In this article we will discuss the top three EB-5 source of funds policy changes implemented by the USCIS recently. Even though these policy changes have been in effect for almost the entire year, immigration attorneys and investors will need to be especially aware of these important source of funds changes.
1: Property owned for more than 5-7 years
Until a few years ago, the official USCIS policy regarding source of funds involving assets that were more than five years old was that information about the original funds used to acquire the now aged assets were not part of the EB-5 source of funds review.
For example, if an investor use proceeds of a sale of a house that was purchased in 2010, the USCIS’s previous policy was to not inquire about how the house is bought in the first place. But over the years, the USCIS changed its policy, and it now wants the source of funds memorandum to discuss the original funds. And even if the property was purchased 20 years ago, your immigration attorney will need to address the original source.
Luckily this doesn’t mean that the USCIS expects your immigration attorney to show all of your bank and wire records from decades ago. However, it does mean that EB-5 investors will need to provide a lot more information about the background regarding their career and finances. That way their attorneys will be able to provide a picture that shows it is more likely than not that the original funds were legally obtained.
One important detail to note is that this does not only apply to proceeds from a sale. The need to show the validity of the original property purchase also applies when EB-5 investors take out a loan that is secured with property. This property could be real estate, an insurance policy or even shares of a business.
2. Collateralized property must be owned by the EB-5 investor
While it is possible for an investor to take out a loan to pursue the EB-5 visa, it has always been the case that the loan must be secured. What changed in 2017 was that the USCIS started to require that when EB-5 investors are the borrower on a loan, they need to own at least a portion of the collateral that has sufficient value to support the loan.
For example, if an EB-5 investor takes out of half a million dollar loan using a house that is valued at $1 million, then he or she must own at least 50% of the property for the loan proceeds to be considered lawful source of funds.
The USCIS’s changed policy only became known through the issuance of RFEs (Request For Evidence), which is often the case in immigration law.
Recently, an important Class cert. case was won by EB-5 investors regarding a USCIS’ interpretation of the source of collatoralized EB-5 funds.
3. Stricter requirements for value transfers or currency swaps
Value transfers, also known as currency swaps, now have stricter requirements. Value transfers or currency swaps is a common fund transfer mechanism used by investors, who live in countries with strict currency control such as China or Vietnam.
A simple example of a value transfer would be that an investor has funds available in China, but not in the U.S. and decides to swap the renminbi funds in China with a third party that consequently funds his overseas account in U.S. dollars.
Until early 2017, such currency swaps were not questioned by the USCIS as long as a swap was properly documented. But now, the USCIS has started requesting information again through RFEs as to where the U.S. dollars originally came from. Therefore, if EB-5 investors are using a value transfer to invest in EB-5, they need to make sure they work with someone who is willing to provide them the source of funds for those U.S. dollars.