Origin of Funds and EB-5 Investments (2 of 3)

Hello EB-5 investors. This is Floyd Mitchell with the EB-5 Investor Portal; the leading resource for information regarding the EB-5 visa. I publish articles based upon my interviews with leading US immigration attorneys and other EB-5 professionals which are produced as podcasts to educate EB-5 investors. Our podcasts are syndicated around the world on search engines, social media, YouTube, Google Podcasts and our own Apple News Channel – “EB5 Investor Portal”.
So, this is not a forum, or a blog post based upon personal opinions or experiences. It is information taken from my many, many hours of interviews with licensed immigration and securities attorneys, securities professionals and others.

Today’s episode is titled Origin of Funds and EB-5 Investments (3 of 3). This is the second in a series of articles where I was talking with Mr. Johnson (Andy) regarding the source of funds in EB-5 transactions.

Our guest is immigration attorney, Andrew Johnson, of law offices of Andrew P. Johnson in New York, New York. Mr. Johnson was a government prosecutor until he entered private practice in 1998. He has authored numerous articles on immigration and international litigation, some of which have been published by the American Bar Association and the American Immigration Lawyers Association. In addition, Mr. Johnson has been featured in the New York Times, quoted by the New York Daily News, and interviewed by CBS News on the topic of immigration. He has represented large corporations, nonprofits, and small companies in all aspects of immigration law. Mr. Johnson has spoken to business organizations in conferences around the world on the various strategies for immigrating and sending employees to the United States. Mr. Johnson practices immigration law exclusively and is an active member of the American Immigration Lawyers Association. Andrew is admitted into the United States Supreme Court first, seventh, ninth, and eleventh United States circuit court of appeals, New Jersey district court, and the State Bar of New Jersey.

We covered a range of issues – What is legal source of funds? What are the general rules? What sort of proof that you need? Is it complicated when you move funds from a business account to a personal account? What are the tax issues? Can gifts be used for the capital contribution? How about loans? Examples of secondary evidence to prove source of funds. Issues in Vietnam. Issues in Russia. What is the role of immigration attorneys in source of funds? Can transfer agents be used to transfer funds? What are the first steps in EB5 and how to plan the first steps.

I wanted Andy to share with me some of his solutions where the applicant experienced difficulty showing how the money was legally earned or they just could not produce the necessary paperwork?

What I said earlier, when we would just say, “Lay out your portfolio,” and that’s probably a business term. “Lay out all where your money is right now, then we go over every possible option.” Then even if, let’s say, there’s an extreme difficulty with everything they told us we often go, “Okay, you’re often wealthy or have wealthy relatives and wealthy friends. It might be easier for a wealthy friend or relative to simply gift you the money.”

Do you have any interesting examples?

We had a case where it was very difficult to show any tracking. As I mentioned, the money was earned but it was transferred out in so many variations and been out and resent to different places over the years. The person said, “Well I have a friend who is a salaried employee that owns his own business but is also salaried by a company based out of Singapore.” Our client was Bangladeshi. That friend, who had some control over the business he was getting salary payment, simply told his boss, “I run this operation in Bangladesh. Advance me $300,000.” He already had $250,000 saved. His boss, like I said, who he had an excellent relationship with, just advanced him and just said, “We wrote a letter from that business saying we are advancing our employee $200,000 or $300,000,” and that was it. In fact, he wanted the money to be wired out of Singapore and not wired out of Bangladesh, which is often common. The nicest thing about that is that money that we used we didn’t even have to try to move out of Bangladesh. The money in transaction was wired into a Singapore account and to our client’s friend. He, then, just gifted it to his friend in another Singapore account and the person wired it to the regional center. That was one way to deal with it.

Okay, but was that just applicable to that situation?

Although that might sound fact-specific to that case you would be surprised how many people in the wealthy field who can afford $550,000 have friends or relatives who have a much better way to show how they legally earned their money because it might have been some recent real estate sale by a relative or a friend, or a friend might have a business that does import/export, that might easily earn $700,000 on a business deal. We would just show the contract on that deal, show the $700,000 earned, that friend puts it into his business account, moves it to his personal account, and then gifts it to our client. If our client has an international business where they buy and sell, or they have a friend with an international business buy and sell, and they don’t want to deal with the money inside their country they can set up deals where they have a transfer. They can do the transfer where the farm equipment goes to a country which our applicant lives at, or applicant’s friend lives, whether it’s Bangladesh or India or Pakistan or whatever country. The money can go to a place where they want it to go. The money could be transferred to a Kuwait bank account and we just show the contract, it says, “This import was from a farm equipment deal between an Indian client and another person from whatever country,” because that’s the seller. Once that transfer occurs we want the money to go into this Kuwait bank account. If that’s in the initial contract then they actually can keep the money out of the country, which some countries, Vietnam was another example, really don’t want money coming in if they’re going to do that transfer.

USCIS does not care if the person is Vietnamese, Bangladeshi, Indian, or Pakistani, and a business deal occurs where the money is transferred to their account or to their friend’s account in Kuwait. Then moved from Kuwait into the US government regional center. That’s another way where people can avoid taxes, or, which we might deal with in another podcast, restrictions on how to transfer money out of that country. It sometimes solves two separate problems.

How about the situation where the funds are gifted to your client from a friend or family member, or in some cases multiple friends and family members, and let’s say one family member owns gold and sells their gold to get the funds, and maybe a brother of the investor sells a house and gives the investor a couple hundred-thousand dollars. Through a few sources this investor puts together the money required to make the investment. Do you have to prove the origin of funds from those original family members and friends that are gifting their money to the investor? Do you have to produce some sort of diagram or flowchart with supporting statements or affidavits?

You’re exactly right. For everybody, as I mentioned before, let’s say the applicant can’t prove his legal origin of money. He’s just going to work off gifts from relatives and from friends. You were right, each relative or friend has to prove their origin of money. I think one case we had close to 18 different sources and we had to prove origin of money from 18 different sources. When that relative says to you, “I’m gifting to you $50,000 for this,” we have to show how that relative earned the money. Often it’s not that hard, it might be salary. “I receive a salary, it’s wired into my account. Here’s my last year wiring it. Here’s $7,000 a month from that savings. I am giving them $50,000.” That might be an example. Or what you had stated, a relative has gold. They said, “I earned this gold,” or, “This gold was transferred through my family for this many years.” We would have an affidavit or a statement proving that and then we would show that as that original transfer. Each one, in a sense, would be, for legal terms, an exhibit. Exhibit A, $50,000 transferred to applicant. Then we’d have on the top of that exhibit the gift, it’s a simple gift letter, it’s nothing involved. The gift letter goes, “I’m giving $50,000 to my friend or relative in order for him to apply for the EB-5 program.” Underneath that would be proof of how that person earned that $50,000.

I asked Andy what would you say to the investor listening today who has the necessary funds to invest in EB-5 but may think that they just can’t prove their origin of funds and may feel that they never will get approved and thus just never apply?

We’ve had people in the past who have told me just that. “Mr. Johnson, there’s no way. I’ve looked through things and I can trace it, just my country doesn’t allow it or it just doesn’t work that way.” First we obviously go to the option, as I mentioned before, we go, “Well talk to our wealthy friends and family members and see if that’s an option.” That, like I said, usually clears up the problem because if you’re wealthy, like I said, you have wealthy relatives or friends.” The second option is, if they don’t have anything and they are wealthy and they have this, we simply tell them, “You can go ahead and sell property or you can go ahead and create, in a sense, a new business deal,” if they are import/exporters and everything goes through their business account.

This is very challenging, especially people who have accounts in Kuwait. In other countries they don’t have personal account. They do everything out of their business account, which is completely legal within that country. They say, “Look, nothing comes from me, from my business or personal.” We would tell them, “Okay. It’s time to start gathering and putting our deals together and collecting them, any business account, new deals. Once you have $550,000 based on new deals into your business account I want you to open up for the first day a personal account and move that money into your personal account.” USCIS has to have that occur, although it sometimes seems silly to some of our clients or unnecessary. Even if they open up a personal account one day before they wire the money to the regional center. They have to do it. It’s just a sign the money came from their personal assets rather than their business. As you stated before, we usually can find a way, even if the applicant doesn’t believe there is a way, to prove the legality of the money.

I wanted to know, what are some examples of secondary evidence that can be used in providing origin of funds detail? What are source of funds issues in Vietnam and Russia?

Let’s use a direct example of that. I’m just using gold for the reasons of this example. There’s other issues. For example, if someone has a house that’s 30 years old that cannot prove at all how they purchased the house 30 years ago, I always speak about Vietnam because their documents are very limited. In other words, there’s no real estate contract. Often things were written in scrap paper or there were no documents whatsoever. Secondary evidence is literally an affidavit from the person who bought the house, the relative who bought the house or the applicant themselves saying, “30 years ago I purchased a house for this amount of money. I paid it on collecting my salary because I worked as a professor at a university. We didn’t keep our money in banks at the time because our country didn’t have banks,” or, especially with Russian cases, a lot of the banks in the ’90s had closed so they cannot pull any evidence whatsoever for that reason. They often give an explanation. There was no banking system in Vietnam in the 1980s, in the Russian case they would say most of the banks closed in the 1990s, there was no records kept. Then they provide statements from themselves or whoever actually had the transaction. Another example is we had someone who had gold from their … They actually owned it but it was from their parents. The father had passed away in, I think it was, late 1988 or something. They had never put the gold anywhere. They kept the gold at home. The father had written a note in Vietnamese that stated, “I am giving my gold that I have to my oldest son.” It’s simple, on a scrap piece of paper, just a handwritten note. We use that plus a statement by the son, the applicant, who is now 50 years old, saying, “My father gave me through inheritance gold which I, three years ago, deposited and it was worth …” When I say deposited or cashed out, “It was worth $240,000 and here’s the best records I have from that direct deposit.” Whether it was receipt by the … The gold business might have given them a receipt or sometimes they can even get a letter from the people that they sold the gold to. Even if they can’t they often, a letter themselves, writing what happened can be what we call secondary evidence.

Just to be clear, when you use the term statement you literally mean it could be a pen or pencil written on a piece of paper. Am I correct in assuming that? It doesn’t have to be some official document or form to be accepted by the USCIS?

Absolutely. I have always told my clients, what USCIS requires, documentation of evidence which is reasonable. If housing transactions occurred in the ’80s and ’90s in Vietnam, where they literally just transfer and give each other money on it, and maybe, like I said, get a deed at least from the government or some documentation. That’s all the evidence that’s available, that’s all the evidence USCIS can expect. When you said scrap, a piece of paper and pencil, absolutely right.
We do like to give the background of the situation in Vietnam. We have country conditions that talks about the banking system in Vietnam, how it was rarely used, no one trusted the banks, banks didn’t even exist in the 1980s. We can provide a newspaper article, roughly, that explains how sales were done in the ’80s and ’90s in real estate, whether it’s in India or Bangladesh or Pakistan or some of those countries.

Once again, if we’re talking about Germany … Now Germany, the expectation would be to have a paper trail if you’re dealing with in 1992, to have some type of document. Even if those banks were closed, let’s say someone, even in Germany, used a bank but can’t get records from that bank in 1992, they’re going to have real estate documents at least showing the sale. That, probably, would be expected. A lot of countries, and I would say the majority of countries that do EB-5, those type of direct documents are not expected if they’re 15 or 20 years old.

What is the role of the immigration attorney in source of funds? Do experienced EB-5 immigration attorneys assist clients in producing historical documents that may support their origin of fund detail such as old newspaper clippings, as you’ve mentioned, or official statements from their respective governments?

Yes, absolutely. The nice thing is we’ve done so many that we already have the documents. We use the previous documents, we have articles explaining the banking system of that country at the time if need be and the country of course. All of that is quite simple to get the background because if it’s a national program or national issue there’s clearly been reports written about it.
I also wanted to mention that often people say, “Okay, I earn the money, my father earned this money to purchase the house because he worked 20 years as a janitor from 1970 to 1990.” The father can write, if the father is alive, he can literally write, “I worked as a janitor for this school at this time.” If they can get a letter from the school that would be also great, but the school could’ve closed down. In a sense he’s saying, “I can’t even prove anything whatsoever where I got my money, but I worked at this job and I’m writing a statement, this is how I earned my money. This was my salary per month and this is the money I used to purchase a real estate house.” Salary statements are also very valuable when you want to have to prove secondary evidence.

Can applicants use money sources in countries other than their country of origin? Are transfer agents used to move funds?

Absolutely. I would say, pretty common. Often clients from these countries have bank accounts already in foreign countries. It’s already there to do the transaction. The reason they’re usually doing that is it’s just a little more difficult to move money out of their country. As I spoke before, people in some of those countries use a transfer agent to move it out if they don’t have accounts in other countries. One, they could have an account in Singapore, they can have an account in Kuwait. The money coming from those countries to USCIS is not an issue whatsoever. They also can open up a brand new account in Kuwait and Singapore and USCIS does not have a problem with it. They don’t say, “Wait a minute, why did you suddenly open an account?”
USCIS knows there’s absolutely restrictions for countries moving money out of that country and they expect the applicant to go ahead, as I stated before, to sometimes use either their transfer agents, which have to move the money outside the country, or to actually use accounts outside the country. For example, standard Chinese cases are where they loan or gift $50,000 to 10 friends or relatives within China, and then that money is often moved, that $50,000 is then gifted back to the applicant in a Hong Kong or Singapore account. The money is then moved to a US regional center. That’s, I would say, extremely common and Chinese are probably 50% of all applications. That’s nothing that raises red flags within USCIS regulations. They actually expect that.

Well, we thoroughly covered a range of topics! I am happy I was able to share to share what I think is great advice, guidance and strategies for EB-5 investors. You can hear the full podcast by clicking on the following link which features the podcast series on the EB-5 Investor Portal https://www.eb5eb5.com/eb-5-podcast/.
Make sure you watch for additional articles as this is part of a series of articles from Andrew Johnson on source of funds issues.

Please remember that the information in this article and the podcast series is for informational purposes only and should not be used as a substitute for individualized advice from qualified immigration counsel.