The Relevancy of OFAC Licenses in EB-5 Petition Processing
By Kate Kalmykov and James Cormie
The Office of Foreign Assets Control (OFAC) is a federal agency that issues general and specific licenses that allow for certain types of activities that would otherwise be prohibited by OFAC’s enforcement of trade sanctions. OFAC is an arm of the Department of Treasury that sets out and enforces trade sanctions issued by the United States. All U.S. persons, including permanent resident aliens regardless of where they are located, all persons and entities within the U.S. and all U.S. incorporated entities and their foreign branches must comply with OFAC’s regulations. Currently, OFAC imposes comprehensive economic sanctions on Cuba, Iran, Sudan, North Korea and Syria and more limited sanctions on other countries. Additionally, OFAC periodically publishes a list of companies and individuals that are associated with these and other countries known as the “specially designated list” (“SDN”). Americans are expressly not allowed to enter into transactions with individuals on this listing.
As a regional center and as counsel, it is important to understand what countries may face sanctions. OFAC regulations curtail the ability of certain would be EB-5 investors from legally sourcing their funds through institutions in designated countries or if they or the company they have acquired their investment funds from is on the SDN list. USCIS is very much aware of the OFAC requirements and can issue a denial in cases where no license is obtained because funds in that instance would not meet the statutory and regulatory requirement that they be “lawfully sourced.” In cases where USCIS denials on lack of an OFAC license have been challenged, the Administrative Appeals Office has upheld USCIS’ decisions on this basis.
There are two types of licenses to an OFAC sanction known as “general” and “specific” licensees. In certain situations, OFAC may authorize certain activities pursuant to 41 CFR Section 501.801 that would otherwise be prohibited under a U.S. sanction in what is known as a “general license.” For example, OFAC issued a general license to Iran by publishing a new Iranian Transactions and Sanctions Regulations (“ITSR”) last year. OFAC specifically authorized the “transfer of funds from Iran on for or on behalf of a person in Iran,” as long as the transaction abides by certain conditions. (OFAC sometimes expressly names general licenses, such as “General License D” or “General License Number 1”, but these are less applicable to EB-5.) Previous to the implementation of this license, each individual Iranian EB-5 investor sought a “specific” license, which requires an individual to apply for a unique exemption to OFAC before USCIS approves their petition. Use of the general license alleviates the need for an individual Iranian investor to apply for their own license which often carries a lengthy wait time of 6-14 months.
A general license does not, however, override the SDN list. If an EB-5 investor has obtained funds from a company on this list or is on the list, then they are most likely prohibited from making the EB-5 investment unless they can obtain a specific license from OFAC to transfer funds. If this is not possible they may not proceed with the EB-5 investment. Regional centers should note that any U.S. person determined to be aiding a sanctioned individual with a money transfer can face criminal and civil penalties.
The consequences of violating an OFAC sanction can be serious. Companies or individuals can incur significant criminal fines ranging from $50,000 to $10,000,000 and imprisonment for 10 to 30 years. Additionally, civil penalties range between $11,000 to $1,000,000 and denial of the investor’s EB-5 petition. Moreover, the list of prohibited conduct, its scope, and OFAC’s attending general licenses change frequently.