The Situation
My client agreed to buy a controlling 51% stake in a U.S. plumbing business and run it on an E-2 treaty investor visa. Everything about the deal looked suspicious. The seller was his brother-in-law. The purchase money was the seller’s own, lent to my client against nothing but a signature on an unsecured promissory note. The funds sat in escrow, the sale contingent upon the visa issuance. A man buying his relative’s company with his relative’s money, owing it back on his word alone. Hmm. A skeptic would call it circular, or worse. Yet the deal was legal in every particular. And on the one particular that mattered, the unsecured family loan, the Department of State’s own manual had already written the answer.
The consulate refused him under section 214(b) of the Immigration and Nationality Act. The officer doubted a loan between brothers-in-law would ever be enforced, and wanted assurance it would be repaid even if the business failed, in effect security on an unsecured loan. He was adjudicating the loan, not the application. The statute was the formality. The E-2, my client was told, is a visa for people of means, established companies: well-known restaurants, world-famous chefs, rich investors. Certain Las Vegas venues were mentioned. Who the hell are you?
The case turned on one question: Can an unsecured loan, signed by the investor and extended by the relative selling him the business, count as a valid E-2 investment? The consulate said no. The Foreign Affairs Manual said yes.
The Advisory Opinion That Cited Nothing
After the refusal, I asked the Department of State’s Visa Office for a formal advisory opinion. The facts were not in dispute; I said so in the request. What I wanted was law, on a single question:
“Whether the fact that the lender of qualifying investment funds and the seller of the business in the U.S. is married to the visa applicant’s wife’s sister has any bearing on the visa applicant’s intent to direct and develop the enterprise once he arrives in the U.S. in E-2 status.”
An advisory opinion has one job: to answer a legal question with legal authority. The answer arrived through the Department’s LegalNet channel, siding with the consulate:
“We reviewed your client’s application materials and concur with Post’s finding that purchase of 51% in his brother-in-law’s business, in order to qualify for E-2 status, using an unsecured loan provided by the same relative and owner which the applicant will pay off in five years, does not appear to constitute a valid investment for E-2 purposes.”
You would expect the Visa Office to cite something: a statute, a regulation, a FAM note. No such luck. Instead they parroted the fact pattern as if it were self-explanatory and self-indicting. I wrote back:
“You should be able to cite at least one applicable statute, regulation or memorandum that would support your legal advisory opinion in this case that unsecured loans from distant relatives do not constitute a valid investment for E-2 visa purposes. You do not and, indeed, cannot because no such legal authority exists. But I can. A loan secured by signature can be counted as part of the investment. ‘[U]nsecured loans, such as a loan on the alien’s personal signature may be included, since the alien risks the funds in the event of business failure.’ See 9 FAM 41.51 N.8.2.”
(The note has since been renumbered to 9 FAM 402.9-6(B); the rule is unchanged.) The Department’s lawyers needed their own manual read to them. When no answer came, I spelled out where their position led:
“If we were to apply your position in this particular case broadly and uniformly, we would need to deny all immigration cases involving transfers of funds or property among relatives, including such common cases as EB-5, in immigrant visa petitions, or E-1/E-2, in nonimmigrant visa petitions, where such transactions, more often than not, serve as a foundation of the applicant’s eligibility. Denying all such cases on the grounds you state would be illegal and absurd.”
Silence followed.
The Self-Enforcing Clause
While the Visa Office searched for an authority that did not exist, we filed again.
The second application rested on the same documentation as the first, with one addition: an amendment to the interest transfer agreement and the unsecured promissory note. The amendment wrote the E-2 status conditions into the deal. Any violation of them became a material default under the transfer agreement and an event of default under the note: if my client took unauthorized employment, or failed to do the manager’s work the visa was for, the transaction voided itself ab initio and the 51% went back to the seller. The consulate had questioned whether he truly meant to direct and develop the business. The amendment made his ownership entirely contingent on his doing exactly that.
The cover letter conceded nothing:
“We continue to await a favorable advisory opinion from the Visa Office in Washington because no existing legal authority supports a denial of an application involving an unsecured personal loan and a purchase of a business from a relative.”
And on the reception at the window:
“That this application is one of only a few others — from applicants whose corporate name recognition and financial means apparently buy them preferred treatment at your post — hardly justifies treating my client as if he were a pauper mingling among princes. Congress did not exclude small business owners from applying under E-2 classification. Neither should your post.”
The “pauper” would be running a profitable company with more than half a million dollars in annual operating income and several skilled employees on the payroll.
The Result
Months of stalling and delay followed. Then a United States Senator’s office inquired about the case. The visa was issued, about ten months after the first application.
The State Department never produced the authority I asked it to cite. It produced the visa instead.