Ascertaining, analyzing and documenting the source of funds for an EB-5 investment is a critical step in a successful EB-5 filing.  Perhaps the most critical - in that this area generates a large portion of EB-5 visa denials and RFEs. 

 

By way of background, the EB-5 program was created by Congress in 1990 “to stimulate the U.S. economy through job creation and capital investment by foreign investors.”  Since then, several portions of the program have been updated, including the addition of Regional Centers, and the extension of the program’s sunset dates on several occasions.   On May 5, 2017, the President signed Public Law 115-31 extending the regional center program through Sept. 30, 2017.

 

In an investor’s EB-5 petition, it must be documented that the investor has derived the investment funds from a lawful source.  The law surrounding what qualifies as a “lawful source” of funds can be complex, and partially a matter of subjective interpretation.  Nevertheless, the following are fairly clarified rules which have emerged over the past years, which are relied on in analyzing source of funds issues by USCIS.   As expected, it is important to discuss these issues with a qualified immigration attorney prior to submitting documentation or filing a petition with USCIS.

 

Here are the main points:

 

Basic Requirements and Burden of Proof

 

The EB-5 regulations require that the investor is required to show that he “has invested, or is actively in the process of investing, capital obtained through lawful means.”  Through AAO decisions over the years, USCIS has imposed various standard requirements to document lawful source of funds.  The Investor’s burden of proof as to the I-526 on the Petitioner is that of “preponderance of the evidence” (more likely than not).  Where a petitioner presents credible evidence in support of its claims of lawful source facts and no contradicting evidence is available, USCIS should conclude that the petitioner has satisfied its burden of proof.

 

Regulatory Requirements

 

The regulations state that Petitioner may present business records, tax returns, or any other evidence of lawful source of funds. In practice, USCIS expects business records and tax returns at a minimum.  Also, USCIS will conduct background searches on the petitioner and its dependents to see if there are any pending civil, criminal or administrative actions involving the investor, as well as any money judgments against investor for the past 15 years.  Accordingly, this info is required to be obtained from the investor before filing.

 

USCIS also requires foreign documents to be supported by a certified English language translation.  Even with bank statements and other documents which are largely numeric, the headings (such as “account number”, “debit/credit” and “balance”) and any statements must be translated.

 

Tax Returns

 

USCIS expects the petitioner to submit at least 5 years of income tax returns, both for the individual and for any businesses owned by the investor.  In practice, the investor must submit the returns OR a detailed statement of why income tax returns are unavailable.  The earnings shown on the tax returns may be used to show lawful sourced funds.

 

As a practical matter, reasons why the investor may not be able to provide tax returns may include:  returns have not been prepared/filed; wasn’t mandatory to file returns during that period of time; etc.  Such reasons must be supported by a declaration from the petitioner and where possible, an accountant or tax attorney familiar with the tax requirements.

 

Business Records

 

Must submit foreign business registration records (for any business petitioner owns), which includes registration certificates, articles of incorporation, share certificates, etc.).

 

Source of Funds

 

Petitioner must provide an explanation and supporting evidence of the investment capital.  This can be:

• Employment or business earnings

• Loan from relative or friend

• Gift from relative or friend

• Proceeds from a transaction (e.g. sale of real estate, business, etc.)

• Combination of above

 

Merely submitting bank letters/statements is not enough, as AAO cases have required a detailed explanation.   Unsupported assertions of legal counsel (in the cover letter) are not enough.  A Declaration or Affidavit by petitioner is required to document each relevant fact.

 

Declarations by petitioner and/or persons with specific knowledge of the transactions in summarizing the accumulation and transfer of the investment funds are key, but must be supported by and work together with documentary evidence.

 

Common Sources of Funds

 

Real Estate – Proceeds from Loan or Sale:   Proceeds from the sale of real estate or loan for which repayment is secured by real estate, are common, especially in China.  Where the petitioner has sold a residence and used the proceeds for the investment, the following documents should be used:

 

Real Estate Sale

• Purchase Agreement

• Final settlement statement

• Verification that the funds were received in petitioner’s individual bank account

 

Home Equity Loan

• Loan Agreement

 

For both sale and loans: Evidence that the property was initially acquired with lawfully obtained funds.

 

In general, you should include a narrative in the 526 application re: how and when the subject property was acquired, with supporting documentation.  For example, if the RE was purchased with employment earnings, must show withdrawal of funds from account to make the purchase, bank documentation showing accumulation of the employment earnings before the purchase, and evidence of lawful employment history.

 

Where property was purchased years ago and it is difficult to obtain proper records, it is possible to provide a detailed narrative by petitioner verifying the purchase details (price, date, parties, etc.) supported by a bank letter confirming unavailability of records; employment verification (contracts, letters, salary payments, tax records, verifying the level of income immediately prior to the purchase, with cost of living analysis verifying the petitioner could afford to purchase based on their income.

 

Sale of a Business Owned by Petitioner: Where the funds were derived by the sale of a business or assets, substantial documentation of the business should be submitted.  Must show:

 

Business Details

 

• Lawful nature of business

• Ownership by Petitioner

• Business registration certificates, business licenses, articles of incorporation

• Stock holdings, equity percentages

• Website print outs, marketing materials, evidence of products/services

• Ongoing legitimate activities of the business

• Proof that the business was started (or that petitioner acquired ownership) with lawfully obtained capital

 

Nature of Earnings Received

 

• Describe & document earnings:Salary, Profits and/or Bonus

• Evidence of petitioner’s individual earnings – tax records, bank statements (showing deposits), distributions of earnings reflected on the business income tax returns, financial statements and/or corporate minutes or resolutions.

• If petitioner using sale of business proceeds, show additional documents (sale agreement, personal bank statement showing proceeds deposit)

• Show financial picture of the business to prove that the business’ finances support the earnings and/or profit distributions claimed by petitioner.(USCIS will review financial statements, tax returns, etc. of the business to confirm that distribution of profit to petitioner is consistent with the financial health of the business.

• Provide a letter from a third party accounting professional to verify the preceding point (if necessary).

 

Funds should not be transferred directly from the business to the US commercial enterprise, so as to avoid the USCIS determination that the business was the investor (using retained earnings) rather than the petitioner.

 

Shareholder Loan: If the petitioner used a shareholder loan for the invested capital, the repayment of the loan cannot be secured by the assets of the enterprise.  The loan can, however, be secured by other assets of Petitioner (e.g. the shares in the business from the business making the loan). 

 

Must show:

 

• Documentation showing terms of the loan (resolutions, written loan agreement, promissory note).

• Petitioner must document that it acquired the ownership in the business with lawfully obtained capital

• The business is legitimate

• The business has the financial ability to make the loan

 

Personal Loan or Gift from Individual: Where the source of the investment is a personal gift or loan from a family member or close friend, substantial documentation of the donor’s or lender’s background is required. 

 

Must show:

 

• General background of donor/lender (e.g. resume, educational credential, employment verification letters

• Income tax returns for past five years

• Details on how donor/lender accumulated or obtained the funds

• Evidence documenting path of funds from donor/lender to petitioner

• Declaration and summary of why the gift or loan was made

• If gift tax was paid, include documentation

 

Example: Parents sell or mortgage real estate and gift proceeds to child (petitioner):  petitioner must include detailed info and docs showing how parents were able to purchase the real estate, etc. as required above.  AAO decisions have required petitioner to provide evidence that donor has lawful income or legitimate business or investment interests which could account for the accumulation of the cash.

 

Note: Review the account statements of the donor or lender, verifying the outgoing transfer of funds to petitioner.  Make sure there are no transactions which may be inconsistent with the explanation regarding how the donor/lender initially obtained the funds (e.g. large deposits preceding the loan/gift).

 

Inheritance: Inheritance may be used, and should include documentation to show:

 

• Evidence of the relationship of petitioner and decedent

• Probate court documents

• Bank statement reflecting deposit of proceeds

• Death certificate of decedent

• Where transaction occurred long ago and documents are not available, can show declarations from petitioner and persons with specific knowledge of the transaction, probate attorney, executor, etc.

 

Sale of Securities: A substantial stock portfolio is also commonly used. Petitioner can sell some stock, and use that as its investment. Must show:

 

• Transactional documents of sale of securities

• Deposit of funds in petitioner’s account

• Funds used to invest were lawfully obtained

• Where investment capital is in part due to rising values of the portfolio due to market trends, show historical sampling of account statements and general info on the market trends

• Include evidence as stated above for Real Estate – Proceeds from Loan or Sale

• Where petitioner obtains an institutional loan secured by assets in their portfolio, must document the above and add loan transaction and proceeds documentation.

 

Retirement Funds: Also used commonly, must show the employment documentation, employer information, periodic contributions, written withdrawal request, and deposit documentation.

 

General Wealth Accumulation: For some investors, the income reported on their previous 5 years tax returns may demonstrate sufficient income.  Where it is not by itself sufficient, investors may show a level of income sustained over the years and/or evidence of other financial background.  Proving a combination of salary, stocks, business and/or other income sustained over many years is sufficient.

 

Final Thoughts 

 

The goal of packaging and documenting the source of funds in EB-5 filings should be to show an unbroken chain tracing the investment back to the original source. Where an investor cannot obtain some of the requested documentation, it is possible to supplement the record with declarations and affidavits, may be used to document the lawful source (and explain why documentation cannot be obtained).  As the USCIS imposes a high level of scrutiny to verify the lawful source of funds, the filing must be prepared diligently.  As is the case with foreign language documents, the source of funds documents written in a foreign language must be accompanied by accurate and complete translations into English.