Proving lawful source of funds for the EB-5 immigrant visa program

In all cases, it is advisable to provide the USCIS with a narrative description and/or diagram to aid in painting the entire picture. A good place to start is with the individual who originally obtained the funds.

(Continued from last week's article)

This is an important factor often overlooked when deciding whether to pursue the EB-5. The investor must consider that in filing an EB-5 petition, he or she may bring other individuals under investigation and these individuals must be prepared to also withstand USCIS scrutiny.

For instance, if the investor obtained the funds as an inheritance from his deceased father, it will be necessary to document that the father lawfully obtained the funds. If the investor received the funds as a gift from her Aunt Martha, it will be necessary to document the lawful source of Aunt Martha's funds, including whether a gift tax was paid. If Aunt Martha obtained the funds as a loan from her friend Bill, then the lawful source of Bill's funds need to be documented as well as the lawful source of any collateral that Aunt Martha put up for the loan.

Similarly, if the investment is in the form of equipment, inventory or other tangible property, the EB-5 investor must document that said equipment, inventory or property was obtained through lawful means. The USCIS has not provided a clear mandate as to how far back the investor must go to obtain documentation.

Generally, the investor and his or her attorney should utilize their own judgment as to how much documentation can reasonably be expected. In many instances, it may very well be impossible to provide documentation of transactions which occurred several years ago and led to the investor's possession of the funds today. If possible, the investor should submit affidavits to fill any gaps in primary documentation.

The investor can look to existing case law for guidance on what to expect when trying to prove source of funds:

The investor cannot establish the lawful source of funds merely by submitting  bank letters or statements documenting the deposit of funds. Matter of Izumii, 22  I&N Dec. 169, 194-95 (Assoc. Comm. 1998).

A joint account of father and son cannot be attributed solely to the investor. Matter of Soffici, 22 I&N Dec. 158 (Assoc. Comm'r Examinations 1998). Also, simply going on record without supporting documentary evidence is not sufficient for purposes of meeting the burden of proof. Id.

The investor must establish that the investment comes from accounts under his name. Matter of Ho, 22 I&N Dec. 206 (Assoc. Comm. 1998).

Whether an investor uses a promissory note as capital or as evidence of a commitment to invest cash, he must show that he has placed his assets at risk. In establishing that a sufficient amount of his assets are at risk, he must demonstrate, among other things, that the assets securing the note are his, that the security  interests are perfected, that the assets are amenable to seizure, and that the assets have an adequate fair market value. Matter of Hsiung, 22 I&N Dec. 201 (Assoc.  Comm'r Examinations 1998).

The assertions of counsel do not constitute evidence. Matter of Obaigbena, 19 I&N Dec. 533, 534 (BIA 1988).

In a decision posted on AILA InfoNet, Doc. No. 01101101

(October 11, 2001), the AAO found that the investor did demonstrate his investment of $1 million by submitting copies of cancelled checks proving that  the payments had been made. However, the maximum expenditures in the record were not clearly attributed to petitioner's funds and they accounted for less than one third of the total capital investment.
In Matter of [name not provided] (AAO Mar. 15, 2001), the investor's appeal was dismissed for failure to establish her salary or that of her husband.

Counsel  asserted that the investor's husband served in the Taiwanese's military and was not required to pay taxes. Counsel was unable to prove lawful source of funds because neither the investor's husband's military service nor his salary while in  the military could be verified. It was also unclear whether the investor still had access to her husband's assets when the family register indicated he had left the household. Investor was unable to provide evidence to explain her large bank account or valuable property.

In a Matter of [name not provided], WAC-98-23 1-54300 (AAO, Mar. 30, 2001), the investor's appeal was dismissed in part for insufficient evidence to prove that the balance of $520,000 in her Chinese bank account had been earned within 5 years from the date of filing the petition, that she worked in a certain occupation through which she acquired the capital over time or evidence of the path of funds.

In Matter of [name not provided], WAC 00 070 52366 (AAO, Apr. 21, 2005), the investor was unable to  provide evidence proving that the trust from which the funds were obtained was set up by her father or that she was a beneficiary of that trust.

More recently, in Matter of [name not provided], SRC-05-263-51614 (AAO, Feb. 5, 2009), the AAO acknowledged that the investor held the resources to make the $500,000 cash investment based on the $5,000,000 lottery prize he won. However, the investor failed to adequately document the path of funds when one out of several checks was omitted from the record.

The AAO held that despite  how "reasonable" it was to conclude that the funds in escrow were transferred  there by the investor, it is the investor's burden to provide evidence tracing the path of those funds such as cancelled checks or wire transfer receipts.

Clearly, documenting source of funds could prove to be the most difficult part of the EB-5 process. It is never a good idea to throw "everything but the kitchen sink" at the adjudicator in the hope that he or she will either make sense of it all or be too overwhelmed to find fault.

A practitioner's best approach is to ensure that he or she fully comprehends where the investment funds came from. Having done that, the practitioner can better provide USCIS will an organized petition carefully demonstrating the lawful source of funds and the path of those funds from the hands of the investor to the enterprise.