Documenting Lawful Source of Funds in EB-5
One of the major roles an immigration attorney plays for an EB-5 immigrant investor is strategizing and documenting the lawful nature of EB-5 capital invested in a new commercial enterprise. This is to comply with USCIS regulations at 8 C.F.R. 204.6(j)(2) and (3), which lists the type of evidence an EB-5 investor must submit, as applicable, such as foreign business registration records, business or personal tax returns, or evidence of other sources of capital, to demonstrate the capital was “obtained through lawful means.” In practice, this can require substantial documentation when preparing the Form I-526 petition, as USCIS reviews documents like a forensic accountant, requiring documentation on earnings and bank transfers to correlate with the investor’s “source of funds” story.
How should an EB-5 investor prove source of funds?
An EB-5 petitioner must establish that the actual capital invested came from a lawful source, and not simply that the capital could have been provided from lawful funds. See Binbin Lei, 2017 U.S. Dist. LEXIS 43548, at *4 n. 2 (“[A] plaintiff cannot establish that she is eligible for an EB-5 visa merely by showing that her husband was financially capable of affording her capital investment via lawfully obtained funds; she must establish that the actual capital invested was obtained through lawful means.”)
U.S. courts have found these “hyper-technical” requirements serve a valid government interest: confirming that the funds utilized are not of suspect origin, such as drug trafficking, money laundering, or other criminal enterprises. See Spencer Enterprises, Inc. v. United States, 229 F. Supp. 2d 1025, 1040 (E.D. Calif. 2001) aff'd 345 F.3d 683 (9th Cir. 2003) (affirming a finding that a petitioner had failed to establish the lawful source of her funds due to her failure to designate the nature of all of her employment or submit five years of tax returns).
The process to establish that EB-5 capital came from a legal source
EB-5 immigration attorneys work closely with the immigrant investor (and potentially his/her financial advisor, tax professionals, and others) to understand how the EB-5 applicant earned his/her capital and how such earnings can be documented. This is a critical aspect of EB-5 investor representation, and can involve weeks of back and forth to obtain, translate, and review documentation before being able to present an approvable case to USCIS.
Additionally, an EB-5 petitioner must document the “path of funds” in order to meet the burden of establishing that the funds are his own funds. See In re Izummi, 22 I. & N. Dec. 169, 195 (holding because "petitioner ha[d] not documented the path of funds, ... the petitioner ... failed to meet his burden of establishing that the initial [investment] ... were his own funds"); and In re Soffici, 22 I. & N. Dec. 158, 164-65 (finding petitioner failed to demonstrate he satisfied Section 204.6(j)(2) & (3) because he failed to document adequately the source of funds he sought to invest).
Why it's critical to consider source before transferring EB-5 capital
Due to restrictions of formal banking channels or currency exchange controls, it has become more common for an EB-5 investor’s funds to involve a private currency exchange. USCIS has become more attuned to these financial relationships and have begun denying Form I-526s when the currency exchanger is unable to provide evidence of the lawful source of funds being transferred to the United States. It is critical that an EB-5 investor discuss the evidentiary requirements with an immigration attorney and private currency exchanger before transferring funds to ensure documentation can be provided to assuage any USCIS concerns.
Hiring an experienced EB-5 attorney is important for many reasons, but documenting the lawful source and path of funds is one of the biggest reasons why. It’s something that must be done correctly on the first try, before the EB-5 capital is transferred to a new commercial enterprise. EB-5 practitioners have seen a large uptick in Requests for Evidence, Notices of Intent to Deny, and denials related to source of funds, and it can be difficult to “fix” a case after it has already been filed. This is not an area to be penny-wise, pound-foolish.