Source of Funds - Recent Trends and Developments


When making a qualifying EB-5 investment into a new commercial enterprise, the regulations require that the petitioner present evidence “[t]o show that the petitioner has invested or is actively in the process of investing , capital obtained through lawful means.” What exactly does this mean? Essentially, one can use a variety of difference sources for their investment, so long as they can illustrate (1) that the source of funds was lawfully obtained; and (2) they are able to trace the path of funds from the initial source to the EB-5 enterprise.

With the creation of the dedicated Immigrant Investor Program Office in Washington D.C. and the hiring of new staff that range from a variety of technical backgrounds and are holders of advanced degrees, USCIS has been issuing Requests for Evidence (RFEs) that require a much higher level of detail and scrutiny as compared to before. Some of the recent issues raised in the RFEs as it relates to source of funds is as follows:

· Administrative Fee: If the EB-5 project is under the umbrella of a Regional Center, USCIS has required that evidence be submitted showing that the petitioner has paid the requisite administrative fee and to provide documentation illustrating that the payment for the administrative fee, although separate and apart from the $500,000 or $1,000,000 EB-5 capital investment, was derived from a lawful source. The administrative fee is an additional administrative/management fee that is paid by each applicant to the Regional Center;

· Sale of Property: If a property’s value increased significantly over the years such that its sale value is significantly higher than its purchase value, USCIS is requesting evidence to show the value of the property at the time of the sale (i.e. an appraisal report). Moreover, USCIS has contended that a sales contract and financial statements are not sufficient evidence to document that the sale took place. Other corroborating evidence, such as tax payments or updated deeds are required as well. Lastly, where a mortgage was obtained to purchase the initial property, USCIS has sought evidence illustrating that the mortgage has been paid off prior to the petitioner’s sale of the property;

· Loans: Where the applicant is obtaining a loan from his/her company in which he/she is a stakeholder in, USCIS has required evidence to illustrate that the applicant’s personal assets are used to secure the loan. USCIS has then gone on to examine the company’s balance sheets for the year in which the loan was obtained to calculate the proportion of the owner’s equity that the applicant is entitled to for that year, based on his/her % ownership interests in the company to ensure that the owner’s equity in the company is at least equal to or in excess of the loan obtained; and

· Accumulated Income: Where the petitioner’s investment is derived from accumulated income, USCIS has requested information such as tax returns, employment verification letters, and bank statements showing the steady growth of income over the years. USCIS has confirmed that an employment verification letter, by itself, is not sufficient objective evidence of claimed income, especially where the company is 100% owned by the applicant and a family member.

In short, the recent trends we’ve been seeing in USCIS’ adjudication of the source of funds illustrates that petitioners and their legal counsel must be much more comprehensive and detailed in showing that the funds used for their EB-5 investment was, indeed, lawfully obtained. In a recent teleconference held on February 26, 2015 that was the first in a series of interactive engagements designed to address adjudicative issues, USCIS focused on how to deal with RFEs in EB-5 source of funds issues. The resounding takeaways from the teleconference were namely, the role that third party documentation plays, the importance of explaining inconsistences between the documents submitted, and providing full translations of documents that are in a foreign language.

As interest in the EB-5 Program has grown exponentially in the last decade and continues to rise, practitioners must always be cognizant to ask their clients the million dollar (or $500,000) question: “Where did the money for your EB-5 investment come from.” Oftentimes, there is more than what meets the eye.

Mitch Wexler is a Partner with Fragomen Worldwide and manages its Irvine & LA offices. He is a California State Bar certified Specialist in Immigration & Nationality law and represent s individuals, including in EB5 applications, families, start ups and established domestic and multi national businesses in all of their immigration/visa matters.

Reprinted with permission.

About The Author

Mitch Wexler Mitch Wexler oversees the day to day operations of the firm's Irvine and Los Angeles, California offices. His practice is quite diverse in that it is comprised of individual, start up, mid-size, and large multinational companies. Mitch's clients are equally diverse across industry sectors including manufacturing, pharmaceutical, technology, construction, entertainment and more.Mitch is a member of the firm's national Executive Committee. He is a California State Bar certified specialist in immigration and nationality law. Mitch also teaches an annual module on business and investment (including EB-5) immigration law at the University of California Irvine Law School.

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