Meaning of "Actively in the Process of Investing" in EB5 Context

 

Introduction

In order to be eligible for an EB5 visa as an immigrant investor, the investor must establish that he or she has invested or is “actively in the process of investing” the requisite amount of capital into a qualifying new commercial enterprise. In this article, we will examine the meaning and scope of the term “actively in the process of investing” and what it means for investors who are seeking EB5 visas without having already invested the entire minimum amount of capital into the applicable commercial enterprise.

Statutory and Background

In order to qualify for an EB5 visa, in an immigrant investor must invest either $1,000,000 or $500,000 into a new commercial enterprise depending on where the investment is made.

Section 203(b)(5) of the Immigration and Nationality Act (INA) provides that an EB5 visa shall be made available to an alien who either “has invested” or “is actively in the process of investing” the requisite amount of capital into a new commercial enterprise.

The statutes regarding the removal of conditions on permanent residence for immigrant investors contain the same language. Section 216A(d)(1)(A)(i) of the INA requires an immigrant investor who is applying for the removal of conditions to submit evidence in support of his or her petition establishing that he or she “invested, or is actively in the process of investing, the requisite capital.” (Emphasis added.) Section 216A(b)(1)(B)(i) makes clear that an alien who fails to establish that he or she invested or is/was actively in the process of investing the requisite capital is ineligible for the removal of conditions.

There are three key points to understand about the foregoing statutes before continuing to the implementing regulations.

First, by presenting “has invested” and “is actively in the process of investing” in the disjunctive, the EB5 statutes governing initial petitions and petitions for the removal of conditions clearly contemplate two separate and distinct means of satisfying the minimum investment requirement. Either the immigrant investor must establish that he or she has already invested the requisite amount of capital or that he or she is actively in the process of investing the requisite amount of capital.

Second, “actively in the process of investing” suggests something that has previously begun and that continues to be ongoing. That is, the investor has not yet actually invested all of the capital but can satisfy the adjudicator that he or she is in the process of completing the investment. The reappearance of the term in the removal of conditions statute is interesting in that it shows that the alien need not establish that he or she has actually invested all of the capital within two years of being granted immigrant investor preference status. By implication, in order to establish eligibility for an EB5 visa in the first instance, the petitioner is not required to demonstrate that the investment process will be completed within two years.

Third, the statute does not actually define “actively in the process of investing” to an extent beyond what we inferred in points one and two. For example, the phrase does not clarify how much the petitioner for either an EB5 visa or the removal of conditions must have already invested, if any amount, in order to satisfy the requirement. The phrase also does not clarify what the petitioner must do to establish that he or she is still in the process of investing the requisite amount of capital. That is, the statute requires the petitioner not only to establish that he or she is actively in the process of investing, but also that he or she is actively in the process of investing the entire amount of capital required. The use of the adverb “actively” suggests, at the least, that the petitioner must show that he or she is in the actually investing the outstanding capital. However, from the statute alone, it is unclear what a petitioner who has invested one-half of the requisite amount must do to show that he or she is in the process of investing the entire amount. For clarification, we must turn to the implementing regulations and administrative guidance and precedents.

Implementing Regulations

To begin, 8 C.F.R. 204.6(e) defines the term “invest” as “to contribute capital.” The term capital is defined in the same regulatory provision as meaning “cash, equipment, inventory, other tangible property, cash equivalents, and indebtedness secured by assets owned by the alien entrepreneur, provided that the alien entrepreneur is personally and primarily liable and that the assets of the new commercial enterprise upon which the petition is based are not used to secure any indebtedness.” We discuss what constitutes “capital” in the EB5 context in a separate article [see article].

8 C.F.R. 204.6(j) reiterates the statutory requirement that an EB5 petition “must be accompanied by evidence that the alien has invested or is actively in the process of investing lawfully obtained capital in a new commercial enterprise in the United States…” (Emphasis added.)

8 C.F.R. 204.6(j)(2) provides further clarification on the scope of the term “actively in the process of investing.” In order to show that the petitioner is “actively in the process of investing,” the “[EB5] petition must be accompanied by evidence that the petitioner has placed the required amount of capital at risk for the purpose of generating a return on the capital at risk.” That is, even if the petitioner has not actually invested the full $1,000,000 or $500,000, whichever is applicable, the petitioner must demonstrate that the full amount has been placed at risk even if it has not yet been entirely invested in the new business. The provision continues: “Evidence of mere intent to invest, or of prospective investment arrangements entailing no present commitment, will not suffice to show that the petitioner is actively in the process of investing.” That is, in order to establish that the petitioner is “actively in the process of investing,” the petition must be accompanied by evidence of a present commitment of funds, that is, that the funds are at risk even if they are not already invested. 8 C.F.R. 204.6(j) lists several types of evidence that the petitioner may submit to “show actual commitment of the required amount of capital.” The list is as follows:

(i) Bank statement(s) showing amount(s) deposited in United States business account(s) for the enterprise;
(ii) Evidence of assets which have been purchased for use in the United States enterprise, including invoices, sales receipts, and purchase contracts containing sufficient information to identify such assets, their purchase costs, date of purchase, and purchasing entity;
(iii) Evidence of property transferred from abroad for use in the United States enterprise, including United States Customs Service commercial entry documents, bills of lading, and transit insurance policies containing ownership information and sufficient information to identify the property and to indicate the fair market value of such property;
(iv) Evidence of monies transferred or committed to be transferred to the new commercial enterprise in exchange for shares of stock (voting or nonvoting, common or preferred). Such stock may not include terms requiring the new commercial enterprise to redeem it at the holder's request; or
(v) Evidence of any loan or mortgage agreement, promissory note, security agreement, or other evidence of borrowing which is secured by assets of the petitioner, other than those of the new commercial enterprise, and for which the petitioner is personally and primarily liable.

Clauses (iv) and (v) have particular relevance to many potential scenarios for petitioners “actively in the process of investing.” We will examine more issues pertaining to promissory notes and being actively in the process of investing in the next section.

It is important to note that the above list is not exhaustive. Rather, the regulations include common types of evidence that may be submitted to show either that the petitioner has invested capital or is actively in the process of investing capital into the new commercial enterprise. We will expand on the list with specific reference to provisions pertaining to “actively in the process of investing” in the next section of the article.

Regarding the removal of conditions, 8 C.F.R. 216.6(c)(1)(ii) requires the adjudicator of the petition to determine whether “[t]he alien invested or was actively in the process of investing the requisite capital…” 8 C.F.R. 216.6(a)(4)(ii) requires the petitioner to submit evidence that he or she “invested or was actively in the process of investing the requisite capital.” In short, the investor must show either that he or she invested all the funds during the conditional permanent resident period or was actively in the process of investing the funds. The statutory disjunctive remains, again suggesting that there is no requirement that the investment must be entirely completed during the two-year conditional permanent residency period. The regulation suggests that evidence that the petitioner has invested or was actively in the process of investing the requisite capital “may include, but is not limited to, an audited financial statement or other probative evidence.”

While the statutes are unclear on the scope of the term “actively in the process of investing,” the regulations make clear that the term is narrowly interpreted. That the investor is required to show that the entire minimum investment amount is placed “at risk” significantly narrows the utility of the provision. Instead of permitting an investor to only commit some of the funds to the new commercial enterprise with evidence that the rest of the funds will be committed later, the regulations require the commitment of all the funds, whether or not they have actually been invested.

USCIS Policy Manual Guidance

The USCIS has published extensive guidance on EB5 petitions for its adjudicators in the chapter 6 of the USCIS PM.

6 USCIS-PM G.4 makes clear that when filing the Form I-526 petition for EB5 classification, the petitioner “does not need to establish that the required capital has already been fully invested.” Rather, “[t]he investment requirement is met if the immigrant investor demonstrates that he or she is actively in the process of investing the required capital.” Regarding the Form I-829, Petition by Entrepreneur to Remove Conditions on Permanent Resident Status, 6 USCIS-PM G.5 notes that the immigrant investor must establish evidence that he or she had “invested, or was actively in the process of investing the required capital and sustained the investment throughout [his or her] period of … residence in the United States.”

6 USCIS-PM G.2 provides examples of ways that an immigrant investor may establish that he or she is “in the process of investing.”

Promissory notes may constitute capital provided that they meet certain requirements. Under 6 USCIS-PM G.2(A)(1), a promissory note maker must be “personally and primarily liable for the promissory note debt and his or her assets must secure the note. Any security interest must be perfected to the extent provided for by the jurisdiction in which the asset is located.” For EB5 purposes, “nearly all the money due under a promissory note must be payable within 2 years, without provisions for extensions.” That the PM does not require all of the funds to be payable within 2 years points to the fact that an immigrant investor may satisfy his or her burden for the removal of conditions by showing that he or she is still “actively in the process of investing.” A qualifying promissory note is one way that an investor can show that he or she is “actively in the process of investing.” We discuss promissory notes in the EB5 context in extensive detail in a separate article [see article].

An immigrant investor may also place funds in escrow to establish that he or she is actively in the process of investing. 6 USCIS-PM G.2(A)(2) states that the release of funds from escrow to the new commercial entity must be contingent only on the approval of the Form I-526, Immigrant Petition by Alien Entrepreneur, visa issuance and admission to the United States as a conditional permanent resident, or approval of the immigrant investor's Form I-485, Application to Register Permanent Resident or Adjust Status. In order to subsequently remove conditions, the petitioner must show that the escrowed funds he or she provided evidence of with the Form I-526 were subsequently released to the commercial enterprise.

6 USCIS-PM G.2(A)(2) also provides further guidance on the “at risk” requirement. The regulations make clear that the immigrant investor must put the full $1,000,000 or $500,000 (whichever is applicable) at risk in order to have the Form I-526 approved, regardless of whether the petitioner had already invested the funds or the petitioner is actively in the process of investing the funds. Prior to the petitioner's satisfying the job creation requirement, the PM states that the petitioner must meet several “at risk requirements” in addition to having “placed the required amount of capital at risk for the purpose of generating a return on the capital placed at risk…” First, “[t]here must be a risk of loss and a chance for gain.” Second, “[b]usiness activity must actually be undertaken.” Third and finally, “[t]he full amount of the investment must be made available to the business[es] most closely responsible for creating the employment upon which the petition is based.” (Emphasis added.) The risk of loss and chance for gain and the undertaking of business activity requirements are retained for petitioners after the job creation requirement is met as well.

The foregoing points note sections of the USCIS-PM with specific relevance to petitioners who endeavor to establish eligibility for EB5 classification by showing that they are “actively in the process of investing” the requisite capital. The types of evidence that are relevant will depend on the facts of the particular case. It is important to remember that this is but one of many requirements for EB5 classification. The petitioner must also demonstrate the lawful source of funds, that the investment is in a qualifying commercial enterprise, that he or she has a satisfactory business plan, and more. The petitioner is also required to establish that the investment funds qualify as “capital” under the EB5 rules, including that he or she is not relying on impermissible debt arrangements [see article].

Precedent Decisions

Legacy Immigration and Naturalization Service (INS) and the Board of Immigration Appeals (BIA) have addressed the concept of “in the process of investing” in several precedent decisions. The majority of these decisions deal with the E2 nonimmigrant category and the former nonpreference investor category. There are only four precedential decisions dealing specifically with the EB5 category, all dating to 1998. The four EB5 precedents remain influential, being cited to frequently in the USCIS-PM. Although subsequent guidance and changes have rendered the precedents from the former nonpreference investor category mostly obsolete, we will examine several decisions which nevertheless address interesting scenarios regarding the concept of being “actively in the process of investing” and which generally align with the current EB5 statutes, regulations, and guidance. Below, we will examine relevant precedents.

In Matter of Soffici, 22 I&N Dec. 158, 164 (Assoc. Comm. 1998) [PDF version], the Administrative Appeals Office (AAO) noted that the petitioner must establish that he or she “has the means to begin the process of investing…” in order to establish EB5 eligibility in that way.

In Matter of Hsiung, 22 I&N Dec. 201, 204 n.5 (Assoc. Comm. 1998) [PDF version], the AAO recognized that a petitioner may claim that a promissory note itself constitutes capital or that it “merely” constitutes evidence that the petitioner is “in the process of investing.” However, it is worth noting that the PM itself only addresses the validity of promissory notes in the context of constituting capital. Matter of Hsuing noted that, where a petitioner fails to demonstrate that a promissory note is not secured by the petitioner's assets and/or where the value of the promissory note is such that the petitioner does not establish that he or she has met the minimum investment threshold, the petitioner fails to satisfy that he or she has placed the requisite capital “at risk.” 22 I&N Dec. at 204.

Matter of Izummi, 22 I&N Dec. 169, 193 (Assoc. Comm. 1998) [PDF version], also recognized that “[u]nder certain circumstances, a promissory note that does not itself constitute capital could instead constitute evidence that the petitioner 'is in the process of investing' other capital, such as cash.” However, the decision cited to 8 C.F.R. 216.6(c)(1)(iii) to explain that in any event, “a petitioner must substantially complete his payments on the note prior to the end of the two-year conditional period.” Id.

Matter of Hsuing and Matter of Izummi both recognize that promissory notes that do not themselves constitute capital may constitute evidence that the petitioner is “actively in the process of investing.” The current PM guidance appears to combine the two concepts. However, both the relevant precedents and the PM require that promissory notes in the EB5 context must be adequately secured by qualifying assets of the petitioner and almost entirely paid off within the two-year conditional residency period. Matter of Izummi explains that otherwise, an individual who fails to establish that he or she would likely be eligible for the removal of conditions on permanent resident status in two years would be eligible for conditional permanent resident status as an EB5 investor. Id. at 194

Regarding the former nonpreference category for investors, the Board held in Matter of Lui, 15 I&N Dec. 206, 207 (BIA 1975) [PDF version], that the conditional intent to invest is insufficient. That is, an alien who establishes that he or she possesses the requisite funds to invest but only provides evidence that he or she would commit the funds if certain conditions are met has not sustained his or her burden. To this extent, Matter of Lui retains some relevance in the EB5 context. The petitioner must establish both that he or she has the requisite capital to invest and that he or she has actually committed the capital, whether he or she has invested the requisite capital or is actively in the process of investing the requisite capital. Similarly, in Matter of Shon Ning Lee, 15 I&N Dec. 439, 440 (BIA 1975) [PDF version], the Board later held that an investor who was examining business possibilities ,but failed to establish that she was likely to commit funds in the absence of being granted permanent residency was not actively in the process of investing.

In Matter of Khan, 16 I&N Dec. 138 (BIA 1977) [PDF version], the Board considered the case of an alien who had invested $8,600 of the requisite $10,000 for the former nonpreference investor classification. Notwithstanding the fact that the respondent had already invested the majority of the requisite funds, the Board concluded that he established only a subjective intent to invest the remaining $1,400. 16 I&N Dec. at 140. It held that the mere fact that the respondent had invested funds in the past did not establish that he would continue to do so in the future. Id. at 141. Although the decision did not purport to fully define the term “actively in the process of investing” in the former nonpreference context, it suggested that evidence of being actively in the process of investing “could consist of copies of contracts showing that he is legally committed to making certain expenditures, or similar items.” Id.

In Matter of Heitland, 14 I&N Dec. 563, 565-66 (BIA 1974) [PDF version], the Board concluded that funds deposited in a bank savings account did not qualify as investments under the pertinent regulations because they were “more an accumulation of funds than an active entrepreneurial undertaking.” The Board subsequently applied the precedent in the E2 context in Matter of Chung, 15 I&N Dec. 681, 682 (R.C. 1976) [PDF version].

FAM Guidance on the E2 Category

The closest nonimmigrant analogue to the EB5 immigrant visa preference category is the E2 nonimmigrant treaty investor category. Although there are very significant differences between the EB5 and E2 categories, the section 101(a)(15)(E)(ii) provides that E2 visas are available to treaty investors who are “actively in the process of investing” capital into a qualifying enterprise. Because of the identical term, it is worth briefly examining the U.S. Department of State's (DOS's) guidance on the term in the E2 context from its Foreign Affairs Manual (FAM).

9 FAM 402.9-6(B)(a) distinguishes the term “in the process of investing” from having actually invested. 9 FAM 402.9-6(B)(c) makes clear that “[t]he concept of investment connotes the placing of funds or other capital assets at risk…” FAM 402.9-6(B)(d) provides that in order to be “in the process of investing,” the funds or assets “must be committed to the investment…” Furthermore, “the commitment must be real and irrevocable.” The requirement that the funds must be committed is similar to the EB5 regulations. 9 FAM 402.9-6(B)(e) states that the “mere intent to invest” is insufficient in the E2 contest, mirroring the EB5 provisions. For example, “possession of uncommitted funds in a bank account, or even prospective investment arrangements entailing no present commitment,” do not satisfy the “in the process of investing” requirement.”

Conclusion

The EB5 regulations allow investors to establish eligibility by demonstrating either that they have invested the requisite amount of capital or that they are actively in the process of investing the requisite amount of capital. However, the latter provision is limited by the fact that the entire amount of funds must be committed and at risk even if it has not actually been invested. Nevertheless, there may be many reasons why an investor would choose to file a petition while being actively in the process of investing the requisite capital, depending on the facts and circumstances of the particular case.

Due to the complexity of EB5 petitions and the fact that supporting a petition necessarily involves a very substantial financial commitment, prospective immigrant investors should consult with an experienced immigration attorney before taking decisive action. If it is determined that an EB5 petition is the right path for the investor, an experienced immigration attorney will be able to guide the investor throughout the process, including the best way to structure his or her investment given the facts of the particular case.

To learn more about the EB5 category, please see our growing selection of articles on investment immigration [see category].