How to Document the Lawful Source of Funds

How does an investor show a legal source of funds?

The EB-5 program set forth several critical tests that the immigrant must satisfy in order to obtain residency. For example, we previously described one key requirement being job creation — specifically that each immigrant must create and preserve 10 jobs over a 24-month period. Another very important eligibility criteria set forth by the USCIS in the EB-5 program is the “lawful source of funds” test.

When the EB-5 program was originally created in 1990, the Congress was very worried that illegally obtained profits would be used to obtain an EB-5 immigrant visa to the United States. Because of this fear, the immigrant is required to prove to the USCIS that his capital is derived from lawful sources and not from illegal activities. Therefore, a critical part of every EB-5 visa petition requires that the immigrant fully document two key issues:

• the “lawful source of funds”
• the “Path” of the funds

If the EB-5 visa petition does not clearly prove both of these requirements, then the case will be denied by the USCIS. With the help of expert EB-5 visa lawyers and the Ashcroft Sullivan Economic Development Centers, immigrant participating in our EB-5 program receive guidance on the expectations of the USCIS and what types of documents should be collected to meet this burden.

What Exactly Are the CIS Rules on “Lawful Source” of Funds?

Under the rules, the immigrant is required to demonstrate that has invested the full amount of his capital into the new commercial enterprise and that these funds were gained from a lawful source. Specifically, Section 204.6(j) of the rules provides:

A petition submitted for classification as an alien entrepreneur must be accompanied by evidence that the alien has invested or is lawfully in the process of investing lawfully obtained capital in a new commercial enterprise in the United States, which will create full-time positions for not fewer than 10 qualifying employees. Furthermore, the law requires the investor must show that the petitioner has invested, or is actively in the process of investing, capital obtained through lawful means, the petition must be accompanied, as applicable, by:

(i)  Foreign business registration records;

(ii)  Corporate, partnership, and personal tax returns including income, franchise, property (whether real, personal, or intangible), or any other tax returns of any kind filed within five years, with any taxing jurisdiction in or outside the United States by or on behalf of the petitioner;

(iii) Evidence identifying any other source(s) of capital; or

(iv) Certified copies of any judgments or evidence of all pending governmental civil or criminal actions, governmental administrative proceedings and any private civil actions (pending or otherwise) involving monetary judgments against the petitioner from any court in or outside the United States within the past fifteen years.

Additionally, before the immigrant can file the EB-5 visa petition with the USCIS, he will also need to demonstrate his committed capital was received by the America business or at least received into escrow. Specifically, the EB-5 laws require that the petitioner has invested or is actively in the process of investing the required capital; the petition must be accompanied by evidence that the petitioner has placed the required amount of capital at risk for generating a return on the capital placed at risk.

Such evidence may include, but need not be limited to Bank statement(s) showing the amount(s) deposited in the United States business account(s) for the enterprise. However, more than showing mere receipt of these funds into the escrow account, the USCIS requires records showing the PATH of the capital from the immigrant’s personal bank accounts to the escrow account. On this issue, the USCIS has stated: “a petitioner cannot establish the lawful source of funds merely by submitting bank letters or statements documenting the deposit of funds. Matter of Ho, 22 I&N Dec. 206, 211 (Comm. 1998); Matter of Izummi.

Without documentation of the path of the funds, the petitioner cannot meet his burden of establishing that the funds are his own funds. Id. Simply going on record without supporting documentary evidence is not sufficient for the purpose of meeting the burden of proof in these proceedings.” Under the EB-5 rules, the immigrant’s capital can come from many different legal sources. For example, the funds can come from business ownership, sale of property, inheritance, gift, loan, or other sources.

Because there are some many ways to document lawful source of funds, there is no one specific formula or checklist. Rather, the immigrant and his EB-5 visa lawyer will simply use common sense when considering how best to document the lawful source of funds. Where funds are inherited, a will or trust forms are instructive. Where funds are earned from income on an investment, stock certificates, dividend letters and account statements are vital. Where funds were earned from income on a previous business investment, the corporate tax returns for the business, complete with evidence of payouts to the owners, should be included.