EB-5 Capital – Evidencing Lawful Source of Funds
As mentioned in a previous post, the first step in obtaining an EB-5 green card through investment is to file an I-526 petition which generally consists of two parts.
The first part is evidencing and explaining Business Content (business plan, economic report, etc.) of the new commercial enterprise (“NCE”).
The second part describes in detail the investor’s Source of Funds (SOF). This includes providing documentation that specifically links the invested funds from the investor to the NCE, and that the capital is “at risk” and has been “irrevocably committed” to the project.
Also mentioned previously, documenting a lawful SOF is perhaps the most rigorous portion of the EB-5 application process that specifically relates to the individual investor.
This is really in the best interest of both our government and EB-5 proponents. Law enforcement obviously has a vested interest in monitoring and preventing money laundering, and EB-5 proponents want to ensure the program’s integrity, longevity, and political viability.
According to Matter of Ho,
“[t]he immigrant investor must demonstrate by a preponderance of the evidence that the capital invested, or actively in the process of being invested, in the new commercial enterprise was obtained through lawful means. Any assets acquired directly or indirectly by unlawful means, such as criminal activity, are not considered capital. In establishing that the capital was acquired through lawful means, the immigrant investor must provide evidence demonstrating the direct and indirect source of his or her investment capital.”
The best way to look at documenting the source and path of funds used for the investment is by viewing it as a story or narrative. The funds have specific origins, and most likely originate from several different sources. It is also highly likely that the funds have traveled between multiple sources before reaching the individual investor.
And like a good story, there should not be any gaps, inconsistencies, or cliff-hangers when it comes to how the source and path of funds narrative “ends” when funding a NCE.
A common question asked about SOF is whether an investor can use loans as EB-5 “capital.” The answer is yes. The caveat is that the loans must be secured with personal property.
Bank loans using real estate as collateral, or loans from a company where an investor holds an equity interest (shares in the company as collateral) are both acceptable. Gifts are also allowed, however, when there is a gift involved, the USCIS looks past the investor and looks at the source of funds that were used for the gift.
It is important to recognize that in the case of both loans and gifts, an additional layer of where the investor obtained funds to purchase the underlying assets must be provided. The SOF document narrative needs to reach back even farther. So if a loan using real estate as collateral is being used, the SOF must evidence how the money used to purchase the real estate was obtained.
Or, if the investor is gifted funds obtained through a shareholder loan, if the investor is the majority owner of the company, the SOF must document the source of funds for the initial capitalization of the company.
Below, we have provided an outline containing examples of documents used to evidence lawful source and path of funds. It’s important to evaluate these options when analyzing whether the EB-5 green card program is the right option:
- Complete tax returns (both individual and, if applicable, corporate or partnership tax returns) filed in any jurisdiction for each of the last five years. If earlier years tax returns show higher income, also submit tax returns reflecting the three years of highest income levels;
- Financial Statements – submit any financial statements that have been prepared for the investor personally or for the investor’s business. If available, audited financial statements are preferred.
- Copies of all investment or securities accounts for the last three years (if significant gains on investments or securities transactions occurred before the last three years, include documentation of such transactions);
- Stock certificates;
- Bank Statements – Include one bank statement for each of the last three years for any bank accounts in which you maintained a substantial balance.
- Business registration records for all businesses in the U.S. or outside the U.S.;
- Business promotional materials, including website addresses;
- Documentation proving your ownership, directorship or officership in each company, including stock records, corporate minutes or other official documents;
- Documentation relating to sale of any business (documents should indicate the amount of proceeds you received from the sale);
- Accountant’s evaluation or appraisal of business for all businesses in which you own a controlling or substantial interest.
- Deeds and mortgage documents for all properties in which you own an interest;
- Documentation of all real estate purchases and sales;
- Appraisals for all real estate that you own;
- Lease documents for all real estate from which you earn lease income;
- Your resume;
- Your educational documents;
- Any employment confirmation or reference letters that you have (it is not necessary to obtain letters that you do not have);
- Employment contracts (if any);
- Professional licenses (if any).
Other Sources of Income
- Inheritance – all documents relating to inheritances you have received, including estate settlement of deceased;
- Divorce – all documents relating to income received from divorce, including alimony, property settlements, etc.;
- Lawsuits – all documents relating to dollars recovered in a civil lawsuit, including official judgment or decree of the court;
- Gifts – all documents relating to gifts, including registration of gift with tax authorities or other documents;
- All documents relating to court proceedings in which you have been involved, whether civil or criminal, and whether as a plaintiff or defendant (include all official court records and legal judgments).
In addition to proof of the lawful source of the investor’s funds, the USCIS insists on documentation that links the invested funds to the investor. It is best to be able to provide every document necessary to trace the invested funds from their source overseas to the investment in the U.S. The following documents may be used to meet this requirement:
- Wire transfer receipts;
- Deposit receipts;
- Bank statements showing withdrawal of the funds from one account and deposit of the funds in another account;
- Letter from the bank confirming the funds transfer.
As you can see, one of the most important aspects of investing in the EB-5 green card process is ensuring that EB-5 green card capital source of funds meets all requirements.