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EB-5 Source of Funds – Best Practices for Brazilian Nationals

Sam (00:06):
Hi everyone. This is Sam Silverman, managing partner at EB5 Affiliate Network. Thank you for taking time to join us in our webinar today. Today, we’re going to be discussing source-of-funds best practices for Brazilian nationals. The format of today’s webinar is… we’re going to quickly run through some slides, and during the slides, if you have any questions, please use the chat box on your screen to submit them. And then, at the end of the webinar, we’ll try and get through as many of the questions as possible. This webinar will be recorded, so if you did register, then you’ll get an email following the webinar with the recording, and it’ll also be available on our YouTube channel in the next few days. If you are looking for the PDF file of the slides for today’s presentation, just email us at info@eb5an.com on the screen, and we can provide that for you as well.

Sam (01:07):
Okay. So, quick overview of where we’re going to focus the conversation today. First, a little bit about the speakers today and EB5 Affiliate Network. We’ll talk about, generally, what is source of funds? How does it fit with EB-5 investment? We’ll talk about some common issues to watch out for in source of funds for EB-5 investors and specifically best practices for source of funds for Brazilian nationals. We’ll walk through a specific case study, and then we’ll open it up for questions at the end. First, quickly, for those of you looking to determine if a project qualifies as a TEA, with an investment amount of $900,000, compared to the $1.8 million, we recently launched a new national TEA map, available on our website, eb5an.com. You can go there and type in the address of any project, and it’ll instantly tell you if that project qualifies as a TEA. And if it does, you can generate a free TEA qualification report.

Sam (02:16):
Also, for those looking for more information about the EB-5 program and investment process generally, we published our EB-5 guidebook, sixth edition, new in 2020, a few months ago. You can get it for free at eb5guidebook.com, or you can get a hard copy at amazon.com as well. So, as I mentioned earlier, I’m Sam Silverman, managing partner of EB5 Affiliate Network. My bio and background is listed on the screen on the left side, and I’ll let my partner, Mike Schoenfeld, also with us today, in the middle there, jump in and introduce himself as well.

Mike (03:02):
Hi everyone. Thanks for taking the time to join us in today’s webinar. As you can see, Sam, Tim, and myself, we all come from more of an institutional background. Prior to getting into EB-5, Sam and I worked at the Boston Consulting Group together, and we’ve all attended top schools and worked at other top finance and law firms. So, once again, really appreciate your time. And now, we’ll give you a bit more background on our company itself and everything about how we operate EB-5.

Sam (03:33):
Thank you, Mike. So, in terms of our company operations, we’re a national regional center operator and a fund manager across all of our regional centers. We’ve sponsored more than 1,800 EB-5 investors from more than 60 countries, and we own and operate many regional centers that cover more than 20 states. This is a quick map showing some of the geographic coverage of our approved regional centers and another map showing where a lot of our investors that have joined our regional centers, where they come from. And now, today, we’re going to introduce Michael Harris. It’s a pleasure to have him joining us. He’s had a lot of experience in the EB-5 space, particularly with Brazilian investors. And he’s worked with a number of investors in our projects over the years, so happy to have him with us, and I’ll let him jump in and introduce himself.

Michael (04:52):
Thank you very much. And thank you to Mike as well. It’s a pleasure being here with everyone today to discuss the EB-5 program. I hope to offer a lot of different insights that I have had over 13 years of working in the EB-5 industry, which has evolved over time. And I look forward to interacting with you.

Sam (05:16):
All right. Great. So first, I’ll, do a quick overview of source of funds and how does it fit with EB-5, and then we’ll let Michael Harris jump in and talk about some more of the nitty-gritty details. So, first, in general, what is source of funds? How does it fit in the context of EB-5? So, in general, when you’re filing an I-526 petition—the second blue box on the screen—you’re going to be required to include documentation on the project and how it meets EB-5 criteria. And additionally, as a second part, you’re also going to be required to include source-of-funds documentation showing how that individual investor also individually meets EB-5 program criteria. So, specifically, you have to be able to demonstrate these five requirements. Then, double-clicking on, kind of, the source of funds–specific documentation… what you need to be able to demonstrate is that the investor is the legal owner of the capital that’s being invested and that not only do they have the capital now, but you have to show how that investor got ahold of that capital.

Sam (06:47):
So, did they inherit the funds from a family member? Did they earn the funds over a career working as a doctor? Did they invest in a piece of real estate that significantly went up in value, and now they’ve sold it or taken a mortgage out? And that’s where the money came from—whatever the source is, as long as it’s legal and can be documented and you can put together paperwork that clearly explains how the investor acquired those funds, then that source of funds is going to be able to be included as part of the investor’s source of funds. In general, the source of funds is only required for the capital investment—so, the $900,000 or the $1.8 million investment threshold. It’s not required for any additional fees, legal fees, administrative fees—none of it is required for that. And it’s only required for the amount that’s being invested.

Sam (07:45):
So you don’t have to show, you know, where all of your net worth is from. You only have to show how you got the EB-5 capital that’s going into the particular project that you’ve chosen to invest into. And again, that information, the source-of-funds documentation, all that paperwork showing how you got the money and how it’s ended up into the project, that all has to be completed and included as part of the EB-5 petition submission that’s going to USCIS. So, you have to invest the capital and have all the proof showing how you got it legally as part of your initial application.

Sam (08:30):
Okay? So, just quickly, covering generally here, what are sources that are commonly used for EB-5 investments? Ordinary income, salary, money that you earn or income from a business that you own, capital gains. You buy a piece of real estate or a stock, it goes up, you sell it, you have a capital gain. You get a gift from a family or friend, or you inherit money. And then, fourth, you take out a loan, right? So, you get a loan from a bank, a spouse, a family member or friend, et cetera. And that capital can also be used—pretty much any capital can be used as long as you can show where it originated and, obviously, that it’s legal in the sense meaning that any taxes that are required have been properly accounted for and paid.

Sam (09:36):
Okay. So, let’s talk a little bit about ordinary income. So, first, where does that money typically come from? If you’re a full-time employee, it’s usually W2 income in the US. If you’re out of the United States, it’s going to vary when we’re talking about documents to support ordinary income. You’ve got to make sure that everything is in English, have everything translated. And you’ve got to be able to prove that the appropriate taxes have been paid, right? So, obviously, taxes vary by country. And so, you know, you’ve got to demonstrate that whatever country you were in when those funds were earned, that you’ve properly reported the income and paid any taxes that were owed. Then, the last piece is the tracing piece. So, let’s say you were employed by a large company, and [your salary] was direct-deposited in your bank account. Then, you’re going to want to show your bank statements for that account, where you got the income, and then eventually showing how the money moved from that bank account, where you got paid, how those funds moved from that account into the EB-5 project that you’re investing into, right? So, in general, how and when did you earn the money? You know, what services were you paid to perform? Are you an employee? Were you working as a business owner? What taxes did you have to pay? When did you pay them? How were they paid? And then, after you got the funds and paid the taxes, what has happened to those funds until today, meaning when you decided to invest into the EB-5 project?

Sam (11:31):
All right. So, same set of issues, but discussing capital gains. So, again, a capital gain is a gain on the sale of a capital asset, meaning real estate, business securities. You buy it for A, you sell it for B, and the difference is the gain, right? Again, tax treatment varies substantially based on what country your asset was in and potentially where you are a resident as well. So, those are things you need to keep in mind. Again, any documents that are going to be included for any source of funds need to be translated into English. You’ve got to be able to demonstrate that appropriate taxes were paid. And, again, also, you have to show how that gain, how those funds have flowed since you recognized them. Initially, this varies a little bit more when we’re talking about capital gains, particularly those that happened from purchases dating back many, many years.

Sam (12:39):
So, you can’t just show that you sold a house today for a million dollars and then say, “Oh, I sold the house for a million. And that’s where my million’s from, selling my house.” You’ve got to go back and look at how did you get that house originally. So, did you inherit the house? Did you put down a small deposit, a down payment, and then borrow the rest of the money, and then, over the last five years, you paid it down, and it’s gone up in value? If so, you know, where did you get the funds initially to put down the down payment? So, you’ve got to be able to go back to the source and be able to demonstrate, you know, how you got the initial source capital to acquire that capital asset. And sometimes, you know, all the documentation may not be available.

Sam (13:28):
Let’s say it was a property that, you know, you’ve had for many, many years—then you’ve just got to provide, you know, everything that you can that you have available and make sure you’re working with a very experienced EB-5 attorney to make sure that, you know, you’ve got a credible narrative explaining how you would have or how you did source those funds at the time of the original purchase, even though you may not have all the supporting documents that you would want to have. And Michael Harris will touch on that a little bit later as well. Let me just get through these next two pages, right? So, common problems with gifts from family or friends… so, the main thing is that you’ve got to make sure that if it’s a gift, that it’s a true gift—you’re getting the money, no expectation of repayment, and, you know, it’s completely arm’s length.

Sam (14:24):
Again, you want everything to be translated, proved taxes have been paid, and then trace the money. How did you get it? And where’s it gone since you got it? The main things here are, if you’re getting a gift, what’s the relationship to the person who gave you the gift? Usually not an issue it’s a family member, but if it’s, like, a friend or business associate, then you probably want to have some more context on why that was done. And then, if there’s transfer tax or gift tax, depending on where you are, that’s applicable, you want to make sure that you’ve filed those documents. For example, if you’re in the US and you gave someone $900,000, you’ve got to file a gift tax return. And so, that would be included as part of the application showing that you did file that and you either paid taxes or it counted against your unified credit exemption.

Sam (15:20):
Okay. Then, the last thing quickly here is… so, documenting issues with third parties. So, again, you know, you want to make sure that you understand where the capital originally came from to purchase some asset, right? Then, additionally, with respect to loans specifically, it has to be an arm’s length loan. So, if your friend is going to loan you the money, and he’s going to loan it to you against your house, then he’s gonna loan it to you at a rate that’s market, right? So if the market interest rate, you know… if you went to Bank of America to get a loan on your house, and it was going to be a five-year loan at 5% interest, then, you know, your friend’s got to make you that loan at about those same market terms. He couldn’t loan you the money at like 0.1% interest, right? Because that wouldn’t be a market transaction. So, additionally, on that, you know, if the house is only worth $500,000, guess what, Bank of America is not going to loan, you know, $500,000 probably, or more, definitely not. So same rules apply there. It has to be reasonable in terms of the collateral as well when you’re dealing with any of these third-party loan transactions, especially ones where you’re not dealing with a traditional, like, licensed lender.

Sam (16:48):
All right. So I’ll turn it over to Michael Harrison. He’ll jump into some of the details with regards to source of funds specifically for Brazilian nationals and also give some context on the types of Brazilian clients he’s represented over the years and what some of the main issues are that they have encountered.

Michael (17:08):
Great. Thank you, Sam, again. So, over the years, I’ve seen a couple of different typical or non-typical profiles of Brazilian investors. One of those issues that we typically see with a Brazilian investor is being able to document a simplified source of funds that would allow us to go back to the root or the source of where that money was earned from. So, in probably many, many years of representing Brazilians in other immigration programs and other employment-based programs in addition to EB-5, what we’ve typically seen is that some Brazilian investors sometimes will work as a, maybe, a 1099-equivalent worker, as an independent contractor, and we need to be able to prove the ordinary income of those investors. So, each Brazilian would be familiar with their CPF, a type of a card that they would have that would record all of their income in there from year to year.

Michael (18:22):
And there’s usually a Brazilian type of book that many Brazilians would have, or where it’s recorded in, from employment to employment. So those are some of the issues we see, usually not very significant because most Brazilian investors tend to be of very high net worth, or their family members are, which are gifting [the EB-5 capital] to them. Either those Brazilian investors are self-made businesspersons, or they are sometimes also just simply inheriting it through family. For Brazilian investors… we’ve found that it’s been very difficult for Brazilians to transfer funds over to the United States, especially lately, given the major fluctuation in the Brazilian–U.S. exchange rate of the currency. So, from those perspectives, we really want to make sure that an investor is able to do this from the very beginning.

Michael (19:25):
So, I think that a Brazilian investor really needs to be aware of some of those challenges if they [aren’t already]. Most of my clients typically have been. And at the times when the exchange rate was nearly… not 1–1, but 1–1.5 have passed over the years and have come and gone. So, for us, many investors sometimes have funds that are already expatriated out of the United States or to offshore types of companies. And when funds are offshore, into a BVI, British Virgin Islands–type of offshore company that could be set up, we have to be able to make sure that we can trace how those accounts were funded initially. So, one of the most important things for any investor, as well as the Brazilian investor, is time is taken ahead of time to set up the flow of funds that you’re planning to use so that we don’t have to go too far back in the documentation process or [that it’s not] too much of a complicated process to prove it.

Michael (20:38):
But because what happens is a BVI or an offshore company can tend to really complicate some of the tracing that we have to do. The other thing is, as Sam noted, we don’t typically have to look at someone’s entire net worth or how they earned every single amount of income. But when you start to see large transactions that are appearing on a bank statement that’s with your EB-5 investment funds, it can create more of an issue where we have to show where other substantial amounts were earned. So, planning ahead of time is very important when working with Brazilian counterparts, international lawyers, or other lawyers that are dealing with Brazil transactions. We’ll also be critical because when a Brazilian needs to transfer funds from Brazil to the United States, if they don’t do it properly, it can result in a potential charge that results in around 25%, at least, being charged on them on a tax basis there of what they’re transferring, possibly even 35%, from what I’m hearing currently from current Brazilian lawyers that I work with.

Michael (21:49):
So, the other issues that we otherwise will see with Brazilian investors will be the consideration of what they are going to feel comfortable with investing in. In my experience, Brazilian investors are looking to real estate based projects. Some have looked at other projects, such as maybe in the food industry, over time, but that has, I think, come and gone now in the age of COVID. So that’s another consideration that we look to very carefully. Sam, what about you? What are you seeing in terms of other challenges for some Brazilian investors?

Sam (22:30):
Yep. Yeah, I’d say pretty much those same things. Particularly, it seems like Brazilian nationals are a little bit more sensitive to some of the tax implications. And so, you know, they’re concerned about, you know, timing of green card acceptance, and, you know, who’s going to be the investor, you know… the parents or just one of the children or both, you know, of the children? Just the wife is going to be the primary applicant with the kids? So I’d say those are kind of the major ones that we’ve seen most regularly.

Michael (23:05):
So, like, yeah, that, in addition to, really, the tax records, I think that as long as Brazilians have transparent tax records, which they have, which they’re required to do under the law there… that if we can show how the money was earned over the years, then that’s going to present a smoother ride for a Brazilian investor, since the United States knows that Brazil has a very transparent system that requires filings and other reports that can be paper-traced, at least for quite some time over the years.

Sam (23:41):
And Michael, about what percent of your cases would you say are ordinary income as the key source of funds for your investors from Brazil?

Michael:
I would say, well, the income is typically derived through business holdings that a Brazilian investor is deriving from. So there’s employment income, and that’s coming that way as opposed to selling major assets all the time. Selling homes—I haven’t seen that. It’s usually, typically, working income that’s earned through either employment or through business income from some of the vast holdings. That’s what the Brazilian clients that I’ve represented had, where they have multiple companies that the family owns, usually in different divisions among historical lineage—maybe among siblings, for example—so that the income is coming from… usually derived through companies. And that requires us to go through the structure of how those companies were set up and the legitimate operations of them. So quite a bit, in my opinion, from ordinary income, as opposed to taking loans from banks and using third-party sources like that. It’s very interesting because I know in a lot of other countries, the income is not as well documented, and you end up going more with property sales and things like that.

Michael (25:02):
So, it is fascinating, the difference in Brazil versus some other countries. Yes, it does happen. I think that that some Brazilians may need to, or are, probably, re-engineering how they’ll deal with this since 2015, when the currency exchange rate really went, overnight, I think, from around 1.5–1 to like 3–1. And I know right now we’re at about 5–1. So, a Brazilian investor is going to be very sophisticated and need to take some steps ahead of time—maybe assets that are in the United States might be considered as well. I think we might see some changes where loans are being taken, maybe from U.S. properties that they own. That to me seems to be the way that many are going to need to exit, especially given the continued decline in Brazil’s geopolitical situation there, especially now in COVID.

Sam (25:59):
Got it. Got it. Okay, great. Let’s shift and talk a little bit about some of the nuances for capital gains for Brazilian nationals that you’ve seen, Michael.

Michael (26:12):
So, for capital gains, for me at least, I don’t see a lot of real property always being sold that is being utilized. I have seen equities that are done, where the Brazilian investor, or the investor’s family, have equities that have been earned over time through the ownership of major corporations or companies or private venture companies that they set up there. So, we do need to go back into those records, and I haven’t had an issue, really, of getting records from Brazilians, but it does take knowledge, I think, of the Brazilian system there. And really, you know, even for a, you know… unless the attorney is practicing in Brazil, it’s really helpful. And we work with local partners there to be able to help us to identify and try to select the path of least resistance for the sources of funds so that we don’t have to go through, you know, evaluation, or appraisal issues regarding property.

Michael (27:25):
But we are ready to do that. And we do need a host of different documentation of the four corners of a property sale, if we’re going to do that, or other deposits showing the flow of funds to create an investment account and the accrual over time of how that was made. So, an investor needs to strategize with an immigration lawyer over finding the path that’s going to be the least complicated for them. And I’ve done that with my Brazilian investors, where we’ve looked over their structure of companies and tried to find one that will hopefully not require us to go too deep into the rabbit hole, so to speak.

Sam (28:10):
Got it, got it. Okay, great. And then, let’s move on to gifts or inheritance issues that you’ve come across.

Michael (28:22):
For inheritance, I really haven’t seen an issue for Brazilians. I think that with any investor, we may start to see some issues coming up regarding the evidence of inheritance. I have had other cases where the government really wants to see how a testament of a will was created initially—where was it recorded? Is there any litigation or court filings that were needed regarding that? Are those required under the law of the jurisdiction where it was submitted? I’ve seen now, and heard from others in the industry, that we’re seeing USCIS really start to probe and wonder if there’s been any type of civil actions or any civil trials or hearings regarding anything regarding the investor and, once, that affirmation from the investor. So, for inheritance or for trust creation, they really want to see how those funds, more and more, were created, were earned to fund that that last will. Simply providing the last will and testament is not going to be enough, I’m afraid.

Michael:
So, given the amount of time that some of these estates might have turned over for some investors, where it could be couple of decades, it’s going to be important. I think, trying to go through some secondary evidence of affidavits or other records—it will be very helpful to go through that if available. Otherwise, we have to really go down a narrative path of recollecting from the investor how everything was earned by their family, or we have to consider other paths of funds, if available.

Sam (30:08):
Got it, got it. That makes sense. And then, lastly, or second to last, situations involving loans, you know—not necessarily the sale of a property, but, you know, a loan that’s going to be used to fund part of the source of funds.

Michael (30:28):
Right, so it’s the same as… except for a financial institution, which would ordinarily do an arm’s length transaction that would require some type of securitization of an asset in the foreign country. USCIS is going to want to know about what asset has been collateralized sometimes when it’s a private lender, which is typically going to use that type of process for a secured loan. But as you know, it’s known that there, in Zhang versus USCIS, we have had some relief for investors that are using unsecured loans, where they’re not using a piece of collateral to secure the loan. We will still need to know who the lender is and if it’s a third-party individual, which I would suspect, aside from maybe a hard-money lender, would be willing to loan an investor funds without collateral, we still would have to be careful of reviewing the funds that were utilized by the lender that were given or dealt out to the investor.

Michael (31:41):
So we have to be very careful, I think, improving the source of funds of those lenders to show that that money that they are utilizing in this private transaction was properly and lawfully earned under the country where it was earned, in Brazil or if it was outside. They become… they step into the shoes of an investor, or at least they are treated that way when it’s a private individual making that loan. So, we do need to be very, very careful and cautious with that, and going through not just the recordation of… or, if recording is required of any of those transactions, we have to review that, but also whether or not those transactions can be properly documented as well as considered under the country’s laws.

Sam (32:34):
Got it. Got it. That’s correct. Thank you, Michael.

Speaker 3 (32:43):
And as I alluded to before, the exchange rate has really just been volatile in Brazil lately, Sam.

Sam (32:50):
Yep. Yep. Do you want to walk us through this summary slide as well?

Michael (32:56):
Sure. So, since at least 2015, when I noticed a giant increase in investors from Brazil coming here, where the exchange rate was around 1 to 1.5 reais per dollar—it went from 1–1 to 1–3 basically around, I think, 2015. And it’s continued to just go up—right now, it’s at around a $1 to over five reais for the exchange. So, an investor would be, you know, be cautious, I’m sure, or be willing to make the investment that would essentially be maybe five times the actual value of what it was many years ago. But that’s just part of the issue of the Brazilian investor that’s already committed to doing [an EB-5 investment], is looking forward to this. As they know, the United States is an area that that has communities for them, is open to them, and is more secure and safe in many ways.

Michael (34:04):
But transferring the funds for small banking institutions—if the investors use them, it can be very delicate if it’s not done properly. It’s not always common. A sophisticated investor should know that the transfer would incur a big charge by the Brazilian authorities if not done properly, if it wasn’t transferred right of 25 to 35%. Again, Brazilians tend to have very, very good tax records, in my experience, but they will need to make sure that they are available for consecutive years, if required. So, that would be very important to take steps with a Brazilian tax expert, which we work with closely to make sure those things are in order so we don’t have a request from USCIS giving us 90 days to reply, where things may be cured or dealt with ahead of time through restructuring or correction of tax records.

Michael (35:02):
Employment records need to be reported by each Brazilian investor, and some of those may differ whether they’re living in Brazil or living abroad. So that’s, again, something that a tax expert can also help with, in my opinion. And the BVI structures, these tax shelters that are set up by many Brazilian investors can prove to be a headache for some, when we have to demonstrate how that trust was capitalized over time or initially. And that’s a challenge for some… not just Brazilians, but others in South America that are trying to shield themselves sometimes from what may be deemed oppressive regimes. And whether or not that’s legal under the laws of the country where the funds originated from is also another subject that’s up for debate with USCIS, if it’s otherwise maybe a burden on the investor to deal with. So, we’re seeing some issues there. We’ll have to be careful with trusts in offshores in the future, I believe.

Sam (36:05):
Great. That was a great summary. Thank you. Thank you, Michael. All right. We’re now gonna run through kind of a source-of-funds case study to illustrate how the source of funds could happen for a slightly more complicated than average scenario, just to kind of have a good example to work from. So, I know there’s a lot of boxes on here, but we’ll just take this step by step. So, what we’ve got going on here is an EB-5 investor, a Brazilian national, in the gray box, that owns a building, a piece of real estate, in Sao Paulo. And that investor has decided that they want to get a loan on that building to finance their EB-5 investment. And so, that investor—obviously, for that person, you’ve got, number one, the box on the left—you’ve got to document who that investor is, right?

Sam (37:08):
Passport, birth certificate, driver’s license for that person, plus their spouse and any kids that are going to be part of the application. Then, number two, you’ve got to prove that’s a real asset that they own, and you’ve got to prove, you know, it’s what it’s worth today, ideally, you know, or at a minimum worth more than the $900,000 loan that you’re looking to take out against it, right? And then, once you prove—let’s say the buildings were $2 million—you get an independent appraisal that says it’s worth $2 million, you know, on this date. Great. Then, okay, how did the investor get it? So, did they inherit it? Did they buy it and it went up? You know, where did they get the money that they used to buy initially or put down the down payment that was used for the initial purchase? So, you’ve got to be able to document that with respect to the loan, the loan itself, in this case.

Sam (38:03):
And, again, to be a little bit more complicated, this is going to be coming from a friend of the investor, who’s a U.S. national. So, the friend owns a digital consulting business that’s operating, let’s say, in Florida. So, for that business, you’ve got to prove it’s a legal business. Where is its operating agreement? You know, it’s a legal entity, registered, it’s doing business in the US—then that business earned money, $300,000 per year over the last five years. So, that’s kind of where the capital that’s going to fund this loan, where it came from—from running this digital consulting business. Right? So, to prove how that business earned the money, you’ve got to include the bank statements, invoices for services, tax returns, all those documents proving all the companies that hired that digital consulting business, what services were provided, and show that third-party payments for services were paid.

Sam (39:12):
Then, that friend decides to make this loan. And it’s going to be secured by a mortgage on this property in Sao Paolo. So, he’s agreed to make a $900,000 loan on a property that’s worth $2 million, and it’s a 10-year loan, and it’s going to be at a market interest rate. So, whatever, you know, reasonably that property could get a loan from a normal bank or a traditional lender. It’s going to be a comparable rate to the rate that the friend is going to charge along with the term. And the other major terms of the loan and the collateral for that loan, of course, is this multi-family apartment building, right? So, again, high level, you’ve got a Brazilian investor, they own a building. They want a loan. They decide to take a loan from a friend in the US who owns a consulting business. That friend’s got to show how their business earned money and that it earned the money legally. And that the transaction, the loan transaction itself, is a market rate transaction. So, again, this is a more complicated source-of-funds transaction map, but it kind of illustrates all of the different aspects that may come in when you’re talking about a third-party loan against an asset that’s out of the United States.

Sam (40:40):
Alright. And so, to kind of help illustrate that situation a little bit more, the source-of-funds section of the I-526 application is part of the cover letter that gets submitted to USCIS. And so, on our website, we put together kind of a sample template to provide an idea of what that section of the letter looks like. And so, this includes—and this is all completely hypothetical and is not tied to a real person, but just to give you an idea of the number of exhibits and types of documents that are going to be required to be included in the investor’s I-526 specifically with respect to the source of funds, right? There’s going to be other exhibits and references that discuss the project the investor’s going into, but this list, or a section of that letter, is going to only describe how that investor got their capital. And, again, this list will vary significantly based on the country and type of situation the investor has—if they’re inheriting money, if they’re being gifted money, or if there’s a loan or it’s capital gains that’s driving most of their funding. So, this is just an example but will vary significantly.

Speaker 1 (44:35):
All right. So now we’ll open it up for questions, and, yeah, anyone who submitted a question during the webinar, or if there are any questions now that haven’t been submitted, please use the chat box on the screen to submit them, and we’ll try and cover a couple of them here now at the end of the webinar. All right. So, the first question that we had is, “If I’m planning to submit my I-526, about how long does it take to, like, gather all of the required records that are going to be needed for my application? Like, what’s an estimated, you know, time I could estimate for that?”

Michael (45:27):
I might have an answer for this. Sure. So, it really depends on the investor’s ability to do some work on the ground, at least in the collection of their own personal documentation. I find that most investors usually need around, maybe, I’d say two months on their own side to collect documentation that they require once that is starting to be fed to us. We usually, at that point, we’d need usually maybe 10 business days to finalize a filing once we’ve received it at that point. But usually, it’s around four weeks for us to actually make a submission of documentation from an investor. And so, it’s usually, I’d say, a few months, just typically, for most investors, although some, if their house is in order, if the documentation is in order, could be done very rapidly with them.

Sam (46:28):
Okay, great. One other question we had is, kind of, it’s around the mechanics of the submissions. How does this filing gets submitted, and, you know, what happens once it’s submitted, and how can you check the status, and, you know, who gets notified when there is an update or approval? How does all that work once the materials are, kind of, completed on your end?

Michael (46:50):
Sure. So, the EB-5 program is a paper-based filing that requires a paper-based filing. Unfortunately, we’re still in the old-fashioned age regarding that requirement. So, we will have to do a paper filing, dividing everything into exhibits along, you know, similar to the lines of how you noted there, in your example, Sam. We’ll print that out. We’ll color code it. We are very delicate with it and make sure the government has a very good roadmap or index or table of contents of itemization of everything that is there. So, we have to pay per file. The government forms that are signed off by the investor. Right now, because of COVID-19, we are able to utilize a scanned signature from the investor on the government forms. Normally, we would require an original form to be returned to our office and mailed that way with the filing fee to USCIS, usually about two weeks after filing the I-526, which is the initial petition that kicks off the whole process.

Michael (48:01):
Usually, then we receive the government’s receipt notice, which will be mailed to our office here in the United States. If the investor resides overseas and doesn’t have a United States address, we would recommend that the duplicate copy of the receipt notice and eventual approval notice go to our office so that it doesn’t get returned as undeliverable. So, it typically takes a couple of weeks, though because of COVID, it could take, maybe, longer, a few weeks, to receive the confirmation that the filing was received by the government. After that point, I always advise that my clients to set up a free account with us to monitor, and have it monitored for them, the case status of the account. That’s really the only way, unfortunately, for the time period that the petition is pending, whether that’s one year or two years, based on the current processing times. The government will send out an update through that system.

Michael (49:02):
And if you’re not subscribed to it, you won’t know anything else—otherwise, it’s through the mail. The government will mail us something, a paper notice, if there’s any requests for information, which is rare in our case, or they could sometimes email us as the lawyer through the investment, the Immigrant Investor Program Office, or IPO, in Washington, DC. So, typically, we have to monitor it electronically and maybe, perhaps, getting an email from the government that way, but we can also follow up with the government there were a delay or request something further from them.

Sam (49:44):
Got it. Okay. And can you talk a little bit about… or, one question that we have is how does this source-of-funds process vary if I’m structuring my own project or if I’m going to invest in a regional center, you know, a project that I’m not going to control?

Michael (50:01):
Well, if the investor’s structuring their own project, and of course they could do that through the affiliation with EB5 Affiliate Network, where you could take advantage of, maybe, indirect jobs that are created—and I’m sure Sam and Mike and I can further explain about that—but once you have a business, a company that is set up, you are still going to have to make a wire from your personal funds that you’ve earned or received through gifts or loans to the business account of the US company that you’re investing in. So, we still have to show an A to B transaction from the personal funds to the business account and be able to document how the money was transferred there—at least as far as sources of funds, tit remains the same. It’s just showing a different company other than a regional center, or at least the project of a regional center receiving the funds. It would be your own private, standalone project for purposes of that. Other than that, the business would have its own business plan and maybe an economic study for the filing purposes as well.

Sam (51:17):
Got it. Yep. That makes sense. All right. That’s the last question that we had. So, again, I want to take a moment and thank Michael for taking time out of his schedule to accommodate us and join us. And if there are any questions related to the EB-5 source-of-funds process, please reach out to Michael. His information and website are on the screen. And any questions related to the two projects that we discussed briefly or about structuring your own EB-5 project and having it be sponsored by a regional center, please reach out to us. The website and phone number, email are all listed there. And if you are, again, interested in getting a copy of the slides that we covered today, just email us at info@EB5AN.com. And if you’re interested in sharing a recording of this video or seeing a recording, just check for our YouTube channel in the next few days, and a recording will be posted there as well. So, thank you again, Michael, for joining us, and yeah, that’s it for today.

Michael (52:29):
My pleasure. Thank you, Sam. Thank you, Mike. Have a great day. Okay.

Sam (52:33):
Thank you.