One of the key requirements for immigrating under the EB-5 immigrant investor program is proving that the investor derived the investment funds from a lawful source. The EB-5 investor must prove the lawful source of funds at the I-526 petition stage, which is the first of three stages in the EB-5 immigration process. Once the I-526 petition is approved, the EB-5 investor does not have to prove again the lawful source of funds. The types of documents that have to be provided in order to prove a lawful source of funds are specific to the financial circumstances of each investor, and so there is no “one size fits all” list or approach.
USCIS’s guidelines are evolving over time, and the agency does not typically announce publicly when their guidelines have changed, but rather immigration attorneys practicing in the EB-5 field figure out where the boundaries are by adopting different approaches in different clients’ cases. Also, USCIS occasionally gives some insight into their thinking during stakeholder meetings, public meetings with the USCIS Director, and in liaison meetings with the American Immigration Lawyers Association. Nevertheless, in spite of all this secretiveness and arbitrariness, some general guidelines can be discerned from practice. As a general matter, though, it is crucial for the EB-5 investor to retain an immigration attorney experienced in the EB-5 practice, who knows from experience what documentation is likely to suffice for USCIS to approve the I-526 petition.
The overall source of funds
It is necessary to determine the overall source of funds, in other words, how the funds were originally earned. One exception to this requirement is where the funds were inherited. USCIS is not in the practice of requiring proof of how the person who left the inheritance earned the funds originally. By contrast, a gift from a living relative is not an exception, but rather it just refocuses attention on how the gift giver earned the gift funds. It is common practice for a parent or a grandparent to gift the investment funds to their child or grandchild.
Whoever originally earned the funds needs to provide evidence of how the funds were earned, whether as salary income from employment, business income, investment income, winning the lottery, among other sources. Documentation can take the form of employment and income confirmations from the employer. In the case of business owners, proof of the existence of their business, proof of the investor’s ownership of the business, financial statements from the business for the past 5 years, and an explanation for how the business owner either started the business from nothing or purchased the business. If the business owner purchased the business, then it needs to be documented how he or she acquired the funds to purchase the business. Similarly, in the case of investment income, the investor needs to document the income from the investment and show how he or she originally acquired the funds in order to make the investment.
USCIS expects for the investor to submit personal tax returns from the past 5 years. That being said, the absence of tax returns or insufficient income on tax returns are not fatal to the I-526 petition. If the investor has earned the funds in a country where there is no personal income tax, then it can be explained and documented that there are no personal tax returns for that reason. If the investor earned the investment funds more than five years ago, and so the tax returns for the past 5 years do not show enough income to make a $500,000 investment, then we can explain and document how the investor earned the funds more than 5 years ago, and document where the investor held the funds in the meantime.
In some cases, the EB-5 investor comes from a country where there is a personal income tax, but the government only selectively enforces the tax laws, and many citizens of the country do not file tax returns or routinely underreport their income on the tax returns, then such EB-5 investors can still qualify, but it becomes necessary to provide other convincing evidence of how much the person really earned legally, based on bank account statements, invoices, contracts, etc. High-level managers at USCIS have stated in the past that their agency is not interested to enforce the tax laws of other countries by seeing that an investor has paid his or her taxes abroad. The continuing approvals of I-526 petitions for EB-5 investors coming from countries with low rates of income tax compliance such as China and India confirm that this approach still holds at USCIS. Instead, USCIS views the reporting of income on the tax returns as a good indication, though not conclusive, that the income is not being derived from criminal activities, since major criminal activities such as drug trafficking, racketeering, loan sharking, etc., generally entail the use of cash that does not circulate through regular banking channels and is not reported on tax returns. USCIS does look for patterns of transactions that are indicative of money laundering. However, where sufficient evidence is submitted indicating that the investor is earning enough income from legitimate business or other earning activities to make a $500,000 investment, then USCIS routinely approves the I-526 petition, even in the absence of tax returns or with tax returns with underreported income.
An EB-5 investor can derive the investment funds from loans, but only under very specific conditions. USCIS accepts investment funds from loans only if: 1) the EB-5 investor is the principal borrower of the loan and is personally liable for repayment; 2) the loan is secured by property belonging to the investor personally; and 3) the property securing the loan has a value equal to, or in excess of, the amount of the loan. USCIS no longer accepts unsecured loans as a source of capital for an EB-5 investment. In the course of 2012 without making any public announcement, USCIS changed its long-standing policy of accepting capital for EB-5 investment coming from unsecured loans.
One slightly obscure documentation requirement of the EB-5 program is the following:
Certified copies of any judgments or evidence of all pending governmental civil or criminal actions, governmental administrative proceedings, and any private civil actions (pending or otherwise) involving monetary judgments against the petitioner from any court in or outside the United States within the past fifteen years.
USCIS looks closely at any such legal actions against the investor to determine whether the legal action indicates that the investor has earned the investment funds from engaging in criminal activities, or has acquired the funds through defrauding individuals who have then filed civil lawsuits against the investor.
Tracing funds from source to regional center project’s account
After documenting how the investor earned his or her investment funds, in general, it is necessary to trace the funds from the investor’s source to the regional center’s escrow account or operating account. If the investor is freeing up the investment funds from selling an asset such as a real estate property, stocks, a business, etc., then it is necessary to document the funds coming in from the sale of the asset, and to trace the funds through whatever accounts they pass on the way to the regional center’s escrow account or operating account.
In principle, any investor who legally acquired sufficient funds to make an EB-5 investment can qualify to immigrate under the EB-5 program. However, as with many things in life, “the devil is in the details.” The EB-5 investor has to provide sufficient documentation to the satisfaction of a USCIS examiner that the investor did, in fact, acquire the investment funds legally. It is crucial for the investor’s success in the EB-5 immigration process that he or she engage an immigration attorney, who is experienced in the EB-5 practice area and, from experience, has a good understanding of what USCIS examiners expect and are willing to accept as sufficient documentation of the lawful source of funds.