From Russia with Love and Money: Practical Tips on Documenting ‘Source of Funds’ for Russian Investors

By Natalia Polukhtin

Even though no country can possibly compete with the number of EB-5 visas issued to Chinese citizens, political and economic instability in Russia during the past few years is causing many affluent Russians to explore immigration options.

In 2015, Russia was ranked sixth among the top 10 countries whose citizens obtained permanent resident status in the United States through the EB-5 program.[1] This ranking has grown constantly due to the increasing popularity of EB-5 program among Russian investors.

The December 2014 economic crisis caused substantial devaluation of the Russian national currency, the Ruble, and pushed an unusually large mass of wealthy Russian individuals to explore the EB-5 market not only as an immigration opportunity, but also as an asset-protection mechanism. Unfortunately, many reputable regional centers and immigration attorneys abstain from marketing the EB-5 program in Russia, often overestimating the burden of documenting source of funds.

However, regardless of Russia’s murky economic environment and the complex mentality of the investors, the current situation in Russia demonstrates the interest among wealthy individuals who are willing and able to take their capital abroad. This article explores the most common issues an immigration attorney may encounter while working with Russian investors and ways to affirmatively address certain concerns raised by U.S. Citizenship and Immigration Services in Requests for Evidence (“RFE”) in cases involving Russian capital.

Verification of Employment

In the rapidly changing, complex EB-5 industry, one thing remains relatively constant: the requirement that the investment capital was obtained by lawful means.[2] Usually, funds earned over the course of gainful employment are fairly easy to document through the record of payments that the potential investor received for his services. However, this may not be the case where employment took place in Russia, a country where most financial transactions are still conducted in cash.

Due to the fact that Russian banks provide very little protection for accounts during a financial crisis, employees may elect to bypass the banking system and collect their salaries, bonuses, and dividends in cash directly from the employer. Investors may never deposit their earnings in their bank account, preferring personal safes or deposit boxes. As a result, there is often no document analogous to the U.S. pay stub, no record of direct bank deposit, and no apparent nexus between the accumulated wealth and an employment history.

The best way to address this issue is to present as much evidence as possible on employment history and supplement it with independent evidence that the position held by the investor is consistent with accumulation of funds. This approach has been adopted in at least one non-precedent EB-5 decision, holding that an EB-5 petition is approvable where the “petitioner has demonstrated a pattern of steady income and 26 years of professional employment that is not inconsistent with the accumulation of $500,000 at the time of retirement.”[3]

In cases involving Russian investors, employment records known in Russia as “Labor Books” seem to provide the most concise and reliable information about the investor’s career. Russian law first mandated the use of Labor Books back in 1918,[4] and the practice of record keeping has changed very little since then. A document that literally looks like a little book in which the employer makes notations about dates of employment, position, promotions, and disciplinary actions appears to be an atavism of the Soviet past. However, the greatest benefit of using a Labor Book in documenting investor’s employment history is the fact that USCIS adjudicators are usually familiar with the format of this document. It is not uncommon for the USCIS to issue an RFE specifically asking to provide a copy of the investor’s Labor Book to corroborate his or her work experience reflected in the resume. Therefore, it is always advisable to instruct the investor to obtain this copy from his employer in advance and affirmatively provide it as a part of the I-526 package.

Unfortunately, the Labor Book is not necessarily available to self-employed individuals in Russia. The best alternative to this document for a sole proprietor and independent business owner would be a Certificate of Registration as an Individual Entrepreneur. This certificate is issued by the Russian Federal Tax Services and usually reflects the investor’s name and date he started operating his business as a private non-incorporated individual.[5] Of course, this certificate is not an exhaustive document and whenever possible must be corroborated by a tax record reflecting asserted business activities.

Other evidence an attorney may wish to consider in documenting employment history of a Russian investor are reference letters from colleagues and collaborators, affidavits of independent accountants familiar with practices of payments and level of salaries in Russia, and third-party market surveys reflecting common compensation for certain professional services corresponding to the investor’s income. When using cumulative evidence, it is always useful to remind the adjudicator that the legal standard utilized in EB-5 cases is “preponderance of evidence.” It means that absent evidence to the contrary, demonstrating that “more likely than not” the investor accumulated his capital during the years of employment should suffice.[6]

Show Me Your Money

Regulations require at least five years of tax declaration from the foreign investor as an evidence of lawful accumulation of the capital.[7] In modern Russia, legitimate businessmen usually have a great initiative to pay their taxes, as Russian tax rates remain among the lowest in the world – a flat rate of 13 percent for an individual in most income brackets (nonresidents are  30 percent), with a 9 percent tax on dividend income.[8] However, in the absence of the “self-filing obligation” for individuals, production of tax records is not always a straight-forward task.

In Russia, individual employees are not obligated to file their personal tax declarations. This is the employer’s responsibility. Unfortunately, not all USCIS adjudicators are aware of this peculiarity, so RFEs requesting to provide “individual tax declarations” are not rare. The best way to address this issue is to affirmatively present the adjudicator with the document that appears to be somewhat analogous to the U.S. Individual Income Tax Declaration and describe it in the index as a document provided for verification of taxable income. This document is called “Form 2 NDFL” and is usually issued by the employer at the individual’s request.

Even if the individual elects to file his or her tax report (which Russians usually undertake only on strong advice from their attorney), as a private individual he or she is given four months to submit the report to the tax authority and an additional seven months to pay the calculated tax. It’s only after the payment is processed that the Federal Tax Services will issue an official note indicating that all taxes due were properly submitted. Due to the procedural delay in reporting and payment, it may be impossible to produce an investor’s tax records on short notice, upon receipt of an RFE. An immigration attorney may withhold submission of the immigrant petition until receipt of payment, and should be prepared to explain this issue to the USCIS adjudicator at the time of the filing of I-526.

Dealing with ‘Dark Secrets’

Identifying possible criminal grounds of inadmissibility early in representation of the investor not only helps document the legitimate path of funds, but also saves an attorney a good deal of frustration dealing with the denial of an immigrant visa at the consulate. It also protects the regional center’s reputation from being affected by the denial.

It’s very important to recognize that many wealthy Russians started accumulating their wealth back in 1990s, a period commonly referred to as the “era of Russian mafia.” This is not to say that the capital coming from Russia has been necessarily obtained by unlawful means. However, doing business in Russia during that time often involved corrupt practices and unfair competition. Immigration attorneys should be aware that there is always a possibility of discovering a 15-20 years-old criminal record in the background of a reputable professional or businessman. This record may be traced to falsified prosecutions initiated for intimidation or extortion in the 1990s, and does not necessarily indicate the “tainted” nature of the investment capital.

For a practitioner working with Russian EB-5 investors it is not uncommon to come across convictions under Article 198 (“tax evasion”) or Article 159 (“conversion of property through the breach of trust”) of the Russian Criminal Code. These are statutes with very broad application that historically covered a wide range of factual scenarios, many of which could have been classified in the American legal system as civil, rather than criminal infractions. With understanding of this context, these issues can be properly mitigated.

However, there are two potential areas where “transgressions of the past” may hinder an otherwise successful petition. First, due to regional centers’ legitimate interest in potential investors’ past, standard subscription questionnaires routinely include a question about history of arrests, charges, and convictions. As practice demonstrates, some investors may underestimate gravity of charges, especially if the old case had been expunged or consequences of the conviction were legally mitigated, and may be tempted to omit any reference to the criminal issues in their applications. Sometimes it takes an effort to convince a client to communicate openly with a regional center and completely reveal the criminal record at the subscription stage. The information disclosed by the investor will eventually become a part of I-526 submission. While inadmissibility is not an I-526 adjudication issue, subsequent investigation by USCIS (or at the consular stage by the Department of State) is likely to discover unfavorable facts not fully disclosed in subscription process, which will unavoidably undermine credibility of the petition and delay adjudication.

Secondly, the criminal record may trig inadmissibility after approval of I-526, if discovered at the consular processing stage. Processing of immigrant petition usually requires submission of the police certificate. Russian law mandates that the Ministry of Internal Affairs (MVD) provide police certificates to Russian citizens listing dates and statute of convictions or stating that no record exists. [9]  Only a few years ago, expunged or “sealed” under Russian law convictions with eliminated legal consequences would have produced a certificate reflecting “no record” entry. Now, with more developed access to the databases of local and municipal courts, Russian police certificates include complete criminal history. Russian investors should be specifically advised not to rely on practices of the past. Merely the fact that the same person might have previously obtained certificates with “clean” record does not guarantee that the more contemporaneous request will not reveal supposedly “erased” charges. Advance disclosure should assist attorneys in assessment of legal consequences of the incident for admissibility and explore availability of the waiver of the criminal grounds.[10]

The good news for regional center administrators is that with the assistance of an immigration attorney armed with understanding of immigration consequences of criminal convictions and waiver process, these issues can be successfully mitigated and, with proper management, should not negatively reflect on the regional center’s approval rate.

Due to unfavorable economic climate in Russia, the EB-5 market for this segment of investors will undeniably continue to grow. With the Russian economic climate generally known for a lack of transparency and widespread corruption, the rigor of USCIS’s scrutiny of source of funds that originated from Russia is quite understandable. Anticipating what an adjudicator would want to see in the source of funds documentation in the case of Russian investor is the key to preparation of a clear and approvable case.

[1] U.S. Department of State, Report of the Visa Office, Table V Immigrant Visas Issued and Adjustment of Status Subject to Numerical Limitations (by Foreign State of Chargibility), Part 3: 2015.

[2] 8 CFR §204.6(j)(3).

[3] Matter of [name redacted] (AAO Dec.30,2004).

[4] R.S.F.S.R Labour Code 1918. № 87–88. Art. 905.

[5] Operating Order of Federal Tax Services for Russian Federation, MMV-7-6/843 (11.13.2012).

[6] Matter of Soo Hoo, 11 I&N Dec. 151 (BIA 1965); Young China Daily v. Chappel, 724 F. Supp. 552 (N.D. Cal. 1989)

[7] 8 CFR §204.6(j)(3)(i).

[8] Russian Tax Code, Article 224(1),(4).

[9] Ministry of Internal Affairs (MVD) Order no. 965, dated November 1, 2001

[10] INA §212(h) waiver can be used for various grounds of inadmissibility and has different requirements depending on nature and time of the conviction.

Natalia Polukhtin

Natalia Polukhtin

Natalia Polukhtin, attorney at Global Practice, specializes in investment immigrant and non-immigrant visa categories. Native to Russia, Polukhtin earned her graduate and undergraduate degrees from Moscow State University before obtaining a law degree from Mercer University School of Law. She developed unique expertise in documenting source of funds originated from CIS-countries and published several articles on integration of non-traditional sources of funds, such as cryptocurrency, into the EB-5 process. She is a recipient of multiple professional awards, including Top 25 EB-5 Attorneys by EB5 Investors Magazine and recognition from IIUSA. She is a member of the Executive Council of the Immigration Law Section of the State Bar, and an author of a comprehensive guide written in Russian to business immigration to the U.S.