Best Practices and Requirements for EB-5 Source of Funds

A major EB-5 requirement is that the initial investment should be in a new commercial enterprise. The investment must either be in a Targeted Employment Area or in a non-TEA. According to the United States Immigration Services (USCIS) regulations, investors must provide appropriate documentation in their I-526 petition to show the capital for their EB-5 investment was gained or obtained through lawful means.

Lawful Source of Funds

EB-5 investors are individuals that often have income earned from different sources. For instance, an investor may be employed at a corporation and also come from income-generating assets like stocks and patents. Their funds may also come from bank account deposits or securities. Regardless, all investments should be traceable to the source of origin.

USCIS thoroughly verifies the investor source to combat money laundering practices. Therefore, investors and their immigration lawyers must make strategic decisions about which sources to use. It is important to ensure that verifying documentation is valid, and it shows where the EB-5 investment capital came from. Investors in non-English speaking countries should pay attention to the translation of their documents.

Lawful path of funds

There must be a lawful path of funds. Path of funds requires documentation on how the investor has acquired funds and given the money to the new commercial enterprise in the U.S for the investment.

There are instances where immigrant investors in countries have restricted the outflow of money. In this case, multiple transactions may be needed to transfer the full amount to the new commercial enterprise.

Source of administration fees

Regulations state the petitioners must provide the source of funds as a “preponderance of the evidence”. 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 a lower standard compared to “clear and convincing” or “beyond reasonable doubt.” standards, USCIS officers will use these unofficial higher standards as proof. Therefore, the petitioner and the immigration lawyer must attempt to meet these higher standards when supplying documentation.

Documentation requirements & eligible sources of funds

Investors will need to provide individual and corporate/partnership (when applicable) tax returns filed in any jurisdiction for the last five years. It is also important that all financial statements go through an audit. In this case, the previous year’s tax returns should show higher income. Petitioners should also submit tax returns reflecting three years of their highest income levels.

Below are the eligible sources of funds and verifying documentation for an EB-5 visa:

Real Estate Assets

The petitioner must:

submit deeds and mortgage documents for all owned properties.
provide lease documents for all properties that earn rental income or lease.
provide appraisals for up to three years for real estate pledged

Business Ventures

The petitioner must include an accountant’s appraisal of all businesses in which the individual owns a substantial or controlling interest including businesses in or outside the U.S. Also they must provide documentation that proves ownership/officership and business registration records.

Bank Statements

They must include:

bank statements up to three years for all bank accounts
statements should encapsulate records of withdrawal of funds from one account and deposit of funds in another account.
transfers must be supported by letters from the bank confirming the transaction.

Investments

Provide documents such as

stock certificates that show the record of all owned investments or securities accounts for the last three years
include supporting documentation if they made capital gains on investments before the preceding years.

Other valid sources

inheritance – all documents relating to any received inheritances including statements of the deceased.
gifts – all documents relating to gifts, requirements 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 alimonies earned through civil lawsuits
employment – proof and confirmation of employment, employment contracts, or professional licenses when applicable.

Third-party sources of funds: Investor Loans

Whenever an EB-5 investor obtains funds from third-party sources, they must document the source of funds. The most common example is a loan taken from a bank or financial institution. When using credit, they are required to provide collateral against which the issue was documented.

Unsecured loans may now be an eligible source of funds

USCIS has not been approving EB-5 petitions with unsecured loans as a source of funds. However, the immigration service was fighting over the issues under the Zhang V. USCIS case. In 2018, the federal court sided with the investors stating that the unsecured loan was valid for EB-5. USCIS appealed this decision and in October 2020, a D.C circuit court supported the previous ruling.

On April 14, 2021, USCIS made a decision and approved Zhang’s petition with an unsecured loan. The approval of the petition means that future EB-5 investors can choose an unsecured loan to invest in.

Source of Funds: Declaration of missing documents

When proving the source of funds for an EB-5 investment project, and the investor was unable to obtain certain documents, he or she may do the following:

File a declaration with comprehensive information stating why the investor is unable to obtain the needed documents. USCIS officers have been known to accept the declaration of missing documents as long as the reasons provided are detailed and valid. However, these declarations have to be avoided as much as possible and may only be used as a last resort.

Anti-Money Laundering rules & best practices

When an individual investor wants to invest in the United States, he or she must be compliant with Anti-Money Laundering rules. Money laundering is the illegal process of changing money obtained from crimes into a legitimate income source. Lawbreakers exploit grey areas in the financial system by creating fraudulent companies, falsifying transactions, and other illicit activities.

United States Federal Regulators state money laundering as transactions made to:

hide the source of investment funds
avoid paying income and other applicable taxes
cover audit trails to make an impression that the invested funds have been obtained through lawful means.

A strong money laundering process is important to investing through the EB-5 program. Here are some of the best practices:

Appoint a Chief Compliance Officer

The Chief Compliance Officer (CCO) will be responsible for monitoring the Anti-Money Laundering program and implementing internal controls to avoid violations of policy. The CCO should be knowledgeable of the Bank Secrecy Act requirements and potential AML issues and risks. They should also be authorized to develop systems and enforce practices throughout the project’s life cycle.

Delegation

All investors are responsible for compliance with AML in their projects. They should be contractually permitted to delegate the regulation of their AML program to external entities. The external entity must agree to the inspection and examination by federal examiners. The option to delegate is crucial for investors working with regional centers. EB-5 regional centers can operate under a multi-entity structure that has the potential to be perceived as an attempt to launder funds.

Currency Transaction Report (CTR)

As stated in the Bank Secrecy Act, any person or business who receives cash over $10,000 in one transaction or two or more related transactions will need to report the transaction on IRS Form 8300.

“Cash” is defined as currency or cash equivalents such as money orders, bank drafts, cashier checks, etc. received in the cause of trade of business. EB-5 investors should avoid dealing with cash or cash equivalents as much as possible. If it is required in the project, they should follow clear written procedures to accurately document and report cash transactions as required by law.