TREATY, TRADER AND INVESTOR VISAS 

TREATY INVESTORS
E-2 NON-IMMIGRANT VISAS
     An “E-2” Non-Immigrant Treaty Investor Visa is for a bona-fide investor in a U.S. business coming to the United States to develop and direct the investment of a substantial amount of capital. The investor must be from a country with which the United States has formed a bi-lateral investment treaty, and the E-2 non-immigrants must own majority of the investment stock shares or other investment assets. Treaty investor visas are generally issued for five years, allowing for multiple two-year admissions, and they may be extended indefinitely.

   Understanding the E-2 Treaty Investor visa requires an analysis of both terms: to develop and to direct. Direction over a qualifying investment takes one of two forms. Firstly, E-2 non-immigrants can own controlling shares of stocks or a controlling share of the gross value of investment assets. Controlling ownership is expressed through policy- oriented decision-making contributing to the direction of the investment. For small business, over fifty percent ownership is required. Investments in larger business may amount to less than 50% to constitute a controlling share. Secondly, E-2 non-immigrants can direct the investment by assuming a supervisory, oversight function. In this case, the E-2 non-immigrant will either oversee U.S. employees or oversee a unit or division within the enterprise formed by the investment. In either case, direction over the investment must be exercised over an active investment, such as manufacturing, construction, or the provision of valuable services. Direction cannot be exercised over a passive investment, such as mutual funds, undeveloped real estate, or a home for personal consumption, but must be exercised towards active business development.

   Development of a qualifying investment rests on the question of whether the investment is “substantial.” A “substantial investment” has an entrepreneurial character, actively and irrevocably placing “at risk capital” towards the goal of developing a “non-marginal” enterprise. A “non-marginal” investment” entails either the hiring of U.S. workers or the formation of contracts with either independent suppliers or consumers, which will lead to the creation of jobs for U.S. workers. However, the qualifying investment cannot be “marginal.” A marginal investment is defined as an investment that provides only the investor and his or her family an income. An investment is also “marginal” if it provides the only means by which the investor and his or her family earns a living.

   Marginality is overcome either through the investment of an excessive amount of capital and/or the creation of U.S. jobs. While this circular logic creates an elusive standard rather than a bright line to direct the investor, it is safe to assume that an investment of $200,000 in an active and non-passive investment will generally be deemed non-marginal. Furthermore, a much smaller investment can also qualify so long as the investor has other sources of income apart form the investment used to qualify him or her as an E-2 non-immigrant treaty investor. Contracts creating expectancy of substantial amounts are also factored in. Furthermore, the investor need not employ others if as a direct result of the investment, suppliers or clients hire numerous additional employees. If investment capital is analogously seen as seed and the investment a garden, the investor must be able to set aside his “seed capital” from funds used to subsist until the seed produces a garden that bears fruit for not only the investor and family, but for other U.S. workers and their families.

  Thus, an investment of $26,000 in the early 1990s in an oriental kite shop in San Francisco, California, was found substantial where documentation was provided to show that extensive sales contracts lead to the creation of over a dozen jobs for a U.S. supplier. Another example is where an E-2 non-immigrant visa was issued to a visitor for business, who invested just over $22,000 at entry into the U.S. as a consultant and general contractor, and soon afterwards, he entered into a $3 million contract leading to the creation of dozens of jobs.

   Finally, the investment need not be made from personal capital but may be made from personal debt. However, the loan used to secure the investment must never be secured against the investment itself, but must be secured against personal assets.

   Following these guidelines, the investor may own a qualifying business in the U.S. without any restrictions on his entry and departure so long as the business remains viable. Indeed, in this day of fax and e-mail, the E-2 visa may be the better option (than the immigrant investor), where the investor spends time in the U.S. only to oversee his business or businesses, but resides primarily in his home country, enjoys a lower tax bracket, and desires to continue to do so.

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IMMIGRANT INVESTOR VISAS
   The immigrant investor visa is the quickest vehicle for a limited number of qualified investors to permanently relocate themselves and their families to the United States. Although ten thousand investor visas are allocated yearly, only a fraction of these has been used since the creation of the immigrant investor program in 1990. This is because the investor must demonstrate sizable commitments of capital—far more than is required to immigrate to other countries. Furthermore, investments are rigidly constrained to a single investment—the building of a business, confining otherwise more liberal use of capital preferred by most investors. Yet, for investors with a macro-economic portfolio who can document the source of their assets, the immigrant investor visa provides the quickest procedure to obtain permanent resident status for one’s self and family.

   The two foundational requirements for immigrant investor visas are: 1) an investment either of $500,000 or $1 million, depending upon the geographic location of the investment, and 2) the creation of 10 full time U.S. jobs or evidence of good faith effort to create these jobs. While all investment capital need not be committed and while ten full time jobs need not be produced at the onset of the investment, the immigrant will be subject to later inspection within two years of obtaining permanent resident status. At that time, both the required capital must be invested and ten persons must be employed, or it must be shown that the investor attempted sufficient business development to comply, in good faith, with these two requirements.

   The United States Bureau of Citizenship and Immigration Services (CIS), formerly the Immigration and Naturalization Service (INS), enforces these requirements with rigid scrutiny through two procedural phases. First, upon approval of an initial petition as an immigrant investor, permanent resident status is granted to the immigrant investor and family on a conditional basis for two years. Another petition must be filed to remove the conditional basis of immigrant status no sooner than a year and nine months and no later than two years after being granted conditional immigrant status. This petition to remove conditions on residence must be accompanied by substantial documentary evidence to prove the investment is a bona-fide at risk business development scheme. Many points of contention, mentioned below, can provide basis either for denial of the initial petition or denial of a petition to remove conditions on residence, instead terminating permanent resident status.

   Whether the investment amounts to $500,000 or $1 million, the investment can take one of two forms. First, the investment can be in a new enterprise, which, in turn, takes one of three forms: 1) the creation of a new business, 2) the purchase and complete reorganization of an existing company, or 3) the purchase of an existing company without reorganization which increases the company's net worth by 40% (or 140% of the company's pre-expansion net worth). Of course, one must bear in mind that employment creation (of 10 jobs) remains a constant. Second, the investment can be for the revitalization of a troubled business. To qualify for this pathway, the company purchased needs to have suffered a minimum 20% cumulative loss over the past two years. Moreover, ten jobs need to exist at time of investment and continue to exist after two years, or if these jobs had existed once before but do not exist at the time of investment, they must be restored and preserved during the two-year period.

   Significant savings can be realized through the $500,000 dollar investment, which is reserved for one of two kinds of targeted geographic areas: 1) rural areas or 2) areas with 150% of the average national unemployment rate in the United States. Otherwise, the investment must total one million dollars. This capital or debt need not originate from outside of the United States and may take the form of personal debt, which must be secured by personal assets and not the investment, itself. Thus, as an example, an investment of $125,000 may also entail a loan of $375,000 for the balance of one half million, secured by the personal net worth of the investor, wherein the investment targets either a low income locality with high unemployment or a rural locality. Highly leveraged investment schemes must yield high rates of return that exceed operating costs including sizable debt service. However, the investor must bear in mind that loans secured in the United States entail far lower interest than is conventionally available.

   Pooling arrangements of investment capital are allowed, where more than one investor may immigrate through a joint investment or consortium so long as the amount invested and the number of U.S. jobs created are proportional to the number of investors. Job creation is measured in man-hours and where part-time jobs are created to cut costs, more than 10 jobs must be part of the business plan to comply with the minimum 40 man-hours per week of full-time jobs. Thus, either the money invested or the employment created can be a limiting factor. For example, 4.6 million invested creating 41 jobs will allow four investors and their families to immigrate. However, 4.6 million invested creating 31 jobs will allow for the immigration of three investors and their families, and 2.6 million invested creating 43 jobs will allow two investors and their families to immigrate.

   Recent CIS trends in both the adjudication of immigrant investor petitions and petitions to remove conditional residence have rejected claims of good faith attempted at compliance, with a rigid insistence that both capital and job creation requirements are met. Immigrant investor visa petitions have been denied, and in other cases, the CIS has, with increased frequency, terminated conditional permanent residence rather than removing conditions for permanent resident status. While evidence of fraud can be found by the CIS to warrant placement within removal proceedings, allowing for defense against CIS evidentiary findings, to date, such drastic procedures have not been deployed against the immigrant investor. However, certain immigrants luring other immigrant investors through fraud have been subject to criminal prosecution and subsequent deportation.

   One common issue of contention is that the CIS insists that the seed capital qualifying for immigrant investor status must be irretrievably invested “at risk.” Short-term placement of money that is secured with such instruments as promissory notes and divested upon receiving permanent resident status, while popular at the onset of the immigrant investor program in 1990, is now perceived to be more in the nature of a loan than an investment.

   Another issue of concern is that the CIS has been focusing on the source of investment capital in an ever-increasing mission to prevent ill-gotten funds from being laundered through immigrant investment capital. Thus, five years of declared income and payroll taxes are routinely required by the I.N.S. in order to authenticate the source of funds. Given the present security conscious climate of U.S. immigration law, what may amount to lawfully advantageous accounting under other countries’ law may, in turn, inadvertently prevent the investor from demonstrating the source of investment capital.

   The inability of employers to document the attempted creation of ten jobs is another common pitfall. Where business growth has fallen far short of projections, and the number of jobs produced has been far less than ten, the CIS has, on numerous occasions, found the initial projections to have lacked good faith, particularly where other factors, such as capital invested, also have fallen short.

   With all respect due, CIS suspicions may have been misplaced. Lately, bull markets have turned to hibernating bear markets, giving investors in the U.S. ample grounds to explain failed good faith efforts at job creation. The prudent investor rightfully conserves capital in the face of economic recession rather than squandering resources in order to be faithful to business projections derived during better economic conditions. In some cases, prudence may have been construed by CIS decision-makers as an absence of good faith. In reality, given the economic downturn, staying the course with many investments makes little to no sense.

   For most investors, U.S. immigration law provides a more viable alternative immigration investment option through a two-step process. First, the immigrant investor can seek admission as an L-1 non-immigrant, as an executive for one’s own company in his or her home country or an executive or high-level manager in a larger international corporate concern, coming to the U.S. to serve as an executive or high-level manager in either a pre-existing, a newly purchased, or a new start up company, which is related to the company in the home country. As a second step, the same evidence can be used to qualify for permanent resident status premised upon the same U.S. and home country companies. This has been the pathway that I have invariably recommended to my clients. However, the immigrant investor program is worth mentioning for extremely large-scale investors, who will not be dissuaded from investing a relatively small proportion of their net worth in a more restricted fashion, who will not be harmed by remaining steadfast to their investment in an effort to weather hard economic times, and for whom this program provides the fastest investment vehicle to obtaining permanent resident status under U.S. immigration law.

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