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Three More EB5 AAO Decision...
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Concluding Remarks
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Three more EB5 AAO decisions posted on Friday June 13th 2014


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I have added my thoughts in a brief conclusion about the six recent I-526 decisions following brief synopses of the three just released on June 13, 2014.

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Three more EB5 AAO decisions posted on Friday June 13th 2014

  1. 1. Contact: (716) 604-4233 (cell) OR (716) 768-6506 (land line) Page 1 Three More EB5 AAO Decisions Posted On Friday June 13th 2014 By Joseph P. Whalen (June 14, 2014) I really didn’t expect to find anything again so soon but there they were! After you peruse the brief synopses of these cases, or actually go ahead and read them, stick around at the end for a little bit deeper discussion tying together these cases and the three earlier May 27th cases. Cases #1 and #2 dated May 27, 2014, appeared to be associated with someone who was trying to act like a Regional Center but wasn’t one. Whether they were involved in the exact same assisted living facility project or two different such projects obviously from the same “developer” or “agent”, remains unclear because the project described was to be replicated thirteen times. The last May 27th case involved someone investing in an existing successful business that exported sea cucumbers. It appeared to me that the EB-5 investor was not really needed and the project appeared to be overcapitalized and pointless. The long and short of the third cases was that it may have been a bogus investment just to get a “green-card”. LINK TO DECISION OUTCOME, EXCERPT(S), & COMMENTARY MAY292014_01B7203.pdf The petitioner began as a, E-2 nonimmigrant. The business had already been around nearly a decade already. It was only at that point that the petitioner sought to change classification to that of an EB-5 entrepreneur and/or investor. Although AAO did not delve into it, I have to wonder if “retained earnings” are a factor. APPEAL DISMISSED: This case is illustrative of an investor who was unable to be affiliated with a Regional Center because (s)he was obviously NOT an “accredited investor”. This seems obvious to me because the money invested was the proceeds from an unsecured personal loan. The first issue on appeal is summed up by AAO as follows: “The definition of capital expressly excludes unsecured indebtedness. The petitioner here, however, asserts that USCIS should treat as cash the proceeds that he obtained from an unsecured third-party loan, instead of indebtedness. The petitioner notes that the Adjudicator's Field Manual provides that in cases where the source of funds is a third- party loan, users should request evidence of
  2. 2. Contact: (716) 604-4233 (cell) OR (716) 768-6506 (land line) Page 2 LINK TO DECISION OUTCOME, EXCERPT(S), & COMMENTARY how the entity advancing the funds obtained those funds. The petitioner further notes that the chief did not question that the bank was anything other than a recognized international bank. At issue, however, is not whether these funds were lawfully obtained, but whether they constitute cash or indebtedness. The petitioner then differentiates the facts in this case from Matter of Soffici, 22 I&N Dec. 158, 162-63 (Assoc. Comm'r 1998) and Matter of Hsiung, 22 I&N Dec. 201, 203-04 (Assoc. Comm'r 1998), which involved a loan by the NCE, personally guaranteed by the petitioner, and a promissory note by the petitioner to pay the NCE. The petitioner additionally asserts that he complied with the regulation at 8 C.F.R. § 204.6(j)(2)(i), which provides that evidence of an investment may include bank statements showing deposits with the NCE. The investment of cash obtained as a loan from a third party is not simply an investment of cash that need not be examined further. As noted by the petitioner on appeal, in Matter of Soffici, 22 I&N Dec. at 162, the new commercial enterprise itself was the borrower, not the petitioner. That decision, however, states: Even if it were assumed, arguendo, that the petitioner and [the new commercial enterprise] were the same legal entity for purposes of this proceeding, indebtedness that is secured by assets of the enterprise is specifically precluded from the definition of “capital.” Id. Thus, the precedent contemplated examining third party loans as contributions of indebtedness, not cash.
  3. 3. Contact: (716) 604-4233 (cell) OR (716) 768-6506 (land line) Page 3 LINK TO DECISION OUTCOME, EXCERPT(S), & COMMENTARY It is petitioner's assertion that whether (and by logical extension how) the loan was secured is irrelevant because the proceeds of third- party loans are contributions of cash, and not indebtedness. That reasoning, however, would also allow third party loans that are secured by the assets of the NCE. The regulations and precedent decisions, however, preclude such financing. In addition, the definition of indebtedness is not limited to promises by the petitioner to pay the NCE. The regulatory definition of "capital" precludes any indebtedness secured in whole or in part by the assets of the NCE. As the NCE would be unlikely to accept the assets it already owns as security for a promise to pay itself, the definition must include third party loans as indebtedness. Therefore, the requirements for promissory notes set forth in Matter of Izummi, 22 I&N Dec. 169, 193 (Assoc. Comm'r), and Matter of Hsuing, 22 I&N Dec. at 203-204, must be met.” At pp. 4-5. The next issue on appeal is the question of whether or not the “capital” contributed is actually being utilized to at least attempt to “generate a return on investment” through a concerted effort to “create EB-5 qualifying jobs”. The AAO expressed that sentiment in these words on page 8: “…………. The full amount of the requisite investment must be made available to the business most closely responsible for creating the employment upon which the petition is based. Matter of Izummi, 22 I&N Dec. at 179. Funds invested in an overcapitalized company with no capital expenditures forecasted are not at risk. See Al Humaid v. Roark, 2010 WL 308750 (N. D. Tex. Jan. 26, 2010).”
  4. 4. Contact: (716) 604-4233 (cell) OR (716) 768-6506 (land line) Page 4 LINK TO DECISION OUTCOME, EXCERPT(S), & COMMENTARY AAO summed up the discussion on page 9: “Given (1) that the petitioner is the sole shareholder of a business that had been in operation for nine years at the time of the 2012 investment, (2) that the business was operating at a profit in 2012 whereby its income covered its inventory costs, (3) the transfer of large amounts of cash to an unknown recipient in July 2012, and (4) that the business plan projects no capital expenses to expand the business or otherwise capitalize the company, the petitioner has not demonstrated that the $350,000 deposit is at risk. See Al Humaid, 2010 WL 308750, at *4. Finally, the “source of” the purported investment “funds” was not demonstrated in the evidence submitted. Instead the evidence merely showed the trail end of the “path of” those “funds” as gifts from petitioner’s mom and grandma. There is no evidence showing where either of them got their $60,000 and $142,000, respectively, in the first place. I highly recommend taking the time to slowly read this case decision because I only hit the highlights (or is that “lowlights”)? You can decide the answer to that question for yourself! MAY292014_02B7203.pdf APPEAL DISMISSED: Apparently, the NCE's principal business is “wholesale of housewares” as gleaned from the record. I can picture in my mind either a “dollar store” or “junk store” or a perpetually present “stall at a flea market” loaded with very “cheap imports”. In the preceding sentence, “cheap” would likely extend beyond cost and price to reach “quality” as well.
  5. 5. Contact: (716) 604-4233 (cell) OR (716) 768-6506 (land line) Page 5 LINK TO DECISION OUTCOME, EXCERPT(S), & COMMENTARY The director sent an RFE and the petitioner responded at the last moment with nothing but a request for an extension. The problem with that was that no extensions may be granted. A denial ensued pertaining to a failure to meet the burden of proof on a variety of issues. An appeal was filed with a variety of documents that were at best semi- responsive to the initial RFE from the director. AAO proceeded to review the evidence and then issued a Notice of Derogatory Information (NODI or NDI) due to the submission of “inconsistent evidence relating to the amount of capital the petitioner claimed to have invested in the NCE”. There were four major issues analyzed in great detail on appeal. They are: A.) Capital Investment; B.) Source of Funds; C.) Employment Creation and; D.) Management of the NCE. Issue A is so dizzying that I will not even try to give a summary, you’ll have attempt to read it on your own. An underlying concern that jumps out at me is the series of sloppy attempts to submit evidence. In this case, this is also an indication that at best, this was a premature petition filing by a self represented petitioner. “A petitioner may submit anything in support of an appeal, including new evidence; however, where a director has requested specific evidence in a request for evidence, and the petitioner did not comply with the request, that particular evidence will not be considered on appeal. Where a petitioner has been put on notice of a deficiency in the
  6. 6. Contact: (716) 604-4233 (cell) OR (716) 768-6506 (land line) Page 6 LINK TO DECISION OUTCOME, EXCERPT(S), & COMMENTARY evidence and has been given an opportunity to respond to that deficiency, the AAO will not accept evidence offered for the first time on appeal. See Matter of Soriano, 19 I&N Dec. 764, 766-67 (BIA 1988); see also Matter of Obaigbena, 19 I&N Dec. 533, 537 (BIA1988). The petitioner's opportunity to submit the evidence was in response to the director's request for evidence. Id. Even if the AAO were to consider the documents submitted on appeal, they do not establish the lawful source of the petitioner's claimed capital investments. ….” At p. 8 The generally poor submissions included loan papers that had restrictions on the use of funds for “operation” rather than for use as a “capital contribution”. Also, some of the loaned/borrowed money was actually delivered by the third-party (a bank) to the business account of theNCE rather than to the petitioner. Some of the documents appeared to have been created after obtaining the RFE and AAO’s NDI but they themselves only created greater confusion as to the source and path of funds. AAO’s discussion of the funds issues ended with AAO referring to the petitioner’s “alleged investment in the NCE” on page 10. Next was the issue of job creation. Since the petitioner had not submitted sufficient evidence that any qualifying jobs had yet been created since the time of alleged investment, a plan to do so was submitted as required. That plan however, was inadequate. It appears that the plan was not only, not comprehensive, it was quite vague and hardly even comprehensible.
  7. 7. Contact: (716) 604-4233 (cell) OR (716) 768-6506 (land line) Page 7 LINK TO DECISION OUTCOME, EXCERPT(S), & COMMENTARY Last but not least, was the issue of the petitioner’s involvement in management of the NCE (new commercial enterprise). In many cases, petitioner’s fail on this issue due to making a purely passive investment. This petitioner was not one of them. This petitioner appeared to be actively involved but would not or could not give a straight, well defined and cohesive answer as to what his or her role was in the NCE when initially asked in the director’s RFE1 . AAO stuck to the BIA precedential procedural stance formed in Matter of Soriano, 19 I&N Dec.764 as drawn from Matter of Obaigbena 19 I&N Dec. 533. Petitioner’s late submission of information which was actually required information upon initial filing; and then NOT submitting it in response to the RFE that specifically requested it would cause even the most generous adjudicator to not consider it on appeal. Remember that the I-526 is a real visa petition subject to “eligibility at time of filing” proviso. Making the request via the RFE was not required in the first place but since it was, this petitioner was definitely put on notice of a major deficiency. It was perfectly correct to not accept a new business plan so late in the process especially as it was likely chock full of material changes in an effort to conform to USCIS legal requirements. I would have done the same thing but IF there were time I would also have looked it over and IF I found it to be 1 Petitioner’s business had already been started while under an E-2 nonimmigrant visa as a Treaty Trader which led to a muddled response. The critical mistake was not answering the question when initially asked in the RFE. It was for that reason alone AAO would not consider the second business plan submitted on appeal even if it did answer the question, finally.
  8. 8. Contact: (716) 604-4233 (cell) OR (716) 768-6506 (land line) Page 8 LINK TO DECISION OUTCOME, EXCERPT(S), & COMMENTARY inadequate; I would have said so in a footnote but not give an in-depth analysis or write-up of further problems in the body of the decision as AAO did. The failure to demonstrate the petitioner’s involvement in the management of the NCE in a clear cut manner was already evident from the business plan previously examined for the issue of “job creation”. The write up of, and the meaning of, the inadequacies in the business plan killed two birds with one stone as the old saying goes. MAY302014_01B7203.pdf MOTION DISM ISSED: The instant Motion was filed extremely late at 189 days after the initial decision was dated. As it was so untimely and there was no good cause shown that would warrant any other outcome than to dismiss it as untimely, so it was done. “DISCUSSION: The Director, California Service Center, denied the employment-based immigrant visa petition and affirmed the decision on motion. The Administrative Appeals Office (AAO) dismissed the petitioner's appeal of that decision on June 18, 2013. The matter is now before the AAO on a motion to reconsider. The motion will be dismissed, the previous decision of the AAO will be affirmed, and the petition will remain denied.” At p. 2. The earlier Appeal Dismissal was not disturbed. Although AAO was not required to be so helpful, in the instant decision, a synopsis of the earlier proceeding was given. “Even if the motion was timely filed, the petitioner's motion does not overcome any of the original grounds in the June 18, 2013 decision. That decision explains that the
  9. 9. Contact: (716) 604-4233 (cell) OR (716) 768-6506 (land line) Page 9 LINK TO DECISION OUTCOME, EXCERPT(S), & COMMENTARY petitioner did not demonstrate the following: 1. That she placed the required amount of capital at risk for the purpose of generating a return on capital based on a lack of evidence of any undertaking of actual business activity as of the filing date and a failure to explain sufficient capital expenses required for the business; 2. That the petitioner did not establish that her claimed investment had created or would create at least 10 full- time positions for qualifying employees based on her abandonment of that issue on appeal; and 3. That the petitioner did not document her lawful source of the required amount of capital based on inconsistencies between some of the translations and a lack of evidence tracing the complete path of funds.” At p. 3 A major problem with the instant Motion which was being Dismissed concerned the fact that it relied upon post filing events. That approach was simply wrong because of the fact that the I-526 EB-5 Immigrant Petition is subject to the “eligible at time of filing” for certain facts and prerequisites. Page five of this dismissal is a treasure trove of case citations that could save you a great deal of time in research. Don’t miss it!
  10. 10. Contact: (716) 604-4233 (cell) OR (716) 768-6506 (land line) Page 10 Concluding Remarks After allowing the various points made throughout these three most recently posted AAO EB-5 cases, along with the earlier three (that’s six within one week)2 to sink in, I have a few observations to share. These six cases are all outside of the Regional Center context or were what most folks call “EB-5 Direct Investments”. Two of the May 27th decisions may have been in the same project or may have represented two distinct assisted living facility projects through the same developer. That point is unclear. One point about those two cases that is clear is that these folks were trying to be “millionaire investors” on shoestring budgets. Those scary facts are incongruous, inapposite, or contrary to common sense. That cheapskate approach makes it clear to me that there are elements still around today who would try to turn back the hands of time to the mid-1990s when far too many inadequate projects slipped past unarmed guards at INS. Those days are long gone. The “new guard” at USCIS are more sophisticated and much better armed. They are armed with the required knowledge, skills, and abilities (KSAs) suitable to the task. The staff has grown exponentially. Training is constantly improving and I believe that constructive discourse is now the order of the day. These cases are no longer relegated to being handled by single adjudicators, each working in isolation, incommunicado in a cubicle in a warehouse-like adjudication factory. USCIS’ EB-5 program now has a voice in IPO, supported by AAO. That’s my two-cents, for now. Joseph P. Whalen, Independent EB-5 Consultant, Advocate, Trainer & Advisor 1348 Ridge Rd | PMB 36 | Lackawanna, NY 14218 Phone: (716) 604-4233 (cell) OR (716) 768-6506 E-mail: web or DISCLAIMER: Work is performed by a non-attorney independent business consultant. It is the client's responsibility to have any and all non-attorney work products checked by an attorney. I provide highly-individualized training based on consultationwith my clients. I serve Regional Center Principals and their counsel, potential EB-5 investors, and project developers. I am not an attorney myself although I have trained numerous attorneys and INS/USCIS adjudicators in complex issues within immigration and nationality law when I was an adjudicator there for many years. I do not prepare forms, write business plans, or create economic analyses. I do review them for clients prior to submission and suggest corrections and/or modifications to run by your attorney and investment advisor. NAICS Code: 611430 Professional and Management Development Training 2 The three May 27th case decisions were posted on June 9th and the three listed and linked herein were posted on June 13th .