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COMPLETE GUIDE TO THE

GREEN
EB 5
FOR INDIAN NATIONALS
CARD

CRITICAL KNOWLEDGE
FOR INDIAN INVESTORS WHO WANT TO MAKE THE BEST
DECISIONS FOR THEMSELVES AND THEIR FAMILIES

Vaughan de Kirby
and Kenton de Kirby
All Securities offered through
Investment Visa Consultants, LLC - Member FINRA/SIPC.
www.finra.org
“The Investor’s Path to a Green Card presents its important
subject with precision and clarity. This is a wonderful guide
for anyone wishing to become a permanent resident of the
United States through investment. If investment immigration
is in your future, you must read this book.”
–Alexis Neely – founder of the Family Wealth Planning
Institute, nationally recognized speaker and author of the
bestselling book, Wear Clean Underwear: A Fast, Fun,
Friendly - and Essential - Guide to Legal Planning for Busy
Parents.

“Vaughan de Kirby has written a truly great book that will


help so many people become part of the success story that is
the United States. This book is required reading for anyone
who wants to make a profitable investment in the United
States and at the same time achieve permanent residency
for themselves and their family. Vaughan has presented
an intricate area of the law with a kind of clarity that will
empower his readers worldwide.”
–Sandra Rohrstaff, Esq.
President–Elect Virginia Trial Lawyers Association
www.WRSAttorneys.com

“The Investor’s Path to a Green Card is the first true guide


for potential investors seeking a Green Card. This book is
informative, accessible and comprehensive in its treatment of
what can be a confusing subject. If investment immigration
is your desire, this is your book.”
–Bob Battle, Esq.
Virginia Attorney
“Vaughan de Kirby uncovers one of the best kept secrets in
immigration law and explains it simply and passionately.
Don’t confuse the EB-5 Regional Center Program with the
original, congressionally mandated legislation. To do so is to
lose the opportunity of a lifetime. If you are serious about
wanting you and your family to enjoy the benefits of living
and working in America, and you have $500,000 to invest,
Vaughan’s book is your ticket to the USA.”
–Charlie Hofheimer, Esq.
Author and Family Law Attorney

“Vaughn has written an excellent book to educate the foreign


entrepreneur on how they can make their American business
dream a reality. Vaughan has written a go-to-guide on an
under-appreciated area of immigration law. If you have any
interest in this fantastic program, The Investor’s Path to a
Green Card just might change your life.”
–Nancy Cavey, Esq.
Nationally Recognized Social Security Disability
and ERISA Lawyer

“Finally, a book on immigration law—or any area of law


for that matter—written for non-lawyers. There are many
capable attorneys out there, but few understand the EB-5
program as well as Vaughan—and fewer still have the ability
to communicate complex legal issues in simple language. I
learned a lot from reading this book, and I’m sure you will
too.”
–Chuck Boyk – Ohio personal injury attorney, co-author of
The Ohio Accident Book and The Ohio Work Injury Book.
“This is a book that takes a highly specialized area of
immigration law and explains it in a simple format rather
than using jargon. Most legal books are written for lawyers
and filled with obscure legal language. We were thoroughly
impressed by the depth of the information and the easy-
to-understand format of this otherwise challenging legal
area. With the advantages and disadvantages of each visa
program clearly outlined and the fantastic ‘Question &
Answer’ sections, this book is a necessity for anyone who is
even considering seeking a Green Card through investment.”
–Alexis Saphire Breyer, Esq. and Mark Breyer, Esq.
Breyer Law Offices, P.C., Phoenix, Arizona

“Vaughan is the most knowledgeable attorney I know about


the EB-5 Investor Visa program. He literally wrote the book
on the subject. I have been critical of many of the “lawyer”
books I have come across: not much substance, not well
written, way too much sales hype. Vaughan’s book is just the
opposite. It is full of substance and a pleasure to read.”
–John Bisnar, Esq.
www.bestattorney.com

“As a lawyer, I am keenly aware that investor immigration


is a unique and often complex area of immigration law.
Vaughan has done a tremendous job of presenting this
information with clarity and critical insight. There is no
other book that offers so much vital information to the
immigrant investor. The Investor’s Path to a Green Card is
an indispensable guide for any foreign investor looking for
United States permanent residency.”
–Michael Sherman, Attorney at Law
www.AlabamaFamilyLawBlog.com
COMPLETE GUIDE TO THE

GREEN
EB 5 CARD
FOR INDIAN NATIONALS

CRITICAL KNOWLEDGE
FOR INDIAN INVESTORS WHO WANT
TO MAKE THE BEST DECISIONS FOR
THEMSELVES AND THEIR FAMILIES

Vaughan de Kirby
and Kenton de Kirby
de Kirby Juris & Associates

INDIA:
Kundan Chambers,
Thube Park, Shivaji Nagar,
Pune 411005, Maharashtra 
Phone: +91 20 412-82800

USA:
5139 Geary Boulevard
San Francisco, California 94118
Phone: 415-221-2345

Email:
info@dekirbyjuris.com

Website:
www.dekirbyjuris.com
www.eb5law.in

Copyright © 2017 by Vaughan de Kirby and Kenton de Kirby

All rights reserved. No part of this book may be used or reproduced in any
manner whatsoever without written permission of the author.
Published 2017.

Printed in the United States of America.

ISBN: 978-1-63385-186-3

Designed and published by

Word Association Publishers


205 Fifth Avenue
Tarentum, Pennsylvania 15084

www.wordassociation.com
1.800.827.7903
Table of Contents
I NTRODUCTI ON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

PART I : THE REG I ONA L C E NTE R PATH . . . . . . . . . . . . . . 9

Chapter 1: An Overview of the EB-5


Regional Center Path. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Chapter 2: An Introduction to Limited Partnerships . . . . . 23

Chapter 3: How Regional Centers Operate . . . . . . . . . . . . . . 35

Chapter 4: The Value of Professional Due Diligence—


Four Reasons to Hire an EB-5 Securities Professional . . . . . 51
Chapter 5: How a Regional Center Is Evaluated . . . . . . . . . . 57

Chapter 6: A Cautionary Case Study—


The Chicago Regional Center. . . . . . . . . . . . . . . . . . . . . . . . . . 79
Chapter 7: An Overview of the Application Process. . . . . . . 89

PART I I : THE DI R E C T I NVE STM E NT PATH . . . . . . . . . . . . 9 9

Chapter 8: An Overview of the EB-5 Direct


Investment Path . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Chapter 9: The I-526 Process—The Business Plan . . . . . . . 117

Chapter 10: The I-829 Process—Proving Job Creation . . . 135

PART I I I : SOURC E OF F U NDS, TR A NSF E R


OF FUNDS, AND A SSE T P R OTE C TI ON. . . . . . . . . . . . . . 1 4 1

Chapter 11: Documenting the Source of


Investment Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Chapter 12: Transfer of Investment Funds . . . . . . . . . . . . . 163

Chapter 13: Asset Protection for EB-5 Investors—


An Interview with Patrick Phancao . . . . . . . . . . . . . . . . . . . 215
Introduction

By making a significant investment in the American econo-


my, foreign citizens can qualify for U.S. permanent resident
Green Cards—both for themselves and their families. As
Green Card holders, their children have access to all levels
of the American educational system, allowing them to ul-
timately earn secondary and even graduate degrees from
any of the countless American colleges and universities,
which include many of the most prestigious in the world. In
turn, the qualifying investment creates American jobs and
supports the local economies of areas in need. And by in-
vesting wisely, investors can eventually recover their funds,
possibly with a profit. As you are likely aware, this is all
made possible by the EB-5 “immigrant investor” program.

My name is Vaughan de Kirby. I am a Licensed Securities


Principal and President of Investment Visa Consultants,
LLC. In addition, I am an Investment Immigration Attor-
ney and President of the Law Offices of Vaughan de Kirby,
A.P.C. This gives me an uncommon level of expertise,

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

extending to both the immigration and investment side


of the EB-5 application process. I am proud to focus my
work on the EB-5 program. Helping my clients fulfill their
family’s dreams is deeply gratifying, and I am proud to
be involved in helping to create American jobs and boost
struggling local economies.

I have written several books on the EB-5 program. My


motivation for writing these books was my realization that
nothing like them existed. As a general rule, publications
on the EB-5 program are written for either immigration
lawyers or American businesspeople who are looking for
investment capital—not for the potential investors them-
selves. This struck me as a major gap that needed to be
filled. I wanted to provide those interested in applying for
EB-5 Green Cards with a source of useful information that
is both comprehensive and clear, detailed and accessible. I
wanted to give them access to a level of understanding that
is usually reserved for EB-5 professionals.

For potential investors, I believe there is great value in


having a rich understanding of the EB-5 program and its
application process. Applying for an EB-5 Green Card is a
significant undertaking with a great deal at stake, and there
are crucial decisions for the investor to make. I wanted to
help investors make these decisions in the most informed
way possible, giving them the greatest possible chance for
a successful outcome. I also wanted to give investors the

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

confidence and peace of mind that comes with understand-


ing the process.

What you are reading is, at the time of this writing, the
most comprehensive consumer guide to the EB-5 program
available. Unlike my two previous books, this book—the
Complete Guide—covers both paths one can take in ap-
plying for an EB-5 Green Card: the Regional Center and
Direct Investment options. In the Regional Center path,
one makes a $500,000 investment in an approved Regional
Center. A Regional Center is an entity the U.S. government
has given permission to attract EB-5 investors. In the Di-
rect Investment path, one makes a $1 million or $500,000
investment in some form of new or restructured business,
which the applicant is required to take an active role in
managing.

Which path an investor should take is entirely dependent


on that individual’s goals and priorities. Each option has
its own benefits. The Regional Center option offers relative
simplicity and financial security. As you will read about,
the Regional Center path simplifies the process of meeting
the necessary legal requirements. Regional Centers have
already been approved as qualifying EB-5 investments, and
they involve large-scale development projects that typically
have the backing of banks and the local government. Mak-
ing a Direct Investment in a new or restructured business,
in contrast, offers control and potential profitability. One

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

can invest in virtually any type of business and manage it as


one sees fit, with the intent to generate significant profit. It’s
true that the vast majority of applicants invest in Regional
Centers, and there are clear reasons for this, but there are
investors for whom the Direct Investment path makes the
most sense.

This book is divided into three parts. Part I is devoted to


the immensely popular Regional Center path. The first
chapter includes an overview of the EB-5 Regional Center
path—its history, its requirements, and the current state
of the program. The second and third chapters cover the
structure and workings of Regional Centers. The second
chapter provides an introduction to limited partnerships
(LPs), a generic type of business entity. The relevance to
EB-5 investment is that the vast majority of Regional Cen-
ters are structured as LPs, which means that investing in a
Regional Center makes one a “limited partner.” The third
chapter in Part I provides a detailed look into the workings
of Regional Centers. It will explain how they are created,
how they are structured, and how they operate.

The remaining chapters in Part I address what is surely the


most important decision an investor will have to make in the
course of applying for an EB-5 Green Card through the Re-
gional Center path: selecting a Regional Center in which to
make a qualifying investment. If you select a Regional Cen-
ter whose project development is successful—generating

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

revenue and creating enough jobs to satisfy the EB-5 re-


quirements—your Green Card application will very likely
be approved, and you will be able to recover your principal
investment. On the other hand, if project development fails
or falls short, your family’s immigration goals and financial
well-being will be in jeopardy. Selecting a Regional Center
is complicated by the fact that there are a great many to
choose from—many hundreds, believe it or not—but not
all are equally strong or safe investments. In fact, there are
several documented cases of Regional Centers defrauding
their EB-5 investors—taking their money without under-
taking any real project development. Furthermore, even
among strong and legitimate Regional Centers, some may
be better suited for your particular goals and priorities.
For these reasons, it is imperative to hire a securities pro-
fessional to perform an in-depth due diligence evaluation
before making an investment.

Delving further into the benefits of hiring a securities pro-


fessional, Chapter 4 explains in detail a number of compel-
ling reasons to hire a professional to perform an in-depth
due diligence evaluation before making an investment.
Chapter 5 provides an overview of the evaluation process
from the perspective of a securities professional. This will
help you appreciate the major considerations that should be
addressed in a proper evaluation. This chapter is not meant
as a do-it-yourself guide—a proper evaluation requires
considerable training and expertise. The chapter will,

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

however, help you understand the big picture of Regional


Center due diligence. That way, you will have a better grasp
of what a professional will do for you and how to interpret
the results of the evaluation. The next chapter in Part I is
a cautionary case study of one Regional Center that was
judged to have defrauded its foreign investors. Cases of
fraud are rare, but, unfortunately, they do occur. You will
learn about the details of this case and, most importantly,
how even relatively basic due diligence evaluation could
prevent fraud like this from happening to you. Finally, Part
I concludes with an overview of the application process,
from making the decision to pursue the Regional Center
path to eventually obtaining an Unconditional Permanent
Resident Green Card.

Part II covers the Direct Investment alternative. In chapter


8, it begins with an overview of the requirements. Although
the requirements for the Regional Center and Direct In-
vestment paths are technically the same, they are arguably
more complex and elaborate for Direct Investments. This
chapter includes short overviews of the core requirements
as well as considerable detail about what the requirements
actually mean in practice. Each of the remaining chapters
in Part II covers one of the two phases of the EB-5 appli-
cation process. Chapter 9 covers the I-526 application, in
which the investor applies for a Conditional Green Card
by providing USCIS (USCIS stands for “United States
Citizenship and Immigration Services” and is the federal

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

agency that oversees legal immigration) with a comprehen-


sive business plan and evidence that meaningful, concrete
business activity has been undertaken with the investor’s
capital contribution. This chapter also explains why it is
essential to hire professionals to help prepare the business
plan. Chapter 10 covers the I-829 application. Here, the in-
vestor applies for an unconditional Green Card by proving
that the capital has been spent and that necessary number
of jobs have been created. As with the requirements, the
two phases of the application process are the same for both
the Regional Center and Direct Investment options, but
they are more complex for Direct Investments, which is
why I have devoted individual chapters to them in Part II.

Part III covers some important topics in the investment


and application process. Chapter 11 goes into detail about
gathering evidence that one’s investment funds came from
a lawful source—an critical requirement of the EB-5 pro-
gram. Regardless of where your investment capital came
from (real estate, sale of stock, inheritance, business profit,
etc.), this chapter will explain what kinds of documentation
should be submitted as part of your application. Part III
continues with a chapter written by my friends and associ-
ates at SKJ Juris, which covers another important and com-
plex topic: the process of transferring the investment funds
from India to the U.S. Regional Center. Part III concludes
with an interview, which covers asset protection for EB-5
investors. The interview is with estate planning attorney

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

Patrick Phancao, and our conversation discusses how EB-5


investors can protect their American assets from lawsuits.

I want to emphasize that this book cannot substitute for the


services of a qualified Regional Center securities profes-
sional, business plan preparer or investment immigration
lawyer. However, as I said, familiarizing yourself with the
information covered in this book can make you a better
client, and it can help you make important decisions in the
most informed way possible.

I hope this book is a useful companion for you in the pro-


cess of selecting the right path for you, making a qualifying
investment, helping to create jobs, and eventually earning
a Permanent Resident Green Card for yourself and your
family.

— Vaughan de Kirby

8
PA RT 1 :

The Regional
Center Path

9
C H A P T E R 1 :

An Overview of the EB-5


Regional Center Path

In this chapter, I describe the history, requirements, and


current state of the EB-5 program. The information pro-
vided in this chapter will be the foundation for both Parts
I and II, which cover the workings and evaluation of Re-
gional Centers. If you are confident that you are already
familiar with the core requirements for qualifying for an
EB-5 Green Card, feel free to skip this chapter. However,
there is no harm in reviewing the basics, since virtually
everything about the EB-5 process—for both Regional
Center and direct investors—can be traced directly to these
requirements.

This chapter introduces you to the two different paths to


permanent residency offered by the EB-5 program: the
Regional Center path and the Direct Investment path.
The predominant focus of this chapter is the Regional
Center path. The goal here is to help you understand how

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

the Regional Center path works, so that you can compare


it with the Direct Investment option as you are making
your decision.

A Little History: The Original EB-5 Program


In an effort to attract foreign investment in the economy,
the U.S. Congress created the original EB-5 visa program
in 1990. Creating the EB-5 program was part of a larger
effort to reform the employment-based paths to permanent
residency, which is what “EB” stands for.

The law set aside 10,000 new EB-5 visas per year. To obtain
a permanent resident Green Card, the original program
required a $1 million investment in a new commercial en-
terprise in the United States. However, the program also
allowed the amount of the investment to be reduced to
$500,000 if it was made in a “targeted employment area,”
which was defined as a rural area or a region where unem-
ployment was especially high (at least 50% higher than the
national unemployment rate).

Within a few years, U.S. lawmakers began noticing that


very few of the 10,000 available EB-5 visas were being
awarded. They correctly attributed this to the relatively
burdensome requirements of the original Direct Invest-
ment program. For one, an investor was obligated to show
that his or her investment created an entirely new business,
and the investor must specifically have been present at the

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

“inception” of the enterprise. Second, the new commercial


enterprise must create 10 new, full-time jobs, which could
not be filled by the investor or members of the investor’s
family. It was not enough to show that the investment had
the effect of producing 10 jobs by contributing to the local
economy or increasing productivity. The new commercial
enterprise itself must have created 10 jobs. Third, the inves-
tor was required to be actively involved in the day-to-day
management of the business. Finally, in order to apply for
a Green Card, the investor had to show that the required
funds were fully invested in the business.

Considered together, these requirements create a great deal


of risk—and work—for EB-5 applicants. Starting an entire-
ly new business in the U.S. and managing that business is
a considerable undertaking. Not only is the success of the
business uncertain, but there is no guarantee that one’s
Green Card application would be successful. Potential in-
vestors were faced with the possibilities that their business
would fail, their Green Card application would be denied,
or both. It is little wonder that the original program failed
to attract many investors in its first few years.

The Pilot Program


As a temporary experiment, Congress created the so-called
Pilot Program in 1993 (also known as the Regional Center
Program), which laid out a completely different vision of
the application process. The intention was to create a more

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

streamlined, less burdensome path to Permanent Residen-


cy. The Pilot Program set aside 3,000 “Regional Center”
visas a year—almost a third of the 10,000 total EB-5 visas
available annually.

To qualify for a visa under the Pilot Program, an applicant


must invest in an area or business venture that the gov-
ernment has awarded the status of “designated Regional
Center.” The new law defined a Regional Center as any eco-
nomic unit, public or private, which focuses on a certain
geographical area and “seeks to promote economic growth
through increased export sales, improved regional produc-
tivity, creation of new jobs, and increased domestic capital
investment.” Put simply, a Regional Center is an entity that
the federal government has given permission to attract
foreign investors under the EB-5 Pilot Program. In a later
chapter, I discuss Regional Centers in detail: how they are
formed, how they are structured, and how they operate.

For now, suffice to say that forming a Regional Center


means submitting a detailed business plan that proposes
new commercial enterprises and investment opportunities.
It is then up to the government to determine whether the
proposed business ventures will contribute to the regional
economy and meet all the necessary criteria for awarding
EB-5 visas. If the application is approved, the new Regional
Center can begin attracting foreign investors.

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The Requirements
With this history in mind, let us go through the core re-
quirements of the EB-5 Pilot Program. The Pilot Program
retains all the major requirements of the original program
but it provides new ways of satisfying them. In general, the
Pilot Program lifts much of the burden off the shoulders
of the investor and transfers it to the Regional Center. It
is the Regional Center, and not the investor, who must to
create a qualifying business plan, get the business plan ap-
proved, establish a new commercial enterprise, create jobs,
and manage the business. From the investors’ perspective,
simply making the necessary investment in an approved
Regional Center will typically satisfy a number of these re-
quirements. However, the important thing to remember is
that not all approved Regional Centers are created equal—
far from it. What separates a good Regional Center from a
bad one is its ability to generate enough jobs per investor—
fulfilling the all-important job creation requirement—and
to generate enough revenue to return the investor’s capital
after the investor has obtained his or her Green Card. That
is why it is imperative, when choosing a Regional Center, to
make an informed choice based on the results of in-depth
evaluation. With that said, I now turn to the core EB-5 re-
quirements of the Regional Center path.

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

Qualifying Investment Requirement


Virtually all Regional Centers are located in Targeted
Employment Areas. This is no accident. Regional Centers
compete with each other for investors. Obviously, the abili-
ty to make a qualifying investment of $500,000 is generally
less onerous and more attractive than making a $1 million
investment. Because of this, one could say that the Pilot
Program requires an investment of $500,000, practically
speaking.

Lawful Source of Funds Requirement


The law requires that the applicant’s investment funds
come from a lawful source. As you might imagine, USCIS
strictly enforces this rule. The U.S. government wants to
make absolutely certain that it is not granting Green Cards
to foreigners who have obtained their money illegally. This
strict enforcement means that applicants must provide
substantial supporting documents that show where the
money came from and prove that its source is a lawful one.
Theoretically, there is no limit to the sources of funds that
USCIS will consider lawful. Common sources of funds in-
clude salary, gifts, sale of stock or other securities, sale of
real estate, or a loan secured by the investors assets.

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

New Commercial Enterprise Requirement


As with the original program, the applicant must invest in
a new commercial enterprise. However, this requirement
is automatically satisfied by investing in an approved Re-
gional Center. A given Regional Center can ensure that the
new business entity it creates—in order to pool the funds
of foreign investors—will qualify as a new commercial
enterprise.

Active Management Requirement


Those applying for the original EB-5 visa were obligated to
prove that they were taking an active role in the day-to-day
management of the business. While the Pilot Program does
technically require the investor to participate in manage-
ment or policymaking, this participation is often largely
symbolic, with the investor’s vote as a limited partner
satisfying the requirement. By virtue of their investments,
investors become limited partners with Regional Centers.
Limited partnership is enough to demonstrate that they are
sufficiently involved in the project. The reality is that sim-
ply making the investment in an approved Regional Cen-
ter is enough to satisfy this requirement. This means that
investors and their families can live anywhere they wish,
regardless of what Regional Center they invest in. Investors
have the freedom to live wherever is best for them and their
families. One of the benefits of this freedom is that living

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

in a particular state often gives a student a better chance of


being accepted to that state’s universities.

At Risk Requirement
The law mandates that investor funds must be put “at risk”
to show that the EB-5 application is made in good faith. This
is to ensure that applicants are actually making legitimate
investments in the American economy, rather than merely
creating the appearance of wanting to make an investment.
For the Regional Center path, satisfying this requirement
simply means making the qualifying investment by trans-
ferring one’s funds to a Regional Center.

As you will learn in a later chapter, Regional Centers typ-


ically operate like a loan. They pool funds from investors
and make loans to finance projects and developments. This
is not to say, however, that an EB-5 investor is making a
loan to the Regional Center. By law, loans do not qualify
as an “at risk” investment. For an investor to qualify for a
Green Card, a Regional Center cannot guarantee the re-
turn of the investor’s principal, nor with a rate of interest.

Job Creation Requirement


Under the original EB-5 program, the investor was obligat-
ed to prove that the new business directly created at least
10 jobs. While this is still required under both programs,
the Pilot Program changed the meaning of this require-
ment entirely. The original program required that the new

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

enterprise itself create and fill 10 new, full-time employment


positions—“directly” creating the jobs. This is also true,
for the most part, of the contemporary Direct Investment
path. The Pilot Program, on the other hand, requires only
that the investment indirectly create 10 jobs. So how is this
determined? The answer: industry job-multiplier statistics
using economic modeling tools. Using these modeling
tools, if the statistics show that an investment of $500,000
would contribute to the regional economy such that at least
10 jobs would be created or saved, then this requirement is
satisfied. The investment itself need not directly create any
jobs at all.

The Application Process


In most cases, the process begins with finding a qualified
investment immigration attorney. Next, you will select a
Regional Center from the many available options. Before
you invest, you will hire a securities professional to conduct
a careful due diligence evaluation of the Regional Center.
If your securities professional concludes that the Regional
Center appears to be a sound option—likely to return your
principal investment and create enough jobs to satisfy the
EB-5 requirements—you may decide to release your funds
to the Regional Center. Next, you will work with your
attorney to compile the necessary documentation. This
documentation provides personal information and shows
where your investment funds came from (to ensure it was
lawfully obtained).

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

Using the documentation you provide, as well as informa-


tion provided by the Regional Center, you attorney will file
what is called an I-526 petition with USCIS on your behalf.
As of September 2016, it takes an average of 14.7 months
for USCIS to process a I-526 petition. Keep in mind that
average processing times for EB-5 petitions are just that—
averages. USCIS may take more or less time to process your
applications, depending on factors that are entirely out of
your control. If this petition is successful, you may then
send in an application for a Green Card for you and your
family members. If approved, you will be granted a Condi-
tional Green Card.

After two years (or 21 months, to be precise) of holding a


Conditional Green Card, during which time your funds
must remain invested in the Regional Center, your attor-
ney will file another petition to remove the conditions on
your Green Card—this one is called an I-829 petition. As
of September 2016, this petition takes an average of 23.8
months to process. If the Regional Center can show that the
job creation requirement has been satisfied, your petition
will likely be approved and you will be able to withdraw
your funds, if you wish. After five years of having a Green
Card, you are eligible to become a fully naturalized Amer-
ican citizen, assuming you meet a few other requirements.
For more detail on the application process, see Chapter 7.

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The Current State of the Pilot Program:


2005 to the present
In the early years of the EB-5 program, the U.S. govern-
ment began cracking down on suspected abuses. The gov-
ernment was concerned that investors were not making
legitimate investments, but were merely creating the neces-
sary appearances in order to secure Green Cards. Because
of these crackdowns, the program became essentially dor-
mant. Some years later, in 2005, it was finally re-launched.
Since then, it would not be an exaggeration to say that the
popularity of the EB-5 program has exploded.

Beginning in 2005, USCIS began actively tracking (and re-


leasing to the public) the number of submitted and approved
I-526 Immigrant Petitions. The statistics, most recently
released in 2016, are staggering. From 2008 to 2015, the
number of EB-5 applications (Form I-526) has risen from
over a thousand to over fourteen thousand. Similarly, the
number of approved Regional Centers has also increased
from only a handful to many hundreds.

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Given what you have read about the history of the pro-
gram’s requirements, it will probably come as little surprise
that around 95% of today’s EB-5 applications are based
on foreign investments in Regional Centers rather than
Direct Investments in new, investor-run businesses. This is
not to say that the Regional Center program is necessarily
superior. There are investors for whom the Direct Invest-
ment path makes the most sense. It all comes down to the
individual investor and his or her particular goals. Some
want to start a certain kind of business, and they value the
control and potential profitability of the Direct Investment
path. Others are attracted to the ease, flexibility, and rela-
tive financial security of investing in a Regional Center.

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C H A P T E R 2 :

An Introduction to
Limited Partnerships

This chapter provides an overview of limited partnerships


(LPs). As I mentioned in the introduction, for the vast
majority of EB-5 investors, investing in a Regional Center
means purchasing an ownership interest in a limited part-
nership. Over the course of this chapter, you will gain a
basic understanding of how limited partnerships work and
why they make sense for EB-5 investment.

To get started, here is a basic definition of a limited partner-


ship: limited partnerships are businesses that have two differ-
ent types of owners: general partners and limited partners .

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As we will see, general partners and limited partners within


a limited partnership differ in three respects: 1) their roles
in the business, 2) the amount of liability they have, and 3)
their tax responsibilities. Let us look at each type of owner
in turn. Keep in mind that EB-5 investors are limited part-
ners rather than general partners.

General Partners
Every limited partnership must have at least one general
partner. General partners are often those individuals who
founded the business. Overall, they have more control of
business affairs, but also more responsibility and liability.

• Role in the business: General partners are responsible


for the day-to-day management of the business and have
the majority of the decision-making responsibilities.

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• Liability: General partners have total liability for the


business. They are personally liable for any business
debts in the event of failure or legal problems.

• Tax responsibilities: Because general partners play an


active role in the business, they typically have to pay
self-employment taxes on the profits from their finan-
cial share of the limited partnership.

Limited Partners
Limited partnerships must also have at least one limited
partner, but most have more than one, and oftentimes
many more. Limited partners, by contrast, have less deci-
sion-making power but also less liability.

• Role in the business: In order to qualify as a limited


partner, one cannot play an active role in the business
(although certain states make particular exceptions to
this rule). For instance, limited partners cannot make
any business deals on behalf of the LP.

• Liability: Limited partners are protected from personal


liability. They are only liable up to the amount they in-
vested in the business. They cannot be forced to pay for
business debts with their own assets. It should be said,
however, that if a limited partner began exerting more
managerial control, this liability protection would be
put at risk.

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• Tax responsibilities: Limited partners can also earn


profits from their share of the partnership. However,
because they do not play an active role in the business,
this income isn’t considered “earned,” which means
they don’t have to pay self-employment taxes.

Why the Majority of EB-5 Regional Centers


Are Limited Partnerships
Based on what you have read so far, you probably have
some good ideas about why the majority of EB-5 Regional
Centers are formed as limited partnerships. Partnerships
in general have distinct advantages over other types of
businesses, including simpler taxation, limited regulation
and more flexibility. However, the core reason why the ma-
jority of Regional Centers are formed specifically as limited
partnerships is that the role of a limited partner is ideal
for most EB-5 investors. In my experience, EB-5 investors
have two primary goals: 1) qualifying for a Green Card for
themselves and for their family members, and 2) making a
sound investment that, at the very least, provides a return
of the principal investment at the end of the required pe-
riod. Most EB-5 investors are not interested in starting or
managing a business in the U.S. for the long term. Most
want to act more or less as passive investors, while still
meeting the “active management” requirement outlined in
the EB-5 program.

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

Although limited partners do not retain control over how


their investment funds are allocated, the role of limited
partner entails significantly less work and less responsibil-
ity than for the general partners of the LP or for owners
of other business types, while also providing invaluable
liability protection. EB-5 investors can rest easy, knowing
that their personal assets beyond the $500,000 investment
are not at stake under any circumstances. The most they
can lose is the amount they invested in the business.

In addition, limited partnerships allow EB-5 investors to


withdraw their capital without jeopardizing the legal status
of the partnership. Once the required investment period is
over, and the investor has received an unconditional Green
Card, the investor can leave the partnership—which is usu-
ally the ultimate goal for most EB-5 applicants.

Comparing Limited Partnerships to


Other Types of Businesses
We will now look at how limited partnerships compare to
other types of business structures: general partnerships,
limited liability partnerships, limited liability companies,
and corporations. In the next chapter, you will read about
how complex EB-5 project development is, which often in-
volves several business entities of different types. Learning
about these other types of businesses will not only help you
better understand limited partnerships, but it will also help
you understand the process of project development.

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Please do not feel that you need to commit all this infor-
mation to memory. The following information is offered
as a useful resource that you can return to as needed. As a
summary, I have included a table at the end of this chapter
that provides an overview of the various business types
and how they differ.

Limited Partnerships (LPs) versus General


Partnerships (GPs)
As the name suggests, general partnerships are another
type of partnership. A partnership is simply a business
that has more than one owner, and which has not gone
through the necessary legal process to become a corpo-
ration or a limited liability company (both of which are
described below). For tax purposes, partnerships are not
considered their own entity. Taxes are paid by the individ-
ual partners based on how much they earn. Partnerships
can be created with as little as an informal agreement
between two people and a registered business name, or
they can result from a formal partnership agreement de-
scribing each partner’s rights and responsibilities.

As you might expect, general partnerships have only one


type of owner—general partners. This is the primary dif-
ference between LPs and GPs. All general partners can
take part in the management of the business and can
enter into agreements and contracts on its behalf, but

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

they assume personal liability for all business debts. Each


individual partner can be sued for the entire amount of
the business’ debts.

Limited Partnerships (LPs) versus Limited Liability


Partnerships (LLPs)
Limited liability partnerships (LLPs) became popular in the
1990s. This type of business has been traditionally reserved
for professionals like attorneys, accountants, dentists,
doctors, architects, and other professionals who are highly
regulated by state licensing laws. Most states will restrict
who can form an LLP.

Typically, in an LLP, all partners are allowed to make man-


agement decisions about the business, or according to the
partnership agreement. The partners are also limited as to
how much liability they have for the business’ obligations
and the debt it incurs. One of the unique aspects of an LLP
is that, should one of its partners be sued for malpractice,
the other partners are typically protected from the negli-
gent acts of the partner being sued. This is one of the rea-
sons why many professionals opt for this type of business
arrangement.

When it comes to paying taxes, partners in an LLP typical-


ly pay self-employment taxes for their share of any revenues
or losses from the business. Any earnings received by a

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

partner are typically in proportion to his or her ownership


interest the company.

Although it is unlikely you will find a Regional Center


formed as an LLP, it is important to not confuse an LP with
an LLP.

Limited Partnerships (LPs) versus Corporations


(Corps.)
Unlike partnerships, corporations are probably the most
complex structure for a business. A corporation exists as
its own legal entity apart from the individuals involved in
the corporation. Corporations are owned by “sharehold-
ers” who elect a board of directors to run the business.
The fact that a corporation constitutes its own legal entity
has significant meaning:

• First, corporations can exist indefinitely. Think of


any major corporation. It is entirely possible that no
one currently working for that corporation was around
at the time of its founding. In contrast, partnerships
do not work this way. A partnership is automatically
dissolved once one of the general partners leaves unless
certain conditions are met. (Remember, however, that
limited partners can come and go without impacting
the status of the partnership.)

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

• Second, corporations pay their own taxes. For the pur-


poses of U.S. tax law, a corporation is its own “person.”
After salaries are paid to all workers, employees, and
owners, the corporation pays taxes on whatever profits
remain. Because individuals must also pay income tax-
es on their earnings, this system is sometimes referred
to as “double taxation.” Recall that, with partnerships,
tax returns are simply filed by each individual partner
based on what they earned from the partnership.

• Third, corporations provide limited liability. The fact


that corporations exist as their own legal entities also
means that they can be sued. This provides liability
protection for those working for it. The corporation is
itself responsible for debts, rather than its owners. Of
course, there are limits to this liability protection. An
owner of a corporation can be sued for certain kinds
of wrongdoing. This limited liability is one of the most
significant advantages of corporations over general
partnerships.

• Fourth, corporations are heavily regulated. Creating


a legal entity that provides limited liability comes with
a number of strict requirements. For instance, form-
ing a corporation requires legal documentation, and
running it requires more paperwork than other types
of businesses. This paperwork must show that certain
formalities are being followed. For example, annual
shareholder meetings are required and important

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

decisions must be documented. Finally, there is a limit


to the number of shareholders a corporation can have
while partnerships can have an unlimited number of
partners. Furthermore, the law requires that profits
be distributed to shareholders in proportion to their
financial stake in the business.

Limited Partnerships (LPs) versus Limited Liability


Companies (LLCs)
Limited liability companies are best thought of as a cross
between partnerships and corporations. The owners of
LLCs are known as members, and members benefit from
some of the advantages of both partnerships and corpora-
tions. Let us consider how LLCs compare with partnerships
and corporations.

Limited liability companies have some similarities to a


partnership:

• Taxes: A key similarity between LLCs and partnerships


is that both types of businesses do not pay their own
taxes. Individual members pay taxes on whatever prof-
its they earn.

• Ease of formation: Like partnerships, LLCs are relative-


ly simple to create, requiring less extensive documenta-
tion than corporations. Unlike partnerships, however,
LLCs do require a formal operating agreement.

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

• Few regulations: Like partnerships, LLCs do not


impose as many regulations as corporations do. For
example, the law does require annual meetings and re-
ports, and profits can be distributed however members
decide.

• Possibility of few owners: LLCs do not require multi-


ple shareholders or a board of directors. In fact, unlike
partnerships, LLCs can have only one owner.

What also makes an LLC different from a partnership is


that an LLC has similarities to a corporation as well:

• Can exist indefinitely: Like corporations, LLCs can


exist indefinitely. Members of an LLC can leave without
jeopardizing its legal status.

• Liability: LLCs provide limited liability in the same


way that corporations do. Unlike general partners,
members of an LLC and shareholders in a corporation
only risk their capital investment in the business (which
is also true of limited partners).

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

Summary

Below is a table comparing all the different business struc-


tures we have discussed in this chapter. The columns cor-
respond to the different types of business entities, and the
rows describe the dimensions along which they vary.

With a basic understanding of these business organizations


as a foundation, in the next chapter we will dive into the
operation of Regional Centers and the complex process of
EB-5 project development.

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C H A P T E R 3 :

How Regional
Centers Operate

In a previous chapter, I provided the formal definition of


a Regional Center: “any economic entity, public or pri-
vate, which is involved with the promotion of economic
growth, improved regional productivity, job creation and
increased domestic capital investment.” In the last chapter,
you learned that the vast majority of Regional Centers are
structured as limited partnerships (LPs). As you can imag-
ine, there is much more to Regional Centers than these two
facts, important though they are.

In this chapter, I provide more detailed information about


the structure and operation of EB-5 Regional Centers and
the process of project development. While there is certainly
variation among the more than 400 existing Regional Cen-
ters in the U.S., there are nonetheless commonalities that
are widely shared.

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

Regional Centers and project development are complex,


comprising multiple business entities and the relationships
between these entities. Regional Centers, in other words,
take some work to understand in-depth. Most often, a
sophisticated understanding of Regional Centers is found
only amongst EB-5 professionals. The purpose of this chap-
ter is to make the workings of Regional Centers clear and
accessible to potential investors as well. At the time of this
writing, I know of no resource for understanding the struc-
ture and operation of Regional Centers that is as detailed
and comprehensive as this chapter, while also being clear
and accessible to non-specialists.

An in-depth understanding of Regional Centers will help


you—in consultation with your attorney and securities pro-
fessional —select an EB-5 investment in the most informed
way possible. You will know what to expect, what to look
for, what to be concerned about, and what to ask. A firm
grasp of Regional Centers will also help you deepen your
understanding of the requirements of the EB-5 program,
which I covered in the first chapter. As you might imagine,
these requirements explain a great deal about why Regional
Centers operate the way they do. Along the way, I will make
note of those aspects of Regional Center operations that are
clearly motivated by the EB-5 requirements.

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

At the most basic level, a Regional Center operates as a


loan. This loan involves three roles—investor, loan lender
and borrower—which are described below.

Described in this way, a Regional Center seems simple


enough. At this level, it actually is simple. A Regional Cen-
ter pools funds from investors and loans those funds for the
purpose of developing some form of industrial project—an
office building, hotel, hospital, factory, restaurant, or some-
thing else. This project is intended to create enough jobs to
qualify a foreign investor for a Green Card, and to acquire
enough assets and generate enough revenue to return to the
investor his or her principal—possibly with some profit—
once the EB-5 requirements have been met and the investor
has become a U.S. permanent resident.

Of course, a more substantial understanding of how Re-


gional Centers are created, how they are structured, and

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

how they work requires a good amount of additional detail.


For the sake of clarity, we will break the workings of Re-
gional Centers down into five phases:

1) Creating a Regional Center

2) Attracting investors

3) Developing a project

4) Loan repayment, and

5) Expanding project development.

Although these “phases” are in some sense in chronological


order, it is not the case that one phase must end for the next
to begin. Most of the activities described in the various
phases are ongoing and cyclical.

Phase 1: Creating a Regional Center


A common scenario in the creation of a Regional Center
is that American entrepreneurs interested in the EB-5
program will generate an idea for a project. They will form
a company, typically a Limited Liability Company (LLC),
specifically for the purpose of creating a Regional Center
(see following page).

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

On behalf of this new company, they will then prepare and


submit an application to USCIS. (This is called an I-924
petition.) If the I-924 petition is successful, the LLC will
be granted Regional Center status, giving it official USCIS
authorization to attract EB-5 investors. This application
must include a detailed business plan and show that the
proposed project is likely to meet the requirements of the
EB-5 program. In particular, the application must explain:

• What the Regional Center’s business plan is;

• How the Regional Center’s business plan will be carried


out;

• Which geographic region in the U.S. the Regional Cen-


ter will focus;

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

• How the Regional Center’s development project or


projects will create jobs (whether directly, or indirectly
using economic models);

• Where are the sources of investment;

• How much investment will be required; and,

• How the project will benefit the regional or national


economy.

Another important part of the Regional Center application


is to show that the project falls within a Targeted Employ-
ment Area (“TEA”). A Targeted Employment Area is a ru-
ral area, or one that has experienced high unemployment
(at least 150% of the national average). Technically, this is
optional. A Regional Center’s project does not need to be
located in a TEA. In reality, however, virtually all Region-
al Centers obtain TEA designation for their projects. The
reason is obvious. It allows a Regional Center to attract
investors at the level of $500,000, rather than $1 million.
With a lower minimum, it is easier for Regional Centers
to attract more investors, those whose primary goal is to
obtain a Green Card for themselves and their families.

Phase 2: Attracting EB-5 Investment


At this point, the Regional Center will usually form an
additional business entity—a limited partnership—in or-
der to begin accepting investments from foreign investors.

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

Recall from the last chapter that investing in a Regional


Center usually means purchasing an ownership interest in
a limited partnership.

The Regional Center creates a limited partnership in order


to help its investors satisfy several requirements of the EB-5
program. First, as we discussed in the last chapter, limited
partnerships allow EB-5 investors to satisfy the “active
management” requirement, despite relatively minor in-
volvement in the day-to-day management of the business,
and with the added bonus of protection from liability.

Second, creating a limited partnership also helps investors


satisfy the “at risk” requirement, while still allowing the
Regional Center to operate as a loan. The “at risk” require-
ment prohibits EB-5 investors from loaning the $500,000
for project development—it must be genuinely invested.
According to EB-5 regulations, a loan would not qualify as
a genuine investment and would therefore mean that the

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

investor’s funds were not “at risk.” The limited partnership


allows investors to make a qualifying “at risk” investment
(in the LP), while at the same time allowing for the invested
funds to be loaned to another business entity for project
development.

Finally, creating a limited partnership also helps investors


satisfy the “new commercial enterprise” requirement. Re-
call that EB-5 regulations require applicants to invest in a
“new commercial enterprise.” For many Regional Centers,
it is the limited partnership entity—not the industrial proj-
ect—that qualifies as a new commercial enterprise for the
investors’ EB-5 applications.

Even though investing in a Regional Center means becom-


ing a limited partner, you may have noticed the Regional
Center itself—the entity that was granted Regional Center
status—is not in fact a limited partnership, but an LLC.
This can be a bit confusing, but bear with me; here’s how it
works. The Regional Center is usually the general partner in
the limited partnership. See below for details showing how
the entities relate to each other.

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

EB-5 investors contribute their capital to the limited part-


nership, which is typically a new commercial enterprise. By
doing so, they become limited partners with an ownership
interest in the business. The limited partnership was cre-
ated and is now run by the general partner—the Regional
Center LLC at the top of Figure 8. The general partner acts
as a fund manager, pooling all of the investment funds
from the limited partners. The Regional Center then over-
sees the loan of the investors’ capital for the purposes of
project development. In a sense, the limited partnership is
an intermediate entity connecting the investors to the de-
velopment project. Rather than the investors providing the
funds directly to the project, they first transfer their funds
into the limited partnership.

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In addition to transferring $500,000 to the limited partner-


ship, investors also pay a service fee, which can typically
range anywhere from $30,000 to $75,000. This fee goes to
the Regional Center to pay for operation costs. The Regional
Center is legally prohibited from using any of the $500,000
capital from EB-5 investors for its own gain, or to pay for
operating expenses. The service fees from investors are the
Regional Center’s primary source of revenue.

While becoming a limited partner in an approved Regional


Center may allow an investor to argue that the “active man-
agement” and “new commercial enterprise” requirements
have been satisfied, the same cannot be said of the all-im-
portant job creation requirement. This is where project
development comes in.

Phase 3: Developing a Project


Although the Regional Center LLC manages the inves-
tors’ funds and oversees the loan process, it may or may
not be directly involved in project development. In effect,
the vast majority of Regional Centers fall into one of two
categories with respect to who is involved in project devel-
opment. This, I am afraid, is where matters get particularly
complicated, so bear with me once again. I will begin with
the scenario wherein the Regional Center is not involved
in project development, since this scenario is significantly
more common at the time of this writing. I will then briefly
discuss the alternative situation.

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In the first category, the people who created and manage


the Regional Center are distinct from those who manage
the process of actually developing an industrial project.
The development of the industrial project is overseen by
individuals from a separate company, a professional project
management company. In this scenario, entrepreneurs or
members of a corporation who are interested in creating
a Regional Center will make contact with a project man-
agement company that is looking for capital to undertake
a development project. The entrepreneurs will then create
single purpose entities and apply for Regional Center
status. These single-purpose entities include the Regional
Center LLC and the limited partnership, which you just
read about.

Similarly, the project management company will also cre-


ate a single-purpose entity—usually an LLC—specifically
for borrowing capital from the Regional Center and oth-
er sources, which will be used to develop the qualifying
project.

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In the second category, shown below, the people (or com-


pany) who created the Regional Center are also involved in
project development. In this scenario, it is individuals from
a project management company that create and manage all
the various entities. The project management company will
create the LLC and limited partnership, apply for Regional
Center status, and pool funds from EB-5 investors. It will
also create a separate project developer LLC that accepts the
loan and other sources of investment for project develop-
ment. From a certain perspective, the project management
company is actually loaning the funds to itself, given that
it is involved in both aspects of the process. Technically,
however, the business entities are considered distinct. This
somewhat convoluted process is done for a few reasons, one

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

of which is to help investors satisfy some of the necessary


requirements of the EB-5 program.

As I mentioned, the first scenario is significantly more


common at the time of this writing. So, for the remainder
of this book, I will assume the Regional Center and the
Project Management Company do not overlap.

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Phase 4: Loan Repayment


From an EB-5 investor’s standpoint, loan repayment is a
critical phase, allowing the investor to recover the original
investment of $500,000, along with a share of whatever
profits were generated by the project.

Loan repayment can occur in different ways. Commonly,


the project developer will sell the land and buildings—a
hotel, residential homes, or whatever else—and use the
money to repay the loan. Another common means of loan
repayment is refinancing its loan in order to gain more
leverage to pay back its funders.

Typically, EB-5 investors are not the only source of funding


for the project. Very often, the project developer will also
borrow money from a bank or the government, in addition
to using the equity of the project management company
(see below). This is for good reason; it helps convince inves-
tors—and USCIS—that the project is legitimate, and not
simply a scheme to enrich those involved in the Regional
Center. Unfortunately, such schemes have existed, which
I will discuss in later chapters. If the project management
company and other organizations are willing to put their
assets on the line, USCIS is more likely to approve a Re-
gional Center application and potential investors are more
likely to find it attractive.

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

Given that funding for the project typically comes from


multiple sources, the project management company has
multiple sources of debt to repay. A topic I will discuss more
in a later chapter is the order in which the various sources
of investment are repaid. As you might imagine, the ques-
tion of where an EB-5 investor falls in the repayment order
is an important subject, as it can impact the likelihood that
the investors will be able to recover their entire principal
contribution once they have been granted an unconditional
Green Card.

Phase 5: Developing Additional Projects


You may be aware that it is common for a single Regional
Center to be involved in multiple development projects.
Often, a Regional Center will begin with a single project,
but as time goes on, it may seek approval from USCIS to
loan money for additional projects.

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To develop an additional project, the Regional Center and


project management company will often create an addi-
tional LLCs dedicated to that project. If the application
is approved, the Regional Center will take on additional
investors and loan the money to the new project devel-
oper LLC.

This chapter has covered EB-5 project development—a


complex topic, to say the least—in substantial detail. Do
not be concerned if there are aspects of the process you do
not fully understand. By reading this chapter, your under-
standing is undoubtedly more sophisticated than the vast
majority of EB-5 investors. Your immigration attorney will
be able to answer any additional questions you have.

50
C H A P T E R 4 :

The Value of Professional


Due Diligence—
Four Reasons to Hire an
EB-5 Securities Professional

As I mentioned in the introduction, if you choose the Re-


gional Center path, the choice of Regional Center in which
to invest is of paramount importance. Not only will it
determine whether you can recover your principal invest-
ment, but it will determine whether your immigration ap-
plication will be successful. If the Regional Center cannot
show that the required number of jobs have been created
per investor, it will be fatal to your Green Card petition.
This alone is enough reason to hire EB-5 securities profes-
sional to conduct a due diligence evaluation before making
an investment in a Regional Center.

In this short chapter, I briefly discuss four additional factors


that underscore the importance of careful due diligence
evaluation by an experienced professional. Done properly,

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Regional Center due diligence requires considerable exper-


tise. Your securities professional should have experience,
not only in doing due diligence, but specifically in evalu-
ating EB-5 Regional Center projects. That way, he or she
will not only know what makes an investment financially
sound, but also be familiar with the legal requirements of
the EB-5 program and know how to assess the likelihood
that a Regional Center will create the necessary jobs to
eventually qualify you for a Permanent Resident Green
Card. Furthermore, for investors living abroad at the time
of their application, hiring a securities professional in the
U.S. is the best means to access important information
about Regional Centers.

Among the many reasons to obtain a due diligence evalu-


ation of a Regional Center before investing, here are four
that I think are especially compelling.

Reason 1: The Complexity of Regional Centers


Having read the previous chapter, you are probably con-
vinced that Regional Centers are complex. Properly evalu-
ating a Regional Center means carefully evaluating multiple
entities and their relationships: the Regional Center LLC,
the limited partnership, the other sources of investments,
the project management companies, the project developers,
and so on. This kind of evaluation is especially important
when single purpose entities are involved, which is often
the case in EB-5 project development.

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Reason 2: The Sheer Number of Existing Regional


Centers
In the last several years, the number of USCIS-approved
Regional Centers has increased dramatically. In 2008, three
years after the EB-5 program was re-launched, there were
only 25 Regional Centers approved by USCIS. Today, there
are nearly 400. It should be said that a significant percent-
age of approved Regional Centers are not active and some
Regional Centers operate in more than one state. However,
this still leaves a potentially overwhelming number of op-
tions from which an investor must choose.

Many of my clients tell me that they are interested in a


certain Regional Center because they heard good things
about it from a relative or a friend. While word of mouth
can be a good start, it cannot be the sole basis for selecting
a Regional Center. For one thing, investing in the same
Regional Center as someone you know does not mean that
both of you are investing in the same exact project. You will
read more about this below. Also, during certain times of
an economic cycle, it may be easier to create jobs and hence
easier to satisfy the necessary requirements.

Reason 3: One Regional Center, Multiple Projects


A Regional Center will often provide funds for multiple
development projects over its lifespan. Some Regional Cen-
ters provide funding for multiple projects simultaneously.
This means that the Regional Centers cannot be adequately

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evaluated without considering the specific project to which


the investor’s funds would be allocated. Just because a Re-
gional Center has a good track record does not mean that a
certain project will be a success. Furthermore, each project
will have its own merits, in terms of security and potential
profitability.

Reason 4: The Possibility of Fraud


Unfortunately, not all Regional Centers operate with in-
tegrity. It is certainly true that USCIS puts great care in
deciding which Regional Center applications to approve.
However, certain operational red flags have prompted the
government to take a closer look at how Regional Centers
operate and to warn potential EB-5 about the risks of fraud.
In fact, one notorious case of fraud involved a Regional
Center that allegedly devised an investment scheme to pay
its foreign investors “revenue” that was derived from in-
vestment funds of new investors rather than revenue from
any real development projects. This strategy was essentially
an illegal ponzi scheme.

Even more egregious was the government’s allegations (at


the time of this publication), that the individual who created
another Regional Center enticed investors with false claims
of support from the government and industry, pocketing
the EB-5 investors’ service fees and making no attempt to
actually develop the promised project. I will discuss this
latter case in detail in a later chapter.

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These allegations of fraudulent behavior serve two im-


portant functions for potential investors. First, they pro-
vide a cautionary tale and a reminder that fraud can and
sometimes does happen. Second, they further illustrate the
value of a professional evaluation, because an experienced
securities professional would likely have spotted major red
flags immediately, alerting the investor to potential fraud.

I hope I have convinced you that professional due diligence


evaluation is imperative. In the next chapter, I will provide a
general overview of how proper due diligence is performed.
That way, you will better understand how your securities
professional reached their conclusions.

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C H A P T E R 5 :

How a Regional
Center Is Evaluated

In the last chapter, I presented several compelling rea-


sons why it is essential to hire an experienced securities
professional to perform a due diligence evaluation before
investing in a Regional Center. Here, I provide an overview
of this evaluation process. By the end of this chapter, you
will have a grasp of the major considerations that go into
assessing the soundness and viability of Regional Center
project development.

This chapter is not meant as a do-it-yourself guide. Rather,


it is meant to help you understand what your securities
professional will be looking for—both encouraging signs
and red flags. With this understanding, you will be a high-
ly informed client and the better collaborator with your
securities professional. You will also have the knowledge
to understand the findings of the evaluation and use these
findings to make a decision to invest or not. Remember, the

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decision to invest in a particular Regional Center is ulti-


mately yours alone. Your securities professional may con-
clude that a Regional Center’s offering is a sound option, but
you will be in a better position to make the final decision
if you understand what goes into making this assessment.

As I said, the questions in this chapter are ones that your


securities principal will pursue answers to in the course of
the evaluation. At the same time, they are also questions
that you can ask when consulting with your securities pro-
fessional—questions to which you are absolutely entitled to
answers.

Top Due Diligence Questions For EB-5


Project Evaluation

One of the recurring themes of this book is that the EB-5


program is equal parts immigration and investment. This
fact is clearly reflected in the due diligence process. In broad
terms, EB-5 due diligence is guided by two overarching
questions, which are based on the investor’ primary goals:

1) Is the Regional Center offering a legitimate and finan-


cially sound investment opportunity, which will allow
an investor to eventually recover his or her principal
contribution?

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2) Will the Regional Center’s offering meet the legal re-


quirements of the EB-5 program—in particular the
requirement to create 10 jobs per investor—which will
qualify the investor for a Green Card?

To answer these two overarching questions, your se-


curities professional will seek answers to a number of
additional, more detailed questions. Some of these ques-
tions are geared towards understanding more about the
Regional Center in general. For example, your securities
professional will want to learn more about the people or
organizations that founded and control the Regional Cen-
ter and the project developer. Other questions will target
the specific project you would be investing in. By now you
know that a single Regional Center may be involved in
multiple development projects over its lifespan. So, if you
know someone who previously invested in a Regional Cen-
ter, they may have invested in an entirely different project
than the one you are currently reviewing. Ultimately, the
project’s success will determine whether your Green Card
application is approved and whether you can recover your
principal investment. Your securities professional’s ex-
pertise and investigation into this particular project will
matter a great deal. It might not take an inordinate amount
of work to find out about a Regional Center’s track record
on previous projects, but past success on previous projects
does not guarantee future success on subsequent projects.

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What takes considerable work and expertise is evaluating


the future prospects of a particular project.

Below I offer some specific questions an experienced se-


curities professional will address in a proper due diligence
evaluation. For the sake of clarity, I have organized them
into several categories. These include:

• The Regional Center

• The Funding

• Project Developers and its Project

• Job Creation

• Recouping Your Investment Capital

The collection of questions I present in this chapter are


by no means exhaustive, but they should provide a sense
of the big picture. As a potential investor, you should feel
entitled to clear answers to all of these questions before you
make a decision to invest. Thus, this chapter can also serve
as a guide to the questions you might ask your attorney,
securities professional, and any representative of a Regional
Center.

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Questions to Ask About the Regional Center

Question 1:
Who are the principals of the Regional Center and
project developer and what are their professional
backgrounds and reputations?

As you now know, Regional Centers are complex. They in-


teract with several business entities that are created for the
sole purpose of managing investment funds and develop-
ing investment projects. Once those projects are completed,
these single purpose businesses will typically dissolve, and
new entities will be created to manage additional projects.
When evaluating a Regional Center, it is critical to find out
more about the individuals who are behind these tempo-
rary single-purpose businesses. Who are the principals
or sponsors of the Regional Center? Are they individual
business people or members of a major corporation? Most
importantly, what are their track records? With whom have
they worked? What are their reputations?

Your securities professional should investigate the Regional


Center’s principals and their professional background. He
or she should determine whether the principals have expe-
rience in similar business endeavors and if they have been
successful in the past. After all, failure is much more likely
if this is their first attempt at this type of business.

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Ideally, the founders and managers of the Regional Center


should have considerable professional experience related
to fund management and project development. Moreover,
they should have expertise in the particular industry for
that type of project. For example, let us say that the Re-
gional Center is attracting investors to build a hotel. Your
securities professional will want to know if the Regional
Center managers have been involved in the hotel industry
and, more importantly, hotel development. He or she will
want to know if they are knowledgeable about the local
economy and the current market trends for hotels and the
hospitality industry in general.

Remember, in many cases, the people or organization who


founded the Regional Center are not a part of the project
management company that created the single purpose
project developer LLC. Thus, it is equally important to
investigate the background and history of the project man-
agement company that actually oversees the development
of the USCIS-approved project or projects.

Your securities professional will want to know whether


the project management company has a proven track re-
cord of successfully completing similar projects. Has the
company completed similar projects without significant
cost overruns? After the projects have been completed, has
the company been able to generate revenue through sales
or leases? Has the project management company also been

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able to successfully repay their investors? What is the proj-


ect management company’s credit history?

Question 2:
Does the Regional Center have USCIS
approval for the project?

As we discussed, a Regional Center may attract investment


for multiple projects over its lifetime. When the Regional
Center first applies for USCIS approval, their application
includes a proposal for a specific project, and it is this
specific project that USCIS approves. If the sponsors of the
Regional Center wish to pool investment for a new project,
they must submit a new application.

If the project you would be investing in falls outside of the


Regional Center’s initial approval by USCIS, then your
securities professional should confirm that the Regional
Center has applied for and received approval for the new
project. Simply because it is on the list of USCIS-approved
Regional Centers does not necessarily mean it has the
necessary approval for the project in which you would be
investing.

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Questions to Ask About the Funding

Question 3:
Where are the investment funds for the project
coming from?

Your securities professional should determine where the


investment funds are going to come from—the “capital
stack” of the project. Obviously, at least some portion of
the funds for the project will come from EB-5 investors.
You might recall from a previous chapter that it is com-
mon for developers to partially finance the project through
traditional debt from a lending agency, such as a bank or a
government institution.

From the perspective of an EB-5 investor, the financial


involvement of the government or a bank is a good sign. It
means that the bank’s loan underwriters and government
officials had confidence that the project would generate
enough revenue to pay back the loan. Generally speaking,
if the project is being funded exclusively by EB-5 investors,
this is a major red flag. If this is the case, your securi-
ties professional should not only be concerned about the
soundness of the investment, but should also be concerned
about the possibility of fraud.

Often, EB-5 investments and bank loans are not the only
sources of funds for the project. The Regional Center’s

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sponsors and the project management company will also


contribute some of their own capital to the project. When
those who are in charge of the development process have a
financial stake in its outcome, it is sometimes called having
“skin in the game.” This is also a good sign.

In terms of funding sources, the ideal scenario is that the


project will be funded with EB-5 investments, bank loans
and capital from principals of the Regional Center or proj-
ect developer, where roughly a third of the total amount
invested in the project will come from each source. (See
below.)

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Question 4:
Does the Regional Center’s estimation of
development costs and spending appear
reasonable?

As a prospective investor, one of the key kinds of documen-


tation you should request, if it is not provided to you, is
information about all anticipated costs for the project and
an explanation of how the funds will be spent. This infor-
mation will often come in the form of a “Sources and Uses
of Funds” document. This accounting shows the sources of
all the investment and loan funds that will be contribut-
ed to the project (including the project you are currently
interested in), and it details how those funds will be spent
on the development of the project and how the funds will
be repaid to the investors and lenders. A reputable and
organized Regional Center should have this information
available to its serious, prospective EB-5 investors.

Your securities professional should carefully review this


information to determine if the estimated costs and al-
location of the funds appear reasonable. Do the numbers
add up? Through what process were the anticipated costs
generated? Was it the result of meticulous analysis by the
project developer? Do they make sense given the nature of
the project?

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Ideally, the Regional Center’s documentation should make


the costs and funding of the project maximally transpar-
ent. That way, your securities professional can assess the
plausibility and credibility of the Regional Center’s repre-
sentation of the way money will be spent on the project.

Question 5:
Will the Regional Center be able to get enough
funding to complete the project?

No matter how well things have proceeded so far, what is


most consequential is whether the project is completed. If
the project is not completed, the developer will not be able
to repay the loan and no jobs will be created. This is the
worst-case scenario for EB-5 investors, who will likely lose
their money and their opportunity to obtain a Green Card.
Your securities professional would want to feel as confident
as possible that the Regional Center will be able to fully
fund the project from conception through completion.

Question 6:
What are the contingency plans in the
event of cost overruns?

In the world of project development, actual costs are almost


always higher than anticipated. In fact, it is very common
for development projects to go over budget and exceed
timelines. Unforeseen expenses are virtually inevitable. Up
to a certain point, this is not necessarily a problem. What

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matters is that the project management company has a


sound plan in the event of cost overruns. Specifically, your
securities professional will want to know where additional
funding would come from if cost overruns occurred. It may
be a concern if the Regional Center’s plan is to fund those
additional costs by taking on more EB-5 investment.

Imagine, for example, a Regional Center decides to open


up additional funds for the project and take on more EB-5
investors. In this scenario, the project may not be able to
generate enough jobs for each individual investor to sat-
isfy the requirement to create ten full-time jobs. Taking
on more EB-5 investors also means more investors to pay
back. If the project ends up costing more than the revenue
it generates, than the project developer may not be able to
pay back the loan and the EB-5 investors may not be able
to recover their principal investment. Therefore, an expe-
rienced securities professional should determine whether
the Regional Center has set a limit on the amount of EB-5
investment it will take on.

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Questions to Ask About the Project Developer and


its Project

Question 7:
Does the project developer have the necessary
building permits and entitlements from the city
government to undertake the project?

Undertaking a major development project requires many


forms of official approval from various departments within
the local government (at the city or county level). Together,
these forms of approval are called the “entitlements” of the
land on which the intended project will be built. Obtaining
these entitlements can be a long, uncertain and expensive
process. Without them, no project—no matter how prom-
ising or how well thought out—can break ground and pro-
ceed with construction.

Your securities professional should confirm that the nec-


essary entitlements have been obtained and the local gov-
ernment agencies have been participating in the planning
of the project. These include the city or county planning
departments, redevelopment agencies, and community de-
velopment departments. Your securities professional will
also obtain information from the local government about
the current state of project development, including any en-
vironmental impact reports that may need to be obtained
or already have been obtained.

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Contacting the local government is one of the most import-


ant parts of the due diligence process. With regard to many
types of information about the Regional Center, the Re-
gional Center itself is the only source. This is one of the few
cases in which your securities professional should be able
to obtain confirmation from an independent third-party
that what the Regional Center is publicly advertising about
the project is, in fact, true—that the project is real and un-
derway. In the next chapter, you will read about a case of
fraud in which this part of the due diligence process, if the
investors who had been defrauded had performed this part
of their research, would have raised red flags.

Contacting the local government also allows your securi-


ties professional to learn about other large-scale projects
in the area that might compete with the Regional Center’s
project. This provides valuable information about the fi-
nancial viability of the project. If the project is a hotel, and
there are many other hotels under construction in the area,
the market may be over-saturated and the profitability of
the project may be affected, thereby putting in jeopardy the
eventual repayment of the loan.

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Question 8:
How has investment and project development
proceeded so far?

At the time you are considering investing in a Regional


Center, it is very likely that project development would have
already begun. If so, the Regional Center may have already
opened several funds and attracted the maximum number
of investors for each one. Generally, information about
number of units that have been subscribed in a Regional
Center’s limited partnership is not available to the general
public. It is usually only disclosed when an EB-5 investor
shows a genuine and a good faith interest in investing in
the project and typically signs a confidentiality agreement.
Once this information is available to you, your securities
professional should inquire about previous funds. How
many have been created and filled? Is it half funded or
almost full? How has the money from these funds been
allocated for project development?

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Why is it important to inquire into how the current project


has been funded by other EB-5 investors? Knowing how
many other EB-5 investors have subscribed to the project
is important to determine whether or not the Regional
Center’s project will obtain sufficient funding to proceed.
For example, if the Regional Center has projected 200 EB-5
investors as a minimum number of subscribers, and only
a tenth of the EB-5 investors have subscribed, this may
impact the likelihood that the project will be financed to
completion and may potentially signal that the project is
in trouble.

Additionally, your securities professional should find out


how much funding the project developers have received to
commence development. If the majority of the funds have
already been released to the developers, but the project is
only 50% completed, this may be a sign that the project may
run out of funding before it can be completed. If this occurs,
the project may fail, which would prevent EB-5 investors
from ultimately getting a Green Card and recouping their
$500,000 investment.

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Questions to Ask About Job Creation

Question 9:
Based on the financial model, what is
the estimated job creation?

As part of your due diligence, a Regional Center will typi-


cally provide you with its financial model for many aspects
of its project development, including job creation. Your
securities professional will want to examine this financial
model for an estimation of job creation. It is essential that
this model predict that enough jobs will be created per in-
vestor. Of course, this is a virtual certainty. If the Regional
Center did not predict sufficient job creation, it wouldn’t
market its offering to EB-5 investors. What matters is
whether the model being used by the Regional Center is a
credible model and is based on sound analyses of economic
conditions.

One of the characteristic features of the Regional Center


path is that the job creation requirement can be satisfied
through “indirect” job creation. It is not necessary for the
project itself to directly create 10 full-time jobs for each
investor. For example, if the project is a hotel, it is not nec-
essary for the hotel to hire enough employees to qualify all
the EB-5 investors for Green Cards. Rather, the project must
contribute to the local economy to a degree that would like-
ly result in sufficient job creation. As you might imagine,

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making this determination is not a straightforward matter.


It requires an analysis of the economic impact the project
will have on the local economy. Your securities professional
should review this economic impact analysis and evaluate
its credibility. Who prepared the financial model, and what
is their professional background and qualification? If the
financial model is not credible, it may be rejected by USCIS,
jeopardizing the Green Card applications of EB-5 investors.

For maximum security, your securities professional will


probably also want to demonstrate to you that the estimat-
ed job creation provides a substantial cushion. That is, it
is important that the estimated number of created jobs is
well above the minimum number to qualify investors for a
Green Card, given the number of EB-5 investors who have
contributed funds to the project. A substantial cushion in
estimated job creation increases the likelihood that the job
creation requirement will be satisfied for each investor.

Question 10:
What is the investor’s place in line
for job allocation?

In addition to understanding how many EB-5 investors


have subscribed to a particular project development, it is
important to understand in what order the jobs are allocat-
ed to the EB-5 investors. Is it allocated based on the date for

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when an EB-5 investor subscribed? Or does the Regional


Center provide a different model for job allocation?

Given that job creation is of paramount importance, your


securities professional will be motivated to find an answer
to this question.

Questions to Ask About Recouping Your


Investment Capital

Question 11:
How does the project developer plan to
pay back the loan?

Although this question comes fairly late in this chapter, it


is a critical one, as it directly engages the issue of how in-
vestors can eventually recover their principal contribution
after they have been granted an unconditional Green Card.

Your securities professional will want to have a clear under-


standing of how the project development will generate rev-
enue, specifically cash, which can repay the loans that were
taken to finance the development project. The successful
completion of a fancy hotel, needed hospital, or attrac-
tive residential properties may be the desired outcome of
project development, but what ultimately matters for EB-5
investors is whether these properties can be converted into

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cash to repay the loan. This is why having an experienced


securities professional review the Regional Center’s finan-
cial models, with the question of loan repayment firmly in
mind, is vital for EB-5 investors.

There are three common exit strategies for project develop-


ers to repay its EB-5 investors. The first is to sell the project’s
assets—usually a building or some form of real estate—af-
ter construction has been finished. Imagine, for example,
a Regional Center loaned money for the construction of
a hotel. Upon completing the hotel, the project developer
could simply sell the hotel and use the money to repay the
loan and generate profit.

The second common exit strategy is to take out anoth-


er loan to repay the EB-5 investors. This additional loan
usually comes from a commercial lender—a bank, in other
words. In effect, the project developer uses the money from
this loan to buy out its EB-5 investors.

The third common exit strategy is to use the project to gen-


erate enough revenue to repay the loan from the Regional
Center. Once again, take the example of a hotel. Rather than
selling the hotel, the project developer could retain owner-
ship and wait for it to become sufficiently profitable, and
then repay its EB-5 investors with the money it generated.

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Which exit strategy a project developer intends to use often


depends on the type of project. One exit strategy may be
more appropriate than others for a particular project. What
is most important in the eyes of your securities professional
is that the project developer has a clear and feasible repay-
ment plan. Your securities professional may also want to
know if there is a backup plan. If, for instance, it eventually
becomes clear that selling the real estate is not an option, is
there a viable alternative for repaying the loan?

Question 12:
Where is the investor’s place in the
waterfall of loan repayment?

Recall that EB-5 investment is unlikely to be the only source


of funding for the project. Once the project is converted to
cash, the debt will be repaid in a particular order. This is
known as the “waterfall” of cash payments. The relevant
question is, how much and how quickly will an EB-5 inves-
tor be repaid their investment, assuming the profits from
the project are available to institute repayment?

The order of repayment is usually determined by the terms


of the loan. Typically, the government and banks have pri-
ority over EB-5 investors. However, this leaves the question
of the order in which the various EB-5 investors will be re-
paid. Your securities professional will investigate this ques-
tion. Ideally, the Regional Center will be able to provide a

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clear answer, which may be that the order of repayment


follows the chronological order with which investors join
the limited partnership.

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C H A P T E R 6 :

A Cautionary Case Study—


The Chicago Regional Center

The truth is that with any great opportunity—the kind


of opportunity the EB-5 program offers—there will be
those who try to take advantage of it at the expense of
others. This chapter tells a story of a fraud allegedly per-
petrated by the founder of a Regional Center. In 2013, a
Chicago-based Regional Center was halted by U.S. federal
officials after its investigation found the individual behind
the Regional Center may have taken funds from investors
under false pretenses.

Fortunately, this kind of alleged fraud is rare. Nonetheless,


it can happen, and one might speculate that the odds of
it happening increase as more and more Regional Centers
are created. In any case, stories such as this underline the
critical importance for a due diligence evaluation.

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First, I will tell the story of the Chicago-based Regional


Center. Then I will explain how a due diligence evaluation
would have turned up major red flags, saving the investors
the substantial amount of money they lost in service fees.

What Happened: The Story of the


Chicago Regional Center
The following are allegations based on complaints filed in
federal court by the U.S. Securities and Exchange Com-
mission (SEC) and information reported in the media. All
charges have not, as of the publication of this book, been
proven in a court of law since litigation is still underway.

Anshoo Sethi, a self-purported “real estate developer and


financier,” began recruiting investors for a new Regional
Center in Chicago in 2010. His two companies, the Inter-
continental Regional Center Trust of Chicago (IRCTC)
and A Chicago Convention Center (ACCC), comprised the
Regional Center. Sethi’s proposed project was a large-scale
hotel and corporate meeting center, which some have re-
ported he claimed would be the “World’s First Zero Carbon
Emission Platinum LEED certified” convention center.
Sethi claimed to have the proper building permits for this
grand project near the busy O’Hare airport. In addition,
he boasted that he had the backing of three big-name hotel
chains: Hyatt, Intercontinental Hotel Group, and Starwood
Hotels.

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Sethi mostly targeted Chinese investors, sending recruiters


and spending time himself promoting his “investment op-
portunity” in Beijing. In July 2012, Sethi told the Chicago
Tribune that the project would generate up to 5,000 jobs
and hoped to collect up to $250 million from Chinese in-
vestors seeking a visa. A project prospectus was even more
ambitious—showing that the center was expecting to have
up to 499 investors, and would cost up to $735 million. The
targeted investors were all EB-5 applicants, who would be
expected to invest the required $500,000, plus $41,500 in
administrative fees.

Initially, Sethi’s project was able to garner support from


local government officials, including Illinois governor Pat
Quinn, who attended a promotional event in Beijing. A
promotional video used to recruit investors in the project
showed the governor bragging, “We know how to make
convention centers.” The head of the state Department of
Commerce and Economic Opportunity, Warren Ribley,
was also shown in the video voicing support for the project.

In 2012, however, questions began to arise about the legiti-


macy of the project and Sethi’s reliability as a developer. In
July, the Chicago Tribune featured an article about Sethi
and his project, naming several gaps in his too-good-to-
be-true story. Reporter Antonio Olivo pointed out that the
land where Sethi planned to build his luxury complex was
currently occupied by his family’s cheap hotel, where weeds

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grew in the empty swimming pool and the rooms sold for
only $33 per night. The land had been purchased in 2003
for $13.2 million, but had been reported to be valued at
$600 million, a gross overestimation of its possible value.

The Chicago Tribune article also began to call into question


some of Sethi’s personal credentials. His personal website
claimed that he had 15 years of experience as a developer
and “global financier.” Since Sethi was only 28 at the time
the article was published, this would mean that he began
this type of high-level work at the age of 13. While his
company’s website boasted of his 10 years of experience
developing large universities in India, he was mysteriously
also licensed as a pharmacy technician in the U.S. from
2002-2006.

Support for the project from local government officials


began to wane—or perhaps never existed to begin with. A
spokesperson for the Department of Commerce and Eco-
nomic Opportunity told the Tribune that Warren Ribley
had “overstepped his role” by endorsing the project on
video, and did not have approval from the governor’s office
for such an endorsement. Earlier in the year, state officials
had warned Sethi to desist using Governor Quinn’s image
and the Illinois State seal in the video and other promo-
tional materials. At that time, Sethi reported to the Tribune
that he was not aware of this “shift in position.” The state
spokesperson said that the governor had never endorsed

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the project specifically, and that the appearance in Beijing


had been distorted: “The governor’s attendance at the event
was to promote investment in Illinois in general. There is
no specific endorsement of the project from the governor.”

Meanwhile, USCIS and the SEC was taking notice of what


Sethi was up to, and in February of 2013, announced
charges against him and his two companies, revealing
details of the extent of his alleged fraud. The SEC alleged
that Sethi, under the guise of his two companies, had sold
over $145 million in securities and amassed more than $11
million in administrative fees. The SEC filed a complaint
with the U.S. District Court for the Northern District of
Illinois, which allowed it to get an emergency court order
to freeze all of the companies’ assets. The complaint also
revealed that Sethi and his companies had already spent
more than 90 percent of the administrative fees that had
been promised to be refunded to the investors if their visa
applications were denied. Over $2.5 million of these funds
had been sent to Sethi’s personal bank account overseas.
The SEC asked for an asset freeze in order to protect the
investor’s remaining funds.

The SEC complaint further revealed more of Sethi’s mis-


representations and falsifications, in both their dealings
with USCIS and potential investors. The complaint alleged
that he and his companies had submitted false or forged
documentation to USCIS in order to get preliminary

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approval for the project, including a “comfort letter” from


Hyatt Hotels implying their involvement, and a letter
from the Qatar Investment Authority citing it as backup
financiers.

The three hotel chains that were featured prominently in


the marketing materials used to promote the investment to
EB-5 investors were revealed to have no involvement with
the project. None of the hotels had any franchise agreements
with Sethi or his companies, contrary to what the promo-
tional materials stated. Two of the “franchise agreements”
that had been submitted to USCIS had actually expired two
years previously. Hyatt Hotels also stated that the letter on
their letterhead had been forged. The letter from the Qatar
Investment Authority also turned out to be a forgery. The
fake letter indicated that should the Illinois government
authorities not assist with the project through bonds and
loans, the Qatar Investment Authority would provide $340
million for the construction.

There was some good news for the investors who were vic-
timized. In April of 2013, the SEC announced that a federal
district court judge ordered that all the investors receive
the return of their principal investment. The case is other-
wise still ongoing as the SEC tries to recover the remainder
of the funds.

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In summary, an unscrupulous businessman owned a piece


of land and imagined a massive development project. He
pretended he had government approval and backing from
major organizations to undertake the project. He then
managed to get USCIS approval based on false information,
and he marketed the investment energetically to Chinese
investors, who were reassured by the appearance of such
wide-ranging support for the project. He pocketed the in-
vestor’s service fees and undertook no actual development.
In the end, the impressive sounding project existed only on
paper, but the EB-5 investors’ money was very real. Fortu-
nately, the USCIS and SEC crackdown led to the return of
the investors’ principal, but the same cannot yet be said of
their service fees yet.

How It Could Have Been Avoided


What went wrong? How could so many people have been
taken advantage of? The reason, in essence, is that people
believed what they were told. The key to due diligence is,
to the greatest degree possible, independent evaluation. All
manner of claims were made by Mr. Sethi, but these claims
were not verified by investors until it was too late. Take,
for example, the claim that several major hotel chains sup-
ported the development. A simple investigation would have
turned up the fact that the support of these hotel chains
had no basis in fact. A securities professional would have
surely concluded that a Regional Center that fabricates

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support for its project is not offering a legitimate invest-


ment opportunity.

As we discussed in the last chapter, one of the most im-


portant steps in a due diligence evaluation is confirming
with the local government that the necessary permits and
entitlements for the project have been obtained, or are at
least in the process of being granted. Otherwise, the project
is no more than an idea. In this case, a securities profes-
sional evaluating the Chicago Regional Center would have
immediately turned up an alarming red flag. Specifically,
the local government was not involved in the process.

I hope this chapter has been a wakeup call that fraud does
occur—that, at the very least, not all Regional Centers rep-
resent equally strong or safe investments. At the same time,
I also hope the story of the Chicago Regional Center is em-
powering, showing that a proper due diligence evaluation
can not only save you from being victimized by fraud, but
provide the sense of confidence that comes from knowing
that you made a sizeable and highly consequential invest-
ment in the most intelligent way possible.

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References

Olivo, A. (2013, February 14). Judge halts O’Hare convention


center project. Chicago Tribune. Retrieved from http://
articles.chicagotribune.com/2013-02-14/news/ct-met-
chicago-convention-center-lawsuit-20130214_1_eb-5-chinese-
investors-chicago-convention-center. Last visited online on
December 30, 2013.

Olivo, A. (2012, July 15). Hotel proposal illustrates promise and


peril of investment program. Chicago Tribune. Retrieved
from http://articles.chicagotribune.com/2012-07-15/news/
ct-met-china-investment-visas-sethi-sidebar-20120715_1_eb-
5-hotel-proposal-foreign-investors. Last visited online on
December 30, 2013.

The Securities and Exchange Commission. (2013). SEC halts $150


million investment scheme to dupe foreign investors and
exploit immigration program [Press release]. Retrieved from
http://www.sec.gov/News/PressRelease/Detail/PressRelease
/1365171512748#. Last visited online on December 30, 2013.

The Securities and Exchange Commission. (2013). Investors


to receive their entire investments back after SEC halted
scheme exploiting immigration program [Press release].
Retrieved from http://www.sec.gov/News/PressRelease/
Detail/PressRelease/1365171513998#. Last visited online on
December 30, 2013.

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C H A P T E R 7 :

An Overview of the
Application Process

In Chapter 1, I offered a brief overview of the investment


and application process. Here, we will examine the process
in more detail, dividing it into twelve individual steps—
from consulting with a qualified Investment Immigration
Attorney to obtaining an unconditional Green Card, and
even becoming a full-fledged American citizen—steps I
will discuss one at a time. For the sake of clarity, I have
written this chapter as if you were one of my clients. At the
end of this chapter is a table that provides current filing
fees (as of January 2017) for the various phases of the EB-5
process.

STEP 1: Schedule a consultation with


Vaughan de Kirby
As I’ve said before, finding a qualified Investment Immi-
gration Attorney is paramount. The EB-5 program is one
of the most complex areas of immigration law and one

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that requires expertise and experience. Let us imagine you


contacted my firm because you are interested in EB-5. We
would begin by scheduling a consultation. In our consul-
tation—whether in person, through correspondence or on
the telephone—we will review your personal immigration
needs to make certain that the EB-5 visa is both a viable
option and indeed the best vehicle to reach your personal
immigration goals, both for yourself and your family. We
will review in detail the legal requirements of the EB-5
visa and discuss the process of applying for a Green Card.
My firm understands how important your immigration
decisions are, and we are committed to equipping you
with the knowledge to make the most informed decision
possible. Because my firm is committed to ensuring that
all our clients are well informed, we charge no fee for this
consultation.

STEP 2: Select a Regional Center


Once we have decided that the EB-5 program is the best
option for you, the next step is to select a Regional Center.
At this stage, selecting a Regional Center does not mean
making a firm commitment or actual investment. Rather,
it means beginning the process of learning about the Re-
gional Center and allowing the Regional Center to learn
about you.

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STEP 3: Fill Out the qualifying questionnaire


After you have selected a Regional Center to pursue, we will
work with you to complete the investor questionnaire. This
questionnaire will help my firm and the Regional Center
determine that you are a qualified investor, both from a
financial and a legal standpoint. Once you have completed
the questionnaire, and once the Regional Center and my
firm have reviewed it carefully, we will be ready to proceed
to the next step.

STEP 4: Retain the Law Offices of


Vaughan de Kirby, APC
By signing a retainer agreement with my firm, you are au-
thorizing us to contact the Regional Center on your behalf
and request that they provide you and your securities pro-
fessional with complete financial information for careful
review. These comprehensive financial materials will en-
able you and your securities professional to fully evaluate
the Regional Center from an investment perspective. My
firm still charges no fee at this point. We do not wish to
collect an attorney fee until you have made your decision to
move forward with your EB-5 application by investing in
the Regional Center.

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STEP 5: Sign a nondisclosure agreement with the


Regional Center
Once you have retained my firm, we will arrange for the
Regional Center to forward to us a nondisclosure agree-
ment. The nondisclosure agreement is mutual—it’s meant
to protect both your privacy and the privacy of the Region-
al Center. By signing this document, you are agreeing not
to disclose to anyone other than your immediate family
or your securities professional any of the private financial
and procedural information that the Regional Center will
provide you. At the same time, this agreement also guar-
antees that the Regional Center will not release any of your
personal information.

STEP 6: Review the Regional Center offering


documents with your financial advisor
Your investment with the Regional Center is a significant
one, and we feel it should be made with the care that you
would exercise in making any investment of this size. As
I’ve emphasized at length in this book, it’s critical for you
to have your securities professional perform a due diligence
evaluation of the Regional Center, using information from
its offering documents as well as outside sources.

If you and your securities professional determine with


independent due diligence that the Regional Center is an
appropriate investment for you, my firm will be ready to
help you achieve your goal of an EB5 Green Card. If, on the

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other hand, you decide that this is not the right investment
for you, my firm will charge you NO FEE. I firmly believe
that this is the way that attorneys and Regional Centers
should do business. You should not incur costs and fees
unless you decide to take advantage of this opportunity.

If you decide you move forward, you will then transfer the
$500,000 investment and the service fee to the Regional
Center.

STEP 7: Compile documentation of the source of


investment funds
In preparation for filling your application, you will then
gather documentation showing where your investment
funds came from. The United States government requires
that all funds invested in the EB-5 program be clearly
traceable to its lawful source. In the next chapter, you will
find a guide to documenting your source of funds. As your
Investment Immigration Attorney, I will work closely with
you to help you identify and compile the documentation
necessary to meet the lawful source requirement.

STEP 8: Compile personal information and


documentation
In addition to information about your investment, the
U.S. government requires personal documentation for you
and your family, to be certain that you are indeed who
you say you are before they give you a Green Card. This

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documentation takes many forms, as you will find outlined


in the guide to documentation later in this book. As your
Investment Immigration Attorney, I will work with you to
identify those items of personal documentation that will be
necessary in your particular case.

STEP 9: The Law Offices of


Vaughan de Kirby files an I–526 Petition for Work
Alien Entrepreneur with USCIS
At this point, we are ready to prepare and file your I–526
petition with USCIS. In addition to the petition itself, there
are two critical pieces of the application. First will be the
extensive personal and investment funds documentation
that you have compiled. The second critical piece will
typically be provided by the Regional Center, fully docu-
menting the Regional Center and its project or projects.
The Regional Center plays a very important role in your
application. As of September 2016, it takes an average of
14.7 months for USCIS to process a I-526 petition. Keep in
mind that average processing times for EB-5 petitions are
just that—averages. USCIS may take more or less time to
process your applications, depending on factors that are
entirely out of your control.

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STEP 10: Submit an adjustment


of status application and obtain your conditional
Green Card
Once your I-526 application is approved, you have six
months in order to apply for an adjustment of status. A
successful status adjustment application makes you and
your family U.S. permanent residents, allowing you to en-
ter the United States if you have not already. At this point,
your Green Cards are “conditional.” This means that they
are temporary, and that they cannot be renewed—they are
only valid for two years.

How you obtain your conditional Green Card—and, specif-


ically whether an interview is required—will depend on the
location at the time your I–526 petition is being processed.
If you are living in the U.S., you and your family will file
Green Card applications with USCIS. If approved, you and
your family will be issued a conditional Green Card valid
for two years. Although local USCIS office procedures dif-
fer somewhat, formal interviews are generally not required.

On the other hand, if you are living outside the U.S., you
and your family will have to submit an immigrant visa ap-
plication to the U.S. Embassy (or Consulate if there is one).
To assist you and your family, you will receive a notification
to prepare documents for the immigrant visa interview

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from my firm. Soon thereafter, you will be notified of the


date and time of your interview. My firm will provide you
with a complete immigration package to bring with you
to the consulate, and we will carefully prepare you for the
interview process. Only after the conclusion of a successful
interview will you and your family become U.S. condition-
al Green Card holders. At that time, you may begin your
preparations for your immigration to the U.S.

No matter where you live, the only condition of your “con-


ditional” U.S. Permanent Resident Green Card is that your
investment in the Regional Center remains intact for two
years. As long as you do not withdraw your funds during
this two-year period, your Green Card carries all the ben-
efits of permanent residency. There are no restrictions on
where you and your family live, work, or go to school in
the U.S.

STEP 11: The Law Offices of


Vaughan de Kirby Files an I-829 petition
to remove the restrictions on your
conditional Green Card.
After you receive your conditional Green Card, your funds
will have to remain invested for 21 months before applying
for unconditional permanent residency—three months
before your temporary Green Cards are set to expire. At
this point, my firm will begin the process of filing an I-829

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petition to replace your Conditional Green Card with an


unrestricted, Permanent Resident Green Card. The Region-
al Center will again work closely with us to provide USCIS
with all the necessary documentation, showing that your
funds are still invested and the necessary number of jobs
has been created. As of September 2016, this petition takes
an average of 23.8 months to process. Once USCIS has ap-
proved the petition, you will be granted an unconditional
Green Card, allowing you and your family to live and work
in the U.S. indefinitely, and allowing you to withdraw your
funds, if you wish.

STEP 12: Become an American citizen


If you wish, you and your family will have the option to
become Naturalized Citizens of the U.S. after you have held
your Green Cards for a period of five years and met other
requirements. If this is your goal, my firm will be ready at
this five-year juncture to help you with the Naturalization
process.

Table of Filing Fees


Below is a table of filing fees for the two primary phases
the five process: obtaining a Conditional Green Card (I-
526), and obtaining a Permanent Green Card (I-829). These
numbers are current as of January 2017. Note that only I-526
and I-829 filing fees are paid once per family. All other fees

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listed below are for each individual family member, and


thus their total amount will vary with family size.

Step 1: Conditional Green Card


I-526 Filing fee: $3,675
Immigrant Visa fee: $345
USCIS immigration fee: $220

If change status in the U.S.


I-485 filing fee: $1140
Biometric fee: $85

Step 2: Permanent Green Card


I-829 Filing fee: $3,750
Biometric fee: $85

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PA RT 2 :

The Direct
Investment Path

99
C H A P T E R 8 :

An Overview of the EB-5


Direct Investment Path

In Chapter 1, I provided general information about the


EB-5 program and an overview of the Regional Center
path. Here, I do the same for the Direct Investment option.
Pursuing a Direct Investment EB-5 Green Card means
making a $1 million or $500,000 investment in some form
of new or restructured business, which one is required to
take an active role in managing.

As I’ve mentioned, the vast majority of EB-5 applications


are made through investments in Regional Centers, but
there are investors for whom the Direct Investment option
makes the most sense. It all comes down to an individual
investor’s goals and priorities. If an investor is looking for
relative simplicity and security, investing in a Regional
Center is almost always the right decision. If, in contrast,
the investor values control and potential profitability, a
Direct Investment EB-5 is likely the more appropriate

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choice. Often, EB-5 applicants select Direct Investment


because they wish to invest in a particular industry or type
of business.

This chapter covers the legal requirements to qualify for a


Green Card through a Direct Investment. These require-
ments were originally set forth in the law establishing
the EB-5 program and are technically the same for both
Regional Center and Direct Investments. They include the
qualifying investment, lawful source of funds, “new com-
mercial enterprise,” “active management,” “at risk” and
job-creation requirements. While technically the same,
you will learn that these requirements—when compared to
investing in a Regional Center—have very different mean-
ings in the Direct Investment path.

In general, the legal requirements are more complex and


elaborate in the Direct Investment path. This is because
there’s no standard investment that has already been eval-
uated by USCIS, which is precisely what a Regional Center
offers. Each Direct Investment is unique, and the degree to
which it satisfies the requirements therefore may be more
ambiguous. This inherent ambiguity has prompted USCIS
to release a number of official memos that provide more de-
tail about what the requirements mean—specifically, what
certain key words or phrases mean. These memos were
typically produced in response to ambiguous or borderline

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scenarios that arose in the applications of individual


investors.

My goal in writing this chapter was to offer a basic un-


derstanding of the core EB-5 requirements as they apply
to the Direct Investment Path. At the same time, I also
wanted to provide a level of detail that would be of interest
to some readers. That’s why my discussion of each section
is divided into two separate sections: “The Basics” and
“The Details.” I want to emphasize that the information
in each of the “The Basics” sections is, in some sense, not
basic at all. If you familiarize yourself with this informa-
tion, you will come away with a level of knowledge that is
uncommon among EB-5 investors. If, on the other hand,
you also familiarize yourself with “The Details,” your
knowledge of the requirements will begin to approach
that of an EB-5 attorney!

The Requirements

Below you will find a great deal of information about the le-
gal requirements for Direct Investment EB-5 applications.
To help you makes sense of all this information, I suggest
you keep the big picture in mind. That is, remember that
the EB-5 program was meant to encourage a very particular
kind of investment. In this prototypical scenario, a foreign

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investor comes to the United States to start a new profit-


able business. The investor transfers his or her money into
the business, spends it on start-up costs, hires American
workers and manages the business as it grows. Virtually all
of the details covered in this chapter concerning the legal
requirements reflect an underlying intention to support
this kind of investment.

Qualifying Investment Requirement

The Basics
The law requires a capital investment of at least $1 million
in a single new commercial enterprise. However, as with
the Regional Center path, the investment amount may
be reduced to a minimum of $500,000 if it is made in a
business that is principally doing business in a “targeted
employment area” (TEA). A TEA is a rural area, or one
with high unemployment.

The Details
There are several aspects of this requirement that can be
elaborated on. These include the technical meanings of
“capital,” “a single new commercial enterprise,” “princi-
pally doing business,” “rural,” “high unemployment,” and
“area.” Let’s take them one at a time.

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The definition of capital in the EB-5 program is not re-


stricted to cash. It has a broad definition, encompassing
tangible property like equipment, or a combination of cash
and tangible property. The requirement is satisfied as long
as the total value of the investor’s financial contribution is
$500,000 or more. The definition of capital even includes
a promise to provide sufficient financial value to the busi-
ness, provided that this promise is based on the investor’s
assets. Of course, the investor will be required to show
that the promise was fulfilled before he or she is granted
an unconditional Green Card. The investor will also be
required to show that the capital contribution—whatever
form it takes—was obtained by legal means and is in fact
the investor’s property.

The definition of “a single new commercial enterprise” is


especially complex. Because it’s a requirement in its own
right, I will discuss it below. For now, my focus is on the
fact that “a single new commercial enterprise” places limits
on how the funds can be distributed across different busi-
ness projects. Specifically, one can only invest in multiple
businesses if the businesses are entirely owned by the same
parent company—the same commercial enterprise. In this
case, the requirement is satisfied if the total investment and
the total job creation is sufficient. (I discuss the job creation
requirement below.)

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Let’s now consider the definition of targeted employment


area and the specific meanings of “rural,” “high unem-
ployment,” “area,” and “principally doing business.” As I
mentioned, a targeted employment area can either be rural
or have high unemployment. To be a rural area means that
it is outside a metropolitan statistical area (as determined
by a certain federal agency) or a city with a population of
at least 20,000 people. As for high unemployment, the ar-
ea’s employment rate must be at least 50% higher than the
national average. An “area” can theoretically be any geo-
graphical or political entity—it does not have to be a city or
town. For a commercial enterprise to be “principally doing
business” in the TEA could mean a number of things. It
could mean that the TEA is where the majority of jobs are
created, where the majority of capital is spent, where the
business’ assets are located, or where the daily operation of
the business takes place.

For an area to be considered a TEA, it must be officially


designated so by USCIS. One possibility is that an investor
selects a commercial enterprise that is located in an area
that has already been given TEA status. Alternatively, one
can petition the state government to establish an area as a
TEA.

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The Lawful Source of Funds Requirement

The Basics
Investors must show that their funds were obtained from
a lawful source. As you might imagine, USCIS strictly
enforces this rule. The U.S. government wants to make
absolutely certain that it is not granting Green Cards to
foreigners who have obtained their money illegally. This
strict enforcement means that applicants must provide
substantial supporting documents that show where the
money came from and prove that its source is a lawful one.
Common sources of funds include salary, gifts, sale of stock
or other securities, sale of real estate, and a loan secured by
the investors assets.

The Details
Chapter 11 provides a detailed guide to common sources
of funds and the kinds of documentation that should be
included in the investor’s application, if they’re available.
Satisfying this requirement is often a challenge, not be-
cause investors’ didn’t obtain their funds lawfully, but
because documentation may be difficult to obtain. The
good news is that it is that USCIS understands this, so it
not necessary to provide so much documentation that it
eliminates all doubt that the money was acquired lawfully.
When evaluating the source of an investor’s funds, USCIS
applies what’s called the “preponderance of evidence”

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standard. According to the standard, it must be more


likely than not that the funds were obtained lawfully, in
the way the investor’s application asserts.

“New Commercial Enterprise” Requirement

The Basics
Contrary to how it might sound, satisfying the new com-
mercial enterprise requirement through the Direct Invest-
ment path doesn’t mean creating an entirely new business
from the ground up. In fact, there are a number of different
ways to satisfy this requirement. More specifically, there are
a number of different ways a business can qualify as “new.”
First, one can simply invest in a business that was created
after 1990—any such business would be considered a new
commercial enterprise. Second, one can invest in a busi-
ness that has been be restructured or reorganized, as long
as the restructuring happened as a result, at least in part, of
the investor’s capital contribution. This is true even if this
business was first established before 1990. Third, one can
also invest in a business that has been expanded, thanks in
part to the investor’s capital, even if it is an older business.

The Details
Once again, let’s take a look at some key language in this
requirement. Specifically, I will unpack the terms “com-
mercial enterprise,” “restructured or reorganized” and
“expanded.” A commercial enterprise can be virtually any

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type of business—a corporation, partnership, joint venture,


sole proprietorship, etc. It can also include a holding com-
pany and all of its subsidiaries. Because its definition is so
broad, it is generally a given that the business will qualify.
Moving on to “restructured or reorganized.” To USCIS,
restructuring or reorganizing a business means more than
making superficial changes to its appearance. For example,
purchasing a restaurant and changing the name and décor
would almost certainly not qualify. Likewise, changing
the marketing strategy would also not suffice. A good rule
of thumb is that restructuring or reorganizing a business
means in some substantial way changing what the busi-
ness does—changing a bar into a restaurant, for example.
Expanding a business—another means of satisfying the
requirement—entails a “substantial change” in the size of
the business. USCIS provides more detail as to what change
qualifies as substantial: the investor’s financial contribution
must accompany at least a 40% increase in either the num-
ber of employees or the net worth of the business.

“Active Management” Requirement

The Basics
EB-5 investors must play an active role in the management
of the new commercial enterprise. Being a passive investor
is not sufficient. Investors can satisfy this requirement ei-
ther by being involved in policy formulation or in the daily
managerial work of running the business.

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The Details
This requirement presents fewer complexities than the
others. Investors will need to demonstrate that they hold
positions or titles that are consistent with an active role in
the business, whether it is in policy formation or manage-
rial work.

“At Risk” Requirement

The Basics
USCIS wants to ensure that EB-5 applicants are actually
making legitimate investments in the American economy,
rather than merely creating the appearance of making an
investment. The “at risk” requirement reflects this goal.
Investors must show that they have done more than formu-
late an intention to invest; they must show that they have
made a genuine capital contribution. In other words, the
necessary funds—previously owned by the investor—must
now be the property and in the control of the commercial
enterprise. Typically, investors transfer the money from a
personal bank account to business account. Furthermore,
the funds must be in the process of being used to develop
the business, resulting in the possibility of both profit and
loss.

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The Details
There are several aspects to this requirement. The first is
the issue of ownership and control. When the investor first
applies for a Green Card, the funds must be owned and
controlled by the new commercial enterprise. Commonly,
investors will transfer the funds into a business account.
This is an important step, but it’s not always enough to
satisfy this aspect of the requirement. Imagine an inves-
tor who creates a corporation and transfers the funds to a
corporate account. Imagine further that at the time of the
initial EB-5 application the investor is the only corporate
officer and is the sole shareholder. Although there is a sense
in which the investor no longer owns the capital (since it is
technically the property of the corporation), it is still under
the investor’s sole control. In this scenario, the “at risk”
requirement would not be met.

Another aspect of this requirement is the possibility of


profit and the risk of loss. This means that there cannot be
any guarantee of a return on investment. It also means that
investment cannot take the form of a loan—there cannot
be any kind of debt-based arrangement between the in-
vestor and the business. In such cases, the investor’s funds
would not be considered legitimately at risk. It should be
said, however, that the investor’s funds can be used to se-
cure a loan for the business, since this entails taking on the
liability of repayment.

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Yet another aspect of the “at risk” requirement is that—at


the time of the initial application—there must be more than
a plan to develop the business (although a business plan is
critical part of the application). Simply injecting the capital
into a business account and documenting how it will be
spent is generally considered insufficient. The investor must
demonstrate that “meaningful concrete business activity”
has been undertaken. Typically, this means showing that at
least some portion of the investor’s funds have been spent
for business purposes.

Job Creation Requirement

The Basics
The job creation requirement is one of the core aspects of
the EB-5 program. After two years of developing the busi-
ness, investors are required to show that their infusion of
capital lead to the creation of at least 10 full-time positions
for employees. Unlike the Regional Center program, the
Direct Investment option requires that these jobs be creat-
ed directly, which is to say that the jobs must be part of the
business in which one is investing. However, if one invests
in a troubled business, jobs that are preserved can also
count towards the total.

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The Details
There are a number of important restrictions on the kinds
of positions that count towards the total of 10 jobs. These
restrictions all reflect the underlying intention of the EB-5
program—to create jobs for American workers that will al-
low them to support themselves and their families. The first
restriction is that jobs for the investor and members of the
investor’s family do not qualify. Second, as the requirement
states, the jobs must be full-time positions, which mean a
weekly minimum of 35 working hours per employee. The
sum of several part-time positions cannot be counted as a
full time job, even if the working hours of the part-time po-
sitions exceed 35 per week when added together. Seasonal
or temporary jobs will not qualify either, even if they meet
the hourly requirement while they exist. Third, jobs must
also be for genuine employees. That is, workers cannot be
independent contractors and must receive wages directly
from the business.

As I mentioned, jobs that are preserved thanks in part to


the investors’ contribution will satisfy the requirement if
the investment is made in a “troubled business.” USCIS
defines a troubled business as one that has existed for at
least two years, during which time the business has suffered
a loss of at least 20% of its previous net worth. To illustrate
how the job preservation requirement might work, imagine
investing in a restaurant that opened five years ago. This

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restaurant did fairly well in its first couple of years, but has
since gone considerably downhill and is in danger of clos-
ing. If its net worth has decreased sufficiently in the last two
years, an EB-5 investor could satisfy the requirement if the
restaurant had at least 10 full-time employees—jobs that
would be preserved thanks in part to the influx of capital.
The law also allows for a combination of created and pre-
served jobs, as long as they add up to 10 full-time positions.

There is a relatively common scenario that adds additional


complexity to this requirement. Consider several foreign
investors applying for EB-5 Green Cards by pooling their
capital and investing in the same commercial enterprise.
This raises two questions. First, would each investor have
to show that their particular capital contribution is directly
linked with the business’ job creation (as opposed to other
aspects of the business)? Second, would the collective invest-
ment have to create 10 jobs per investor, or would a total of
10 jobs suffice? The answer to the first question is that one’s
particular funds need not go towards employee salary or be
otherwise directly involved in job creation. As long as suffi-
cient job creation accompanies the investor’s contribution,
the requirement will be satisfied. The answer to the second
question is that the law does indeed require a minimum of
10 jobs for each investor. If three EB-5 investors collectively
invest in a factory for example, the investment must create
at least 30 qualifying jobs. For this reason, it can be a disad-
vantage to pool your funds with other EB-5 investors—you

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may be making the job creation requirement more difficult


to satisfy. If a single EB-5 investor joined two American
investors in purchasing and running a factory, only 10 new
jobs would be needed for the EB-5 investor to qualify for a
Green Card.

Overview of the Application Process


In broad outline, the EB-5 application process consists of
two major phases (which is true of both Regional Center
and Direct Investments). The first is the I–526 application.
This application will include evidence that the applicant
has made a qualifying investment that satisfies the legal
requirements—particularly that the potential for future
job creation is sufficient. If this application is approved, the
investor has 6 months in order to apply for an “adjustment
of status,” which results in the investor and the investor’s
family becoming U.S. permanent residents. At this stage,
the Green Cards are “conditional” in the sense that they
are temporary and cannot be renewed—they are only valid
for 2 years.

The second phase is the I-829 application, and its purpose is


to have the conditions on investor’s Green Card removed. To
do this, the application attempts to prove that the investor’s
funds remain invested in the new commercial enterprise
and that the job creation requirement has been satisfied.
It is filed before the conditional Green Card expires, but
no sooner than 21 months after they were granted. If the

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application is successful, the Green Cards become perma-


nent, regardless of what happens with the business. After
five years, the investor and the investor’s family are eligible
to become full, naturalized U.S. citizens.

As I have said before, satisfying the requirements and actu-


ally demonstrating that fact to USCIS are two very different
things. The success of one’s applications depends heavily
on having the right kind of documentation and enough of
it. Unfortunately, compiling and submitting the necessary
documentation is a much more intensive and complex pro-
cess with Direct Investments. Consider that, in Regional
Center investments, the Regional Center bears much of the
burden of showing that the requirements were met—the
Regional Center prepares and submits a great deal of im-
portant documentation to USCIS. In a Direct Investment
EB-5, it is entirely the investor’s responsibility. That is why
I have devoted a chapter to each of the two phases of the
application process. After reading both, you will have a
clear understanding of what is involved in these applica-
tions, and the kinds of evidence and documentation that
are necessary for a successful outcome.

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The I-526 Process—


The Business Plan

This chapter covers the first major phase of the EB-5 appli-
cation process, the I-526 phase. As mentioned in the last
chapter, a successful I-526 application allows the investor to
apply for a conditional (i.e. temporary) Green Card.

Although the I-526 is in a sense the first phase of the ap-


plication process, there is a great deal the investor must do
prior to submitting this application. The investor must have
participated in establishing or selecting some kind of busi-
ness entity, injected the money into the business, acquired
a role and title in the business, formulated a plan for job
creation, and undertaken some substantial business activi-
ty (which typically entails spending some of the investment
capital for business purposes). In other words, the investor
must have taken actions that would address all the major
requirements of the EB-5 program.

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At this stage, the commercial enterprise does not need to


have created 10 full-time jobs. In fact, the business need
not have created any jobs at all. It is essential, however,
that a detailed and comprehensive business plan has
been formulated to create the necessary number of jobs
within two years—before the investor’s conditional Green
Card expires.

Once the investor has taken sufficient actions to establish


and develop the business, the investor’s immigration law-
yer will prepare a package of documents and submit it to
USCIS. This package is geared towards demonstrating that
the investor meets all the requirements. It is not necessary
that this evidence be so strong and definitive as to establish
beyond any doubt that the requirements have been satisfied.
Fortunately, USCIS applies a less rigorous standard of evi-
dence. The applicant need only show by a “preponderance
of evidence” that the requirements have been met. This
means that what the applicant is claiming is more likely
true than not. In other words, the evidence may leave some
doubt in the mind of the USCIS agent but still be approved,
as long as the evidence is clear, relevant and believable, and
as long that it seems that the requirements have most likely
been satisfied. To meet this standard of evidence, the I-529
package includes the following kinds of documents.

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• Cover letter and list of exhibits. The cover letter intro-


duces the investor to USCIS, describes what the inves-
tor has done, and provides an outline of how each of the
EB-5 requirements have been met. It also includes a list
of “exhibits,” the documents included in the package
providing evidence that the requirements are satisfied.

• Copies of the investor’s passport and those of the inves-


tor’s family members included on the application.

• I-526 form. This short form is provided by USCIS and


filled out by the immigration attorney. The form calls
for basic identifying information about the investor
and the actions the investor has taken, such as the type
of business, when it was created, how much money was
invested, and when the investment was made.

• Documentation on the source of funds. These docu-


ments demonstrate that the investment capital was
obtained legally. See Chapter 11 for a detailed list of
recommended evidence for several common sources
(e.g. real estate, gift, sale of stock, etc.).

• Documentation on the path of funds. These documents


show that the capital was transferred from the investor
to the commercial enterprise, such that the investor no
longer owns or controls the capital. This often includes
a letter from the bank to the investor confirming that
the funds have been deposited into the bank account of
the new commercial enterprise. Also included will be

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the business’ bank account statement showing that the


funds have been deposited.

• Documentation of business activity. These documents


show how investment capital has been spent in service
of developing the business and creating jobs.

• Business plan. If there is a central document to the I-526


package, it is undoubtedly the business plan. USCIS re-
lies heavily on the business plan to determine whether
the investment is legitimate and whether the investor
has a credible plan to create the necessary number of
jobs within roughly two years.

The importance of the business plan cannot be overstated.


Without exaggeration, the business plan is the cornerstone
of a Direct Investment EB-5 application, and it is often the
deciding factor in an I-529 application. USCIS has a strong
interest in preserving the integrity of the EB-5 program.
When it comes to the Direct Investment path, preserving
the program’s integrity means making sure that the foreign
investor is sincere in his or her desire to establish a success-
ful business in the United States. It is largely through the
business plan that USCIS attempts to distinguish sincere
investors from those using a “business” as a mere pretense
in order to game the system. The business plan is also the
core document that convinces USCIS that the new com-
mercial enterprise has the potential to create the necessary
number of jobs within two years. Without sufficient job

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creation potential, an I-526 application with be rejected—


period—no matter how well prepared the application is
otherwise. Job creation is both the underlying goal of the
EB5- program and what eventually earns investors uncon-
ditional Green Cards. Because of its critical importance,
the remainder of this chapter will be devoted to the busi-
ness plan.

The Business Plan


What follows will give you a solid understanding of a
well-prepared business plan written for the purposes of
EB-5 investment. As with other chapters in this book, this
is by no means intended as a do-it-yourself guide—quite
the contrary. Because of its importance, I believe it is imper-
ative for investors to hire qualified professionals to assist in
preparing the business plan, those who are knowledgeable
about the EB-5 program and have experience preparing
business plans for EB-5 investors. My goal here is to give you
a sense of the kind of information a professional consultant
will want to know in order to prepare a business plan on
your behalf.

The question is, what makes for a qualifying business plan


in the eyes of USCIS? Thankfully, USCIS has provided
some guidance about what makes for qualifying business
plan. This guidance comes largely from a well-known legal
decision and memo called the “Matter of Ho,” issued by the
Administrative Appeals Office of USCIS in 1998. The legal

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decision rejected an individual’s application for failing to


provide sufficient evidence that the “at risk,” the new com-
mercial enterprise, the source of funds, and the job creation
requirements had been satisfied. Regarding the job creation
requirement, the decision stated that the investor’s business
plan failed to demonstrate the need for—or likelihood
of—sufficient job creation. To make clear the ways in which
the investor’s business plan was inadequate, the decision
provided some basic guidelines about what should be in-
cluded in any EB-5 business plan. Below is a key section of
the decision.

A comprehensive business plan as contemplated by the


regulations should contain, at a minimum, a descrip-
tion of the business, its products and/or services, and its
objectives. The plan should contain a market analysis,
including the names of competing businesses and their
relative strengths and weaknesses, a comparison of the
competition’s products and pricing structures, and a
description of the target market/prospective customers
of the new commercial enterprise. The plan should list
the required permits and licenses obtained. If applica-
ble, it should describe the manufacturing or production
process, the materials required, and the supply sources.
The plan should detail any contracts executed for the
supply of materials and/or the distribution of products.
It should discuss the marketing strategy of the business,
including pricing, advertising, and servicing. The plan
should set forth the business’s organizational structure

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and its personnel’s experience. It should explain the


business’s staffing requirements and contain a timetable
for hiring, as well as job descriptions for all positions. It
should contain sales, cost, and income projections and
detail the bases therefor. Most importantly, the busi-
ness plan must be credible. (Matter of Ho, 22 I&N Dec.
at 213)

There are two key words in this passage: “comprehensive”


and “credible.” Let’s take each one at a time. To be compre-
hensive, a business plan should include, at the very least,
the kinds of information listed in the passage. Equally
important, the decision states, is that the business plan is
credible. Determining the credibility of the business plan
requires more than a checklist. Taken as a whole, a credible
business plan describes an endeavor that an astute inves-
tor would regard as having a high probability of success.
Credibility is of paramount importance for USCIS, since
job creation at a qualifying level hinges on the success of
the new commercial enterprise.

These criteria—comprehensiveness and credibility—are


not idiosyncratic to EB-5 investment. These criteria are
essential for any business plan. A business plan prepared
for the purposes of an EB-5 application should be no dif-
ferent than one prepared for any other purposes, such as
applying for a loan or attracting investors. Your application
is more likely to be successful if it outlines a business plan

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that a bank would consider worthy of a loan, or one other


investors would find attractive.

Below, I provide an extended outline of what a business plan


should include. As I mentioned, this is not meant as a do-
it-yourself guide. The intention of the outline is to support
your collaboration with a professional business plan writer.
You needn’t feel that you must have all the information
about the business from the outset. A well-prepared busi-
ness plan requires considerable detail about the prospective
business, but much of this detail can be worked out in the
process of writing the plan. However, you should—at the
very least—have some idea about the kind of business you
intend to invest in. You will notice that I have divided the
outline into sections, beginning with an overview. Note
also that there may be some points that will not apply to
your business.

Overview
• Formal name of company

• Type of company (sole proprietorship, limited liability,


corporation, etc.)

• Date and place of formation of company

• Location of company, including Target Employment


Area information (if applicable)

• History of company

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• Basic objectives, products/services, and nature of busi-


ness (this is a brief overview; you will describe this
more in detail in other sections)

• Primary stakeholders, investors, partners and/or


owners

Business Objectives
• The key objectives of the company, including from a
revenue standpoint and any other objectives the busi-
ness might have

• Plans for growth or change in the first few years of


business

• A development plan including set-up and implementa-


tion of the business

Business Ownership and Management


• Names and biographies of owners (these can be brief
but you want to show that your owners have the know-
how to create a viable business) and investors

• Proportions/percentages of ownership both at forma-


tion of business and as it develops

• Pay scales for management

• Outline of organizational structure, including advisory


board or board of directors (if applicable)

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• Chart of organizational structure

• Specific role of EB-5 investors (including how they


might differ from owner, if applicable)

Investment
• List of EB-5 investors and how much each will invest

• List of other investments made in company and de-


scription of their sources

• Terms of investment including term, interest rates, etc.

• Description of how EB-5 investment will differ from


other sources of investment, and how it will be used

• Description of investment structure and role of in-


vestors, if there are other investors besides the EB-5
investors

• Outlines of any profit-sharing or revenue agreements

• List of any investments made to date and how these


investments were used

• List of capital expenditures required to launch business


and descriptions of how planned investment capital
will be used (building and equipment costs, employees,
etc.)

• Description of any plans for ongoing investment (fran-


chising, for example)

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Pricing, Products, and Services

• The products and services of the business, including a


catalogue or pricing list if possible

• An outline of pricing structure

• An outline of how revenue is generated from sale of


products or services: What is a typical sale? What are
expenses incurred in making sales? Are there other
sources of revenue besides sales?

• Outline of expected sales and income compared to


costs for 5 year period

Location

• Description of location of company, including multiple


locations if applicable. Include addresses or desired/
projected locations

• If company will be located in a Targeted Employment


Area, outline how the area meets TEA requirements
and include verification of TEA status (letter or other
document)

• Description of building, land, or premises that will be


used by the business, including:

• Leasing or purchase information and/or


contracts

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• Budget for rent, mortgage, etc. and source of


these funds
• Specific details or benefits of location such as
accessibility, uses for manufacturing or ship-
ping, etc.
• Description of any plans to move or expand in
the first 5 years
• List of employees that will work in each loca-
tion, if more than one

Business Operations
• Outline of different revenue/income sources and cus-
tomers (wholesalers, retailers, etc.)

• Explanation of where you obtain your product: Is it


imported? Manufactured?

• Describe manufacturing process and/or required mate-


rials and equipment for operation with as much detail
as possible

• Schedule of development of facilities, if applicable (con-


struction, development, etc.)

• List of any suppliers you will work with, including


name, location, prices of supplies, etc.

• Description of where and how you sell your product,


including shipping and handling

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• Outline of shipping process and the value/size of aver-


age shipments

• Outline of any post-purchase services the business pro-


vides (customer help, repair, etc.)

Market Analysis
• Outline of market overview

• Description of target market, including demographic


or geographical information

• Results from a formal feasibility study, if available (this


information may cover some of the information below)

• Market research data including, but not limited to, the


following:

• Demand for your category of product or


services
• Market size, trends, and projections
• Names of competitors and information on their
pricing, location, etc.
• Strengths and weaknesses of competitors
• Your company’s strengths and weaknesses or
risks
• Market gaps you intend to fill or unique fea-
tures of your products/services

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• Projected demand for your product/services


specifically
• Factors that may impact the market
• Information on likely customers, including
demographic information (age, ethnicity, etc.)
and other key information such as buying hab-
its or trends
• If you have an established business, outline
the company’s past performance and growth
trends
• Examples of customers, if possible, such as es-
tablished companies or well-known individuals

Marketing and Sales


• Outline of marketing and branding strategy

• Description of how you will promote the company,


including information about any or all of the following:

• Trade shows or conferences


• Sponsored events
• Website and social media
• Direct marketing and/or catalogues
• Mass media and advertising
• Public relations
• Additional customer services the company
provides

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• Examples of promotional materials

• Marketing budget

• Any research or information that will validate likely


effectiveness of marketing plan

Employment and Staff


• Outline of staff organizational structure

• Outline of existing personnel’s experience and


qualifications

• Timeline of staffing requirements (for 5 years) and a


hiring timetable

• Specific comprehensive job description for the EB-5


applicant, describing his/her active involvement in the
management of the business

• A list of key employees in new operation and their job


descriptions, skills, and salaries (bullet points are fine)

• Outline of hiring process and the anticipated staffing


levels required as company grows

• Demonstration of how the investment will create ten


new jobs, including a timeline of approximate dates of
hire, job descriptions, and salaries for new jobs

• A list of any outside contractors that will be hired and a


description of the services they will provide

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Permits, Licenses, and Legal Agreements


• Spreadsheet or outline of all required permits for
business operation (building, manufacturing,
business, etc.), including the status of applica-
tion (previously acquired, in process, projected
dates, etc.)

• Copies of contracts with any vendors, customers, or


distributors

• Description of any unusual legal requirements beyond


expected start-up requirements

Benefits to the United States


• Description of the specific unique benefits that your
company will provide to the U.S. (economically and/or
otherwise)

• Description of how your company will contribute to


U.S. government objectives such as increasing foreign
investment, creating jobs in struggling industries, etc.

As I mentioned, if your I-529 petition is successful, you and


qualifying members of your immediate family will obtain
conditional Green Cards. How you obtain them will de-
pend on where you are living at the time the application is
approved. If you’re living the United States, it is most likely
that they will simply be issued to you by USCIS. If, on the

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other hand, you are living out of the country, you may have
to go through an interview process at the U.S. Embassy. For
more information on this process, see chapter 7.

In the next chapter, I discuss the second and final stage of


the EB-5 application process—the I-829 stage. A successful
I-829 petition will give the investor—and qualifying mem-
bers of the investor’s immediate family—an unconditional
U.S. permanent resident Green Card. As I have said, the
investor is free to take any action related to the business
without jeopardizing his or her immigration status, includ-
ing withdrawing or liquidating the investment and selling
the business, if the investor so chooses.

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The I-829 Process—


Proving Job Creation

We now turn to the I-829 petition. As I mentioned, this is


the second and final stage of the EB-5 application process,
which begins roughly 2 years after the investor’s I-529 ap-
plication is approved. The purpose of the I-829 petition is to
remove the conditions on the investor’s temporary Green
Card. This makes the Green Card permanent and allows
the investor to decide at any point whether or not to con-
tinue with the qualifying business endeavor.

As with the I-526 process, the I-829 phase entails submit-


ting a package of documents. Once again, the purpose
of these documents is to prove—by a “preponderance of
evidence”—that the basic requirements have been met. At
the I-829 phase, this means demonstrating several things
in particular. First, the investor needs to show that, for the
last two years, the capital has remained “at risk” in the new

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commercial enterprise. Second, the application must show


how the business has been progressing in relation to the
business plan included in the investor’s I-526 application,
which includes showing how the investment capital has
been spent in pursuit of business development and profit.
Finally, the investor must show how the injection of capital
has resulted in the creation of 10 full-time jobs.

Two important caveats are in order. The first is that it is not


necessary for the commercial enterprise to have followed
exactly the original business plan. USCIS understands
that the business world is inherently unpredictable: plans
may have to be revised based on new information and the
business’ performance. In general, the guideline is that the
business must be recognizable as the same business. Giv-
en this, major deviations from the business plan may be
permissible, but the investor should notify USCIS as they
arise. However, there are limits to what deviations from
the business plan USCIS will accept. If the business began
as a restaurant and became a retail store, for example, it
would most likely be considered a different commercial
enterprise, and the investor would have to submit a new
I-526 application.

The second important caveat is that it is not necessary for


all of the 10 full-time jobs to have been created by the time
of the I-829 application. While the majority of the 10 jobs
should have been created by then, there may be some which

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have not been realized yet, and the investor must only show
that the commercial enterprise can be expected to create
the remaining jobs “within a reasonable time.” While “a
reasonable time” has never been explicitly defined, within a
period of one year has generally been treated as acceptable.

Given this overview, below you will find an outline of the


major types of evidence included in the I-829 package.

• Cover letter and list of exhibits. As with the I-526 ap-


plication, the I-829 package will include a cover letter
written by the investor’s attorney outlining how the
relevant requirements have been met, as well as a list of
the “exhibits” or documents included in the package.

• Copies of the investor’s passport and those of the inves-


tor’s family members included on the application.

• Copies of investors’ conditional Green Cards, and those


of the investor’s family members.

• Approval notice of the I-526 from USCIS.

• I-829 form. Again, this short form is provided by USCIS


and filled out by the immigration attorney. It calls for
basic identifying information about the investor, the
new commercial enterprise and job creation.

• Documentation on the path of funds and sustained


investment. These documents once again show that
the capital was put “at risk” in the new commercial

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enterprise and that the funds have remained invested


since the I-529 application was approved.

• Documentation of business activity. These documents


show how the investment capital has been spent since
the I-529 application was approved. They include tax
filings, financial statements, contracts, receipts and
other such documentation.

• Evidence of job creation. This is the critical component


of the I-829 package. For each job created, this will in-
clude: a) employment eligibility verification forms (I-9
forms), b) documentation of the employee’s title and
job description, and c) pay stubs and payroll documen-
tation showing that the employee has been working
and how much. The package will also include personal
information about the employees, showing that they
are U.S. citizens or permanent residents.

A final point is that, at the I-829 stage, USCIS will once


again review evidence that the investor obtained the capi-
tal from a lawful source, and may review other issues that
were decided in the I-526 phase. However, USCIS gives
significant deference to its prior decisions. In other words,
previous decisions made in the investor’s favor almost cer-
tainly will not be overturned when the investor applies for
the removal of conditions.

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As I’ve said elsewhere, a successful I-829 petition means


that the investor and the investor’s family can enjoy the
full benefits of being U.S. Green Card holders. The inves-
tor’s children, for example, can continue going to school
in the United States with no risk that the success of the
business may put their immigration status in jeopardy.
Finally, after five years, the investors family is eligible to
become full, naturalized U.S. citizens.

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PA RT 3 :

Source of Funds,
Transfer of Funds,
and Asset Protection

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C H A P T E R 1 1 :

Documenting the Source


of Investment Funds

In an earlier chapter we discussed the major requirements


of the EB-5 program. This chapter covers one of those
requirements, which constitutes a critical part of the
application process: All EB-5 applicants must be able to
demonstrate that the money used in their investment comes
from a lawful source. As you might imagine, USCIS strict-
ly enforces this rule. The U.S. government wants to make
absolutely certain that it is not granting Green Cards to
foreigners who have obtained their money illegally. This
strict enforcement means that applicants must provide
substantial supporting documents that show where
the money came from and prove that the source was a
lawful source.

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Theoretically, there is no limit to the sources of funds that


USCIS will consider lawful. This chapter covers the five
most common, which include:

1) Salary

2) Loan Secured by Investor’s Assets

3) Gifts

4) Sale of Stock or Other Securities

5) Sale of Real Estate

We will now go through these lawful sources and explain


the kinds of documentation that are applicable to each.
Remember, when it comes to documentation, a good rule
of thumb is “the more the better.” Nowhere is this truer
than in proving the source of your investment funds. A
well-prepared application should and usually will include
several kinds of documentation, even if the money comes
from a single source.

After reading about the specific types of documentation


that your application should include, you may be concerned
that you won’t be able to provide all of them. It is quite
possible that you don’t have records of everything, which
is especially likely if the money came to you some time ago
or gradually over time, which is often the case. Don’t worry.

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Just because you are unable to provide a particular type of


documentation does not mean that your application will
be rejected. USCIS will look at the submitted documents as
a whole when determining if the source of the investment
capital is lawful. Moreover, an experienced attorney will be
able to help you find alternative sources of evidence to meet
this critical requirement. And if gathering all of this doc-
umentation seems overwhelming, do not let that concern
you either. Your attorney will take the lead role in helping
you gather, organize and submit the various documents.

You will notice that some types of documentation should


be provided regardless of the specific source of funds, as-
suming these documents are available. These include, for
example, income tax returns and a capital source statement.
(A capital source statement is a brief, signed document
stating and providing basic information about the source
of funds.) Hence, there is some repetitive and redundant
information in the following sections. This allows you to
skip to those sections that correspond to the sources of
your own investment capital.

Salary
Salary includes money that you earned from work or em-
ployment, as well as any assets that you have purchased
with this money. If some or all of your investment funds
can be traced to your salary, your application should in-
clude documentation like the following:

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• Income tax returns for the past five years. You should
submit your individual tax returns for the past five
years. The evidence of income tax returns is not intend-
ed to prove that you have actually paid taxes. Rather,
the tax returns are meant to prove that the investment
capital was derived from your salary. If you have not
filed tax returns at any time during the previous five
years, you will need to include an explanation for not
filing the tax returns. In situations where a company
pays taxes on behalf of the employee, records from the
company showing that such filings have been made
should be included with the EB-5 application.

• A capital source statement. You should include a


statement, signed by you, detailing the companies you
have worked for, the time frames of employment and
the amount of income you have accumulated over the
course of employment.

• Spouse’s capital source statement. If you are married,


and some of the funds came from your spouse’s salary,
you should include an income statement from your
spouse as well.

• Income certificate from employer. Your application


should include a letter from your employer describing
the business, your position during employment, and
the amount of income earned over the course of your
employment.

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• Employment contract. The employment contract


between you and employer describing the rights and
responsibilities of both parties should be included with
the application.

• Bank statements. Bank statements should be included


with the application to show salary deposits into your
account. USCIS will look to the bank statements to ver-
ify that the salary payments accumulated over time to
the total investment amount. In cases where your sal-
ary was paid in cash, evidence of regular cash deposits
into the bank account over time will suffice.

• Evidence of property ownership. If you own property


that was purchased with your accumulated salary, ev-
idence of the property ownership should be included
with the EB-5 application. Documents of property
ownership include the property ownership certificate,
the purchase agreement, a bank statement reflecting
the withdrawal of funds for the purchase of the prop-
erty, and an appraisal statement explaining the value of
the property.

• Evidence of other assets. Evidence of any other in-


vestment assets you own (such as CDs, bonds, or
stocks) should be included with the application if
you used your salary to invest. CD, bond, and stock
certificates are adequate forms of evidence demon-
strating ownership. If an instrument has matured and
you have withdrawn the money, you should provide a

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bank statement showing the deposit of the withdrawn


money into your bank account.

Loan Secured By Investor’s Assets


The investment funds for an EB-5 application can also
come from a loan. However, this loan must be based on
assets you already possess. If some or all of your investment
funds come from such a loan, your application should in-
clude documentation like the following:

• Income tax returns for the past five years. You should
submit your individual tax returns for the past five
years. If you have not filed tax returns at any time
during the previous five years, you will need to include
an explanation for not filing the tax returns. In situ-
ations where a company pays taxes on behalf of the
employee, records from the company showing that
such filings have been made should be included with
the EB-5 application.

• A capital source statement. You should include a signed


statement explaining that the investment capital came
from a loan. The statement should describe the terms
of the loan and must explain that your assets secure the
loan.

• Written loan agreement. You should submit the writ-


ten loan agreement with the application to demonstrate
that the funds were derived from the proceeds of a

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loan. The terms of the loan should include the interest


rate, a description of your assets securing the loan, and
the repayment period, which should generally be no
longer than two years. Remember, the investment will
not qualify under the EB-5 program unless the loan is
secured by your personal assets.

• Bank statements showing receipt of loan proceeds.


Your bank statements should be included with the EB-5
application to show that you received the loaned funds.

• If the lender is an individual, evidence establishing


that the loaned funds came from a lawful source
should be provided. When the lender is an individual,
as opposed to a bank or lending institution, USCIS ex-
pects you to submit documents demonstrating that the
lender obtained the loan money from a lawful source.
Although you will not need to trace the source of the
specific funds from the lender, you will need to provide
at least some basic evidence that the lender has lawful
income that could account for the accumulation of the
loaned money. Documents showing the lawfulness of
the lender’s funds include:

1) Lender’s capital source statement. You should


include a statement by the lender stating how
he or she accumulated the funds.
2) Income tax returns for the past five years. The
lender’s individual income tax returns and, if

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applicable, business tax returns for the past five


years should be provided. If the lender has not
filed tax returns at any time during the previ-
ous five years, an explanation for the missing
tax returns should be provided.
3) Other documents. What other documents you
provide will depend on how the lender obtained
the capital. The same kinds of documents used
to prove the lawfulness of your source of funds
may be used to prove the lawfulness of lend-
er’s capital. For example, if the lender’s money
comes from salary, you should include docu-
ments that help demonstrate the accumulation
of his or her salary. These could take the form
of income certificate from the lender’s employ-
er, the lender’s employment contract, and the
lender’s bank statements demonstrating that
salary payments accumulated over time.
• If the loan is secured by a mortgage, you should pro-
vide documentation of your real estate. This evidence
should include:

1) Mortgage agreement. You should submit


the written mortgage agreement to demon-
strate that the investment funds came from a
mortgage.

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2) Real estate ownership certificate. An owner-


ship certificate should be submitted as evidence
that you own the real estate.
3) Real estate purchasing contract and invoice.
A purchase agreement and invoice for the real
estate should also be included with the applica-
tion to show that you own the property.
4) Tax certificate. To further demonstrate own-
ership, you should submit a tax certificate
demonstrating the payment of taxes on the real
estate.
5) Real estate appraisal report. The appraisal
report of the real estate should be included to
demonstrate the value of the property.
6) Documents showing lawful source of funds
used to purchase the property. You should
submit documents proving that the mortgaged
property was purchased with lawful capital.
What documents you provide to demonstrate
the lawfulness of funds used to purchase the
property will depend on how you obtained
the capital. Please refer to the appropriate
source-of-funds section of this chapter for a
list of documents that may be used to prove the
lawfulness of the capital used to purchase the
property.

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• If the loan comes from a company in which you are


a shareholder, you should provide evidence relating
to the company’s financial status and your ownership
stake in the company. When the source of funds is a
company loan, you should submit additional docu-
mentation evidencing the company’s financial status
and your ownership of stock including:

1) Shareholder meeting resolution. The board of


the company should issue a written shareholder
meeting resolution to show that the company
board agrees to issue the loan amount to you
and that the loan is secured by your personal
assets (which typically will be your ownership
in this company).
2) Corporate business license. The business li-
cense for the company should be included in
the application to demonstrate the legitimacy
of the business.
3) Company’s financial statement. You should
include the company’s financial statement with
your application. Financial statements that may
be submitted include the balance sheet, the
profit and loss statement (also called an income
statement), and the statement of cash flows (if
available).
4) Commercial registration record. You should
provide the commercial registration record

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showing you are a shareholder of the company


and the number of shares you own.

Gift
The invested funds may also come from a gift, which can be
given by an organization or an individual, including a fam-
ily member. If some or all of your investment funds come
from a gift, your application should include documentation
like the following:

• Income tax returns for the past five years. You should
submit your individual tax returns for the past five
years. If you have not filed tax returns at any time
during the previous five years, you will need to include
an explanation for not filing the tax returns.

• A capital source statement. You should include a


signed statement detailing where the gift came from
and how the gift-giver accumulated the funds, as well
as an explanation that the gift was made for investment
EB-5 purposes.

• A gift-giver’s statement. The gift-giver should state in


writing that he or she gave you the funds as a gift (that
you do not need to pay the money back). The gift-giver’s
ID should also be included.

• Documents establishing that the gifted funds came


from a lawful source. The EB-5 application will need to

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include evidence demonstrating how the gift-giver ac-


cumulated the funds that were given to you. Although
you will not need to trace the source of the specific
funds, you will need to provide at least some basic ev-
idence that the gift-giver has lawful income that could
account for the accumulation of the gifted funds. Doc-
uments showing the lawfulness of the gift-giver’s funds
may include:

1) Income tax returns for the past five years. The


application should also include the gift-giver’s
individual income tax returns and, if applica-
ble, business tax returns for the past five years.
If the gift-giver has not filed tax returns at any
time during the previous five years, an explana-
tion should be provided.
2) Other documents. What other documents
you provide to demonstrate the lawfulness of
gifted funds will depend on how the gift-giver
obtained the capital. Please refer to the appro-
priate source-of-funds section of this chapter
for a list of documents that may be used to
prove the lawfulness of the gift-giver’s capital.

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Sale of Publicly Traded Stock or


Other Securities
Another common source of investment funds is the sale of
publicly traded stock or other types of securities like funds,
bonds and CDs. If some or all of your investment funds
come from the sale of these types of securities, your appli-
cation should include the kinds of documentation that are
described below. (If, on the other hand, your investment
funds come from selling stock held in a privately owned
company, your application should include the kinds of doc-
uments described in the following section.)

• Income tax returns for the past five years. You should
submit your individual tax returns for the past five
years. In situations where a company pays taxes on
behalf of the employee, records from the company
showing that such filings have been made should be in-
cluded with the EB-5 application. If you have not filed
tax returns at any time during the previous five years,
you will need to include an explanation for not filing
the tax returns.

• A capital source statement. You should include a


signed statement detailing how the stock, fund, finan-
cial product or other security was acquired, the length
of time you held the security and the capital gain from
the sale of the instrument.

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• Bank account statement evidencing receipt of pay-


ment for the security. Your bank statements should be
included with the EB-5 application to show that you
received payment for the stock, fund, financial product
or other security.

• Documents evidencing the account in which the se-


curity was held. The EB-5 application should include
documents showing your accounts held at the stock
exchange, fund company, bank or other financial
institution.

• Documents demonstrating that the capital used to pur-


chase the security was derived from a lawful source.
You should include documents with the application
to show that the capital used to purchase the security
came from a lawful source. What other documents you
provide to demonstrate the lawfulness of the funds will
depend on how you obtained the capital. Please refer to
the appropriate source-of-funds section of this chapter
for a list of documents that may be used to prove the
lawful source of the funds.

• Transactions statement of account where the security


was held. A transactions statement should be includ-
ed with the application to demonstrate profits earned
through the purchase and sale of the stock, fund, finan-
cial product or other security.

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Sale of Stock Held in a Privately


Owned Company
The essential difference between selling publicly traded and
privately held stock is that privately held stock is transferred
directly from one shareholder to another rather than trad-
ed publicly on the stock market. This means that proving
the source of the investment funds is slightly different if
it came from the sale of privately held stock. Of course, if
you read the section above, you will also notice that several
of the recommended types of documentation are the same
(tax returns, capital source statement, bank statements).

• Income tax returns for the past five years. You should
submit your individual tax returns for the past five
years. In situations where a company pays taxes on
behalf of the employee, records from the company
showing that such filings have been made should be in-
cluded with the EB-5 application. If you have not filed
tax returns at any time during the previous five years,
you will need to include an explanation for not filing
the tax returns.

• A capital source statement. You should include a


signed statement detailing how the stock was acquired,
the length of time you have held the shares and the
capital gain from the sale of the stock.

• Bank statements showing receipt of payment for


the shares of stock. Your bank statements should be

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included with the EB-5 application to show that you


received payment for the sale of the stock.

• Share transfer agreement from the original stock-


holder to you. The EB-5 application should include the
transfer agreement from the original stockholder to
you, in order to show how you obtained the shares. The
agreement should indicate whether or not you provid-
ed payment for the stock.

• Share purchase agreement from you to the purchaser.


To demonstrate that your investment funds came from
selling stock, the application should include the pur-
chase agreement between you and the purchaser.

• Stock transfer tax certificate. The application should


also include the tax certificate showing the transfer tax
that was paid on the sale of your stock.

• Corporate business license. The business license for


the corporation in which the stock was held should
be included in the application to demonstrate the legit-
imacy of the business.

• Company’s financial statements. If the company’s fi-


nancial statements are available to you, you should in-
clude them with the application. Financial statements
that may be submitted include the balance sheet, the
profit and loss statement, and the statement of cash
flows.

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• Company’s Articles of Association. You should provide


the company’s Articles of Association if it lists you as a
shareholder.

• Resolution of company’s shareholders’ meeting. If pos-


sible, your application should include the resolution of
the shareholders’ meeting approving the stock transfer
from you to the buyer.

• Company’s registration record. You should provide


a commercial registration record showing you were a
shareholder of the company and the number of shares
you owned. You also should provide the registration
record showing that the new shareholder purchased the
stock from you.

• If you provided payment for the stock originally, you


should include documents demonstrating that the
capital you used to purchase the stock was derived
from a lawful source. You should include documents
with the application to show that the funds you orig-
inally used to purchase the stock came from a lawful
source. The documents needed to demonstrate the
lawfulness of the funds will depend on how you ob-
tained the capital in the first place. Please refer to the
appropriate source-of-funds section of this chapter.

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Sale of Real Estate


Money that comes from the sale of real estate is another
common lawful source of funds. If some or all of your in-
vestment funds come from the sale of real estate, your ap-
plication should include documentation like the following:

• Income tax returns for the past five years. You should
submit your individual tax returns for the past five
years. In situations where a company pays taxes on
behalf of the employee, records from the company
showing that such filings have been made should be in-
cluded with the EB-5 application. If you have not filed
tax returns at any time during the previous five years,
you will need to include an explanation for not filing
the tax returns.

• A capital source statement. You should include a


signed statement detailing the manner in which the
real estate was acquired, the length of time you owned
the property and the capital gain from the sale of the
property.

• Bank statements showing earnings from the sale of the


property. Bank statements should be included with the
application to demonstrate that funds from the sale of
the real estate were deposited into your account.

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• Real estate sales contract. To establish that the invest-


ment funds came from the sale of the real estate, you
should include the sales contract.

• Real estate purchasing invoice. A purchase invoice for


the property should be submitted with the application
to demonstrate that you owned the real estate.

• Real estate ownership certificate. An ownership cer-


tificate should also be submitted as evidence that you
owned the real estate.

• Tax certificate. To further demonstrate ownership,


you should submit a tax certificate demonstrating the
payment of taxes on the property.

• Documents showing lawful source of funds used to


purchase the property. You should submit documents
proving that you purchased the property with lawful
capital. The documents demonstrating the lawfulness
of funds used to purchase the property will depend on
how the lender obtained the capital. Please refer to the
appropriate source of funds section of this chapter for a
list of documents that may be used to prove the lawful-
ness of the capital used to purchase the property.

• If invested funds are derived from rental income of


real estate as opposed to the sale of real estate, the
following documents will help demonstrate the source
of income:

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1) Leasing agreement. A leasing agreement be-


tween you and renter should be submitted with
the application to demonstrate that the invest-
ment funds were derived from leasing income.
2) Bank statement showing deposit of rent and
accumulation of rental income. Your bank
statements should be included with the ap-
plication to demonstrate deposits of the rent
into your account. The bank statements should
show that the rental payments were deposited
over time and accumulated to the investment
amount in the account.
3) Leasing income tax records. Income tax re-
cords should also be included in the application
to demonstrate the income tax was paid on the
lease income.

By now, you should have a basic idea of the kinds of doc-


umentation your application should include based on the
origin of your investment funds. If you still have questions
and concerns, do not hesitate to ask your attorney, who will
no doubt be able to explain to you in detail how you can
make the strongest possible case to USCIS that your invest-
ment funds came from a lawful source.

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C H A P T E R 1 2 :

Transfer of Investment Funds

I am grateful to my friends and colleagues at SJK Juris for


writing this chapter. This chapter covers the important and
complex topic of transferring EB-5 investment funds from
India to the United States.

USD remittance for EB-5 Visa related investment


for Indian nationals
India is a fast growing market for EB-5 applicants who are
seeking to migrate to the United States for educational,
business and career opportunities for themselves, their
families and their children.

The Reserve Bank of India in Master Direction – Liberalised


Remittance Scheme1 (LRS) RBI/FED/2015-16/3 FED Mas-
ter Direction No. 7/2015-16, January 1, 2016 has elucidated
its position on foreign remittances by Indian nationals for
EB-5 Visa related investment purposes. Briefly put, an In-
1 https://rbi.org.in/Scripts/NotificationUser.aspx?Id=10192&Mode=0 (Liber-
alized Remittance Scheme-RBI) (Enclosure A)

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dian resident can use LRS to remit $250,000 towards partly


fulfilling the EB-5 investment requirement of $500,000.

Under the LRS, Authorised Dealers may freely allow re-


mittances by resident individuals up to USD 2,50,000 per
Financial Year (April-March) per person for any permitted
current or capital account transaction or a combination
of both. The Scheme is not available to corporates etc. The
Scheme is available to all resident individuals including mi-
nors.2 In case of remitter being a minor, the LRS declaration
form must be countersigned by the minor’s natural guard-
ian. Remittances under the Scheme can be consolidated
in respect of family members subject to individual family
members complying with its terms and conditions. (For ex-
ample: A couple wishing to emigrate to the U.S. under EB-5
can each use their $250,000 allowance under LRS to meet
the $500,000 investment amount.) However, clubbing is
not permitted by other family members for capital account
transactions such as opening a bank account/investment/
purchase of property, if they are not the co-owners/co-part-
ners of the overseas bank account/ investment/property.
Further, a resident cannot gift to another resident, in for-
eign currency, for the credit of the latter’s foreign currency
account held abroad under LRS. The permissible capital
account transactions by an individual under LRS among
others are: (i) opening of foreign currency account abroad

2 https://rbi.org.in/Scripts/FAQView.aspx?Id=115 (Liberalized Remittance


Scheme-FAQs-RBI Answers) (Enclosure B)

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with a bank; (ii) purchase of property abroad; (iii) making


investments abroad- acquisition and holding shares of both
listed and unlisted overseas company or debt instruments,
investment in units of Mutual Funds, Venture Capital
Funds, unrated debt securities, promissory notes, etc.
and (iv) setting up Wholly Owned Subsidiaries and Joint
Ventures outside India by direct investment in the equity
shares for bonafide business excepting businesses such as
real estate, banking and financial services activities.3

In a Financial Year (April/ March), release of foreign ex-


change exceeding USD 2, 50,000, requires prior permission
from the Reserve Bank of India. In a financial year (April/
March), remittance of any amount of foreign exchange out-
side India in excess of USD 2,50,000 requires prior permis-
sion of the Reserve Bank of India and may be allowed only
towards meeting incidental expenses in the country of im-
migration and not for earning points or credits to become
eligible for immigration by way of overseas investments in
government bonds, land, commercial enterprise; etc.

Under Section 10(1) of FEMA, 1999, normally banks are


specifically authorised by the Reserve Bank of India to deal
with foreign exchange. A person seeking to emigrate to the
USA can draw foreign exchange from AD Category 1 bank

3 https://rbi.org.in/Scripts/NotificationUser.aspx?Id=8315&Mode=0 (Notifica-
tion No FEMA.263/ RB-2013 dated March 5, 2013) (Enclosure C)

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and AD Category II up to USD 2,50,000 in a financial year


(April/March).

Authorised Dealers are required to ensure that “Know Your


Customer” guidelines have been implemented in respect of
Bank Accounts held by EB-5 Applicants. They should also
comply with the Anti-Money Laundering Rules in force
while allowing the facility.

EB-5 Applicants should maintain a Bank Account with the


Bank (Authorised Dealer) for a minimum period of one
year prior to the remittances for Capital Account transac-
tions. If the Applicant seeking to make the remittances is a
new customer of the Bank, Authorised Dealers should car-
ry out due diligence on the opening, operation and main-
tenance of the Account. Further, the Authorised Dealers
should obtain bank statement for the previous year from
the applicant to satisfy themselves regarding the source of
funds. If such a Bank Statement is not available, copies of
the latest Income Tax Assessment Order or Return filed by
the Applicant may be obtained.

The Authorised Dealer should ensure that the payment


is received out of funds belonging to the person seeking
to make the remittances, by a cheque drawn on the EB-5
Applicant’s bank account or by debit to his Account or by
Demand Draft / Pay Order.

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Documentation
• Form A2-Application for Remittance Abroad. (In case
of remitter being a Minor, Form A2 must be counter-
signed by the Minor’s Natural Guardian.)

• Retail outward Remittance Application-A2 cum LRS


Declaration:

Ø Application for drawal of Foreign Exchange


Ø Declaration for purchase of Foreign Exchange
under the LRS of USD 2,50,000 for resident
individuals.
Ø Know Your Customer (KYC) Certification by
Authorised Dealer.
Ø Any other form/ application/document that re-
quires to be submitted according to guidelines
of the Reserve Bank of India from time to time.

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E N CLOSU RE A

RBI/FED/2015-16/3

FED Master Direction No. 7/2015-16

January 1, 2016
(Updated as on February 11, 2016*)

To,
All Authorised Persons in Foreign Exchange
Madam / Sir,

Master Direction - Liberalised Remittance Scheme (LRS)

The captioned Scheme was introduced on February 4, 2004, vide


A.P. (DIR Series) Circular No. 64 dated February 4, 2004 read
with GoI Notification G.S.R. No.207(E) dated March 23, 2004, as
a liberalization measure to facilitate resident individuals to remit
funds abroad for permitted current or capital account transactions
or combination of both. These Regulations are amended from time
to time to incorporate the changes in the regulatory framework and
published through amendment notifications.

2. Within the contours of the Regulations, Reserve Bank of India


also issues directions to Authorised Persons under Section 11 of
the Foreign Exchange Management Act (FEMA), 1999. These di-
rections lay down the modalities as to how the foreign exchange

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

business has to be conducted by the Authorised Persons with their


customers/constituents with a view to implementing the regula-
tions framed.

3. This Master Direction consolidates the existing instructions on


the “Liberalised Remittance Scheme” at one place. Reporting in-
structions can be found in Master Direction on reporting (Master
Direction No. 18 dated January 1, 2016)

4. It may be noted that, whenever necessary, Reserve Bank shall is-


sue directions to Authorised Persons through A.P. (DIR Series) Cir-
culars in regard to any change in the Regulations or the manner in
which relative transactions are to be conducted by the Authorised
Persons with their customers/ constituents. The Master Direction
issued herewith shall be amended suitably simultaneously.

Yours faithfully,
(A.K.Pandey)
Chief General Manager

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IN DE X

Sr. No. Contents


1. Liberalised Remittance Scheme (LRS) of
USD 2,50,000 for resident individuals
2. Operational instructions to Authorised
Persons
3. 1
Annex – Form A2
4. 2
Omitted

M A S TE R DIRE CTION - LIBERALIS ED


R E MITTA N CE SCHE M E (LRS )

A. Liberalised Remittance Scheme (LRS) of USD


2,50,000 for resident individuals
1. Under the Liberalised Remittance Scheme, Authorised
Dealers may freely allow remittances by resident individ-
uals up to USD 2,50,000 per Financial Year (April-March)
for any permitted current or capital account transaction
or a combination of both. The Scheme is not available to
corporates, partnership firms, HUF, Trusts, etc.

2. The LRS limit has been revised in stages consistent with


prevailing macro and micro economic conditions. During

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the period from February 4, 2004 till date, the LRS limit
has been revised as under:

(LRS limit Amount in USD3)


Date Feb 4, Dec 20, May 8, Sep 26, Aug 14, Jun 3, May 26,
2004 2006 2007 2007 2013 2014 2015

25,000 50,000 1,00,000 2,00,000 75,000 1,25,000 2,50,000

3. The Scheme is available to all resident individuals includ-


ing minors. In case of remitter being a minor, 4the Form
A2 must be countersigned by the minor’s natural guardian.

4. Remittances under the Scheme can be consolidated in


respect of family members subject to individual family
members complying with its terms and conditions. How-
ever, clubbing is not permitted by other family members
for capital account transactions such as opening a bank
account/investment/purchase of property, if they are not
the co-owners/co-partners of the overseas bank account/
investment/property. Further, a resident cannot gift to
another resident, in foreign currency, for the credit of the
latter’s foreign currency account held abroad under LRS.

5. All other transactions which are otherwise not permissi-


ble under FEMA and those in the nature of remittance for
margins or margin calls to overseas exchanges/ overseas
counterparty are not allowed under the Scheme.

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6. The permissible capital account transactions by an indi-


vidual under LRS are:

i. opening of foreign currency account abroad with a bank;

ii. purchase of property abroad;

iii. making investments abroad- acquisition and holding


shares of both listed and unlisted overseas company or
debt instruments; acquisition of ESOPs (the Scheme is in
addition to acquisition of ESOPs linked to ADR / GDR and
acquisition of qualification shares); investment in units of
Mutual Funds, Venture Capital Funds, unrated debt secu-
rities, promissory notes;

iv. setting up Wholly Owned Subsidiaries and Joint Ven-


tures (with effect from August 05, 2013) outside India for
bonafide business subject to the terms & conditions stipu-
lated in Notification No FEMA.263/ RB-2013 dated March
5, 2013;

v. extending loans including loans in Indian Rupees to


Non-resident Indians (NRIs) who are relatives as defined
in Companies Act, 1956.

7. The limit of USD 2,50,000 per Financial Year (FY) under


the Scheme also includes/subsumes remittances  for current
account transactions (viz. private visit; gift/donation; going

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abroad on employment; emigration; maintenance of close


relatives abroad; business trip; medical treatment abroad;
studies abroad) available to resident individuals under Para
1 of Schedule III to Foreign Exchange Management (Cur-
rent Account Transactions) Amendment Rules, 2015 dated
May 26, 2015. Release of foreign exchange exceeding USD
2,50,000, requires prior permission from the Reserve Bank
of India.

a. Private visits
For private visits abroad, other than to Nepal and Bhutan,
any resident individual can obtain foreign exchange up to
an aggregate amount of USD 2,50,000, from an Authorised
Dealer or FFMC, in any one financial year, irrespective
of the number of visits undertaken during the year. Fur-
ther, all tour related expenses including cost of rail/road/
water transportation; cost of Euro Rail; passes/tickets, etc.
outside India; and overseas hotel/lodging expenses shall
be subsumed under the LRS limit. The tour operator can
collect this amount either in Indian rupees or in foreign
currency from the resident traveller.

b. Gift/donation
Any resident individual may remit up-to USD 2,50,000 in
one FY as gift to a person residing outside India or as dona-
tion to an organization outside India.

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c. Going abroad on employment


A person going abroad for employment can draw foreign
exchange up to USD 2,50,000 per FY from any Authorised
Dealer in India.

d. Emigration
A person wanting to emigrate can draw foreign exchange
from AD Category I bank and AD Category II up to the
amount prescribed by the country of emigration or USD
250,000. Remittance of any amount of foreign exchange
outside India in excess of this limit may be allowed only
towards meeting incidental expenses in the country of im-
migration and not for earning points or credits to become
eligible for immigration by way of overseas investments in
government bonds; land; commercial enterprise; etc.

e. Maintenance of close relatives abroad


A resident individual can remit up-to USD 2,50,000 per FY
towards maintenance of close relatives [‘relative’ as defined
in Section 6 of the Indian Companies Act, 1956] abroad.

f. Business trip
Visits by individuals in connection with attending of an
international conference, seminar, specialised training,
apprentice training, etc., are treated as business visits. For
business trips to foreign countries, resident individuals
can avail of foreign exchange up to USD 2,50,000  in a FY

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irrespective of the number of visits undertaken during the


year. However, if an employee is being deputed by an entity
for any of the above and the expenses are borne by the latter,
such expenses shall be treated as residual current account
transactions outside LRS and may be permitted by the AD
without any limit, subject to verifying the bonafides of the
transaction.

g. Medical treatment abroad


Authorised Dealers may release foreign exchange up to
an amount of USD 2,50,000 or its equivalent per FY with-
out insisting on any estimate from a hospital/doctor. For
amount exceeding the above limit, Authorised Dealers
may release foreign exchange under general permission
based on the estimate from the doctor in India or hospital/
doctor abroad. A person who has fallen sick after proceed-
ing abroad may also be released foreign exchange by an
Authorised Dealer (without seeking prior approval of the
Reserve Bank of India) for medical treatment outside India.
In addition to the above, an amount up to USD 250,000 per
financial year is allowed to a person for accompanying as
attendant to a patient going abroad for medical treatment/
check-up.

h. Facilities available to students for pursuing their


studies abroad.
AD Category I banks and AD Category II, may release
foreign exchange up to USD 2,50,000 or its equivalent to

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resident individuals for studies abroad without insisting


on any estimate from the foreign University. However, AD
Category I bank and AD Category II may allow remittanc-
es (without seeking prior approval of the Reserve Bank of
India) exceeding USD 2,50,000 based on the estimate re-
ceived from the institution abroad.

8. Remittances under the Scheme can be used for purchas-


ing objects of art subject to the provisions of other appli-
cable laws such as the extant Foreign Trade Policy of the
Government of India.

9. The Scheme can be used for outward remittance in the


form of a DD either in the resident individual’s own name
or in the name of beneficiary with whom he intends putting
through the permissible transactions at the time of private
visit abroad, against self-declaration of the remitter in the
format prescribed.

10. Individuals can also open, maintain and hold foreign


currency accounts with a bank outside India for making
remittances under the Scheme without prior approval of
the Reserve Bank. The foreign currency accounts may be
used for putting through all transactions connected with
or arising from remittances eligible under this Scheme.

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11. Banks should not extend any kind of credit facilities to


resident individuals to facilitate capital account remittanc-
es under the Scheme.

12. The Scheme is not available for remittances for any pur-
pose specifically prohibited under Schedule I or any item
restricted under Schedule II of Foreign Exchange Manage-
ment (Current Account Transaction) Rules, 2000, dated
May 3, 2000, as amended from time to time.

13. The Scheme is not available for capital account remit-


tances to countries identified by Financial Action Task
Force (FATF) as non-co-operative countries and territories
as  available on FATF website  www.fatf-gafi.org  or as no-
tified by the Reserve Bank. Remittances directly or indi-
rectly to those individuals and entities identified as posing
significant risk of committing acts of terrorism as advised
separately by the Reserve Bank to the banks is also not
permitted.

14. Documentation by the remitter


The individual will have to designate a branch of an AD
through which all the remittances under the Scheme will
be made.The resident individual seeking to make the remit-
tance should furnish 5Form A2 as at Annex for purchase of
foreign exchange under LRS.

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15. It is mandatory to have PAN card to make remittances


under the Scheme for capital account transactions. How-
ever, PAN card need not be insisted upon for remittances
made towards permissible current account transactions up
to USD 25,000.

16. Investor, who has remitted funds under LRS can retain,
reinvest the income earned on the investments. At present,
the resident individual is not required to repatriate the
funds or income generated out of investments made under
the Scheme. However, a resident individual who has made
overseas direct investment in the equity shares; compul-
sorily convertible preference shares of a JV/WoS outside
India or ESOPs, within the LRS limit, shall have to comply
with the terms and conditions prescribed by the overseas
investment guidelines under Notification No. FEMA 263/
RB-2013 dated March 5, 2013.

17. Facility to grant loan in rupees to NRI/ PIO


close relative under the Scheme
Resident individual is permitted to lend to a Non-resident
Indian (NRI)/ Person of Indian Origin (PIO) close relative
[‘relative’ as defined in Section 6 of the Indian Companies
Act, 1956] by way of crossed cheque/ electronic transfer
subject to the following conditions:

(i) the loan is free of interest and the minimum maturity of


the loan is one year;

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(ii) the loan amount should be within the overall limit


under the Liberalised Remittance Scheme of USD 2,50,000
per financial year available for a resident individual. It
would be the responsibility of the resident individual to
ensure that the amount of loan granted by him is within
the LRS limit and all the remittances made by the resident
individual during a given financial year including the loan
together have not exceeded the limit prescribed under LRS;
(iii) the loan shall be utilized for meeting the borrower’s
personal requirements or for his own business purposes in
India.

(iv) the loan shall not be utilized, either singly or in asso-


ciation with other person for any of the activities in which
investment by persons resident outside India is prohibited,
namely:

a. The business of chit fund, or

b. Nidhi Company, or

c. Agricultural or plantation activities or in real estate


business, or construction of farm houses, or

d. Trading in Transferable Development Rights (TDRs).

Explanation: For the purpose of item (c) above, real estate


business shall not include development of townships, con-
struction of residential/ commercial premises, roads or
bridges.

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(v) the loan amount should be credited to the NRO a/c of


the NRI / PIO. Credit of such loan amount may be treated
as an eligible credit to NRO a/c;

(vi) the loan amount shall not be remitted outside India;


and

(vii) repayment of loan shall be made by way of inward


remittances through normal     banking channels or by
debit to the Non-resident Ordinary (NRO) / Non-resident
External (NRE) / Foreign Currency Non-resident (FCNR)
account of the borrower or out of the sale proceeds of the
shares or securities or immovable property against which
such loan was granted.

18. A resident individual can make a rupee gift to a NRI/


PIO who is a relative of the resident individual [‘relative’ as
defined in Section 6 of the Companies Act, 1956] by way
of crossed cheque /electronic transfer. The amount should
be credited to the Non-Resident (Ordinary) Rupee Account
(NRO) a/c of the NRI / PIO and credit of such gift amount
may be treated as an eligible credit to NRO a/c. The gift
amount would be within the overall limit of USD 250,000
per FY as permitted under the LRS for a resident individ-
ual. It would be the responsibility of the resident donor to
ensure that the gift amount is within the LRS limit and all
the remittances made by the donor during the financial

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

year including the gift amount have not exceeded the limit
prescribed under the LRS.

B. Operational instructions to Authorised Persons


1. Authorized Persons may carefully study the provisions of
the Act / Regulations / Notifications issued under Foreign
Exchange Management Act, 1999.

2. The Reserve Bank will not, generally, prescribe the docu-


ments which should be verified by the Authorised Persons
while releasing foreign exchange for current account trans-
actions. In this connection, attention of authorized persons
is drawn to sub-section (5) of Section 10 of the FEMA, 1999
which provides that an authorised person shall require any
person desiring to transact in foreign exchange to make
such a declaration and to give such information as will
reasonably satisfy him that the transaction will not involve
and is not designed for the purpose of any contravention
or evasion of the provisions of the FEMA or any rule, reg-
ulation, notification, direction or order issued there under.

3. With a view to maintaining uniform practices, Autho-


rized Dealers may consider requirements or documents to
be obtained by their branches to ensure compliance with
provisions of sub-section (5) of section 10 of the Act.

4. Authorised Dealers are also required to keep on record


any information / documentation,  on the basis of which

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the transaction was undertaken for verification by the Re-


serve Bank. In case the applicant refuses to comply with
any such requirement or makes unsatisfactory compliance
therewith, the Authorised Dealer shall refuse, in writing,
to  undertake the transaction and shall, if he has reasons to
believe that any contravention / evasion is contemplated by
the person, report the matter to the Reserve Bank.

5. Reserve Bank of India will not issue any instructions un-


der the FEMA, regarding the procedure to be followed in
respect of deduction of tax at source while allowing remit-
tances to the non-residents. It shall be mandatory on the
part of Authorised Dealers to comply with the requirement
of the tax laws, as applicable.

6. While allowing the facility to resident individuals, Au-


thorised Dealers are required to ensure that “Know Your
Customer” guidelines have been implemented in respect
of bank accounts. They should also comply with the An-
ti-Money Laundering Rules in force while allowing the
facility.

7. The applicants should have maintained the bank account


with the bank for a minimum period of one year prior to
the remittances for capital account transactions. If the ap-
plicant seeking to make the remittances is a new customer
of the bank, Authorised Dealers should carry out due dil-
igence on the opening, operation and maintenance of the

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account. Further, the Authorised Dealers should obtain


bank statement for the previous year from the applicant to
satisfy themselves regarding the source of funds. If such a
bank statement is not available, copies of the latest Income
Tax Assessment Order or Return filed by the applicant may
be obtained.

8. The Authorised Dealer should ensure that the payment


is received out of funds belonging to the person seeking to
make the remittances, by a cheque drawn on the applicant’s
bank account or by debit to his account or by Demand Draft
/ Pay Order. Authorised Dealer  may also accept the pay-
ment through credit /debit/prepaid card of the card holder.

9. The Authorised Dealer should certify that the remittance


is not being made directly or indirectly by /or to ineligible
entities and that the remittances are made in accordance
with the instructions contained herein.

10. AD bank should not extend any kind of credit facilities


to resident individuals to facilitate remittances for capital
account transactions under the Scheme.

11. Authorised Dealer may keep a record of the countries


identified by FATF as non-co-operative countries and ter-
ritories and accordingly update the list from time to time
for necessary action by their branches handling the trans-
actions under the Liberalised Remittance Scheme. For this

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purpose, they may access the website www.fatf-gafi.org to


obtain the latest list of non-co-operative countries notified
by FATF.

12. The remittances made under this Scheme will be report-


ed in the R-Return in the normal course. The Authorised
Dealers may also prepare and keep on record dummy Form
A2, in respect of remittances less than USD 25,000. In ad-
dition, AD banks would also furnish information on the
number of applicants and total amount remitted under the
Scheme, on a monthly basis, to the Reserve Bank of India,
through the Online Return Filing System (ORFS).

13. A number of foreign banks operating in India as well


as Indian banks have been soliciting (through advertise-
ments) foreign currency deposits (from residents under
LRS) [on behalf of overseas mutual funds] or for placing
at their overseas branches. These advertisements may not
always contain appropriate disclosures to guide potential
depositors giving rise to concerns from the point of view of
protecting the interest of the resident individuals. Further,
marketing in India of schemes soliciting foreign currency
deposits by foreign entities, not having operational presence
in India, also raises supervisory concerns. Therefore, all
banks, both Indian and foreign, including those not having
an operational presence in India, should seek prior approval
from RBI for the schemes being marketed by them in India
to residents either for soliciting foreign currency deposits

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

for their foreign/overseas branches or for acting as agents


for overseas mutual funds or any other foreign financial
services company. The applications in this regard may be
addressed to the Chief General Manager-in-Charge, De-
partment of Banking Regulations, Reserve Bank of India,
Central Office, 12th Floor, Fort, Mumbai -400001.

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E N CLOSU RE B

Liberalized Remittance Scheme (LRS)


FAQs-RBI Answers

The legal framework for administration of foreign exchange


transactions in India is provided by the Foreign Exchange
Management Act, 1999. Under the Foreign Exchange
Management Act, 1999 (FEMA), which came into force
with effect from June 1, 2000, all transactions involving
foreign exchange have been classified either as capital or
current account transactions. All transactions undertaken
by a resident that do not alter his / her assets or liabilities,
including contingent liabilities, outside India are current
account transactions.

In terms of Section 5 of the FEMA, persons resident in In-


dia1 are free to buy or sell foreign exchange for any current
account transaction except for those transactions for which
drawal of foreign exchange has been prohibited by Central
Government, such as remittance out of lottery winnings;
remittance of income from racing/riding, etc., or any other
hobby; remittance for purchase of lottery tickets, banned
/ proscribed magazines, football pools, sweepstakes, etc.;
remittance of dividend by any company to which the re-
quirement of dividend balancing is applicable; payment of

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

commission on exports under Rupee State Credit Route


except commission up to 10% of invoice value of exports
of tea and tobacco; payment of commission on exports
made towards equity investment in Joint Ventures / Wholly
Owned Subsidiaries abroad of Indian companies; remit-
tance of interest income on funds held in Non-Resident
Special Rupee (Account) Scheme and payment related to
“call back services” of telephones.

Foreign Exchange Management (Current Account Trans-


actions) Rules, 2000 - Notification [GSR No. 381(E)] dated
May 3, 2000 and the revised Schedule III to the Rules as
given in the Notification G.S.R. 426(E) dated May 26, 2015
is available in the Official Gazette as well as, as an Annex
to our Master Direction on ‘Other Remittance Facilities’
available on our website www.rbi.org.in.

These FAQs attempt to put in place the common queries


that users have on the subject in easy to understand lan-
guage. However, for conducting a transaction, the Foreign
Exchange Management Act, 1999 (FEMA) and the Regu-
lations/Rules made or directions issued thereunder may be
referred to.

Q 1. What is the Liberalised Remittance Scheme (LRS) of


USD 2,50,000 ?
Q 2. What are the prohibited items under the Scheme?

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Q3. What are the purposes under FEM (CAT) Amend-


ment Rules, 2015, under which a resident individual can
avail of foreign exchange facility?
Q4. Under LRS are resident individuals required to
repatriate the accrued interest/dividend on deposits/
investments abroad, over and above the principal amount?
Q5. Can remittances under the LRS facility be consolidat-
ed in respect of family members?
Q6. Is the AD required to check permissibility of remit-
tances based on nature of transaction or allow the same
based on remitters declaration?
Q7. Is it mandatory for resident individuals to have PAN
number for sending outward remittances under the
Scheme?
Q8. Are there any restrictions on the frequency of the
remittance?
Q9. Resident individuals (but not permanently resident in
India) can remit up to net salary after deduction of taxes.
However, if he has exhausted the limit of USD 2,50,000 as
net salary remittance and desires to remit any other in-
come under LRS is it permissible as the limit will be over
and above USD 2,50,000?
Q10. Para 5.4 of AP DIR Circular 106 dated June 01, 2015
states that the applicants should have maintained the bank
account with the bank for a minimum period of one year
prior to the remittance for capital account transactions.

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

Whether this restriction applies to current account


transactions?
Q11. Are there any restrictions towards remittances to
Mauritius and Pakistan for permissible current account
transactions?
Q12. What are the requirements to be complied with by
the remitter?
Q13. Can remittances be made only in US Dollars?
Q14. Are intermediaries expected to seek specific approval
for making overseas investments available to clients?
Q15. Are there any restrictions on the kind/quality of debt
or equity instruments an individual can invest in?
Q16. Whether credit facilities (fund or non-fund based) in
Indian Rupees or foreign currency can be extended by AD
banks to resident individuals?
Q17. Can bankers open foreign currency accounts in India
for residents under LRS?
Q18. Can an Offshore Banking Unit (OBU) in India be
treated on par with a branch of the bank outside India for
the purpose of opening of foreign currency accounts by
residents under the Scheme?
Q19. What are the documents required for withdrawal/
remittance of foreign exchange for purposes mentioned in
para 1 of Schedule III to FEM (CAT) Amendment Rules,
2015?

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Q20. Whether documents viz 15 CA, 15 CB have to be


taken in all outward remittance cases including remit-
tances for maintenance etc.?
Q21. Will the expenses incurred by an LLP to sponsor the
education expense of its partners who are pursuing higher
studies for the benefit of the LLP will be outside the LRS
limit of such individuals (partners)?
Q22. Clarification on remittance by sole proprietor under
LRS.
Q23. Whether prior approval is required to open,
maintain and hold foreign currency account with a bank
outside India for making remittances under the LRS?
Q24. What are the facilities under Schedule III of FEM
(CAT) Amendment Rules, 2015 available for persons other
than individual?
Q25. Can a resident individual make a rupee loan to a
NRI/PIO who is a close relative of resident individual, by
of crossed cheque/ electronic transfer?
Q26. Can a resident individual make a rupee gift to a
NRI/PIO who is a close relative of resident individual, by
of crossed cheque/ electronic transfer?

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Q 1. What is the Liberalised Remittance


Scheme (LRS) of USD 2,50,000 ?
Ans. Under the Liberalised Remittance Scheme, all resident
individuals, including minors, are allowed to freely remit
up to USD 2,50,000 per financial year (April – March) for
any permissible current or capital account transaction or a
combination of both. Further, resident individuals can avail
of foreign exchange facility for the purposes mentioned in
Para 1 of Schedule III of FEM (CAT) Amendment Rules
2015, dated May 26, 2015, within the limit of USD 2,50,000
only. In case of remitter being a minor, the LRS declaration
form must be countersigned by the minor’s natural guard-
ian. The Scheme is not available to corporates, partnership
firms, HUF, Trusts etc.

Q 2. What are the prohibited items under the


Scheme?
Ans. The remittance facility under the Scheme is not avail-
able for the following:
• Remittance for any purpose specifically prohibited un-
der Schedule-I (like purchase of lottery tickets/sweep
stakes, proscribed magazines, etc.) or any item restrict-
ed under Schedule II of Foreign Exchange Management
(Current Account Transactions) Rules, 2000.

• Remittance from India for margins or margin calls to


overseas exchanges / overseas counterparty.

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• Remittances for purchase of FCCBs issued by Indian


companies in the overseas secondary market.

• Remittance for trading in foreign exchange abroad.

• Capital account remittances, directly or indirectly, to


countries identified by the Financial Action Task Force
(FATF) as “non- cooperative countries and territories”,
from time to time.

• Remittances directly or indirectly to those individuals


and entities identified as posing significant risk of com-
mitting acts of terrorism as advised separately by the
Reserve Bank to the banks.

Q 3. What are the purposes under FEM


(CAT) Amendment Rules, 2015, under which
a resident individual can avail of foreign
exchange facility?
Ans. Individuals can avail of foreign exchange facility
for the following purposes within the LRS limit of USD
2,50,000 on financial year basis:

• Private visits to any country (except Nepal and Bhutan)

• Gift or donation

• Going abroad for employment

• Emigration

• Maintenance of close relatives abroad

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Travel for business, or attending a conference or special-


ised training or for meeting expenses for meeting medical
expenses, or check-up abroad, or for accompanying as at-
tendant to a patient going abroad for medical treatment/
check-up

• Expenses in connection with medical treatment abroad

• Studies abroad

• Any other current account transaction which is not cov-


ered under the definition of current account in FEMA
1999.

The AD bank may undertake the remittance transaction


without RBI’s permission for all residual current account
transactions which are not prohibited/ restricted transac-
tions under Schedule I, II or III of FEM (CAT) Rules, 2000,
as amended or are defined in FEMA 1999. It is for the AD
to satisfy themselves about the genuineness of the transac-
tion, as hitherto.

Q 4. Under LRS are resident individuals


required to repatriate the accrued interest/
dividend on deposits/investments abroad, over
and above the principal amount?
Ans. No, the investor can retain and reinvest the income
earned from portfolio investments made under the Scheme.

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However, a resident individual who has made overseas


direct investment in the equity shares and compulsorily
convertible preference shares of a Joint Venture or Whol-
ly Owned Subsidiary outside India, within the LRS limit,
then he/she shall have to comply with the terms and condi-
tions as prescribed under [Foreign Exchange Management
(Transfer or Issue of any Foreign Security) Regulations
2004 as amended from time to time] Notification No. 263/
RB-2013 dated August 5, 2013.

Q 5. Can remittances under the LRS facility be


consolidated in respect of family members?
Ans. Remittances under the facility can be consolidated in
respect of close family members subject to the individual
family members complying with the terms and conditions
of the Scheme. However, clubbing is not permitted by other
family members for capital account transactions such as
opening a bank account/investment/purchase of property,
if they are not the co-owners/co-partners of the invest-
ment/property/overseas bank account. Further, a resident
cannot gift to another resident, in foreign currency, for the
credit of the latter’s foreign currency account held abroad
under LRS.

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Q 6. Is the AD required to check permissibility


of remittances based on nature of transaction
or allow the same based on remitters
declaration?
Ans. AD will be guided by the nature of transaction as
declared by the remitter in Form A2 and will thereafter
certify that the remittance is in conformity with the in-
structions issued by the Reserve Bank in this regard from
time to time. However, the ultimate responsibility is of the
remitter to ensure compliance to the extant FEMA rules/
regulations.

Q 7. Is it mandatory for resident individuals


to have PAN number for sending outward
remittances under the Scheme?
Ans. Yes., however, PAN card need not be insisted upon
for remittance made towards permissible current account
transactions up to USD 25,000 per financial year.

Q 8. Are there any restrictions on the


frequency of the remittance?
Ans. There are no restrictions on the frequency of remit-
tances under LRS. However, the total amount of foreign
exchange purchased from or remitted through, all sources
in India during a financial year should be within the cumu-
lative limit of USD 2,50,000. Once a remittance is made for
an amount up to USD 2,50,000 during the financial year, a

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resident individual would not be eligible to make any fur-


ther remittances under this scheme, even if the proceeds of
the investments have been brought back into the country.

Q 9. Resident individuals (but not permanently


resident in India) can remit up to net salary
after deduction of taxes. However, if he has
exhausted the limit of USD 2,50,000 as net
salary remittance and desires to remit any
other income under LRS is it permissible as the
limit will be over and above USD 2,50,000?
Ans. Resident individuals (but not permanently resident in
India) who have remitted their entire earnings and salary
and wish to further remit ‘other income’ may approach RBI
with documents through their AD bank for consideration.

Q 10. Para 5.4 of AP DIR Circular 106 dated


June 01, 2015 states that the applicants should
have maintained the bank account with the
bank for a minimum period of one year prior to
the remittance for capital account transactions.
Whether this restriction applies to current
account transactions?
Ans. No. The rationale is that remittance facility is up to the
LRS limit of USD 250, 000 for current account transactions
under Schedule III of FEM (CAT) Amendment Rules, 2015,
such as for private and business visits which can also be
provided by FFMCs. As FFMCs cannot maintain accounts

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of remitters the proviso (as mentioned in para 5.4 of the


circular ibid) has been confined to capital account trans-
actions. However, FFMCs, are required to ensure that the
“Know Your Customer” guidelines and the Anti-Money
Laundering Rules in force have been complied with while
allowing the current account transactions.

Q 11. Are there any restrictions towards


remittances to Mauritius and Pakistan for
permissible current account transactions?
Ans. No, there are no restrictions towards remittances for
current account transactions to Mauritius and Pakistan.
Remittances directly or indirectly to countries identified
by the Financial Action Task Force (FATF) as “non- coop-
erative countries and territories”, from time to time; and
remittances directly or indirectly to those individuals and
entities identified as posing significant risk of committing
acts of terrorism as advised separately by the Reserve Bank
to the banks are not permissible.

Q 12. What are the requirements to be


complied with by the remitter?
Ans. The individual will have to designate a branch of an
AD through which all the capital account remittances un-
der the Scheme will be made. The applicants should have
maintained the bank account with the bank for a minimum
period of one year prior to the remittance. For remittances

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pertaining to permissible current account transactions, if


the applicant seeking to make the remittance is a new cus-
tomer of the bank, Authorised Dealers should carry out due
diligence on the opening, operation and maintenance of the
account. Further, the AD should obtain bank statement for
the previous year from the applicant to satisfy themselves
regarding the source of funds. If such a bank statement is
not available, copies of the latest Income Tax Assessment
Order or Return filed by the applicant may be obtained.
He has to furnish Form A-2 regarding the purpose of the
remittance and declare that the funds belong to him and
will not be used for purposes prohibited or regulated under
the Scheme.

Q 13. Can remittances be made only in US


Dollars?
Ans. The remittances can be made in any freely convertible
foreign currency.

Q 14. Are intermediaries expected to seek


specific approval for making overseas
investments available to clients?
Ans. Banks including those not having operational pres-
ence in India are required to obtain prior approval from
Reserve Bank for soliciting deposits for their foreign/over-
seas branches or for acting as agents for overseas mutual
funds or any other foreign financial services company.

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Q 15. Are there any restrictions on the kind/


quality of debt or equity instruments an
individual can invest in?
Ans. No ratings or guidelines have been prescribed under
LRS of USD 2,50,000 on the quality of the investment an
individual can make. However, the individual investor is
expected to exercise due diligence while taking a decision
regarding the investments which he or she proposes to
make.

Q 16. Whether credit facilities (fund or non-


fund based) in Indian Rupees or foreign
currency can be extended by AD banks to
resident individuals?
Ans. LRS does not envisage extension of fund and non-fund
based facilities by the AD banks to their resident individ-
ual customers to facilitate remittances for capital account
transactions under LRS. However, AD banks may extend
fund and non-fund based facilities to resident individuals
to facilitate current account remittances under the Scheme.

Q 17. Can bankers open foreign currency


accounts in India for residents under LRS?
Ans. No.

Q 18. Can an Offshore Banking Unit (OBU) in


India be treated on par with a branch of the

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bank outside India for the purpose of opening


of foreign currency accounts by residents
under the Scheme?
Ans. No.

Q 19. What are the documents required for


withdrawal/remittance of foreign exchange for
purposes mentioned in para 1 of Schedule III to
FEM (CAT) Amendment Rules, 2015?
Ans. RBI will not prescribe any documentation to be sub-
mitted to ADs except Form A2. All other documentation
may be done as advised by the AD. For small amounts ag-
gregating up-to USD 25,000 per year, ADs need not obtain
any document including Form A-2, except a simple letter
from the applicant (containing the basic information, viz.,
names and the addresses of the applicant and the beneficia-
ry, amount to be remitted and the purpose of remittance)
as long as the foreign exchange is being purchased for a
permissible current account transaction (not included in
the Schedules I and II of FEM (CAT) Rules). AD banks
shall prepare dummy A-2 for statistical inputs for Balance
of Payment.

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Q 20. Whether documents viz 15 CA, 15 CB


have to be taken in all outward remittance
cases including remittances for maintenance
etc.?
Ans. In terms of A. P. (DIR Series) circular No. 151 dated
June 30, 2014, Reserve Bank of India will not issue any
instructions under the FEMA, regarding the procedure to
be followed in respect of deduction of tax at source while
allowing remittances to the non-residents. It shall be man-
datory on the part of ADs to comply with the requirement
of the tax laws, as applicable.

Q 21. Will the expenses incurred by an LLP to


sponsor the education expense of its partners
who are pursuing higher studies for the benefit
of the LLP will be outside the LRS limit of such
individuals (partners)?
Ans. LLP is a body corporate and has a legal entity separate
from its partners. Therefore, if the LLP incurs/sponsors the
education expense of its partners who are pursuing higher
studies for the benefit of the LLP, then the same shall be
outside the LRS limit of the individual partners and would
instead be deemed as residual current account transaction
undertaken by the LLP without any limits.

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Q 22. Clarification on remittance by sole


proprietor under LRS.
Ans. In a sole proprietorship business, there is no legal
distinction between the individual / owner and as such the
owner of the business can remit USD up to the permissible
limit under LRS. If a sole proprietorship firm intends to
remit the money under LRS by debiting its current account
then the eligibility of the proprietor in his individual ca-
pacity has to be reckoned. Hence, if an individual in his
own capacity remits USD 250,000 in a financial year under
LRS, he cannot remit another USD 250,000 in the capacity
of owner of the sole proprietorship business as there is no
legal distinction.

Q 23. Whether prior approval is required to


open, maintain and hold foreign currency
account with a bank outside India for making
remittances under the LRS?
Ans: No.

Q 24. What are the facilities under Schedule


III of FEM (CAT) Amendment Rules, 2015
available for persons other than individual?
Ans. The following facilities are available to persons other
than individuals:

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

Donations up-to one per cent of their foreign exchange


earnings during the previous three financial years or USD
5,000,000, whichever is less, for- (a) creation of Chairs in
reputed educational institutes, (b) contribution to funds
(not being an investment fund) promoted by educational
institutes; and (c) contribution to a technical institution
or body or association in the field of activity of the donor
Company.

• Commission, per transaction, to agents abroad for sale


of residential flats or commercial plots in India up to
USD 25,000 or five percent of the inward remittance
whichever is less.

• Remittances up to USD 10,000,000 per project for any


consultancy services in respect of infrastructure proj-
ects and USD 1,000,000 per project, for other consul-
tancy services procured from outside India.

• Remittances up to five per cent of investment brought


into India or USD 100,000 whichever is less, by an
entity in India by way of reimbursement of pre-incorpo-
ration expenses.

• Remittances up to USD 250,000 per financial year for


purposes stipulated under Para 1 of Schedule III to
FEM (CAT) Amendment Rules, 2015. However, all re-
sidual current account transactions undertaken by such
entities are otherwise permissible without any specified

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limit and are to be disposed off at the level of AD, as


hitherto. It is for the AD to satisfy themselves about the
genuineness of the transaction.

• Anything in excess of above limits requires prior ap-


proval of the Reserve Bank of India.

Q 25. Can a resident individual make a rupee


loan to a NRI/PIO who is a close relative of
resident individual, by of crossed cheque/
electronic transfer?
Ans. A resident individual is permitted to make a rupee
loan to a NRI/PIO who is a close relative of the resident
individual (‘relative’ as defined in Section 2(77) of the
Companies Act, 2013) by way of crossed cheque/ electronic
transfer subject to the following conditions:

(i) The loan is free of interest and the minimum maturity of


the loan is one year.

(ii) The loan amount should be within the overall LRS limit
of USD 2,50,000, per financial year, available to the resident
individual. It would be the responsibility of the lender to
ensure that the amount of loan is within the LRS limit of
USD 2,50,000 during the financial year.

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

(iii) The loan shall be utilised for meeting the borrower’s


personal requirements or for his own business purposes in
India.

(iv) The loan shall not be utilised, either singly or in asso-


ciation with other person, for any of the activities in which
investment by persons resident outside India is prohibited,
namely;

• the business of chit fund, or

• Nidhi Company, or

• agricultural or plantation activities or in real estate busi-


ness, or construction of farmhouses, or

• trading in Transferable Development Rights (TDRs).

Explanation: For the purpose of item (c) above, real estate


business shall not include development of townships, con-
struction of residential / commercial premises, roads or
bridges.

(v) The loan amount should be credited to the NRO a/c of


the NRI /PIO. Credit of such loan amount may be treated
as an eligible credit to NRO a/c.

(vi) The loan amount shall not be remitted outside India.

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(vii) Repayment of loan shall be made by way of inward re-


mittances through normal banking channels or by debit to
the Non-resident Ordinary (NRO)/ Non-resident External
(NRE) / Foreign Currency Non-resident (FCNR) account
of the borrower or out of the sale proceeds of the shares or
securities or immovable property against which such loan
was granted.

Q 26. Can a resident individual make a rupee


gift to a NRI/PIO who is a close relative of
resident individual, by of crossed cheque/
electronic transfer?
Ans. A resident individual can make a rupee gift to a NRI/
PIO who is a close relative of the resident individual [rela-
tive’ as defined in Section 2(77) of the Companies Act, 2013]
by way of crossed cheque /electronic transfer. The amount
should be credited to the Non-Resident (Ordinary) Rupee
Account (NRO) a/c of the NRI / PIO and credit of such gift
amount may be treated as an eligible credit to NRO a/c.
The gift amount would be within the overall limit of USD
250,000 per financial year as permitted under the LRS for
a resident individual. It would be the responsibility of the
resident donor to ensure that the gift amount being remit-
ted is under the LRS and all the remittances made by the
donor during the financial year including the gift amount
have not exceeded the limit prescribed under the LRS.

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

1
 A ‘person resident in India’ is defined in Section 2(v) of
FEMA, 1999 as :


(i) a person residing in India for more than one hundred


and eighty-two days during the course of the preceding
financial year but does not include-


(A) a person who has gone out of India or who stays outside
India, in either case-


(a) for or on taking up employment outside India, or


(b) for carrying on outside India a business or vocation


outside India, or


(c) for any other purpose, in such circumstances as would


indicate his intention to stay outside
India for an uncertain
period;


(B) a person who has come to or stays in India, in either


case, otherwise than-


(a) for or on taking up employment in India, or



(b) for carrying on in India a business or vocation in India,
or

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(c) for any other purpose, in such circumstances as would


indicate his intention to stay in India for an uncertain
period;


(ii) any person or body corporate registered or incorporat-


ed in India,


(iii) an office, branch or agency in India owned or con-


trolled by a person resident outside India,


(iv) an office, branch or agency outside India owned or


controlled by a person resident in India.

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

E N CLOSU RE C

Reserve Bank of India


Foreign Exchange Department
Central Office, 
Mumbai-400 001

Notification No. FEMA.263/RB-2013

Dated March 05, 2013


Foreign Exchange Management (Transfer or Issue of any
Foreign Security) (Amendment) Regulations, 2013
In exercise of the powers conferred by clause (a) of sub-sec-
tion (3) of Section 6 and sub-section (2) of Section 47 of
the Foreign Exchange Management Act, 1999 (42 of 1999),
the Reserve Bank hereby makes the following amendments
in the Foreign Exchange Management (Transfer or Issue of
Any Foreign Security) Regulations 2004 (Notification No.
FEMA 120/RB-2004 dated July 7, 2004), as amended from
time to time, (hereinafter called the Principal Regulations
or the Notification) namely:-

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1. Short Title & Commencement:-

(i) These Regulations shall be called the Foreign Exchange


Management (Transfer or Issue of Any Foreign Security)
(Amendment) Regulations, 2013.

(ii) They shall come into force from the date of publication
in Official Gazette

2. Insertion of New Regulation 20A

In Part II, after Regulation 20, the following Regulation


shall be inserted:

“20A. Acquisition or Setting up of a JV or WOS abroad


by resident individual

A resident individual (single or in association with another


resident individual or with an ‘Indian Party’ as defined in
this Notification) satisfying the criteria as per Schedule V of
this Notification, may make overseas direct investment in
the equity shares and compulsorily convertible preference
shares of a Joint Venture (JV) or Wholly Owned Subsidiary
(WOS) outside India.”

3. Insertion of New Schedule V


After Schedule IV, the following Schedule shall be inserted:
“Schedule V [See Regulation 20A]

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

A. Overseas Direct Investments by Resident Individuals

1. Resident individual is prohibited from making direct


investment in a JV or WOS abroad which is engaged in the
real estate business or banking business or in the business
of financial services activity.

2. The JV or WOS abroad shall be engaged in bonafide


business activity.

3. Resident individual is prohibited from making direct in-


vestment in a JV / WOS [set up or acquired abroad individ-
ually or in association with other resident individual and /
or with an Indian party] located in the countries identified
by the Financial Action Task Force (FATF) as “non co-op-
erative countries and territories” as available on FATF web-
site www.fatf-gafi.org or as notified by the Reserve Bank.

4. The resident individual shall not be on the Reserve


Bank’s Exporters Caution List or List of defaulters to the
banking system or under investigation by any investigation
/ enforcement agency or regulatory body.

5. At the time of investments, the permissible ceiling shall


be within the overall ceiling prescribed for the resident
individual under Liberalised Remittance Scheme as pre-
scribed by the Reserve Bank from time to time.

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[Explanation: The investment made out of the balances


held in EEFC / RFC account shall also be restricted to the
limit prescribed under LRS.]

6. The JV or WOS, to be acquired / set up by a resident


individual under this Schedule, shall be an operating
entity  only  and no step down subsidiary is allowed to be
acquired or set up by the JV or WOS.

7. For the purpose of making investment under this Sched-


ule, the valuation shall be as per Regulation 6(6)(a) of this
Notification.

8. The financial commitment by a resident individual to /


on behalf of the JV or WOS, other than the overseas direct
investments as defined under Regulation 2(e) read with
Regulation 20A of this Notification, is prohibited.

B. Post Investment Changes

Any alteration in shareholding pattern of the JV or WOS


may be reported to the designated AD within 30 days in-
cluding reporting in the Annual Performance Report as
required to be submitted in terms of Regulation 15 of this
Notification.

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C. Disinvestment by Resident Individuals

1. A resident individual, who has acquired / set up a JV or


WOS under the provisions of this Schedule, may disinvest
(partially or fully) by way of transfer / sale or by way of
liquidation / merger of the JV or WOS.

2. Disinvestment by a resident individual shall be allowed


after one year from the date of making first remittance for
setting up or acquiring the JV or WOS abroad.

3. The disinvestment proceeds shall be repatriated to India


immediately and in any case not later than 60 days from
the date of disinvestment and the same may be reported to
the designated AD.

4. No write off shall be allowed in case of disinvestments by


the resident individuals.

D. Reporting Requirements

1. The resident individual, making overseas direct invest-


ments under the provisions of this Schedule, shall submit
Part I of the Form ODI, duly completed, to the designated
authorised dealer, within 30 days of making the remittance.

2. The investment, as made by a resident individual, shall be


reported by the designated authorised dealer to the Reserve

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

Bank in Form ODI Part I and II within 30 days of making


the remittance.

3. The obligations as required in terms of Regulation 15 of


this Notification shall also apply to the resident individuals
who have set up or acquired a JV or WOS under the provi-
sions of this Schedule.

4. The disinvestment by the resident individual may be re-


ported by the designated AD to the Reserve Bank in Form
ODI Part IV within 30 days of receipt of disinvestment
proceeds.”

(Rashmi Fauzdar)
Chief General Manager

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C H A P T E R 1 3 :

Asset Protection for


EB-5 Investors—
An Interview with Patrick Phancao

Patrick Phancao is an internationally recognized Estate


Planning and Asset Protection Attorney who I am proud
to say is a good friend. He allowed me to interview him
on the United States estate tax system and methods that
can be employed to shield one’s assets from estate taxes, as
well as lawsuits. The information in the interview is indeed
complex and is no substitute for a one-on-one consultation
with Mr. Phancao. For more information on Patrick Phan-
cao and his legal services, please go to www.assetprotec-
tioncenter.com

Vaughan: Good morning Patrick. Thank you so much


for taking the time to talk.

Patrick: Of course. Thank you for having me!

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Vaughan: As you know, this book is a guide for potential


EB-5 investors. I was hoping that you could discuss
asset protection with me, because I have found that
to be an important topic for the EB-5 investors with
whom I work. First, I’d like to ask you a little about
your personal and professional background.

Patrick: Sure, I was born in France, and came to the U.S.


while I was in high school. I attended U.C. Santa
Barbara as a physiology major and went to law school
in San Diego. Initially I was a corporate counsel to
a pharmaceutical company. A year and a half into
the job I was approached by the CEO, who asked me
to work with the owner of the company to create a
very complex asset protection structure. That single
exposure completely derailed my professional career
and I started to focus entirely on asset protection.

Vaughan: And now you have your own law firm, the
Asset Protection and Elder Law Center, right? Can
you tell me the most common kinds of services you
provide for your clients?

Patrick: Sure. Our firm focuses on estate planning,


anything that has to do with revocable living trusts
and wills. My area of focus is asset protection for
business owners, particularly foreign investors, who

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VA U G H A N D E K I R B Y A N D K E N T O N D E K I R B Y

are looking to own some type of business or engage


in professional activity in the United States, while
ensuring that their investment does not get entangled
in litigation.

Vaughan: So your firm provides asset protection, which


is an umbrella term for the services you provide.
That includes the risks to your clients’ assets such as
litigation, estate tax or probate court. Is that correct?

Patrick: Correct. Probate court, estate taxes, litigation,


and creditors.

Vaughan: Could you tell me a little bit about your


experience with EB-5 clients and what kinds of
services you’re able to provide them?

Patrick: My role in the EB-5 process is different than that


of an immigration attorney. With an immigration
attorney, clients will gather the necessary documents
in order to become a citizen or receive a type of visa that
allows them to stay in the U.S. on a long-term basis.
I help clients to get their businesses incorporated, or
to structure their businesses professionally. I work
with both clients who are investing in a Regional
Center program and those who are making a Direct
Investment.

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COMPLETE GUIDE TO THE EB-5 GREEN CARD

Vaughan: I’ve found that both types of investors generally


want to live at least some of the time in the U.S., and
very often their primary goal is to obtain a Green
Card for a family member who wants to attend school
in the U.S. Is that your experience also?

Patrick: That is the most common scenario, I would say.

Vaughan: Let’s talk about this very common scenario.


In this hypothetical, Jane is attending a university in
the U.S. Her parents give her $500,000 to invest in
an EB-5 Regional Center in order to obtain a Green
Card. Her other assets include a house and a car in
the U.S., which were also purchased by Jane’s parents
and gifted to her. What kind of asset protection needs
might Jane have?

Patrick: Typically, a university student like Jane would be


living in the house her parents bought, with one or
more roommates. Jane’s parents would probably want
to ensure that if her roommates or visitors to her
house were ever injured on the property, the house is
protected from any lawsuits. I would help a client like
Jane’s parents protect Jane’s house from being taken
away as a result of a lawsuit.

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Vaughan: So in this case, we’re talking about protection


from litigation arising out of home ownership. What
specifically would you do for that client?

Patrick: We can do it usually through one of two legal


vehicles, based on how Jane (or Jane’s parents) may
want to hold the ownership of the house. The first
is through what is called an Asset Protection Trust,
in which Jane is the beneficiary of that trust. Jane is
allowed to live there, but in the event of a lawsuit,
then Jane would merely be seen by the creditor as a
Beneficiary of the Trust. The individual or individuals
suing Jane would not be able to satisfy a judgment
through the equity of that house, because Jane would
not have any recognized legal rights or ownership to
that particular asset. So that’s one form of protection.

Vaughan: So, if I’m understanding you correctly, the


house would technically be owned by the Asset
Protection Trust rather than owned by Jane.

Patrick: Correct.

Vaughan: So, if Jane were sued, her house would not be


considered part of Jane’s assets.

Patrick: That’s correct.

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Vaughan: Can you explain a little bit about what a trust


is and how it works?

Patrick: A trust is a legal vehicle or document in the


U.S. that enables a person to own assets, such as the
investment property in the previous example. Under
U.S. law, an asset protection trust is considered a
separate legal entity than the individual in question. In
this example, the party in question would be Jane. If a
tenant on the property (one of Jane’s roommates) were
to injure himself or herself and sue Jane—whether or
not it was partly Jane’s fault—the tenant would not be
able to satisfy the judgment by attempting to collect
on the equity of the home. Again, the reason is that
the asset protection trust owning the home would
be considered separate and apart from Jane. Here is
another example, let’s say that Jane was involved in
a drunk driving accident and injured somebody on
the road. A lawsuit could not include Jane’s house as
a form of payment because the house was held in a
trust.

Vaughan: So if Jane was ever dragged into litigation, for


whatever reason, whether somebody slipped and fell
on her property, or if she was involved in a situation
that ended up injuring another person, Jane’s house
would be safe, financially speaking, from a lawsuit?

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Patrick: That’s correct.

Vaughan: What if Jane wanted to sell the house? Would


she still able to sell the house even if it was held in a
trust?

Patrick: Yes, she would. An individual named as a


trustee, would grant authority for the property to be
sold. Basically, the trustee is the one that makes the
decisions on behalf of the trust. A trust is made up
of three roles. A beneficiary, a trustee, and a grantor.
The grantor, sometimes called the signor or trustor,
creates the trust. The trustee holds a fiduciary duty,
which is the duty to manage the assets inside that
trust for the benefit of a third party, the beneficiary.

Vaughan: Who would typically act as a trustee?

Patrick: The great thing is you can choose who you want
to act as a trustee. It can be an individual, a bank
institution, or a trust company. The fact that you can
make that decision gives you an incredible amount
of control, all the while benefitting from great
protection. The beneficiary of the trust is typically a
student like Jane.

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Vaughan: Okay, so the trustee is typically another legal


entity like a bank?

Patrick: It can be. You can also choose a friend or family


member whom you trust.

Vaughan: Let’s say the parents are living in India. Would


the trustee have to be an American institution?

Patrick: That depends on what type of trust it is. If it’s a


foreign trust, then no. The trustee does not have to be
an American institution if the trust is a foreign trust.
If the trust is a domestic protection trust, then the
trustee should be a U.S. legal entity.

Vaughan: So it sounds like there are different types of


trusts. One is a domestic trust and the other is a
foreign trust. Is that right?

Patrick: Correct. The latter is known as a Foreign Asset


Protection Trust.

Vaughan: Are there any advantages to one over the other?

Patrick: There’s a lot more case law involving foreign asset


protection trusts, which makes it easier for attorneys
like me to predict the outcome of a case because there

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is more legal precedence. Domestic asset protection


trusts are still relatively new, so there is less legal
precedence, which makes the outcome less easy to
predict, and therefore a less secure option.

Vaughan: Is the procedure for creating a foreign asset


protection trust different than creating a domestic
trust?

Patrick: For my clients, they won’t notice a big difference.


For me, it is very different because there are different
tasks involved in setting up and managing the trusts.
If it’s a foreign asset trust, my client would have to
contact foreign entities to serve as trustee while with
a domestic trust, I would work directly with all the
domestic entities or individuals.

Vaughan: So it sounds like, based on what you’re saying,


the essential difference between the two types of
trusts is that the foreign asset protection trust simply
has a foreign institution play the role of a trustee.

Patrick: Correct.

Vaughan: And so this option might be attractive to


foreign-born parents of a university student who is
applying for a Green Card, since they may already

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have connections with an institution in their country


who might serve as the trustee.

Patrick: That is exactly correct. The tricky part is that


what makes U.S. citizens wary of offshore trusts is
exactly what makes a foreign citizen comfortable
with a foreign trust. So that’s the irony.

Vaughan: That makes a lot of sense. It sounds like a trust


would be really valuable in the scenario like Jane, the
university student. It would put Jane’s parents’ minds
at ease, because it would protect the assets they are
giving to Jane.

Patrick: Correct.

Vaughan: Let’s talk about a slightly different hypothetical.


We have married couple, Naveen and Priya, who have
a son, Amit. All three are Indian nationals. Naveen
wants to stay in India to continue to operate the
family business while Priya and Amit will emigrate
to the U.S. so that Amit may obtain a U.S. education.
Priya owns a house in the U.S. but the majority of
the assets will be located in India, in her husband
Naveen’s name. How would Priya best protect her
house from a lawsuit or other liability?

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Patrick: That’s a very common scenario. There are a


couple of ways to proceed. First, Priya could create
a domestic asset protection trust. Priya, who resides
in the U.S., will serve as the trustee of the domestic
asset protection trust, with Amit as the beneficiary.
The thing to remember is that leaving an asset titled
in just one name leaves it exposed, so asset ownership
via a domestic or foreign asset protection trust will
provide a level of protection.

Vaughan: What’s the other way to protect Priya’s house in


the U.S.?

Patrick: Another possible protection would be to set up


a foreign asset protection trust and have Priya, the
spouse that resides in the U.S., serve as the trustee to
that trust. This way, Amit, the beneficiary, is protected
from any U.S. lawsuits filed against him or his mom,
Priya. The language inside the trust would also
protect Priya from lawsuits. The grantor, her husband
Naveen, would be free and clear from anything that
happens within U.S. boundaries.

Vaughan: So there are two possible choices, both of


which provide protection of assets. In one case, you
would use a domestic asset protection trust, where
the spouse is the trustee. In the other case, you would

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use a foreign asset protection trust, and a bank or


other institution would be the trustee. In either case,
if the child got in some sort of trouble that created
some exposure or risk, that risk would be negated by
the trust.

Patrick: Correct. This is how the trusts would work.


For example, I’m suing Amit. Amit does not have
the choice to do what he wants with the property
even though he is the beneficiary because it is the
trustee, his mother Priya, who elects whether to let
him benefit from the trust or not. Of course, Priya,
his mother, would choose not to have the equity of
this house be paid out to Amit in order to pay for
any lawsuit judgments. That way, the house would be
protected.

Vaughan: That makes a lot of sense. The assets in the


trust are held for the benefit of the child and so those
assets aren’t really considered the trustee’s property.
How about if Priya were involved in a lawsuit?

Patrick: Yes. This is how a beneficiary, like Amit, is


protected. In the event Priya, the wife residing in
the U.S., gets brought into a lawsuit, the way the
argument would work is that Priya, as the trustee,
owes a fiduciary duty to the beneficiary, her son Amit,

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but she does not have “ownership” of the property.


Therefore, Priya does not have the right to distribute
the value of the house to herself in order to pay any
judgment from a lawsuit.

Vaughan: Let’s talk about another possible scenario


where the entire family moves to the United States. In
this scenario, the entire family wants to move to the
U.S. and apply for their Green Cards. Arjun and Lina
and their daughter Sara are moving to the U.S. Their
assets and investments would be located both in the
U.S. and in India. They own a business in India but
also own a home and a business in the United States.
How would that scenario change how they protected
their assets in both the U.S. and India?

Patrick: In my experience, most creditors will not pursue


litigation offshore. Holding assets on foreign soil is
the first layer of protection from litigation, because
most creditors will not pursue a fight in a different
jurisdiction. What they will do, however, is seek out
whatever assets are held in the United States, and go
after those assets. In a case where both spouses reside
in the U.S., we need to protect all family members.
As I explained earlier, a trust can hold three roles: a
trustee, a grantor, and a beneficiary.

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Vaughan: And does the law allow for the grantor and the
trustee to be the same?

Patrick: It does, but it gives less protection in this


scenario.

Vaughan: So in the scenario for Naveen and Priya


(earlier), Naveen was still living in India and could
act as the trustor, and Priya, the spouse living in the
United States, would act as the trustee. When both
spouses live in the U.S., the needs change. Is that
right?

Patrick: Correct. Unlike our first scenario, here, Arjun


and Lina are both in the U.S., so they are both exposed
in terms of litigation.

Vaughan: Right.

Patrick: You’ll need to protect Arjun and Lina’s assets.


There are many different formats for this. One
possibility is to let the Arjun, the husband, be the
grantor. Lina will be the trustee, and Sara, their
daughter, will be the beneficiary.

Vaughan: Okay.

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Patrick: If Sara was involved in a car accident and was


the cause of the accident, Arjun and Lina have no
vested interest in the trust, so Arjun and Lina would
not be liable for any damages caused by the accident.

Vaughan: Right. But what happens in the event Lina, the


trustee, gets into a lawsuit?

Patrick: Lina could claim she does not have ownership in


the asset because it’s held in the trust.

Vaughan: What happens if Arjun is sued?

Patrick: Arjun, as the grantor, could also claim that he


has no ownership in the trust. The legal argument is
that he created the trust but claims no ownership over
the assets in the trust. This would be legally allowed
if he were a U.S. citizen, because he would be subject
to U.S. tax laws. Internal Revenue Code 541 allows
him to reside in the property, to reap full benefit of
the property, but not to have legal ownership of the
property.

Vaughan: So the law allows for someone to reside in a


house, have control over it, like if they wanted to sell
it, but at the same time, argue that they do not have
ownership of the house? This protects the house from

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being taken if the grantor was found personally liable


for wrongdoing.

Patrick: Yes. Here’s another rule of thumb that readers


might enjoy. There is an inverse correlation between
the amount of protection that you get, and the amount
of control that you receive. The more protection you
have, the less control you have. And the more control,
the less protection. The beautiful thing about an asset
protection trust is that the balance is right in the
middle, where the family gets the best of both worlds.

Vaughan: They can maximize both protection and


control.

Patrick: Correct.

Vaughan: We’ve covered three relatively common


scenarios in which a trust is the primary solution
for protecting the family’s American assets. You
mentioned that in a lawsuit, most creditors wouldn’t
go after the family’s foreign assets. I’m wondering,
does that include things like bank accounts in a
foreign bank?

Patrick: Here’s the distinction. By placing assets in


foreign institutions, you will make the fight harder,
but it doesn’t mean that I haven’t seen litigation

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happen. I’ve seen people go after offshore assets for


sure. When there is enough money at play they will
litigate the matter in the jurisdiction available.

Vaughan: What’s the best way to protect the assets held


outside the U.S. from creditors?

Patrick: Setting up a foreign off‑shore asset protection


trust is a good option. Let’s use the example discussed
above, with a real-life scenario. Imagine the family
owns the assets within a Cook Islands Trust. If a
creditor were to sue the family, the creditor would
have the burden of proof to demonstrate that the
family had an actual intent to delay, deceit, or
defraud the creditor at the time the transfer was
made. Furthermore, Cook Islands require a “beyond
a reasonable doubt” burden of proof. I can go into
details about that a little later. But suffice it to say,
there isn’t a single case where a creditor successfully
met that burden.

Vaughan: It sounds like you make the decision of where


to create the trust on a case-by-case basis, but that in
many cases, foreign assets would be less likely to be
at risk than American assets. And that includes both
foreign asset protection trusts—where the trustee is
a bank in the family’s home country—or in another
country outside the U.S., at an international bank.

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Patrick: Correct. There are two main reasons that


foreign asset protection trusts are effective. Number
one, there is a two‑year statute of limitations that
protects deposits. If today, I deposit USD $100,000
into a foreign bank account, after those two years,
that $100,000 is inaccessible in the event of a lawsuit.
So that’s the first hurdle for creditors to overcome.
The second is that creditors must prove, “beyond
a reasonable doubt” that the owner of the asset
committed the wrongdoing in a lawsuit. “Beyond a
reasonable doubt” is a very high threshold to prove
that some type of fraud has occurred in order for
the creditor to seize the foreign funds. These two
hurdles make it very difficult to successfully go after
someone’s assets.

Vaughan: Sounds like they make it very difficult. Our


conversation so far has revolved around trusts to
protect family’s assets from litigation from creditors.
Let’s talk briefly about the relationship between trusts
and what’s called probate court in the U.S., and the
relationship between trusts and the estate tax.

Patrick: A probate court becomes involved upon a


person passing away. Probate court is a very different
animal than asset protection. I like to think of
probate court as planning in the event of death, while
asset protection is legal planning while you’re alive.

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So even though they both fall under the umbrella of


estate planning, they are two different legal vehicles.

Patrick: In order to avoid probate court, most clients


create a revocable living trust, commonly known as
a will and testament.

Vaughan: So if you have a revocable living trust, then


automatically those assets under the trust will not go
through probate court.

Patrick: Correct.

Vaughan: And can you say briefly why someone would


want to avoid probate court?

Patrick: Probate court is extremely tedious in terms of


paperwork and in terms of regaining control over
assets. Think of probate court as basically your legal
signature. If something happens to you without a
Revocable Living Trust, probate court would be the
only means to administer your estate. It is how your
loved ones would get your “signature” even if you
were no longer around. The problem is that the legal
proceedings are very slow, even if your spouse or
children are the ones trying to gain control of your
assets. California is actually known to be the slowest

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in the nation—it can take anywhere from one to two


years to get control of the assets.

Vaughan: Wow.

Patrick: The biggest downfall of probate court is that the


court takes, on average, 4 to 6 percent of the gross
value of the estate. Let’s say there is a $1 million house
in the estate. Whether you have $100,000 of equity
or zero equity, your surviving spouse or children or
other relatives, will end up paying 5 percent of the
gross market value of the house. This means that of
that $1 million house, the government will withhold
$50,000 in probate tax, even if there is no equity in
the property.

Vaughan: Wow, that’s really dramatic!

Patrick: To me, that’s reason alone to get a revocable


living trust.

Vaughan: So if somebody just has a will, is that enough


to avoid probate, or do you need a revocable living
trust in addition to a will?

Patrick: That’s a very good question. That is one that


is very commonly asked. The rule of thumb that
I give my clients is the following: If you have less

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than $150,000 in assets, go ahead and make a will.


Anything above $150,000 in assets, even if you own
only a condo but it’s worth $200,000, then it’s worth
creating a revocable living trust.

Vaughan: It sounds like just about anyone who can afford


the necessary investment for an EB-5 visa should get
a revocable living trust.

Patrick: Let’s just say that out of everyone that I’ve


worked with so far in that universe, I haven’t done a
will as of yet!

Vaughan: Got it. Just to make it crystal clear, probate court


is the legal process through which the government
takes stock of all of your assets and distributes them
in accordance with how they interpret your wishes,
in the absence of a will or trust.

Patrick: Exactly. I would tell my clients look at it this way.


Imagine that the probate system has a book in order
to make an educated guess as to what you would have
wanted to have happen with your assets, and that
book is called the Probate Code. It’s long, it’s tedious,
it’s complicated and it’s costly. On the other hand,
the revocable living trust (and will) is your own legal
book, a rulebook you drafted that says what you want
to have happen.

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Vaughan: My understanding is that probate court is so


expensive and so costly and that’s why the government
will take a portion of your assets, because it needs to
provide funding for this process.

Patrick: Absolutely! That’s just the standard fee. That


doesn’t include the recording fees, the attorney fees,
the publication fees and more. So once you add those
things, it quickly adds up to way over 6 percent that
will be taken out of your estate.

Vaughan: It’s very complicated and very costly.

Patrick: Correct.

Vaughan: What about the U.S. estate tax? Can you say
what that is and how that works?

Patrick: Yes. As of today, the estate tax applies to an


individual with assets valued at $5,250,000. For a
married couple, it’s twice that: $10.5 million. So most
individuals will not fall into this category. However,
for those who do, and I do have clients that do, they
may have to pay anywhere from 42 to 40 percent of
the amount above the exemption limit.

Vaughan: Can you provide an example?

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Patrick: Sure. For an individual with $10 million in


assets, any amount above $5,250,000 may be taxed at
much higher rate, like 47 percent. These scenarios are
complicated, which where I would provide my clients
with an advance tax planning strategy complete
with a wide array of instruments, from the family’s
limited partnership, to an irrevocable life insurance
trust. Each case is different because it depends on the
individual’s assets.

Vaughan: It sounds like the estate tax may be a concern for


some individuals but not others, and if it is a concern
for a particular EB-5 client, there are ways to address
it. So far, we’ve been talking about domestic and
international asset protection trusts, and we’ve been
talking about revocable living trusts. Is it possible to
have both asset protection trusts and revocable living
trusts at the same time? How does that work?

Patrick: Yes. You can have a revocable living trust and a


will or a domestic and offshore asset protection trust.

Vaughan: How would a parent who was involved in the


EB-5 petition process get protection for their assets
both in the event of litigation and in the event of
death? How would they do both simultaneously?

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Patrick: We would create what is called a comprehensive


integrated estate plan. This leaves the client covered
throughout the entire scheme of possible life
scenarios, and naturally would address any concern
upon death.

Vaughan: That sounds like a really valuable thing to have.

Patrick: Usually once I sit down with a client, it doesn’t


take too long for them to see the full benefit of it.

Vaughan: Right, and they can rest easy knowing that the
assets that they worked so hard to accrue are going to
be protected and would be available for their children
regardless of the circumstances.

Patrick: Exactly. At the end of the day, the beneficiary is


protected either way.

Vaughan: Thank you Patrick for providing us with an


in-depth look at asset protection and estate planning
issues today.

Patrick: It was my pleasure!

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de Kirby Juris & Associates
INDIA:
Kundan Chambers,
Thube Park, Shivaji Nagar,
Pune 411005, Maharashtra 
Phone: +91 20 412-82800

USA:
5139 Geary Boulevard
San Francisco, California 94118
Phone: 415-221-2345

Email:
info@dekirbyjuris.com

Website:
www.dekirbyjuris.com
www.eb5law.in
Vaughan de Kirby is a 1981 Cum Laude
graduate of Thomas Jefferson School of Law and is
admitted to practice in the states of California, Texas,
Maryland, the District of Columbia and before the
United States Supreme Court. Vaughan is an attorney,
writer, educator and speaker whose goal is to empower
his readers and clients with the information they need
to make the best legal decisions for themselves and their
families. Vaughan has served as an adjunct professor of law and is the author
of numerous best-selling books and consumer guides. Vaughan and his wife
Christine are the parents of three adult children.
The Law Offices of Vaughan de Kirby, APC received the Golden Crown award
from the World Journal newspaper based on a vote of its readers. The readers
of Sing Tao Daily have rated the Law Offices of Vaughan de Kirby as number
one in client service.

Kenton de Kirby holds a doctorate in


education from the University of California, Berkeley.
His research interests center on cognitive development
and its relationship to culture. His articles have appeared
in high profile academic journals, including Human
Development, Journal of Cognition and Culture, Autism,
and Journal of Autism and Developmental Disorders. His
dissertation, for which he received a Spencer/National
Academy of Education Fellowship, investigates a core aspect of mathematics
learning. For over 10 years, Kenton has also written extensively about EB-
5, investment immigration, and other topics in immigration law. He lives in
Oakland, California with his wife, Amelia, and their young son, Rowan.

de Kirby Juris & Associates


INDIA: Kundan Chambers, Thube Park, Shivaji Nagar, Pune 411005, Maharashtra 
Phone: +91 20 412-82800
USA: 5139 Geary Boulevard, San Francisco, California 94118
Phone: 415-221-2345
Email: info@dekirbyjuris.com Website: www.dekirbyjuris.com, www.eb5law.in

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