EB-5 source of funds requirement & best practices
A primary EB-5 requirement is an initial investment in a new commercial enterprise. That investment must be $900,000 (USD) in a Targeted Employment Area or $1.8 million in a non-TEA area. As per United States Citizenship and Immigration Services (USCIS) regulations, investors must provide appropriate documentation in their I-526 petition to show the capital for their EB-5 investment has been obtained or earned through lawful means.
Lawful source of funds
EB-5 investors are often individuals with income earned from different sources. For example, an individual may be employed at a corporation and also own income generating assets like patents or stocks. The investor’s funds may come from deposits in a bank account or other securities. Regardless, all investment funds should be traceable back to their source of origin.
Anti-money-laundering (AML) is a concern, so USCIS thoroughly verifies an investor’s source of funds. Thus, it is critical that investors and their immigration lawyer make strategic decisions about which sources to use. It is vital to ensure that all verifying documentation is available and to ensure the validity of these documents. They must clearly and precisely show where the EB-5 investment capital came from.
Investors from non-English speaking countries should pay special attention to having their documents officially translated.
Lawful path of funds
It is not only critical that a petitioner documents that his or her funds came from lawful sources but that there is a lawful path of funds as well. Path of funds requires documentation of how the investor has acquired the funds and given the money to the new commercial enterprise in the U.S. for the investment. The investor must prove to USCIS that such a path is not only lawful but complete and clear. Issues can arise for immigrant investors in countries that restrict the outflow of money; in such cases, several transactions may be required to transfer the full amount to the new commercial enterprise.
Source of administration fees
While the EB-5 program only requires proof of the source of funds for the investment capital, USCIS goes beyond this standard to look for the lawful source of the administrative fees that an investor pays to projects. The administration fee collected by a project pays for operational and marketing expenses. So, while the petitioner invests $900,000 or $1.8 million into in a new commercial enterprise (NCE), there is usually an additional $50,000 to $80,000 in administrative fees. That additional fee should be part of the total amount of funds the investor proves all derived from lawful sources.
Standard of proof
Regulations state that petitioners must provide for their source and path of funds a “preponderance of the evidence.” This means that the USCIS official examining the documentation must conclude that it is “more likely than not” that what the documentation says is correct.
While this is technically a lower standard than “clear and convincing” or “beyond a reasonable doubt” standards, USCIS officers will often use these unofficial higher standards of proof. Thus a petitioner and his or her immigration lawyer should attempt to meet these higher standards when supplying documentation.
Documentation requirements & eligible sources of funds
Investors must provide individual and corporate/partnership (if applicable) tax returns filed in any jurisdiction for the last five years. It is essential that all financial statements go through an audit. In the case where preceding years’ tax returns show higher income, petitioners should also submit tax returns reflecting the three years of their highest income levels.
Some eligible sources of funds and verifying documentation for EB-5 investor visa USA program are as following:
- petitioner should include bank statements for up to three years for all bank accounts
- statements encapsulating records of withdrawal of funds from one account and deposit of the funds in another account
- transfers must be supported by letters from the bank confirming the transaction
Real estate assets
- petitioner must provide appraisals for all real estate pledged
- petitioner must submit deeds and mortgage documents for all owned properties, including documentation of all purchases and sales
- provide lease documents for all properties that earn lease/rental income
- petitioner must provide documentation proving ownership/officership, as well as business registration records
- include an accountant’s appraisal of all businesses in which the individual owns a controlling or substantial interest (this applies to all business in or outside the United States)
- investors must provide documents like stock certificates showing all owned investments, or securities accounts for the last three years
- include supporting documentation if they made significant capital gains on investments before the preceding three years
Other valid sources of funds for EB-5 Capital
- employment: proof and confirmation of employment, employment contracts or professional licenses if applicable
- inheritance: all documents pertaining to any received inheritances, including estate settlements of the deceased
- gifts: all documents related to the receipt of gifts; requirement covers registering the gift with tax authorities or reports about the source of income of the gift giver
- divorce and legal proceedings: all documents regarding such funds, including alimony, monies earned through civil lawsuits (accompanied by official court judgments)
Third party sources of funds: Loans
If an an EB-5 investor obtains funds from a third-party source, they are required to document the source of these funds as well. The most common example of this is a loan taken from a bank or financial institution. When using credit, it is required that the collateral against which the loan was issued is documented.
USCIS previously allowed EB-5 investors to secure a loan against a family member’s property, and this was permitted as long as the relative authorized the use of the property as collateral for the loan. USCIS has since announced that proceeds from a loan can only qualify as capital for an investor if they are personally and primarily liable for the loan. Additionally, the value of the collateral must meet or exceed the amount of the loan. Typically, USCIS tends to issue a request for evidence (RFE) if the current market value of the collateral is close to the loan amount. A best practice is to limit the loan amount to 70% of the collateral property’s market value.
Source of Funds: Declaration of missing documents
In trying the source the funds for investment in an EB-5 project, on occasion, an investor may be unable to obtain certain documents or find that some documentation is missing.
If this happens, the investor can file a declaration with comprehensive information explaining why they are unable to obtain the required documentation. As long as the reasons provided are valid and detailed, USCIS officers have been known to accept such declarations of missing documents. However, declarations should be avoided as much as possible and only used as a last resort. They should not be regarded as a replacement for required documents.
Anti-Money Laundering rules & best practices
Individuals investing in the United States must always be compliant with Anti-Money Laundering (AML) rules. The Bank Secrecy Act (BSA) is the primary U.S. Anti-Money Laundering law. Money Laundering is defined as the activity of covering up the source and ownership of illicit funds procured through criminal activity. Money laundering is often done by mixing the funds from illegal sources with legally obtained money. Lawbreakers exploit gray areas in the financial system such as creating fraudulent companies, falsifying transactions and more.
United States Federal Regulators define money laundering as transactions intended to:
- hide the source of the investing funds.
- evade paying income and other applicable taxes
- cover up audit trails to create the impression that the investment funds have been obtained through lawful means
A robust Anti-Money Laundering process is critical to investing through the EB-5 program. A few best practices for this are as follows:
All investors are responsible for the AML compliance for their projects. They are contractually permitted to delegate the implementation of their AML program to external entities. This external entity, in turn, must agree to inspection and examination by federal examiners. The option to delegate is particularly crucial for investors working with regional centers. EB-5 regional centers often operate under a multi-entity structure that has the potential to be perceived as an attempt to launder funds.
Appointing a Chief Compliance Officer (CCO)
The CCO is an individual responsible for monitoring the Anti-Money Laundering program and implementing internal controls to avoid violations of policy. The CCO has to be highly proficient with the Bank Secrecy Act requirements and potential AML risks and issues. They should be authorized to develop systems and enforce practices throughout each project’s life cycle.
Currency Transaction Report (CTR)
The Bank Secrecy Act requires any person or business who receives cash in excess of $10,000 in one transaction (or in two or more related transactions) to report the transaction on the IRS Form 8300.
“Cash” can mean currency or cash equivalents such as bank drafts, money orders, cashier’s checks, etc. received in the course of a trade or business. Investors in the EB-5 visa program should avoid dealing with cash or cash equivalents as far as possible. If required by the project, they are advised to follow clear written procedures to accurately document and report cash transactions as required by law.