Origin of Funds and EB-5 Investments (3 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 third 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 moved on from gifts and asked Andy regarding loans for the capital contribution. Can investors take loans out, either personal or commercial, to invest in EB-5?

Very good question. Once you said loan I have to give you the recent regulation. USCIS allows loans. First I want to state that. Generally US immigration attorneys say, “Let’s avoid loans in every possible way.” For this reason: the case law has tried to delineate or clarify loans. The best way to explain it is USCIS requires, for someone tried to take a loan, based on collateral, it has to be based on collateral, and that loan has to be paid off within two years. As an immigration attorney, USCIS is going to give a request for evidence and just delay the case we believe, or sometimes, to wait until that loan is paid off. We do everything we can. We usually can work around it to avoid any loans. A loan is a red flag, not as an illegality, but it’s for USCIS to challenge it. What you said, can they sell off a piece of their factory, that’s great. If they go into a bank on a mortgage too, a lot of people want to just not sell the home but take a mortgage out on the home, absolutely. Legal but problematic because they eventually have to pay off the loan within two years. The cases actually run a year to a year and a half. They’re going to essentially have to go and pay it off. It’s just, like I said, it definitely stops from a clean approval and we do everything we can to avoid a loan. If it has to be paid off in two years we’re just adding an extra problem to our application.

I asked Andy, what is a good starting point for and investor who wants to become an American citizen, they want their children to go to better schools, they want to have access to better healthcare, they want to participate in the American dream but they know nothing about this process. Where do they begin?

If you can’t prove origin of money it doesn’t matter what regional center you like or what your plans are. You first have to prove origin of money. Once you prove origin of money then all it becomes is what regional center you want to choose. Also, I know this is a side issue, but it’s related to everything, is often some very rich are worried about tax consequences. Sometimes they have their wife do the EB-5 program because, just what you said, they want to bring their children over and go to US schools, get all the benefits with that, but they, themselves, don’t want to be taxed as a green card holder.

What they do is they do everything we had spoken about and their wife does the EB-5 program because all the money the father earns, he just gifts to his wife and then she just wires funds. Then they both wire the money to the regional center. There’s no extra transfer needed when the wife just wants to do it. The whole family sometimes becomes green card holders and the father, then, just comes back and forth on a visa. Sometimes they like to do that for a temporary time because the family is going to become US citizens eventually. Once they become US citizens they can bring their father over as US citizens, as a green card through family, immediate relatives.

Sometimes the father is like, “I don’t want to be taxed for the next five years as a green card holder, I want to construct my assets in a way to once I become a green card holder there’ll be no tax consequences or limited tax consequences.” That’s another angle which is quite easy for us to do.

What is the most important thing for an investor not do with their funds as they prepare to apply for their visa through the EB-5 program? What are the recommendations to help them improve an EB-5 investor’s chances of an approval?

The first advice is … You can’t imagine how often people ignore me on this. Do not move your money or transfer your money anywhere if you’re thinking about this EB-5 program until you talk to an immigration attorney. I can’t tell you how many times clients have moved money to, let’s say, a Kuwait account from their home country and say, “Okay, I have this money in Kuwait, I’m all ready to go.” After I ask them don’t move the money. Then we trace it back and they didn’t properly prove the origin of money. We either have to move all the money back, or reconstruct a whole other situation, and the whole point is, as I stated before, to reduce their problems.

They talk to attorney and then the attorney helps plan them out of how they want to deal with transfers and prove origin of money. Sometimes it becomes a giant headache on their side because they have to move all the money they tried to transfer to different places and so forth back to the origin to redo everything. That’s the biggest no-no, and I can’t tell you how often that has happened, is do not move money … Or even, I apologize, or do a transaction for the EB-5 process until you discuss that with an attorney. The attorney has to go first, “That’s a good way to go ahead and prove the origin of money,” or, “We can go that route.” Second, I make sure, I go, “If you do that route can you get these documents to support this transaction or this sale?” If it’s yes and yes, and the route is correct, we can go ahead and go forward. There’s a lot of those things that you speak to an immigration attorney, where we actually help them plan it out. Once it’s planned out then they can execute the plan. To try to do it in the middle is disastrous.

There has been negative press that the EB-5 industry sees stems from unlicensed brokers and agents who are misguiding these investors. The investors should instead call an immigration attorney. Is it safe to say that the investors should not rely on any information they’ve heard from unlicensed brokers or immigration agents? My understanding is that a lot of these investors are just wiring $500,000 plus into regional centers without having an investment banker or a licensed broker-dealer review the offering. I asked him to speak to me about safeguards and the proper way for the investor to go about this.

Absolutely, and you’re right. I’ve heard stories to that effect. When money has always been wired into the US, which it’s just shocking to me without any map or routes or instructions by an attorney, and like you said, there’s some shady middleman that I don’t even know, I barely can grasp their job title. There are some really bad situations. An attorney who does this a lot, when the client tries to ask prices on, and what do they charge, and so forth, we stop them. We go, “Wait a minute. We’re not taking your case unless we can prove origin of money,” because most attorneys who actually specialize in this field obviously get referrals based on approvals. When clients would jump over that step it’s worrisome. First of all, they shouldn’t do it at all until they can prove origin of money. The prove origin of money at the first step and then from that step, as you said, do not deal with anybody unless they’re a licensed broker. They first can walk around saying, “Okay, I’ve spoken to my immigration attorney. I now can prove the origin of money. My next step is to choose a regional center.” It definitely should be in that order. If it’s not, like I said, there can be a lot of problems and a lot of unnecessary problems. The person could have a legal way to prove the money just with an easy route but they would want to first make sure that’s set in order before they take any other steps.

This is a unique situation but I asked his advice for an investor who may have already wired the funds into a project before hiring you or an immigration attorney? Maybe they’ve gotten the cart before the horse so to speak? What do you do in those situations?

No, if the money is moved over we backtrack it. We go, “First of all, where did the money come from?” They explain it and then if we can piece it together the best we can … First of all, as I had mentioned before, sometimes we make our clients wire the money back. If there’s no way to prove it we would call the regional center and say … Like I said, the case is going to be denied. We explain that to the regional center and most likely a respectful regional center is going to be very willing to move the money out with the hopefully expectation that they clean it up. When I say clean it up means money goes out and then they find a different way to either use different money or to show how that money correctly came in a better route. Most regional centers will return the money back to let them redo it. This is hoping we’re not dealing with a deadline.

Sometimes USCIS acts like they’re going to raise it 300,000 and then does not. For two years they had promised that for every September 30. We have a lot of rushed time. That last two months will be stressful because we have to hit that deadline and then USCIS says they’re not going to do it. Once again, the same issue is this year. We’re not sure if they’re going to raise it but they have explained they will. If the client says, back to your question, “Okay, I have 600,000. I am not moving it back to my home country. I’m going to go forward with this.” We would look at it and if there is less than, I would say, 60% chance of success we probably won’t take the case. We would just tell them, “It’s just ridiculous, why would you do this to you?” Hopefully it’s not utterly disastrous. You would think they would have some way … Like I said, we would sit there and go, “Okay, we’re going to try to piece this together. We think your chance of success is 60%, 65%.” Then we’d go forward on the case. With our other cases we at least explain to our clients, when they ask the percentage of success, we can tell them, “With respect to origin of money we can tell you that issue is 100%.” If they ask our opinion of that and that’s how we can construct most cases. We give them that assurety because we’ve done so many cases, we know what immigrational challenge and what they accept. We can really tell them … Or we can tell them, “Look, there are some issues here. There’s a high percentage you might get a request for evidence on that and then we’ll come back with more supporting documentation,” if they’re worried about this part of the origin of funds. We can do a lot of predictions on that issue. Once again, if they follow our instructions from the onset, and our pathway, usually there’s no issue whatsoever.

I know that some investors may feel overwhelmed by this information or who may feel as though none of these examples apply to them?

I guess the best explanation is they shouldn’t give up, even when they see me talk about all these examples, heard me talk about all these examples because I’m worried that the applicant is like, “I don’t fit into any of those, I have no chance for EB-5.” I’m not going to go over the hundreds of cases, each individual case and provide examples. There’s hundreds of thousands of ways you can prove origin of money. You just have to look at that individual situation and there is a extremely high chance that we can figure out a way to prove the origin of money. I don’t want people to go, “All his examples I don’t fit into therefore I’m not eligible for the EB-5 program,” I just don’t want to give that impression. It’s probably the exact opposite. If you have that type of money there’s a good chance that we can prove origin of money.

Even in the most complex situation there is hope in the possibility of an approval for investors who follow the right path and guidance of an experienced EB-5 immigration attorney like yourself.

Exactly. We’ve seen so many situations and prepared cases that were very complex with complex transactions or numerous origins of funds from different locations and different sources that were comfortable in setting up a plan that we have seen be successful, already sent to immigration and already been approved. We believe we can go ahead and give them, like I said, a game plan or a map of how to go about it to prove their origin of fund.

What are my takeaways from my conversation in preparing to make an EB-5 investment it’s really important to not start moving your funds around until you speak to an immigration attorney who can assist you in coming up with a plan and outline. Although loans are allowed, US immigration attorneys advise against them for EB-5 investments as they may delay or complicate the process. Even when you think you may not be able to prove origin of funds there are options, such as secondary evidence that may be used to help you with your case. You may receive the funds necessary to invest in the form of gifts from friends and family members. With the proper guidance and counsel of an EB-5 immigration attorney you’ll greatly improve our chances of an approval. Please note, these are generic instructions and hypotheticals as every EB-5 applicant’s case is different. Every potential EB-5 applicant’s origin of funds needs to be analyzed by a qualified attorney who has experience specifically in the EB-5 field.

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 other articles as this is part of a series of articles from Andrew Johnson on source of funds issues.