25 Feb Documenting The Legal Source and Path of Funds
When Congress established the EB-5 Visa Category in 1990, its goal was to to ensure that the funds committed by immigrant investors were obtained lawfully and not as a result of any illegal activity. Therefore, lawmakers passed a “lawful source of funds” requirement for both Regional Center and direct investment projects. Every EB-5 Visa petition must fully document the lawful source of funds as well as the path of the funds (defined below). Failure to provide adequate documentation can result in a denial of the petition or an RFE (Request for Evidence). In this post, we will provide an overview of the various kinds of evidence required to substantiate the legal source and path of funds, and some of the challenges involved therein.
Source of Funds
According to EB-5 regulations, an EB-5 applicant’s capital can originate from a variety of legal sources. These can include:
- Employment earnings and bonuses
- Earnings from the investor’s business
- Sale of business assets
- Inheritance
- Gift
- Stocks
- Retirement funds
- Proceeds from a real estate transaction
- Home equity loan
Source of funds documentation must show an unbroken chain tracing back to the original source. If documentation is missing, USCIS may issue an RFE. In order to substantiate that the applicant’s investment funds did indeed come from one of the aforementioned legal sources, investors can provide four categories of documentation, as per EB-5 regulations:
- Foreign business registration records;
- Corporate, partnership, and personal tax returns or similar documents filed within the past five years;
- Evidence identifying other sources of capital; or
- Certified copies of court judgments, pending court cases, and administrative proceedings within the past 15 years.
In practice, USCIS requires a substantial amount of documentation to prove lawful source of funds, even beyond the categories specified above.
Given that EB-5 investment capital can be legally obtained in myriad ways, there is no single formula or checklist that can be used to determine which of these documents is necessary to substantiate the legal source of the funds. EB-5 visa applicants must be guided by their immigration attorneys to determine which specific set of documents should be submitted based on the specific case at hand. For instance, if the funds were inherited, a will or trust forms should be submitted. Funds earned from income or an investment necessitate the submission of stock certificates, dividend letters, and account statements. For capital earned from income on a previous business investment, applicants should provide corporate tax returns for the business, including evidence of payouts to the owners. This helpful IIUSA web site explains common EB-5 source of funds scenarios and how to document them, based on guidance provided by USCIS.
In order to avoid an RFE, applicants should consider the factors below when submitting source of funds documentation:
- In cases where funds were obtained from a third party, proof of funds from the third party must also be obtained. For example, if the funds were the result of a gift or inheritance, the lawful source of the giver’s funds must be documented. If the source of funds was a loan, the lawful source of the lender’s funds and the collateral for the loan must be documented. If the lender is a well-known bank, then supporting documents of its lawful source of funds will probably not be required.
- Explain any inconsistencies in the documents provided.
- If a required document is unavailable, explain why. Note that USCIS officers may accept declarations to supplement missing documentation if the declarations are credible. For example, if an investor cannot provide tax returns because they are not required to file tax returns in his/her country, a declaration from a tax professional in the investor’s country may be sufficient documentation.
- Consider the probative value of evidence (i.e., evidence from an objective third party is better than evidence from the investor, his or her friends or family members, or his or employer).
- Provide full translations of foreign documents. Do not translate just part of a document.[1]
Path of Funds
In additional to proving the lawful source of funds, investors must also substantiate a lawful path of funds. USCIS requires investors to properly document the path of funds to show that the funds were transferred from their original source to the investor’s possession, and from the investor’s possession to the new commercial enterprise (NCE) by lawful means. Just like the evidence provided for lawful source of funds, the proof for path of funds must be clear and unbroken.
For example, if the funds were received as a gift, demonstrating a lawful path of funds could require the gift giver’s personal bank statement demonstrating the transfer of funds to the recipient; a wire transfer statement, stamped by the bank, showing funds being wired into the investor’s personal bank account in the U.S.; and the investor’s personal bank statement showing receipt of funds. In general, tracing the path of funds from investor to the NCE can require a wire transfer order, stamped by the bank, showing transfer of funds from the investor’s account to an EB-5 escrow account or to the Regional Center project into which the funds are being invested; the investor’s personal bank statement showing withdrawal of funds by the Project Fund Manager; a bank statement of from the Regional Center confirming the receipt of said investor’s investment funds; and an acknowledgement from the Regional Center or NCE that money was transferred from Investor.[2]
Challenges Related to Country of Origin
Some countries have laws and/or regulations that may make it difficult for investors to follow USCIS requirements concerning their EB-5 investment. For example, the transfer of funds from the investor to the new commercial enterprise may be especially difficult for applicants who live in countries with restrictions on the outflow of currency, such as: China, Vietnam, Venezuela, India, South Korea, and Brazil. In an upcoming blog post, we will discuss how such financial and currency restrictions affect the ability of EB-5 investors to transfer funds to the new commercial enterprise.
Conclusion
In sum, USCIS’ high level of scrutiny to verify the lawful path and source of funds requires diligence and a substantial amount of time and effort to ensure compliance. Investors and their legal counsel should be prepared for the challenges involved therein. While the investor may find USCIS’ requests for documentation intrusive, his surest path to success is transparency by providing as much information and probative documentation as possible.
To inquire regarding our turnkey EB-5 concierge services, including project oversight and coordination, our best-in-class Matter of Ho-compliant business plans, due diligence project assessments and a wide range of ancillary services, please contact us at info@ecouncilinc.com.
e-Council Inc.’s website, newsletter and other forms of communication contain general information about legal matters. The information is not legal advice and should not be treated as such. You must not rely on the information on this website as an alternative to legal advice from an attorney or other professional legal services provider. For specific questions about any legal matter please consult with an attorney or other professional services provider.
[1] https://iiusa.org/blog/government-affairs/uscis-government-affairs/uscis-explains-deal-eb5-source-funds-issues-stephen-yaleloehr/; http://www.dcregionalcenter.com/VisaProcess_lawful.html; http://www.eb5investors.com/magazine/article/eb-5-source-of-funds-strategy
[2] http://legalservicesincorporated.com/how-does-source-of-funds-for-eb-5-work/; http://www.eb5investors.com/magazine/article/eb-5-source-of-funds-strategy