Although Iranian EB-5 investors currently represent a small percentage of the overall number of EB-5 cases, only 0.7% as of 2014, recent changes brought about by the issuance of a general license by the Office of Foreign Asset Control (OFAC) have opened a door for this untapped market. However, immigration attorneys and Iranian investors poised to take advantage of this opportunity must nonetheless be aware of remaining challenges in such EB-5 cases.
The general license issued on October 22, 2012, allowed U.S. projects to accept funds from Iranian investors without the need for a specific license for each, as had been the case prior to that date. For Iranian EB-5 applicants, this meant a significant reduction in processing time of approximately eight months, making the EB-5 visa a more attractive option for investors hoping to work and live in the United States.
This article outlines how immigration attorneys and investors might overcome common challenges inherent to Iranian EB-5 applications.
Sourcing and Transferring Funds
While the general license allows U.S. projects to source funds from Iran in general, regional centers must still ensure that funds originate from legitimate financial institutions and investors, not those the OFAC has categorized as Specially Designated Nationals (SDN). Economic sanctions against Iran remain in place, and regional centers face harsh legal penalties for violating them by accepting funds from individuals or organizations on the SDN list.
For instance, under 50 U.S. Code § 1705 (b) and (c), violating economic sanctions carries a criminal penalty of up to $1 million in fines or a maximum prison term of 20 years, or both, and fines for civil violations are the greater of $250,000 or twice the value of the transaction. For this reason, to ensure compliance with U.S. law as well as a successful EB-5 application, attorneys representing investors or regional centers must examine and document the path and source of funds at every step of the transfer process.
Before taking on the representation of an Iranian investor, an attorney should verify that the investor does not fall on the SDN list. While U.S. attorneys are legally allowed to provide services to Iranians under the OFAC general license, they can face criminal charges if found to have represented an SDN. For this reason, if an attorney discovers that he or she has inadvertently represented an SDN, the attorney must file a report with OFAC within ten days. Each investor should also be made aware that under OFAC regulations, once he or she becomes a permanent resident of the United States following a successful EB-5 application, he or she must divest any interests in Iranian businesses to remain within the bounds of U.S. law.
The first step in representing an Iranian investor is to ensure he or she can prove the legal origin of the investment funds. The standard of proof in EB-5 cases is a preponderance of evidence, but as filing of tax returns is not common in Iran, regional centers and attorneys may need to rely on professional licenses, bank records, and personal sworn statements to outline a legitimate path of funds and vet EB-5 candidates.
Additionally, no banking relationship exists between the United States and Iran, so Iranian investors are cautioned against initiating any fund transfers without first consulting an attorney. Some investors attempt to use the hawala system, which operates outside licensed financial networks, to transfer funds from Iran to the United States. Under this system, a sarafi, a money exchange house, accepts a sum in return for facilitating a transfer through local contacts in the United States. The contacts in turn generally wish to send money to family in Iran.
However, the hawala system is considered money laundering and is illegal in the United States. More importantly for EB-5 applicants, the system obscures the source and path of investment funds and is not conducive to proving their legitimacy. Investors and attorneys should therefore be diligent in working with only a reputable sarafi who will transfer funds through an intermediary bank in a third country, thus documenting the source and path of the funds as required.
USCIS Requests for Evidence (RFEs)
United States Citizenship and Immigration Services (USCIS) may return a Request for Evidence (RFE) if an adjudicator believes further information would clarify the EB-5 application and potentially lead to approval. Among Iranian investors, a majority of RFEs concern the source and path of investment funds, and for this reason attorneys should seek an OFAC opinion from a third party and include that letter with the EB-5 application to USCIS.
This becomes more relevant in light of the fact that USCIS and the OFAC use different criteria to determine the legality of funds. While both organizations require that investment funds be transferred from a bank not on the SDN list, USCIS also considers the path of funds prior to this last bank, meaning funds must not have travelled through an SDN at any point prior to transfer to the United States. USCIS therefore takes a more broad approach to determining the source and path of funds and will deny EB-5 applications where investment funds have travelled through an SDN.
This disagreement between USCIS and the OFAC leads to RFEs as well as the possibility for EB-5 applicants to dispute any denials based on the fact that only the OFAC can determine the legality of funds entering the United States, and the OFAC holds that an SDN’s interest in funds ends at the point at which those funds are transferred to a legitimate bank. A reduction of oversight from the OFAC following the 2012 general license additionally means that aside from reviewing the legality of funds when granting an I-526 petition, the petition to immigrate to the United States as an investor, USCIS adjudicators may also revisit fund sourcing when granting an I-829 petition to remove the conditions of permanent residence. Because of this difference of opinion, investors and attorneys should err on the side of caution when sourcing investment funds.