On Mar 26 2015 by F. Oliver Yang
EB-5 RFE Trend: USCIS Searches of Public Business Registration Records in China
In the December 5, 2014 USCIS EB-5 Stakeholder Engagement, Immigrant Investor Program (IPO) Chief Nicholas Colucci mentioned that one of the agency’s top priorities is to collaborate with law enforcement and regulatory organizations to help prevent fraud and develop new ways to further enhance confidence in the EB-5 program.
According to Mr. Colucci, USCIS intends to strengthen program integrity by (1) conducting more site visits both domestically and abroad to validate supporting documentation; (2) utilizing new commercial and government databases; (3) expanding the Fraud Detection and National Security (FDNS) team; and (4) providing additional training to the FDNS team on combating money laundry and fraud.
While Mr. Colucci did not elaborate on the details of the new initiatives, we think they will inevitably lead to an increase of Requests for Evidence (RFE) on lawful source and path of funds documentation. In fact, investors have witnessed a sizable increase in the number of RFEs on source and path of funds since late 2014. A close look at those recent RFEs suggests that USCIS has indeed been implementing new measures to validate source of funds documentation submitted by EB-5 investors.
As China accounts for more than 80% of the total EB-5 investors, it comes as no surprise that most of the recent RFEs are directed at Chinese investors. This article focuses on one of the new RFE trends concerning Chinese investors. We will discuss a few others in later articles.
One of the most interesting RFE trends involves Chinese investors who are also business owners. In one case, the petitioner obtained her EB-5 funds by taking out a home equity loan, and sought to demonstrate that the funds she used to purchase the property derived from her employment income. In order to prove her income, the petitioner submitted her resume and employment certificates. In the RFE, USCIS indicated that it conducted a public record search on its own, which revealed that the petitioner is a shareholder of her current employer. USCIS indicated that the capital contribution she made to establish the company is not supported by the income certificates provided by the petitioner and requested further evidence.
The public record mentioned in the RFE likely came from the National Enterprise Credit Information Public Disclosure System (“Public Disclosure System”) , which is an online database officially launched by the State Administration for Industry & Commerce of the People’s Republic of China pursuant to Interim Regulation on Enterprise Information Disclosure  in October 2014. On the website, searches can be made by selecting the locality and entering the name of the company or the company’s registration number. A wide array of information about the company is available on the company’s information disclosure page, including date of establishment, legal representative, registered capital, list of current shareholders, and each shareholder’s respective equity interest. In some instances, the record also lists changes in equity interests.
However, we note that using the Public Disclosure System to verify source of funds documents is not without flaws. If the name of the company in the investor’s source of funds documents is not the registered name of the company, a company name search would likely produce inaccurate results. Additionally, because of different reporting standards in localities across the country, changes in equity interests are sometimes not available. This could potentially cause great confusion in cases where the investor initially contributed a small amount of capital to establish the company but later greatly increased the registered capital. Further, where the changes in equity interests are made available, it may also be out of date as the law only requires the enterprise to submit its annual report reflecting equity interest changes for the previous year between January 1 and June 30. As a result, it may take up to a year and a half to update changes in equity interest in the Public Disclosure System.
While we applaud USCIS for carrying out new measures to strengthen program integrity and prevent fraud, we also caution USCIS not to solely rely upon the Public Disclosure System as it may contain incomplete or inaccurate information. For Chinese investors who are business owners, it is imperative to review the company’s information disclosure page in the Public Disclosure System for any inconsistency, and collect necessary documents to show the lawful source of the funds used to acquire the company equity in all types of cases.