By Marta Lillo
The EB-5 regulation mandates that investors obtain investment capital from a lawful source without any connection to criminal activities. Since the EB-5 Reform and Integrity Act of 2022 (RIA) in 2022, new, more stringent documentation requirements for the Source of Funds (SOF) aim to ensure applicants comply with these restrictions.
Conditions demand that EB-5 investors submit business and tax records for the past seven years when filing form I-526 before USCIS, the initial step in the EB-5 process. Additionally, applicants must disclose the identities of all individuals who transferred funds into the United States on their behalf. Even gifts and loans must meet a “good faith” prerequisite to ensure they come from permissible sources.
Gathering the extensive documentation required to trace the funds’ path is challenging. It is further complicated when the funds come from cash, non-monetary gifts, and other unconventional contributions, and no documentation supports them for cultural or other reasons.
Farah Abbas, the principal attorney of Abbas Law PLLC, explains that although EB-5 legal counsel puts much effort into gathering the most detailed source of funds, “this is not always possible, depending on certain documentation norms or the length of time that has passed since the relevant transactions.”
The situation can be particularly daunting for potential EB-5 investors with sufficient funds who need more paperwork to back it up. According to immigration attorneys, prospects must carefully assess the viability of their funding sources before deciding, as this can make or break an application.
When there is no paper trail for EB-5 capital
In some countries, there may not be any documentation trail for property gifts given over a decade ago during past sale processes. The same applies to cash and jewelry gifts, common in many cultures. A relative or friend often gives these gifts to mark a special occasion or as an inheritance passed down through generations. However, RIA requires gifts to be provided in “good faith” without illegal objectives. It can be challenging to establish the date of the gift given to the EB-5 investor’s ancestors in an informal but legal context.
EB-5 attorney and the managing attorney of the immigration law firm of the Law Office of Lu & Associates, Ying (Elissa) Lu, describes the case of a Chinese EB-5 investor whose grandmother purchased a house more than 30 years ago and sold it recently to raise the EB-5 capital for her grandson. “Grandma needed to prove how she initially acquired this house. They will look to the contract, the down payment, etc.”
According to Lu, some 2022 and 2023 AAO ( Administrative Appeals Office) decisions denied cases where EB-5 investors were not able to provide bank statements or tax records from 20 to 30 years ago to demonstrate that the investor/gifter had kept the money in their own bank account at the time of initial acquisition of that property. “That’s nearly a mission impossible, especially in China, when they didn’t have computers until the mid-1990s. All the bank records are manual from then, so it’s impossible for them to keep a manual record for 30 years,” she states.
Collecting documents backing these offerings in these situations can become burdensome and invasive with significant time constraints.
When none can be found, EB-5 attorney Michael Piston is adamant: “I would have no choice but to tell the client to expect a denial,” the EB-5 attorney says. Because regulation demands that investors prove they lawfully obtained capital from gifts and non-bank lenders, “a petition which relies upon a gift for which has no paper trail or track record and, therefore, there is no way to show it was obtained through lawful means or from a lawful source should be assumed to be not approvable,” he insists.
EB-5 investors can explain in their I-526 application that they don’t have the necessary documentation to back some of their EB-5 capital and provide a bank certificate stating they can make the investment regardless. However, the USCIS can deny these grounds. “If USCIS does not accept further explanation, like the bank certification saying that those kinds of documents are not available or do not exist and denies the case, the investor can file an appeal with the AAO, or they just challenge the decision in a federal court,” Lu adds.
Current solutions and preferred sources for EB-5 funds
Today, practices of proof of funds for EB-5 investments aim to alleviate doubts. Abbas explains that cash savings are more manageable to document than gifts; however, even these sometimes don’t have the necessary papers available to trace the origin of the cash. “The last resort is for an investor to submit their own signed statement and a signed statement from a third party who has knowledge of the cash transactions. If there are other secondary ways to show a transaction occurred, that can be provided to support the signed statements. Maybe an investor paid cash to purchase a property, but then there might be a deed or register reflecting the amount that was paid and the method of payment,” the attorney says.
Meanwhile, Steffanie J. Lewis from the International Business Law Firm explains that her firm “uses notarized affidavits from every person in the chain of funding from initial sources to EB-5 deposit. We sometimes have several sources; for each source, we have a complete chain of custody of that source money until that source money is deposited with EB-5. Chain of custody takes time and effort on the petitioner’s part, but so far, it has worked for us.”
Piston concludes that investors commonly turn the gift into capital to secure a collateralized bank loan. “If one deposits the money in a bank and uses it to collateralize a loan, then one no longer has the burden of proving that funds were obtained through lawful means or a lawful source.”
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