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EB-5 Source of Funds – Best Practices for Italian and Western European Nationals

Sam (00:00:11):
Hi everyone. This is Sam Silverman, managing partner of EB5 Affiliate Network. Today, we’re going to be discussing source-of-funds best practices for Italian and Western European nationals in today’s webinar. We have a number of guests with us from Davies & Associates who will be joining us in this important discussion during today’s webinar. If you have questions, please use the chat box to submit questions, and we’ll try and cover as many of those questions as we can at the end of the webinar. Also, this webinar will be recorded. So, if you’re looking to revisit it later, please check our YouTube channel in the next few days, where the video recording will be posted. And if you’re looking to get a copy of the PDF slide deck that we’re going to be covering today, please reach out to us at info@eb5an.com in the center of your screen, and we’ll be happy to send you that file, so you can reference that in the future.

Sam (00:01:16):
So, first, we’ll start with a quick overview of what we’re going to cover in today’s webinar. First, we’ll touch a little bit about our guest speakers and EB5 Affiliate Network, or EB5AN for short. We’ll talk generally about what is source of funds and how does it fit within EB-5. We’ll talk specifically about best practices that Mark and his team have seen on the ground from working with Italian and other European nationals considering the EB-5 program, and we’ll cover one specific case study that’s on the more complicated side to illustrate some of the types of documents that may be needed, given the various source of funds an investor may use for his or her petition. And then we’ll conclude with our question-and-answer session at the end. So, first, before we dive into the material, for investors and developers who want to confirm a specific project site does qualify as a targeted employment area…

Sam (00:02:20):
… meaning $900,000 is the investment amount instead of $1.8 million, we recently launched a new TEA, targeted employment area, map on our site, completely free. Type in the address, and it’ll immediately tell you if a project does qualify as a TEA. So, that may be helpful for you to check out, and for those looking to get a more academic and more detailed view of some of the aspects of the EB-5 program, from both an investor and developer point of view, we recommend that you check out our EB-5 guidebook, available for free on our website or on Amazon as well. All right. So, jumping into some background about EB5 Affiliate Network—as I mentioned earlier, I’m Sam Silverman, one of the managing partners at EB5 Affiliate Network. On the left side, some information about my background is listed there. I’m joined today by my partner, Mike Schoenfeld, and I’ll let Mike jump in and introduce himself as well.

Mike (00:03:23):
Thanks for taking the time to join us today. So, as Sam mentioned, we’re the founders of EB5 Affiliate Network. And as you can tell, we all come from more of an institutional background. I was in private equity before, and we both worked at the Boston Consulting Group, and what we’ve aimed to do is bring more of an institutional approach to the EB-5 industry over the past eight years.

Sam (00:03:53):
All right. So, quick background—EB5 Affiliate Network is a national EB-5 regional center operator and fund manager. We have over 1800 investors from more than 60 countries that have invested in our regional center–sponsored projects around the country.

Sam (00:04:14):
This is a quick overview map of some of our regional center licenses and a second map showing where some of our investors come from.

Sam (00:04:30):
And now I’ll turn it over to our guest panelists, Mark, Matteo, and Nicolò, who are going to be speaking with us today, and let them give an introduction about their backgrounds in the EB-5 space and experience working with Italian and Western European national investors.

Mark (00:04:49):
Sure. Thank you, Sam. First of all, your screen, my screen is showing the Sam Silverman screen, but it’s still on the first slide. I don’t know if it’s supposed to be advancing, but just FYI. So, Davies & Associates is a law firm. We do EB-5s all over the world. I happened to be a licensed English solicitor and have been for, oh my goodness, for 30 years. I’m currently in Italy. We have lawyers across Italy, and we have one Italian legal professional, whose name is Matteo, who you can see, who will introduce himself, who’s based in Miami. Nicolò, who’s on this call, is actually more on the numbers and accounting side, which is very relevant when it comes to looking at source of funds and how to trace assets and producing tax returns and things to support.

Mark (00:05:48):
So, one of the things that our firm does perhaps that’s a little bit different is that we’ve always looked at, when an investor comes, their source of funds. Fortunately, in Western Europe, it’s part of the EU law, if you will, that member countries cannot impose restrictions on the flow of capital. Therefore, in Western Europe—we’ll see what happens in the UK, but I very much doubt capital restrictions will come in—you know, we don’t see the kind of problems we see in, say, India or Vietnam In India, we have a properly licensed Indian lawyer who came to us from a major Indian bank who works on those issues, same thing in Vietnam. In Western Europe, fortunately, we don’t have those currency permission issues, but we do have the need to properly document things, as these things will show. So, Matteo, perhaps you can just introduce yourself for two seconds, and then Nicolò.

Matteo (00:06:44):
Sure. Thank you, Mark. Good morning from Miami. My name is Matteo Tisato. I’m a manager at Davies & Associates here in Florida. I’m from Italy, and I’m an immigration analyst for the firm. My role is to assist all our Italian clients who want to move to the United States, and I assist with all sort of forms and petitions in both family-based and employment-based [immigration]. And, obviously, we do EB-5 cases, but we also work with all our American clients who wants to relocate to Italy. And for those who are interested in citizenship or other sort of visas, so I’m a point of contact between the two sides. So I obviously assist all the attorneys of the firm, the U.S. attorneys when we have an Italian client or the Italian attorneys when we have an American client. All our clients come from all over the world. I’m based in Miami, Florida, so it’s always, you know, a good solution for all those Italians who want to have somebody local in the place, in the United States—that could be very helpful.

Mark (00:08:12):
Nicolò, perhaps you could just give us a couple of lines about yourself and how you can help clients who need to document source of funds without focus, perhaps, who are from Italy. And I know you do a lot of UK work, too. So, we have that sort of… Nicolò and I have in common that I’m licensed in the UK, and so is he. So perhaps you can talk about both Italy and the UK a little bit and how you can help, Nicolò.

Nicolò (00:08:35):
Absolutely. Thank you, Mark, for the introduction. My name is Nicolò Bolla, and I’m a dual chartered accountant certified in Italy and the United Kingdom, and basically I do inbound and outbound tax issues in both countries. So, I’m used to serving people and companies that have different interests in both jurisdictions. Dealing with multiple jurisdiction means you have to deal with multiple tax offices and financial and banking information systems. And we have people to get the right information, to get the right coverage on their taxes, and to help in disclosure of their assets.

Mark (00:09:18):
Great. Thank you. So, maybe we can move to the next slide, right? So, that’s about our firm. We’ve already talked about our firm. Let’s get to the meat. What’s the next one, Sam? Right. So, what is source of funds, and how does it fit in? So, for our firm, one of the very first things we do with a client is we look at, do we think they can do EB-5, because if you can’t prove where your money is going to come from, you’re wasting your time and money even trying to do EB-5. So, we will always look at a client’s source of funds as one of the very first things we do to make sure that we’re relatively confident that a source of funds is going to be possible. So, source of funds, how does it fit into EB-5? It fits into EB-5 because the US requires you to prove that your money was lawfully earned.

Mark (00:10:15):
In recent times, they’ve also focused on the pathway of funds, which is, as I just covered, a little bit less relevant for Western Europe than it is for some other jurisdictions, but really the source of funds covers how did you lawfully earn the funds and document it, and then, how did those funds move from wherever they are in the world—they don’t have to be in your home country—to the United States. Sam said we had some Indian people on, so, you know, if you are from India and your money’s coming from India, you will have to be compliant with them. It used to be that the U.S. government didn’t, sort of, comment on that, but now—we haven’t had an RFE [request for evidence] on this at all, but I have received filings from other firms now, quite frequently, filings that were made by other firms where there was no compliance with the foreign exchange management tax.

Mark (00:11:06):
So, yeah, but Western Europe—not necessary. But for if you’re from India or Vietnam or China or any country that has currency restrictions, please, please, please make sure that whatever law firm you’re using is paying attention to your compliance with the necessary foreign regulations. So, per USCIS requirements, an EB-5 investor must own their own capital. That comes up quite frequently in the terms of trust accounts. So, I can remember we had a client from Italy who had their funds structured in various trust accounts in Zurich, and they weren’t technically the legal owner of the account through the beneficial owner. So, that actually became quite a complicated exercise of explaining Swiss law and how that applies and why it was really their money. But the point is a very good and pertinent one that it must be your own capital.

Mark (00:12:01):
Now, as we’ll see later in the slides, you can borrow the capital, and the rules have become… let’s just say a little bit more favorable for people borrowing money. But I’ll say that, you know, you still have to be careful with that area. It needs to be carefully documented, but it must be your own capital. Establish that they are the legal owner of the capital invested and they obtained the capital through lawful means—we just talked about that. And document the path of the funds to establish that the investment was made or is actively in the process of being made—again, you know, we just talked about this, so happy to address any questions. What sounds simple actually isn’t. I always say to every client that we have coming into the firm, “It sounds simple, the source of funds, but the number of questions we’re going to ask you—you are going to get frustrated.” And I always make the analogy to, sort of, a dollar bill and imagine that you’re paying for your EB-5 with $900,000 bills.

Mark (00:13:03):
And it’s almost like you’ve got to trace a serial number on each bank note back to, sort of, where it came, the source. USCIS must approve both components of I-526 to be approved. EB-5 criteria—the investment meets EB-5 requirements. So, this is talking about the project side of things. So, you know, after you’ve established that you’ve got the money, you need to show that, oh, you need to be investing in a project that meets the requirements of EB-5. One of the things that we would do as a law firm is always, obviously, make sure that the project that a client’s going to be investing in meets that requirement, because a lawyer is acting on your behalf, not on the behalf of anybody else.

Mark (00:13:52):
So, that’s a very important requirement. Investment capital was lawfully earned. This must be the hundredth time we’ve already mentioned this on this call. And that’s key, key, key. If you look at the reasons for RFEs—and I’ll explain what an RFE is for those who don’t know, it stands for “request for evidence”—so the first form that you file in EB-5 is I-526, as mentioned here. It’s just a form number. You established that you have your money. And as this is talking about on this slide, you find a project, Sam’s project, you want to invest in, you make your investment. And the first thing that you would do is you file Form I-526 with the U.S. government. When the US government adjudicates Form I-526, there’s a number of things that can happen.

Mark:
We feel like most of our clients will get a straight approval. Sometimes, USCIS will say, “Well, we think this person qualifies, but we need a little more evidence.” And then they will issue an RFE, which stands for “request for evidence,” which really slow down your process by some time. So, unless it’s deliberate—and there are some times when you might want to deliberately slow a client’s case down, so, there is such a thing as a deliberately caused RFE—but for most people, they don’t want to slow the process down. So, an RFE is not a good thing. So, if you don’t… the common causes of RFEs and denials, usually, at the first stage, it’s all to do with source of funds. The large regional centers like Sam’s have a lot of experience and projects will have been put together by a very competent EB-5 lawyer.

Mark (00:15:32):
They may well have a pre-approval. Probably many of the well-known immigration lawyers in EB-5 will have clients involved in that project. So, they will have scrubbed it as well. So, if you’re… to me, one of the advantages of dealing with one of the larger, more established regional centers is the risk of RFEs or project problems gets quite low because it’s been scrubbed really well by very experienced EB-5 experts many times, probably, before you invest. So most of the risk when you file that I-526, the first step, is on source of funds. That’s why we keep talking about how critical it is to be able to document your lawful source of funds. Technically what happens in EB-5 is your money is invested in something called a new commercial enterprise. Without getting too complicated, in mostly EB-5 cases, there’s two separate entities.

Mark (00:16:30):
One is called the job-creating entity, and one is the new commercial entity. The new commercial entity is typically an LLP set up by the regional center that you will become a limited partner of. And typically, though not exclusively, the regional center will be the general partner. That’s very, very important because the regional center, or whoever is acting as the general partner of that NCE, has responsibilities to you as investors. And whilst I’m unaware of any of Sam’s projects going on right now, I would say that we get more incoming cases that have gone wrong filed by other firms than filing new cases. And very typically, we have to go to court and make the regional center, the general partner, do what they are supposed to do. So, they have obligations to you. And so, well, your choice of who the general partner is is a very important one. So, you invest in the NCE. The NCE will then make an investment in the project—or, not an investment, it will make a loan, typically, to the project. There’s different ways of structuring it, but typically, it’s a loan. And then the project, the job-creating entity, will create the infamous 10 jobs or imply the infamous 10 jobs that’s required for EB-5 purposes. And on the next slide… let’s see where we’re going.

Mark (00:17:57):
Actually, I just want to mention—on that previous slide, at the bottom, it says investors must be actively involved with the business. That’s always true. So, I go to various conferences and things, and there actually are lawyers sometimes saying that this is a passive investment. Well, as a practical matter, EB-5 is a passive investment and you don’t do very much, but don’t tell the US government that—you’re not supposed to be a passive investor, you’re supposed to be actively involved. So, Sam’s slide is really good and very on point there. And it’s worth remembering that you need to… you cannot, theoretically, be a passive investor. There is a practical matter. And if anyone wants to know the legal reasons why, we can talk about it and put everyone to sleep. But as a practical matter, in most major regional center projects, you do end up as a passive investor. Sorry, go on, Sam. Next slide.

Mike (00:18:49):
Exactly. And just to summarize that, I mean, as you covered in detail, the two key parts are, first, the project, which, if well structured, there’s no reason that you would be denied on the project side for any larger deal, especially when it’s exemplar-approved or well structured. The main thing to focus on is that source of funds, and that’s why this is the area that we really want to dig into today. Because, as an individual investor, nearly every denial we’ve seen over the past many years has been related to that source of funds, as long as the project was structured appropriately.

Mark (00:19:22):
Just to reiterate what was said, you know, I can’t remember… most of our clients have chosen major regional centers. I cannot remember ever being… oh, there was one regional center that had a problem once, and we warned the client about that particular problem in advance, and it was resolved. So, we’ve had one problem, one project where we have a problem, I think in 10 years, and that problem was resolved. And the investor was able to successfully move forward. That’s the projects that our clients have invested in, which speaks to [the idea that] if you do due diligence on the project and you’re dealing with a decent regional center, like Sam’s, really, you shouldn’t be taking any project risk with your green card. There’s no reason to… there are some crazy projects out there in the market.

Mark (00:20:11):
And unfortunately, there’s people out there who will… who are brokers, who will lie to you and mislead you about other projects. So, always independently review, no reason to take a risk. You know, if you look at our projects, I think it’s zero project-based issues, and any issues that come up are source of funds, and even those have all been resolved. So, typically, if we file 10 EB-5, we get one and a half, on average, in the last two years, RFEs out of 10 filed. All of those RFPs have been resolved, just to sort of give you an idea, and zero questions on the projects. So, the key is that it’s being said very clearly—choose the right project, and you don’t have to worry about problems with your I-526 on the project, but focus on source of funds, which is all on you and about where your money came from—it’s critical.

Sam (00:21:03):
We’re going to chat a little bit more about projects and what questions to ask a little bit later in the presentation as well. For now though, just to quickly go over the different primary sources of funds, and then we’ll let your team kind of dive into the details here. First is just, basically, normal, ordinary income, right? So, that’s just capital that you’re working a full-time job as a doctor or lawyer [for], or in any normal W-2 employment scenario, if you’re in the United States, but just money you earn normally, you know, through performing some service or at an actual job. So, that’s kind of bucket number one, then bucket two, capital gains. So, this is capital earned by the investor or spouse from the sale of an asset with a gain. You buy stock for $10, it goes to $30, you have a gain of $20. You buy a house for $100,000.

Sam (00:21:56):
It goes up in value to $400,000. You’ve had a gain, right? Then, the third major bucket is gifts or inheritance. So, someone passes away, you inherit capital, or a relative or a close friend makes a gift to you with no strings attached, and you get the money, and you can do what you please with it, right? Then, the fourth major bucket is loans, right? So, money provided with a clear expectation and expected timeline and interest rate and details around the future repayment of that capital, whether it’s from a family friend or company money, that’s given to you temporarily with an expectation that it’s going to be coming back. And so, high level, generally, it’s important to understand that whatever sources of funds your application may entail, you need to make sure that, whatever sources that fall under these four buckets, that any required taxes were paid, and this is going to vary substantially. And this is why it’s really important, particularly with investors with assets and financial activity in more than one jurisdiction, to work with an internationally geared firm to make sure that all the required taxes and compliance and forms and requirements have all been met in the various jurisdictions that apply. And so, I’ll let Mark jump in here on the next slide, and we’re going to go through each of these four buckets in detail, specifically in the context of Italian and European national investors.

Mark (00:23:27):
Just to emphasize one thing from the last slide quickly, a very, very common thing that we see is, we seem to be a magnet for cases that weren’t documented properly and filed somewhere else. And I’d say one very common thing is business income. So, when you have business income from a business that you own, that’s completely allowed to be used for EB-5, no problems at all, but you need to document that you actually own whatever percentage is yours of the business that you own, that you’re actually entitled to the dividend or the loan—some countries allow a loan from the company, others don’t—the area of source of funds where it’s business income or a loan from your own personally held businesses, pay attention to that. You know, if you’re going through source of funds and whoever you’re working with isn’t asking you for proof that you paid for your share capital in a small business, then, you know, you’re probably going down the wrong alley. You can use business income, absolutely, but just be careful with that one that it’s properly documented. So, common problems in documenting ordinary income… I sort of just wanted to mention the business income. Let’s talk… Nicolò, why don’t you talk just a little bit about, sort of, the typical tax documents you’d see from ordinary income in Italy, and when we document someone’s ordinary income from Italy, the actual documents that we’re looking for that equate to the W-2s and the 1040s and things.

Nicolò (00:24:58):
Yeah, absolutely. So, it is very important to make a distinction. So, if you have financial income in Italy through a financial institution, basically you do not have a tax structure. They will fund taxes on your behalf and pay taxes on your behalf. That will, you need to have a bank statement to provide such information. If you have private businesses and you pay yourself dividends, or you have another source of income coming from private institutions that are not regulated or are not held through a bank in, you need to supply your annual tax return, which is called Modello 730—those are two main documents that we provide.

Mark (00:25:49):
Okay. Thank you. So, you know, I think it’s a really critical point that people don’t understand what material—or, excuse me, what Nicolò was just talking about is, bank statements are critical, and showing, sort of, the source of funds and the flow through bank statements is really important. So, people will often say, you know, “I’ve got some shares, and I sold my shares.” So that’s where the money’s coming from, but you bought the shares in the first place, and generally, it all traces back through bank accounts, and yes, they want to see the actual credits and debits to the bank account. So, you know, Sam’s put on this, “How did you earn your money?” You’ve got to be able to answer that question. If you bought shares or the money’s in some investment, how did you earn the money in the first place? And we can talk in a minute about how far back we might go, because we have a couple of examples that seem really unreasonable but just illustrate that they can ask back a very long time as to where you got the money from. So, with that said, why don’t we move to the next slide?

Mark (00:27:01):
Oh, brilliant, capital gains—money earned by the investor or the spouse from a sale of an asset or gain on investment. So, Nicolò, they put down a lot of the American, sort of, requirements here. Perhaps you can talk us through the Italian and the UK equivalents and what those would be and what we’re looking for.

Nicolò (00:27:26):
Yeah, that’s right. So, starting from the top of the site in regard to real estate, if it’s residential real estate and you made a capital gain, if you own that personally, you don’t have any requirement to recall of that. Therefore, the only source can be the notary deed on which you transferred your asset. If you have any other capital gain, it’s paid tax through your own personal tax return, while if you own that through a financial intermediary or you have an investment portfolio, then the fund or the financial institution has to provide a quarterly recap statement saying how much money you earned, which are the capital gains, potential capital losses, and the taxes you have paid overseas. Of course, here it says documents are normally provided in Italian—few banks provide documents in English; therefore you might need a translation. And then, you have to prove that you have paid taxes, which is either self-assessed …

Nicolò (00:28:35):
… therefore, you need to provide the so-called F 24 Form, or if everything is managed by the bank, they already provide that in the annual statement. And, of course, the Italian tax payment form, as I said before, F 24, has to receive a receipt. So, once you pay the money, you get a receipt from the Italian tax office. And this has to be paid through an Italian bank account, while in the UK, it’s quite easier because everything is run through your own personal tax structure, where you have to disclose your assets, the capital gains realized… the only exemption is the sale of your main residential real estate, in which you can claim the principal private residency relief. So, in that case, you still have to provide information on the deed and the original date to calculate the capital gains you have realized.

Mark (00:29:37):
So, I think, you know, the thing is this: we know when you’re dealing with USCIS, the key rule is keep it simple, keep it simple. So, a USCIS adjudicator is generally familiar with the US system. They may or may not be familiar with your country—no way to tell. So, if we can give them as close as what looks like what would be filed or reported in the US, it makes it simple. It makes it easy for them to stamp “approved.” So, it’s very important to work with someone like Nicolò, who understands the US system and also understands the foreign system. The key is to take the foreign documentation and present it in a manner that’s very consistent with U.S. style and practice. We also have the advantage that, you know, certainly if we’re dealing with Italians, you don’t need a translator.

Mark (00:30:29):
You know, we have personnel all across Italy. So, the person working on the core documents can work on them in Italian and then translate them over English when they’re ready, because when you first get documents for EB-5, they’re not always ready to be used. It might mean going backwards and forwards to your accountant to get some changes, to get some figures… it might mean going to the bank to get more information. It usually takes a little bit of time before we get together set of documents in a foreign language that’s sort of ready and final, and really, it’s a waste of your money to start large scale translation of documents until we really know the core set of documents that are going to be used. So, I think that’s a really key tip, actually, is making sure that when you present foreign documents, they look like they’re presented sort of in a U.S. format as much as possible.

Mark (00:31:24):
When I spoke a little while ago about when you have a business and you use business income, one of the things that they will look for is a register of shareholders. In some countries, there’s no requirement to have a register of shareholders. So, what our local lawyers do, they work with your accountant or with the corporate secretary, if the company is big enough, to create a register of shareholders. It’s not illegal—you’re allowed to create one in every country we’ve come across—but we create one and put it in the books and records with a resolution from the board of directors passing it so that we can give you a CAS, something that’s on that checklist that looks familiar and they can just press “yes.” So, I think that’s all I really have to say about capital gains. You need to be able to document, obviously, the cost of the asset, what you paid for the asset, and you need to be able to document the sales price. Nicolò talked about some of those documents for the UK and Italy. And then I’ve talked about, you know, how to best present them to USCIS. Sam, is there anything that I’m missing?

Sam (00:32:40):
The one thing I’d probably add to that is just that when you’re dealing with a gain—in a lot of these investments, the gain, you know, was from an asset that was acquired many years in the past. And so, how do you, you know, deal with this situation where an asset was purchased—let’s say it was a piece of real estate, you know, more than 10 years ago, and values have gone up substantially in certain geographies over that period of time—you know, how do you show where the money came from for that initial investment or to make that initial investment? If, you know, there aren’t a lot of clear records that are, you know, that are available, since the money that would have been used to buy that, you know, was acquired, you know, more than 10 years ago. And in some of these areas, you know, it’s difficult to get records, you know, more than 10 years old.

Mark (00:33:37):
It can be done. I mean, there are other ways to document things. So, I will give you my favorite example of what I think of is the most ridiculous RFE ever received. We had an Indian client who had property going back in the family. The property was inherited—well, not inherited, but came into his family when the British divided India in 1947. And believe it or not, USCIS asked for proof that when the British divided India in 1947 that his family was granted the land. I think they must’ve had a junior adjudicator who thought, “Oh, what’s this? This doesn’t make sense.” So, we basically just sent them a UN memo and an affidavit from a lawyer who is very familiar with those kinds of things, and they immediately approved the case, but that illustrates two things you can be asked to go back a very long way.

Mark (00:34:30):
So far, for our cases, there’s always a solution. It could be affidavits. It could be proof of, well, inheritance. It could be lots and lots of things. Now, if you tell them you don’t have bank statements from last week, it’s going to be a big problem to convince them of that. But it’s quite common that in certain parts of Europe, banks, if you go back 30 years, they had those old passbook systems where things were written in. There, we have to do affidavits. There’s a whole system and process. And it’s about knowing the local country, as well as what standard practice was in the local country, where we have something like that. One of the pieces of evidence we always submit is we take our local lawyer, and we get him to write an affidavit and to explain exactly what the system is in the country.

Mark (00:35:18):
And so far—excuse me, having submitted that type of evidence, every single case has been immediately approved. So, that’s my answer to that, Sam, is you’re right. It’s a very important, very important issue. You may to go back, sort of, a long time ago to show, where did the money come from to buy the assets in the first place? Sometimes the records aren’t there. So, then, you need to create records. And when I say that, they’re not untruthful things—they’re just documentation to reasonably explain what happened, and so far, it seems that USCIS has accepted that type of evidence. Is that your experience too, Sam?

Sam (00:36:04):
Yes. Yep. That’s good. That’s exactly right. Mark, let’s shift over now to gifts and get your thoughts and the team’s thoughts on gifts. And then we’ll move on to loans after.

Mark (00:36:20):
So, gifts were a favorite topic of USCIS a couple of years ago. There was going to be a change in the rules to say, basically, that certain types of gifts wouldn’t qualify—gifts had to come from immediate family. Those rules didn’t change, but generally, with gifts, if gifts are from immediate family, then we’ve never seen a problem or an issue with, sort of, the actual gift, and we execute the gift deed. In fact, when you’re dealing with countries with currency restrictions, we usually end up with a chain of multiple gifts in order to comply with both EB-5 and foreign laws. So, there’s no problem with gifts, especially if they’re from family. If they’re not from family, you know, this is something that I’ve heard many lawyers say there’s a problem. We’ve never seen one. If they’re not from family, we always document why the person’s making the gift.

Mark (00:37:12):
So, typically, this is a long-term family friend. They’ve known the family for years. They want to make the gift. And we’ve never had one RFE on that other in 10 years and hundreds of filings. So, gifts—the actual gift itself, for us, has never produced a single question from USCIS. Now, with a gift, remember that you’re also going to have to prove, most likely, where the person gifting you the money you got the capital from. So, to me, the harder part of the gift—now I’m assuming you document the gift properly. You know, that’s why we have local lawyers in the local country. They draw up a gift deed that’s operative, say, in Italy or the UK or whatever country it is. And I think that’s probably part of the success, but what that doesn’t get you to is proving, where did the person get the money from?

Mark (00:38:00):
So, the key, I think, with gifting is, you’ve got to show, for the person gifting the money, where did that money come from? And they almost, sort of, step into your shoes. They step into your shoes as the applicant in that you need to prove, where did those gifted funds from? And as I just mentioned, whilst we’ve never seen a question or issue, I think it’s probably because we take a great deal of care in documenting with non-family. Why was the gift made? And just to… usually, it’s just a question of affidavits, and we’ve never had a problem. Does that answer the gift question, Sam?

Sam (00:38:37):
Yeah. That’s great. That’s great. Thank you, Mark. All right. So, now we’ll shift over to loans and discuss some of the issues that are prevalent when dealing with loan funds for EB-5.

Mike:
And we know that there have been some changes lately that we’ve seen with the policies around loans. So, it’d be great if you could dive into that a little bit—any changes you’ve seen from loans on the EB-5 side.

Mark (00:39:03):
Loans have definitely changed. So, we saw a recent change in that until relatively recently, it was the case that all loans had to be secured. That’s no longer the case, as a result of some clarifications in the courts. However, as a standard practice, when a client wants to borrow funds, we like to still try and make it secured, if we possibly can, because to us, it sort of makes more sense to the legitimacy of the source of funds. Whilst USCIS may be unable to deny a case based on the fact that funds are unsecured, I still think it’s the best practice to secure funds, if you possibly can. What do I mean by secure funds? What we mean by secure funds is that, in the event that there’s a loan, that that loan is secured by an asset that’s owned by the applicant.

Mark (00:39:58):
So, the classic example is a mortgage, right? I have a house, and I go to the bank, and I borrow money against the property. And then, I use those borrowed funds for my EB-5—a very, very common fact pattern in EB-5. It’s done all the time, and where those funds are coming from is a major financial institution. There really aren’t that many questions asked. I think one of the things you have to look at with loans is, where is the loan coming from? And who’s giving the money? So, we have lots of cases where, let’s say a friendly businessmen, or a friendly, wealthy individual, is lending the money to the person making the investment. Then, we get into the whole scenario we were talking about with gifts. Again, if you’re dealing with a major financial institution, USCIS are not going to ask, where did Citibank get the money to lend you?

Mark (00:40:51):
That’s ridiculous. However, if you’re talking about, sort of, a more closely held businessman who’s got a small little business and he’s lending you the money, then you really do need to be showing, where did the person lending you that money get that capital from? So, loans—EB-5 is perfectly doable with loans, meaning the applicant borrows money, then utilizes those funds for EB-5. There’s another way of using loans, which is split payments—I can talk about partial payments separately. But loans, as I said, have become a little bit usable, but you still have to convince USCIS that it’s a genuine transaction, that it’s a, sort of, you know… that the money’s really lent and it’s really intended to be given back, and they need to be comfortable with, where did the money come from.

Mark (00:41:48):
It would be far too easy for someone to have, sort of, a bunch of cash or a bunch of money that they can’t really prove, give it to a friend, the friend makes a loan. USCIS aren’t that stupid. They know that that can happen. So, you have a non-major financial institution, you know, I reiterate this again—you can’t simply just take a loan. The individual lending the funds is going to have to show where the capital came from. Let’s talk about advanced issues. When I think of advanced issues with loans, the U.S. consulate in… so in some countries, it is unlawful to borrow money against real property and to remit those funds out of the country. There’s a couple of European jurisdictions that have that rule, and then India probably is the most notorious for that rule.

Mark (00:42:41):
So, you need to be quite careful of that rule because it used to be that the U.S. consulates didn’t really pay any attention to that. In recent times, there have been clients who have had their visa refused, and their application has been sent back to USCIS for visa revocation, because someone’s done that. How can USCIS do that when that’s not a U.S. legal issue? Quite easily—under the fraud statutes in some countries, to do that constitutes money laundering in some countries, and in others, it constitutes criminal fraud on the bank. So, USDA, they used to take the view that, well, you know, whether you comply or not with foreign laws or, sort of, foreign mortgage rules, or those types of laws is not something within their purview, but I know that a couple—at least one country complained to the U.S. ambassador that EB-5 was encouraging money laundering under their statute.

Mark (00:43:41):
So, then the consulate zoomed down on it. And now we see several consulates who… let’s say they don’t inspect every detail, but they home in on this. So, when we do these kinds of things, we actually include an opinion letter from a local lawyer to say that where there’s a foreign asset or non-U.S. asset that’s been utilized in this context, there’s no local problem with it. And again, we’ve never had an issue. So, I call that sort of a more advanced era of EB-5 source of funds because it’s something where you might get different answers from different lawyers. Bluntly on that, there’s different practices, and the U.S. consulates sort of homing in on that is a very recent thing that’s probably in the last 12 to 24 months. So, again, loans can easily be used, but you need to pay a little attention to local rules, as well as EB-5. Sam, anything I’m missing on this?

Sam (00:44:40):
No, I think the most common initial question that we get is related to the legitimacy of the relationship between the borrower and the person providing the loan. It’s obviously a lot cleaner if the lender is an institution like a bank. But in other cases, it’s a private company, or it’s an individual, and there’s just going to be more scrutiny and more background, more documentation required to assess where those funds [came from] and how they were acquired prior to the loan being made.

Mark (00:45:13):
So Nicolò, I know that in Italy, by taking a mortgage on a property, you’re allowed to borrow the money and send it abroad, but the process of taking it and the documentation for doing that is a little bit different, right?

Nicolò (00:45:25):
Yeah. This practice used to be more popular back in the day. Now it’s less popular due to being hard to control and banking policies. They are not very keen to lend out money and fly it overseas. The main problem there is to prove, like, we saw the sources of the funds—that was the goal of those sources of funds. So, the problem is backwards. So, what are you going to do with the money? No one would prefer to have, like, a hard disclosure on that. And the asset to be located in Italy does allow standard practices that may do that for certain particular cases. So now it’s become the exception of the normal.

Mark (00:46:09):
And one very, very hot tip in this area is we check for this, and if you do this, you must check for this. When you borrow money from a bank, you will have a loan agreement. And, you know, Nicolò will tell us what the common practice is in Italy, but you will have a loan agreement, and that loan agreement will have a paragraph that specifies how the funds can be used. USCIS will read that paragraph. So, if you borrow money against your home, and the loan agreement says something like you’re borrowing the money to build a solarium on the back of the house, or you’re borrowing money for a new roof, and then you use it for EB-5, you’ve got a high chance of your case being denied. If you go to borrow money from a major institution or anybody else, you need to make sure that there’s language in the loan documents that says that either you can use the money for EB-5 or, more preferably, you can use the money for anything you want to.

Mark (00:47:05):
We’ve seen a number of cases, unfortunately, again, not filed by our firm, where the client’s been denied because nobody bothered to read the bank loan documents, and buried in the backbone documents is language that says—and sometimes I think they’re lazy because the documents are in a foreign language—there is a clause that says that money is restricted to its purpose of use. So, again, you can absolutely use loans for EB-5, and as Sam said, you can, you know… it’s a wide open area. It’s a great area to source your EB-5 funds from, but just pay attention to the details. So, Nicolò, what’s the practice in Italy at the moment? What’s common… if I borrow money on my home, is there likely to be restricted use laws in the lending documents?

Nicolò (00:47:55):
Yeah, it is definitely restricted. And the main reason against that is that they normally put a condition that they can call back the money at any given time. So, basically, they normally specify the destination of that money. So, what do you use that money for? It’s normally easier, more relaxed, if you can borrow money from a business. So, the bank backs up a businessman. This is normally an easier route.

Mark (00:48:27):
And we can, you know, if you’re in Italy, you know, we’ve got a number of Italian lawyers. We can contact your bank, we can work with the documents. You know, I’ve seen banks willing to change it, but their standard documents will have that restriction. In the UK, I don’t see that so much. I mean, I’m a licensed UK lawyer. I work with UK clients all the time. It’s a little less common in the UK to see such restrictive language, but I wanted to raise [this issue] because it’s very, very common in Italy. And you must, must, must have, you know, I would suggest have, if you’re going to do EB-5, have a law firm that’s got both U.S. and Italian lawyers, and their Italian lawyer will be able to deal with the Italian bank and address all of those issues so you don’t even know that exist. Sorry, Sam, I interrupted you.

Mike (00:49:11):
No, that’s perfect. And I think that’s extremely helpful for everyone to realize that it’s critical to have representation, definitely in the US but then in your home country—accounting firms, lawyers, and people that can understand the native language of the documents. So, the next few slides that we’ve included in here we’ll have in the downloadable version of the PowerPoint that we send out, so please reach out to us for that. We’re not going to spend too much time on these slides. It’s much more meant to be an illustrative example of how complex EB-5 source of funds can be in terms of all the different documents that are needed and where different sources of funds are coming from. And it’s very individualized. So, every case is different, and we like to lay one out so you can see a little bit about what a source of funds could look like with all the different components of it.

Mike (00:50:02):
And of course your case will be different. And what that leads into is when the lawyers are preparing your source of funds, this is a completely hypothetical template for something that looks like the source of funds cover letter. So, you can see the type of backup exhibits that you would need as an investor to have on hand and to be able to acquire to prove where all of your funds have come from. This is a summary of the exhibit showing of all the different types of loan documents, deeds, wills, and everything else related to an EB-5 source of funds that you may need as you go through the process. And again, I just want to reiterate—the source of funds is a completely customized process, the most unique thing in EB-5. So, it often takes quite a lot of time and quite a lot of documents to get through, but it’s critical to get it right to ensure the success of the EB-5 case.

Speaker 1 (00:54:21):
Thank you, Mike. We’ll now shift over to some questions that we’ve received during the webinar, and we’ll try and cover a couple questions just to give some more specific information on items that we covered. So, one of the questions that we got, it kind of touches on that issue about documents being requested from an extended period of time in the past, right? So, you know, let’s say that, you know, a building was purchased and, you know, the building was bought many years ago for, you know, a small amount of capital. And now building’s gone up dramatically, and a loan has been taken out against that building that’s more than $900,000. And so, that’s the sole source of funds. So, it really comes down to, how do we prove the money that was initially used to purchase the building came from legitimate sources? And so, Mark, I know you mentioned earlier, you know, affidavits… you know, approaching that problem, what other types of documents or additional context, you know, would you want to get from the investor to try to put out a compelling case?

Mark (00:55:41):
You know, I’m remembering cases, actually, where we had… I remember having a junior lawyer go to the real estate land office in a different country and go through those records. So, there’s always a record, right, of the land and who owns the land and the dates of transactions. You can also prove, sort of… you can also get an expert. You talked about affidavits, and expert affidavits stating that, genuinely, property in that area has significantly increased in price and to show that, you know, what you’re claiming is the increase in the value of your property makes sense given what’s happened to the overall market. And as I say, you know, we’ve been doing this about 10 years. We’ve done many, many, many cases from lots of countries, and I can’t ever once remember having a problem with this other than the case I mentioned to you, which I think the person must have been on drugs to ask about 1947, proving that when the British divided India, that this gentleman’s family was granted the land, but I’ve just never seen an issue if you produce the right documents—land registry, documents, proof that overall property in the area has increased in line with the value of your property. Really, you know, honestly, I don’t see this as an area of problem with EB-5, and that’s just from, sort of, our practice and experience.

Sam (00:57:23):
Got it. Thank you. Thank you, Mark. Another question that we got is talking about, you know, proving that the appropriate taxes and other, you know, stamps and et cetera have all been properly documented and paid, right? So, in your experience, what types of RFEs and questions have come up? You know, how, kind of, jurisdiction-centric has USCIS become? For example, you know, if you’re taking out a mortgage in Indonesia, you know, is USCIS gonna have a checklist for every single document that, you know, is going to be applicable for that mortgage in whatever municipality it was? And if you don’t produce every one of those documents, then, you know, you’re going to be denied. I mean, how do you, kind of, you know, deal with those types of things?

Mark (00:58:24):
USCIS definitely have checklists for things, right? We know that, but do they have a checklist for every country and every municipality? No. I mean, you have to prove, ideally beyond a reasonable doubt, that this is genuine and valid, and there’s lots of different forms of evidence that you could use to do that. I always tell our new lawyers when they start that, you know, make it so that when we submit proof on the case, either one of two things—either the adjudicator is completely mad and insane because there’s so much evidence there, or all of the documents are fraudulent and forged—that those are the only two conclusions that one could come to. And if you do that, I just haven’t had a problem. So, in terms of specific documents and things, it’s quite common, actually, that, you know, one particular document that’s common is missing for whatever reason.

Mark (00:59:20):
So, you supplement it with other evidence, and as long as the evidence is compelling and convincing, I just don’t think there’s a problem. I mean, most of these USCIS adjudicators are reasonable. And if you prove something beyond a reasonable doubt, as I said, we get, you know… as I mentioned, I actually looked it up for this conference—in the last two years, we’ve had 1.5 RFEs in every 10 [cases]. It’s just slightly less than… it was 1.37, I think, RFEs in every 10 cases. And of those 1.37 RFEs, a couple of them were clearly errors—for example, you know, we got one that was… USCIS claimed that they’ve got a bank statement, but they couldn’t read it. We number pages. So, when we submit a file with the number of pages on it… I remember another one where they said that a certain document wasn’t in there.

Mark (01:00:15):
Well, actually it was indexed, and it was copied, and it was a numbered sequence. So, those are, really, the RFEs we’ve had. Now, we have had incoming RFEs from certain other countries that were filed by other clients, other firms, but honestly, not a lot from Western Europe. We’ve been bombarded—the last year was one of the busiest EB-5 years we’ve had—but not for new filings. They were all for problem cases from Vietnam that we’re trying to sort out, but that’s not Western Europe. I mean, I really haven’t seen problems with Western Europe—generally in Western Europe, there are normal, reasonable ways to prove things and show things, and we just don’t see problems.

Sam (01:00:59):
Got it. Got it. Thank you, Mark. I think that that’ll be our final question. We’re running a few minutes past the hour, so yeah, with that, I wanna take a minute and thank Mark and the other members of this team for taking time out of their schedule to join us today, and for any questions and issues that we didn’t get a chance to cover, please reach out to us. The information is listed on the screen. Any immigration-related questions or source of funds–related questions should be directed to Mark and his team.

Mark (01:01:50):
If somebody wants anything in Italian, you know… if there’s anyone on the call who wants something explained in Italian quickly, I can’t do that, I’m sort of Italian level A1, and I’ve been learning it for three weeks, but Matteo can explain something in Italian to anyone who wants it right now.

Sam (01:02:07):
Yeah. Yeah. That’s a good idea. Let’s take a few minutes and have Matteo please just give a quick executive overview summary of, you know, how EB-5 works and, you know, what are some issues to consider in terms of the source-of-funds process? I think that’ll be helpful.

Matteo (01:02:26):
Sure, sure Sam. [Italian]

Sam (01:05:03):
Thank you. Thank you for that. I won’t pretend that I understood very much of that, but that was helpful. And with that, again, thank you, Mark. Thank you, gentlemen, for taking some time and, yeah, overall, make sure you’re working with someone who has a local presence, particularly in the countries where you’re going to be required to produce documentation, especially if it’s going to be in a foreign language. That’s really critical, and you’ll just avoid a lot of headaches and delays back and forth if you don’t submit an initial application package that, you know, is well-organized and is easy to, you know, again, get it approved the first time around.

Sam (01:05:49):
All right. Thank you, guys. Thank you, everybody.