The source of investors’ funds in an EB-5 investment to obtain an EB-5 visa can either pave the way for a successful application or pose significant risks if not understood and managed correctly. If not addressed, these risks can lead to delayed or denied applications. It’s helpful to grasp this concept before starting the application process with the U.S. Immigration authorities.
During a recent webinar hosted by EB5Investors.com, Marjan Kasra from LawMaks, Irina Rostova from EB-5 Support, and Kyle Walker from Green Card Fund, discussed the importance of proving a lawful source of funds for an EB-5 investment.
The EB-5 professionals agreed that the documentation they submit in their EB-5 application must fully demonstrate that their investing funds are legal. Failure to do so will result in delayed or denied applications.
Here is what to consider:
1. Money gifts and loans from friends and family members are accepted sources of funds if they can be legally documented.
Irina Rostova: If you’re an investor and you have a friend, a relative, or someone else who is willing to give you a loan for the money that you need to invest in an EB5 project, you can take that loan and invest. You do not need to provide any personal security for that loan regarding personal assets. This is also helpful to immigration attorneys whose clients’ source of funds is complicated, with documents archived 20 years ago. But if they have a relative or a friend who has a much easier source of funds that can be easily traced and documented, it is a good and valid strategy that they borrow the money from their friends to invest in a project. Investors can take out a loan, not just from a bank but from private individuals. Of course, the source of funds from that private individual has to be documented fully and presented with the petition.
EB-5 applications must submit thorough documentation that verifies the lawful source of funds and avoids illicit or unexplained sources.
Marjan Kasra: Whether the money comes from an investor, a gift, or any other source, we need to provide USCIS with at least seven years of tax returns. In cases where tax returns are not required in certain countries or are not customary, we typically seek audits from accountants. We usually also collect a minimum of 12 months of bank statements and sometimes even longer, depending on the situation. We also require employment verification. For professionals, we need to see their trade licenses or professional licenses to verify their legal income sources. The purpose of providing these documents is to ensure that USCIS can verify that the funds are not from illicit sources and have been generated through lawful means.
Irina Rostova: Gifts are a very big part of EB-5 investments. Some investors don’t realize that their funds do not necessarily have to be earned by them. We get a lot of gifts from parents to children from relatives to the petitioner. Gifting is perfectly acceptable as a source of funds. But you still have to trace the origin of how the donor earned those funds, whether from a business transaction, salary, inheritance, etc. One of the more common ways people show their source of funds or some of the more common sources, is business income inheritance. Also, growth in real estate value, especially in many Asian and Eastern European countries. Many people who purchased real estate 15-20 years ago have seen it grow by about ten times. So that is a source of a lot of wealth for certain regions, and there you would document the sale of the real estate, the purchase, the growth, and the source of funds. And then, if the money comes from an inheritance, USCIS tends to ask about the lawful activity of the deceased individual who passed on the inheritance.
The older the funds, the harder it is to document their source, particularly regarding inheritances, which can lead to increased scrutiny or potential rejection by the USCIS.
Irina Rostova: Sometimes, investors inherit funds lawfully, but they don’t have control over how the deceased individual earned them. Yet, USCIS will ask about the lawful activity of the person whose inheritance you received. Most countries keep documents in their archives for five years: bank statements, inheritance statements, and tax returns. When an event happened more than five years ago, it becomes very difficult. Sometimes, we know what happened. We know the clients earned it lawfully, but we don’t necessarily have direct evidence to show it. And that’s where you can utilize indirect evidence, whether it’s letters from former employers or government payment books. Maybe some sort of public articles about transfers or sales of certain businesses. So that’s where I think your creativity as an attorney plays a role.
Marjan Kasra: Five years is not enough. I must go back sometimes as far as 30 years. But USCIS is increasingly careful. The reason for that is because the Immigrant Investor Program Office (IPO) is made up of not only lawyers but also forensic accountants, people from the FBI, and the Fraud Detection and National Security Directorate (FDNS). They’re trying to prevent monies from illicit sources from entering the US. The further back we go, the more difficult it becomes to show the documentation. So, often, we fill in the blanks with affidavits from the client under penalty of perjury. Then we get letters from people who perhaps purchased the property from these guys back in 2000. We must show indirect evidence to prove our point and to give comfort to our immigration services that you know this money is earned lawfully. I also go back and obtain a valuation of the property. Most countries have a formal way of doing a property valuation much like a title search that we do in the U.S. Usually, most countries have a probate system when somebody passes away. A property that has been passed down generations to our client, we want to show the death certificate and everything that we can to prove that it is more likely than not that what we’re saying is accurate and true.
EB-5 investors should use funds with proper documentation to avoid hurdles in the EB-5 investment and application process.
Marjan Kasra: I always tell my clients we just have to isolate about $1 million of easily documentable funds. As long as you’re able to carve out a portion of funds that you can document properly, our job will be to provide solutions.
Kyle Walker: It’s about being thoughtful and strategic. It’s about picking the right bucket of a million dollars. And just because it appears there are roadblocks in the way, with the right professionals around and a thoughtful approach on the front end, there are often times ways through, both about the source and then also that path, which is so critical.
When filing the I-526 petition, funds for investment in the EB-5 program must be readily available.
Irina Rostova: If you have $600,000, but in December, you expect to receive a bonus, and you want to make the investment today, sign a contract, and use your future bonus to pay off the remainder, unfortunately, that will not work. Those are future funds. We cannot provide source of funds documentation, and you haven’t earned them yet. So USCIS may not consider that you are currently contractually obligated and provided source of funds documents.
The next thing, of course, is when you are making a loan agreement with the regional center. As the petitioner, you are personally and primarily responsible for that loan and providing the security guarantee that this is a legal obligation. Those are two kinds of strict requirements that we need to consider for EB5 investors.
Marjan Kasra: It’s very client-specific. If somebody is expecting a bonus at the end of the year. But who’s to say that they’re not going to lose the job before the end of the year, or the company could go belly up? Also, there’s a very strict requirement, that that petition must be approvable on the day of the filing. Otherwise, it will be considered a substantial change, and they could deny [the application] it just based on that.
Even after the I-526 petition has been approved, the USCIS may still request evidence regarding their source of funds.
Marjan Kasra: I’m seeing a lot more RFEs issued to regional center projects at the I-829 stage. They could issue an RFE at any point in time. We did have a level of comfort once we had the I526 approval. But recently, I think they’ve been poking into the source of funds, especially at the I-829.
Key legal cases have shaped the requirements and regulations surrounding EB-5 investments, like investor eligibility and investment structure.
Marjan Kasra: The first one of importance is the Matter of Ho, from 1998, which made it mandatory for a [EB-5 project] business plan to be comprehensive. It must have a credible plan for the creation of 10 jobs. A detailed analysis of job projections of the market and indirectly impacts the source of funds.
The second case is the Matter of Izzumi. It tells us that you cannot refund the investor, and that’s where the at-risk component comes in. It prevents regional centers from giving an investor any redemption agreement or repayment guarantee.
The third case is Matter of Zhang. In 2019, the Administrative Appeals Office (AAO) made it legal for investors to utilize funds that were not secured by any assets. Money is money, so it made it legal for the funds to be not secured by the investors’ personal assets. That opened up the door to a bunch of different ways for investors and provided more flexibility for investors to actually fund their investments.
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