor’s income was used to purchase the property. In such cases, we often document the investor’s annual income and expenses to establish that a majority of that income was saved in the years preceding the property purchase rather than being used for the family’s support.

When the investor uses the majority of earned income to acquire a home that is the source of funds, but does or has not commanded a high salary, this may trigger questions about the ability to repay the EB-5 loan. When dealing with an ability to pay issue, it is important to document the investor’s annual income and expenses to show that the investor had enough funds both to live on and to repay the EB-5 loan.

3. If the investor secures the funds using property as collateral, there will normally be a lien recorded on the title deed. However, in most cases the loan creditors do not create such a record, especially for microcredit companies, which are licensed lending institutions in China. In some cases the title deed indicates a mortgage loan recorded when the investor purchased the property but no such record when the client mortgages the property for his EB-5 loan. We have not yet seen an RFE questioning this practice but believe it may only be a matter of time.

4. If the current market value of the collateral is close to the loan amount, this warrants inquiry into whether there is a bone fide loan. Normally, the loan amount should not exceed 70% of the property’s market value.

5. Investors should always avoid using unsecured loans for two reasons. First, USCIS might question who bears the investment risk, the investor or the unsecured loan creditor? Second, unsecured loans will likely be treated as gifts, in which case, the source of the giftor’s money must be explained.

6. If a home equity loan is extended by a creditor that is not a bank or a licensed lending institution, the financial ability of that creditor to make such loans must be clearly and comprehensively documented. If the loan is obtained from the investor’s own company, not only must s/he document the company’s financial ability to extend the loan, but the investor’s ownership of or interest in the company must also be established, as well as evidence of the lawful source of the initial investment and each subsequent investment in the company. A formal loan approval resolution issued by the board of directors should also be included with the I-526.

7. Investors previously relied heavily on family and friends to wire the investment funds to the U.S. from their own accounts. But now, investors are more and more frequently using a special service (???) provided by Bank of China to wire the $545,000 to the escrow account via a single transfer. Unlike the old suspicious tactic, with the investor finding at least 11 individuals to transfer $545,000, this new approach is more efficient, from the investor’s perspective, and lawful, from USCIS’s perspective, because such services are approved by China’s regulatory department and are provided by one of China’s biggest banks. Thus, investors should be encouraged to use this new efficient and lawful approach to exchange and transfer the funds out of China.

8. It is not recommended that investors who have received and used undisclosed commissions, or other forms of compensation expressly prohibited the Articles of the Chinese Anti Unfair Competition Law, use those funds for their EB-5 investment.

Originally appeared on the Wolfsdorf Immigration Law Group Blog on August 8, 2013. Reprinted with permission.

About The Authors

Bernard P. Wolfsdorf is the past President of the American Immigration Lawyers Association (AILA). Mr. Wolfsdorf has been named the "most highly rated immigration lawyer in the world" by his peers in the 2011 and 20100 editions of International Who's Who of Business Lawyers. "Mr. Wolfsdorf received more votes from clients and peers worldwide than any other lawyer." Mr. Wolfsdorf is a recipient of the AILA Service Excellence Award for providing outstanding volunteer services. The California Edition of Who's Who recognized Mr. Wolfsdorf as "one of the prestigious names in the field" who "knows his stuff back to front." The Chambers Global World's Leading Lawyers for Business guide noted Mr. Wolfsdorf's "outstanding consular law practice" and called him a "cutting-edge thinker." He is listed in 2011 editions of Best Lawyers in America, Martindale Hubbell's Pre-eminent Specialist Directory, Southern California Super Lawyers, Chambers USA and the Chambers Global World's Leading Lawyers for Business. Mr. Wolfsdorf is a California State Bar-Certified Specialist in Immigration and Nationality Law.


       Minjie Xu is a licensed attorney in the state of New York and practices exclusively in Immigration and Nationality Law in the firm’s Santa Monica office. Mr. Xu has extensive experience assisting with EB-5 investment-based immigrant petitions and possesses substantial financial knowledge regarding financial reports, private placement memoranda, economic forecasting models, and business plans that enables him to assist with investor visa cases. He assists with employment and family-based immigrant and non-immigrant petitions. Mr. Xu was born in Shanghai, China and graduated with a Bachelor of Law degree from Tongji University, a minor in Economics from Fudan University, and a Master of Law from the University of Illinois at Urbana-Champaign. Mr. Xu won the CALI Award in Legal Writing at Urbana-Champaign for earning the highest grade in the class. Mr. Xu practices exclusively in Immigration and Nationality Law. He is fluent in Chinese and can be reached at mxu@wolfsdorf.com.

The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.