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EB-5 Source of Funds – Best Practices for South African Nationals

Sam (00:00:06):
Hi everyone. This is Sam Silverman, managing partner at EB-5 Affiliate Network. Thank you for taking time to join us today. Today, we’re going to be chatting about EB-5 source of funds best practices for South African nationals today. We’re going to go through a short table of contents overview of what we’re going to cover, and today’s webinar will be recorded, so if you need to refer back or share it with someone else, there will be a YouTube link to the published webinar in the next day or two on our website. During the webinar, if you have questions, please use the chat box on your screen to submit those questions, and we’ll try and cover as many of them as we can at the end of today’s webinar.

Mike (00:00:52):

Sam (00:00:55):
So, a quick overview of what we’re going to cover today. We’ll chat a little bit about our guest speakers and a little bit more about EB-5 Affiliate Network, or EB5AN for short. We’ll talk about source of funds generally. We’ll talk about source of funds specifically for South African nationals and what some of the best practices and USCIS potential questions have been over the last five years. We’ll talk about a potential specific case study with source of funds, flow of funds, and kind of a more complicated example to walk through the types of documents that could be needed in the source-of-funds process. Then we’ll open it up for questions at the end. So, before we jump into the main content, for those project developers and investors looking to see if a project site does qualify for the $900,000 lower investment threshold, check out our free TEA map available on our site. You type in the address of any project, and it’ll immediately confirm if that location does qualify as a TEA. If you’re looking for more information on the EB-5 program and have an interest in getting into some of the history of the program and how job creation works and want to review a large FAQ, take a look at our EB-5 guidebook. It’s available for free at You can get a PDF copy there, or if you want a hard coffee, it’s also available on Amazon.

Sam (00:02:38):
So a little bit more information about EB-5 Affiliate Network. As I mentioned earlier, I’m Sam Silverman, one of the managing partners, joined today by my partner, Michael Schoenfeld, and I’ll let Mike jump in and introduce himself and give a little more background information about our company and kind of how we’ve evolved in the EB-5 space over the last eight years.

Mike (00:03:01):
Great, thanks, Sam. So, really appreciate everyone taking the time to join us today. As mentioned, we founded the company about eight years ago. Before that, I was working in private equity and leveraged buyouts, and we both worked at the Boston Consulting Group. Prior to that, what we wanted to do was bring more of that institutional knowledge and lens into the EB-5 industry and add the sophistication of our backgrounds. And over the past eight years, we’ve built one of the largest EB-5 consulting firms and regional center operators.

Sam (00:03:36):
Great, great. Thank you, Mike.

Sam (00:03:40):
So as additional background on the company, we’re a regional center operator and fund manager. So, we have, over all of our regional centers, more than 1,885 investors from more than 60 countries. And we’ve been in this space for about eight years now. Here’s a quick map showing the coverage of some of our regional centers around the US and another geographic map showing where some of our investors come from around the world. And most importantly, investors from a wide variety of backgrounds have consistently found value in our approach to EB-5 investment.

Sam (00:04:27):
And now I’ll take a second and introduce our two guest speakers on today’s webinar: Stuart Ferguson, founder and CEO of American Dream and Joey Barnett, a partner at Wolfsdorf. Both of these gentlemen have extensive EB-5 experience, and we’ve worked with them over the years, and we’re pleased to have both of them join us today to discuss some of the nuances and details that they’ve encountered working with South African investors over the last several years. So, I’ll let Stuart jump in first and share his background and experience. And then Joey can jump in after.

Stuart (00:05:06):
Yeah, Sam and Mike, it’s a great privilege to be on the platform with you together with Joey. As you’ve mentioned, I’m the CEO of American Dream. We’re a consultancy firm that has its headquarters in Johannesburg. I’ve been involved in the EB-5 arena since 2007, so somewhat of a war veteran in respect to EB-5. I’ve really seen how the whole EB-5 process has evolved over the years. We’ve also worked very, very closely with a wealth management company and a private equity company. And we look to nurture very long-term relationships with our investors far beyond just obtaining a green card. So yeah, it’s a great environment. And certainly, South Africans’ appetite for EB-5 been increasing dramatically over the years. And we pride ourselves in terms of having a 100% success rate in terms of approvals and have never had a capital failure, which is also great in these times. And we certainly believe that we have market share in respect to those that are seeking in our area.

My name is Joey Barnett. Yeah, I’m a partner at Wolfsdorf Rosenthal LLP. We are an immigration-only law firm. We have offices in seven cities across three time zones in the United States. And all we do is U.S. immigration and global immigration nowadays as well. I’ve been practicing in EB-5 for the past decade at this point, and it is my principal area of practice representing immigrants and investors through regional centers in their own projects and representing US developers and regional centers. I’m also on the editorial committee for the large EB-5 trade association IIUSA (Invest in the United States).

Joey (00:07:21):
And I’ve been to South Africa a few times in the past couple of years. Our practice in South Africa has always been pretty big because the two managing partners of our firm, Bernard Wolfsdorf and Cliff Rosenthal, are both South African expats who have been living in the United States for the past three, four decades. But, no, South Africa, as big of a country as it is, you know, it still is a relatively small community. And so, a lot of our clients come just based on word of mouth and happy referrals. And so, you know, our practice has really grown in EB-5 as South Africa has become a bigger player in EB-5… I think in 2015, there were only maybe 15 visas—EB-5 visas—issued to investors. And in 2019, you know, just four years later, you know, that had multiplied by about 10. I think there were over around 120 or so visas that were issued. And so, as that area has gotten bigger, we have been there right along for the ride. And so, we are happy to share our expertise here today. And thank you, Sam and Mike, for having me join in.

Mike (00:08:51):
All right, great. So, this is a little bit more information about American Dream and about Joey’s firm. So, just for reference, all right. So, now we’ll shift gears, and we’ll kind of get into the meat of today’s presentation and start with an overview of the EB-5 source of funds process and talk about the context of why source of funds is such a critical part of an EB-5 investment filing.

Mike (00:09:26):
So, when an individual investor files their I-526 petition, there’s two different pieces to it. One portion is on the project itself—how are you going to create the jobs? And where is your money going in the larger EB-5 project? Those documents are the same for every investor. So, as an individual investor, if you’re investing in a large, well-structured project, you aren’t as worried about that piece of the documentation. Where you need to be worried as an investor and focused on is the personal part of the application, and a majority of that is focused on the source of funds. So, what this means is that as part of the EB-5 investment, you have to prove to USCIS where all of the funds have come from, that you have them legally, how they’re going into the project, and how they’re legally transferred into the limited partnership or LLC that you are investing in. So, because there’s these two pieces of the application, the focus for the investor and for the immigration attorney representing the investor has to be on that source of funds, which is where we’ve seen a vast majority of problems with I-526 petitions. If you’re investing in a well-structured project—and in the deals we’ve structured, we have a 100% approval on the project side—but where some investors do hit some hurdles is in the source-of-funds portion, which is why we’re focusing on that in today’s webinar. Yep.

Sam (00:10:58):
So, to quickly cover the four major areas of potential capital sourcing—and Joey will get into these in more detail—but just high-level, ordinary income… so money that the investor earns, you know, from a full-time job or from running their business, capital gains appreciation from the sale of capital assets, gifts, or inheritance. So, someone gave you money or you inherited it over time. And then, basically, loan funds. So, you got money loaned against a piece of real estate or an unsecured loan. And you’re using that loan capital to fund part of your EB-5 investment. So, high level, these are kind of the four main buckets where capital can be sourced. And now, we’ll jump kind of into the details of, you know, what types of requirements are going to be applicable for these different buckets. I think Joey will kind of walk us through these four in detail, and then we’ll shift over to kind of the South Africa–specific nuances that also apply to each of these four areas.

Joey (00:12:19):
Great. So, you know, the EB-5 regulations are pretty vague about what you need to submit when it comes to source of funds. You know, they talk about foreign business registration records or personal tax returns, and while it doesn’t really seem too overwhelming in practice, USCIS requires a substantial amount of documentation to prove lawful source of funds. And so, when it comes to ordinary income money that you’ve earned as employment or, you know, if you have dividend distributions from your company, or from ownership of other companies, you know, they’re going to want to see certain documents. For example, you know, if it’s employment income, they’re going to want to see a number of years of personal income tax returns, a salary report or payroll report… hopefully we can get an employment verification letter from the employer indicating, you know, what the investor’s title is, what their job duties are, what their salary is, and potentially even where the salary is deposited and how often. And USCIS acts almost like a forensic accountant.

Joey (00:13:56):
They want to see bank statements showing salary being deposited on a regular basis, if that’s what your source of funds derives from. You know, if it is a big bonus amount or you get some sort of annual compensation at the end of the year, they’re gonna want to see that bank statement showing it coming in and hit hitting your account. They’ll also want to see some evidence from the company indicating that you have earned that bonus. And, of course, we would also want to include information about the employer or the business… you know, a company profile, website information, if there’s news articles, and, you know, a lot of our South African clients, they are pretty, you know, sophisticated and high-level in their companies. And so, their names may be out there on the internet, saying that they work as the managing partner or work as the president or CEO for a company.

Joey (00:15:08):
And we will use those articles to supplement the information and to provide additional evidence to substantiate where the funds are coming from. Of course, you have to show, like I mentioned before, that the taxes have been paid on any amount of the income that is earned, and then, of course, the flow of funds from your accounts to the EB-5 project. So that’s sort of the common problems when it comes to ordinary income. One thing that I wanted to talk about is this issue of commingling, which may occur when there are multiple sources of funds coming into one account. It’s possible that USCIS picks on this when they’re reviewing the bank statements. And so, it’s incredibly important for your attorney to take a look at those bank statements and make sure that we can provide any sort of justification for the credits that are going into the account and, you know, for all sources of funds, and this goes for capital gains.

Joey (00:16:36):
It goes for ordinary income. You know, there’s a standard of proof here, and that proof is the preponderance of the evidence. And you need to demonstrate that it is more likely than not—or 51% likely—that this is true. And, you know, this is lower than “beyond a reasonable doubt” or “clear and convincing evidence.” But in reality, USCIS officers are really, really picky when it comes to source of funds. And they say, you know, just having bank letters or statements corroborating the deposit of funds is insufficient. And then, asking for these additional documents and digging back through your personal financial history, your tax records, your bank statements… they say that serves a valid government interest to make sure that the funds that are invested into the United States are not of suspect origin, you know, that they were taxed, not drug money, not criminal money, all of that type of stuff.

Joey (00:17:50):
So, when it comes to capital gains, I think the big issue here—I mean, I’m not gonna really read too much of what’s on the PowerPoint slide—but here, it’s really important to distinguish between personal assets and company assets. And I have found that a lot of South African clients have holding companies or shell companies or offshore companies, and they’ve done this, I think, as a way to reduce tax liability legally, and there’s nothing wrong with that, of course. But I find it very helpful to work with a chartered accountant abroad, working with the investor’s sort of financial or wealth management team, at least at the very beginning of the process, to get a good understanding of how the structure of the capital gains is set up. And, you know, like any other source, they want to see the bank statements.

Joey (00:19:08):
They want to see that taxes have been paid. And if there are sort of complicated tax structures that have been put into place to reduce liability, well, then I request a letter from the investor’s chartered accountant or tax professional confirming that taxes have been paid or have been withheld or will be paid. And that is good evidence that the U.S. government wants to see to make sure that, you know, this is all lawfully obtained. And what may end up happening is if there is a recent capital event and taxes are not yet due, then that letter from the tax professional will indicate as such. And it’s possible that the U.S. government later issues a request for further evidence, shortened as RFE, to confirm that that tax actually has been paid. And so, that’s not uncommon. And I think it makes sense that they would be asking for those documents. And it obviously also makes sense that if the tax is not yet due then you wouldn’t have evidence that it has been paid yet. And so, you know, in those situations, you may expect to receive an RFE, and that’s somewhat normal.

Sam (00:20:42):
And in cases like that, how do you kind of interface with local counsel or CPAs to provide documentation or a letter confirming that local rules wouldn’t require, you know, whatever documents might be requested?

Joey (00:20:59):
We ask and we work with those professionals to prepare a letter sort of outlining what the applicable tax law requirements are locally and, you know, even citing the local law or regulations to confirm that that tax is not yet due. You know, I think it’s really important to properly identify and document, you know, all of those entities and the related bank accounts. And, as we’ll see later on in the PowerPoint, it’s helpful to have your attorney prepare almost like a flow of funds chart showing how the money has moved among the different accounts. And sorry, I apologize that I kind of skipped over the sale of land, or is that on the next slide, Sam?

Joey (00:22:16):
Well, I could just talk about it now. I think the sale of land or using land as collateral to get a loan, which is what we’ll be talking about in a moment, you know, USCIS is really picky on this. They want to see how you earned the money to purchase the land that you later sold to use the proceeds for your EB-5 investment. And if the proceeds from that sale happened a few years ago, and you made some investments and now you have some capital gains based on those investments, well, they’re going to want to see your financial records to confirm that. When it comes to gifts from family or friends, there’s two aspects of this. One is making sure, again, that any taxes that are applicable between the donor and the donee are paid or will be paid, or there’s a letter confirming that no tax is due based on that gift, as well as documenting how the donor earned the money that he or she is now gifting.

Joey (00:23:44):
And the same would be said for inheritance: how did the person who has passed away earn that money, into what estate did that money go, and, you know, show that you are listed as a beneficiary on that will, for example. And so, you know, all of that is collected by your immigration attorney. And there’s a source-of-fund strategy that is created by your attorney. And one thing that I want to say is that for all of these, there’s no requirement in EB-5 that funds must come from one source. So, it’s absolutely allowed and reasonable to have multiple sources. You know, you get a loan from grandpa, or, excuse me, a gift from grandpa, as well as you have some employment income that you’ve saved over a period of years, and you’ve invested that, and you recently got a loan on a home or a home equity line of credit on your home that you purchased five years ago, and you use all three sources to fund your EB-5 investment.

Joey (00:25:17):
And that’s absolutely normal. We have a lot of clients who do that, or they get multiple gifts from different family members. Again, that’s totally fine. We just need to make sure that each donor has the documents to confirm how they earned that money. When it comes to loans from third parties, this has become, I think, a very common area, especially since a lot of folks aren’t necessarily desiring to sell off assets if they’re able to get a low interest rate loan using those assets as collateral to get a loan, which is subsequently used for EB-5.

Joey (00:26:11):
And for that, USCIS is going to want to see, well, how did you earn the money that you used to obtain the assets that are being offered up as collateral for this loan? And a lot of times, if you’re getting a loan from a bank or some sort of financial institution, you know, they won’t ask too many questions about, well, how did the bank get the money? But if you’re getting a loan from a friend, then USCIS may ask, well, how did the friend earn that money that is being lent to you, that you are now investing into EB-5? And so, you know, the sort of the analogy that I use is, you know, just because you are giving an apple doesn’t mean you can just show the apple—you have to show how you purchased the seed to grow the tree and how that tree was able to grow and produce the apple.

Joey (00:27:34):
And they may even ask, well, how did you get the money to purchase the seed in the first place? And so, you have to take these steps backwards. That is what a source-of-funds analysis involves, and it’s why it’s incredibly important to get an experienced immigration attorney to do this. I was looking last night at the recent statistics from USCIS, and they’re saying that about 20% of recent I-526s are denied or have been denied. And I think that there’s a number of reasons why they could be denied, but when I look at AAO appeal decisions, a lot of those, if not all of them—a large majority of them—relate to source of funds or relate to the path of funds—how did you transfer the money out of South Africa or another country into the United States? And did you do that properly and lawfully?

Joey (00:28:45):
And I know Stuart is going to be getting into that about the tax clearances specifically that are required for funds that are leaving South Africa. But, you know, there is, I think, a high-level discussion that needs to occur at the beginning part of any EB-5 investment—you know, “Hey, what are the different options?” And what I like to kind of go through are, well, where are the funds now? Where did those funds come from? And how are those funds being transferred to the new commercial enterprise based on what the facts are? Your attorney will be making strategic decisions about the proper way to do this to limit any questions that may come later on from USCIS. You know, and whether that has to do with commingling assets, like I mentioned before… you know, potentially opening up a new bank account to transfer funds to keep certain, you know, records out of the government’s purview, whatever it may be, to make sure that the EB-5 process can go as smooth as possible.

Stuart (00:30:15):
I would like to just add, Joey, certainly, you know, we always sit down with a potential investor and really identify what funds he has available and then suggest that he takes the least intrusive mechanism to support his application because without doubt, the majority of the RFEs that we get at the moment relate to source of funds. I also just want to reiterate—one of the points that you raised is that we are seeing a growing trend with South Africans, and this has really become more prevalent since we’ve gone from the $500,000 threshold to the $900,000 threshold, where they would prefer to not dilute their share portfolios for the benefit of an EB-5 investment but would rather like to retain their share portfolio in something that is performing and use some financial instruments to loan against for the benefit of an EB-5 and immigration benefits. So that’s a growing trend here, and certainly, we deal with that in house with our wealth management company to take advantage of the low-interest environment that we’re currently in.

Joey (00:31:43):
Yeah, that’s a great point, Stuart. And in those situations, when you are getting a credit facility or some sort of line of credit, you know, it’s really important that before that document is signed and the funds are transferred, the immigration attorney reviews that document to make sure there are no restrictions on the use of those funds, because sometimes there could be, you know, restrictions like, you know, it can’t be used for foreign investment, or it can only be used for this purpose. You know, we need to make sure that there is that allowance for EB-5, or at least no restriction for that purpose, because that loan agreement will be submitted to USCIS, and you can bet your bottom dollar that the government is going to be looking into that and questioning whether you had the right to use those funds for EB-5.

Sam (00:32:49):
Got it. Thank you. Thank you, Joe. Let’s switch gears a little bit and kind of get into the South African–specific discussion, and we can start that kind of initially with ordinary income and then walk through each of the different major buckets. So I’ll set it for ordinary, and we’ll start there. Okay.

Joey (00:33:15):
Sure. So, for ordinary income, you know, I think the best practices that we have here are confirmations from the employer. You know, one thing that I think comes up a lot in South Africa is the use of a trust, and a trust is a fiduciary arrangement that allows a third party or a trustee to hold assets on the behalf of a beneficiary. And usually, the beneficiary is the EB-5 investor, or there’s multiple beneficiaries listed in the trust agreement. And it’s important to look at that trust agreement, look at the authority that the trustee has over the funds of that agreement, and look at how those funds are going to be transferred out. You know, a lot of times, it could be simpler to just do, like, a distribution, but sometimes folks want to just use it as a loan and use those assets as collateral.

Joey (00:34:36):
And so, in those situations, you know, you really have to dig into the trust agreement and make sure that the trustee has that authority. You know, and then there’s going to be sort of two levels. They’re not only going to want to see the investor’s tax statements and bank statements showing the funds coming into their account and leaving their account, but they’re also going to want to see the same for the trust, which is a separate legal entity from the investor. And so, in those circumstances, a lot of times there are professional trustees or, you know, fund management companies, and they would be the ones to prepare a letter or sign a letter that we help prepare to confirm what is allowed under the trust and to show that that income can be used for the EB-5 investment.

Mike (00:35:39):
What would you say? Like, how frequently are you using that type of income in these cases? Is that done in almost every single one? Or is this something a little more rare, and you’re typically using capital gains? How would you break it down in terms of percentages of frequency?

Joey (00:35:56):
I would say with maybe 15 to 20% of South African clients, there’s some question or use of a trust involved. Stuart, what about you and your experience?

Stuart (00:36:16):
Yeah, Joey, I mean, trusts have, to date, been a very popular mechanism for families to accumulate wealth. Unfortunately, at the moment, they’re coming under a little bit of siege, and we’re finding that a lot of trusts have actually broken down. But certainly, a very high percentage of our EB-5 investors certainly have got trusts in intermediary investment companies. So, they are popular, but obviously as they are moving across to the US, they will be dissolving those trusts. So, I would say it’s a relatively high percentage.

Mike (00:37:01):
Okay, excellent. And now, I think, let’s shift into the capital gains piece. I imagine this is also a large percentage of the source of funds investors are using. So, I guess, what are the most common ones from South Africa that you’ve seen in terms of the capital gains—is it property, is it companies? And then, generally, what do you see in terms of the issues that are raised with them?

Stuart (00:37:35):
From my perspective, the majority is property ownership. South Africans love property ownership. So, you tend to find many individuals will have substantial property portfolios. And certainly, a lot of our funding comes through the sale of property portfolios. So, property certainly is a very popular mechanism. And then, obviously, we’re having a lot of logical operations or businesses that are going through management changes. And there’s the sale of shareholdings within those big company structures, but certainly property is a big player in respect to the funding of EB-5.

Joey (00:38:29):
Yeah. That’s consistent with my experience too. And, you know, not only do they want to see, like I mentioned before, the sale of the real estate and the proceeds from that sale going into the personal account, but really they want to see how you earned the money to purchase that property in the first place. Of course, they’re going to want to see ownership documents, maybe settlement statements, and evidence of payment of any real estate tax obligations that are out there. But I think the bigger trick is demonstrating how you earned the money in the first place. And if that is based on the sale of prior real estate, well, depending on when that was, they may ask, well, when did you purchase that real estate? And how did you earn the money to do that? And so, it may go back a few steps, and that’s something that kind of needs to be discussed at the outset. But I think, in my experience, South African clients are very organized, very sophisticated, or they have access to those types of records. If they don’t have access to those types of records and they’re not available, well, then it is possible to use a declaration to sort of fill in the holes from what is missing. And that’s something that an immigration attorney would prepare, and it would confirm how they earned the money to purchase that underlying asset, or if you need to go a few steps back from that as well.

Mike (00:40:34):
Got it, got it. That makes sense. Well, let’s shift over to gifts because this is always a question that I know a lot of investors have. So, can you sort of walk through a little bit on the frequency of gifts in South Africa, how they’re used, and what other documents you need around it?

Joey (00:40:58):
Sure. Stuart, do you maybe want to talk about this and even get into the different allowances that are allowed to transfer funds out and how that sort of relates with the new increased minimum investment amounts?

Yes, thank you, Joey. Certainly, gifts are very popular. A lot of the motivation behind an EB-5 for South Africans is for the benefit of children. So, we do find that in some cases, the parents are gifting the funds for the children’s benefit. We obviously have to be cautious in respect of their child then being liable for a donation tax. So, in some cases, we work in conjunction with an immigration attorney as to how to best word it to limit the tax obligations that the recipient and donor would possibly have when gifting, in terms of the outward-bound flow of funds. Currently, South Africans are able to remit a million rand, known more commonly as a discretionary allowance—in other words, no questions asked. Any amount beyond that up to an amount of 10 million rand requires what’s called reserve bank approval. And that requires quite a comprehensive submission. During that submission process, they will check that you are up to date with your personal taxes. They will check that you’re up to date in terms of your capital gains taxes.

Stuart (00:42:48):
If you’ve got intermediary companies and trusts at the same time, they’re going to double-check that those intermediary companies that you have a relationship with are also tax-compliant. So, the tax clearance phase or the funding of an EB-5 can sometimes be a little bit tedious. And in some cases, especially at the moment, where local revenue services are in a collection phase, they do sometimes, in fact, do lifestyle audits where they dig deeper into the applicant’s application to make sure that they have been tax-compliant for a long period of time. It’s one of the reasons why, typically, funds that are used for EB-5 purposes from South Africa or well-liked, because there’s a lot of scrutinization that takes place. When we look at the $900,000 requirement versus what we’re allowed on our annual rand allowances, bearing in mind that it’s 15 to one, so it’s 15 rands for $1…

Speaker 3 (00:44:10):
… it’s very evident that we can’t just use the 1 million and 10 million allowances. So, we then typically what’s called an inter-spousal donation—there is no tax consequence on that—where the husband and wife will then donate another amount to their beneficiary. And we make applications simultaneously for two SARB applications. That allows us the ability to ensure that we are able to swiftly take out fresh cash from South Africa with SARB approval. There is a further SARB application that one can make, and that’s if you’re going to be remitting amounts beyond the annual 10 million allowance. That’s called a special application, and typically, we engage with a specialist who will assist us. In terms of the preparation of the paperwork that would require, it’s a little bit more complicated but still doable.

Stuart (00:45:27):
We were hoping for some additional relaxations in our budget speech, which took place last week, in terms of allowances, but that has not taken place. They are still making sure that we don’t flow too much of our brands out of the country. So, there’s quite a bit of paperwork, quite a bit of due diligence that needs to be done for a person who is wanting to remit funds offshore. And certainly, we surround ourselves with the best of the best in terms of that preparation so that we can effectively assist our clients in terms of that outward-bound remittance.

Mike (00:46:20):
Great. Very helpful. And yeah, that definitely is a little bit more complex than some other countries, but it’s always good to know what we’re up against. So I guess the last category we want to dive into are loans from family, friends, companies, and what some of the nuances there are for South Africa and how common it is for you to see that in the source of funds.

Joey (00:46:48):
In my experience, unless it is a family member that doesn’t necessarily want to obtain a green card for tax purposes or otherwise, gifts seem to be a little bit less—excuse me, loans from family and friends seem to be a little bit less common. Getting a loan from a financial institution is much more common. And I think that’s a stronger case because rather than doing two sorts of fund analysis, you’re doing it really only for one. And that’s how you earned the asset that is being used as collateral for the loan. And one thing I just wanted to piggyback off of what Stuart was saying earlier about the different annual allowances is that to make sure you’re doing it right, and to get your EB-5 approval, you need to get the allowance first before you transfer the money out of the country. And when you get the allowance, there will be a specific date on there. And there will also usually be an expiration date on when that clearance or allowance ends. And so, you need to make sure that that transfer of funds out of the country occurs within that allowance period. And so, that’s, I think, one of the parts that’s just part of those unique requirements related to dealing with the South African reserve bank and the revenue service.

Stuart (00:48:33):
Correct. Joey, if I could just expand on that… before one can make an application for clearance, you need to demonstrate that you have the money available. So, it’s not uncommon for us to make one or two applications during an EB-5 process because sometimes, the cash might not be readily available. There may be a sale and process, and you’re right. Those clearances are only valid for 12 months. And then, obviously, we gauge the volatility of the rand and dollar and best advise our clients as to when to release and remit. So yeah, you could actually, in some cases, do two or three of these applications as the clients are facilitating liquidity to remit.

Joey (00:49:28):
Yeah. I mean, I’ve also had situations where, you know, the client wants to make sure that the funds that are available will also work for EB-5. So, we get engaged prior to them making that application for the tax clearance. Then we work with, you know, a local professional to do that, after we’ve kind of gone through the source-of-funds analysis and made sure we have the documents to back everything up. And then, waiting for those clearances is one of the last steps that we have to go through before transferring the funds and making the actual EB-5 application

Mike (00:50:18):
And on those topics, so, I flipped over to the next slide, and you guys can each spend 30 seconds just going through it. Obviously, this is of the biggest issues—getting the clearance to send—but just the highlights of all of the main issues that you know how to deal with in South Africa, seeing that you’re both experts in dealing with these sorts of funds issues.

Stuart (00:50:41):
Yeah. Firstly, you require SARB clearance to remit offshore. You know, we’ve got a very highly regulated banking and revenue department. So, you cannot remit without clearances. One would need to have a receiving bank account. So, we typically will open up offshore transactionary accounts. If the client, for whatever reason, is not happy to have an offshore transactionary account before he releases to the project, in some cases we will remit to an escrow and hold it there before it gets remitted to the NCE. And then, obviously, you know, just tax compliance generally is a criterion. And certainly, the high-net-worth individuals that we deal with here, as Joey has been mentioning, are pretty much sophisticated in general and tax compliant.

Joey (00:51:46):
I would say I don’t have too much more to add other than what we’ve kind of already discussed. I would say that the big key is getting your immigration attorney, getting your tax advisor, and getting, if you’re using someone else with regards to the clearances, getting everyone on the same page and having, you know, an initial pow-wow before you really take the steps to make sure that everything is done properly.

Sam (00:52:20):
Awesome. Thank you. I’ll spend just a few minutes now—we’re almost at an hour—just kind of walking through what a sample source-of-funds case study could look like for foreign investor, just kind of as an example. And then we’ll walk through a basic list of some of the types of documents that may be required. So, this is an example of an investor who is making an investment and using the capital from taking out a loan. So, starting out, it’s probably easiest to look at the gray box. So, we’ve got an EB-5 investor, South African national, and this investor owns a multifamily building in Cape Town. And that investor has had the building for some period of time and has a friend in the US who wants to loan that investor money against the building. And so, they do a loan agreement.

Sam (00:53:24):
There’s a mortgage that’s issued on the building, $900,000, and the mortgage gets recorded, gets made. And then, the investor uses that $900,000 in mortgage loan funds for as an EB-5 investment. Now, this is a little bit more complicated purposefully because in this case, the loan is from an individual. And so, there’s not only the requirements for how the investor got the building and how they have it and how they did the loan, but also the lender—in this case, a friend and individual—how did that person get the money that funded the $900,000 loan? So, they own a business—they have to prove that it’s a real business, show that they earned income and performed legal services for third parties and earned the money, and then eventually loaned it to the investor who has the building. So, this is definitely on the more complicated side, but it does kind of illustrate how the documents needed will vary based on the different parties that are involved in one of these transactions and, kind of as a secondary point, to kind of help illustrate how all of these different sources-of-funds documents come together in the actual EB-5 filing on our website.

Sam (00:54:46):
We have an example of the source-of-funds template layout. This is not based on any one specific investor, but just a hypothetical situation involving a loan on a piece of real estate and showing how the person who’s making the loan acquired those funds. This is kind of a sample letter along with, highlighted in green, a list of all of the potential documents that the investor and the investor’s immigration attorney may want to include to support the flow of funds and document how the money was earned by the lender and then how it was loaned and the value of the asset that it was loaned against. So, this is just kind of a general idea to give you, you know, a perspective on how many different types of documents are going to be needed and, you know, high level, this is going to vary substantially based on the financial position of the investor.

Sam (00:55:47):
Are they getting money from a loan? Was it capital appreciation? Was it ordinary income? This is going to vary dramatically, but there can be quite a few documents. And so, that’s why it’s really important to work with experienced immigration counsel early on and work with local council, particularly if the assets are not in the United States or sources of income and assets from where the investment capital for EB-5 is coming from.

Sam (01:00:15):
All right. Great. Thank you, Mike. So now, now that we’ve kind of covered the core content of today’s webinar, we’re going to shift over and open it up for individual questions that came in. And again, the contact information for all of today’s participants is also listed here on this site on the right side. So, let’s take a look and see what questions we got here. So, one question that we have here is how is immigration status impacted by the filing of a pending application for EB-5? Joey, do you want to kind of… the second part of this is “Are there ways to get in the US sooner prior to EB-5 being approved?”

Joey (01:01:13):
Great, great. The answer to that question is yes, there are certain ways that you may be able to get into the United States sooner than just by going through the EB-5 process on non-immigrant visas, which are short-term visas. Some of those visas have special rules, like the H1B or the L1, with relation to your immigrant intent. And so, it’s okay to have dual intent, meaning it’s okay to file one of those applications and also have an EB-5 application on file that is pending. It’s something that is very personalized, and it needs to be done very carefully so that there are no issues related to immigrant intent when going to the U.S. consulate or any issues later on, either at the consulate or with USCIS, related to misrepresenting what your intent was when you came in on that earlier visa.

Joey (01:02:24):
And so yes, it is possible. Another option: if you have a second passport, you know, South Africa doesn’t have an E-visa treaty with the United States. Some South Africans have a second passport, and using an E-visa, which is sort of a treaty investor visa, is another way to get here a little bit quicker. Of course, these days, with the U.S. consulate closed, things have been a little bit more difficult, and, you know, as consulates sort of resume their normal operations, we hope to see that pick up. But unfortunately, for the past year, it’s been very difficult getting those types of cases approved. And, you know, President Biden has sort of changed some things around in immigration, but he’s also kept some of them or extended what President Trump had as it relates to travel bans from certain countries that are being impacted substantially by COVID. And South Africa is one of those still. So hopefully, as the vaccines roll out, and as the consulates open up, what we’ll see is those folks getting visas quicker.

Sam (01:03:50):
Got it. Okay. Another question that we got is related to, kind of, application timing and approval. So, you know, roughly, you know, Joey and Stuart, in your opinion, what’s a good amount of time, on average, to prepare the source-of-funds documentation for an investor, just generally, and then, once filed, you know, what’s a good kind of expectation for, you know, for, I-526 approval coming in for a normal project today?

Stuart (01:04:46):
Yeah. I’ll deal with the first part and allow Joey to answer the hard part, which is the adjudication timeline, but in terms of preparation, to a large degree, we are really in the hands of the potential investor in terms of them having the ability to provide the supporting documents that we would require, and then, secondly, you know, the timing of the investment, bearing in mind that the immigration attorney cannot file until the funds had been placed in the project. So, you know, the quickest one I’ve done was a chap who was desperate to file before a cutoff date. And him and his wife sat behind the scanning machine and scanned literally all the documents that we required to support the source of funds overnight. We were fortunate—his funds were already offshore, and we were able to file them within two days, but really, it’s largely dependent on the ability of having access to the documents that are going to support the filing.

Joey (01:05:52):
Yeah, I would say, I totally agree with you 100%, Stuart. It depends on how organized and how motivated the client is from the get-go. In general, we like to provide an understanding and sort of get the right strategy down, you know… we’ll provide a checklist of documents that are going to be required. Usually, clients can turn that around in a couple of weeks’ time, and we’ll review it. Maybe there’s a couple holes that we need to get some additional documents for. So I would say, you know, maybe around a month or so, I think that’s sort of an average time period in terms of getting everything ready to go. In terms of processing times at USCIS, it really can depend on a number of things. For example, if you’re investing in a project that has already received I-526 approval or an I-924 exemplar approval, that’s one less thing that the U.S. government will be looking at when adjudicating your application.

Joey (01:07:03):
They’ll really only be looking at the source of funds, so that can speed up processing times. Our firm right now is getting cases adjudicated that were filed at the end of 2018. So, I say, you know, again, there’s no guarantee, but I say anywhere from 24 to 30 months is what we’re seeing. The processing times that are listed on USCIS’s website, I don’t believe those are accurate. They jump around often. And so I just go based off of what we’re seeing in our approvals. And I have received an approval for a case filed as late as December 2018 at this time.

Stuart (01:07:47):
Yeah. Joey, I tend to agree with you. We’re also noticing a trend in our last batch of approvals. It seems as if they are going into a project specifically and identifying a bunch of applications and adjudicating them. So, we’re getting batches of approvals on projects as opposed to them being a little bit sporadic across a number of projects.

Joey (01:08:15):
Yeah, absolutely. That’s very much in line with what we’ve heard from USCIS in their limited stakeholder meetings about how they have certain adjudicators assigned a certain project to have better efficiencies in adjudications. And so, I’ve seen that too, where, you know, if you get one approval for an investor in a project, you’re likely to see other approvals for that same project come in, you know, around the same time.

But yeah, I think our consensus is that we are hoping to see a general improvement in the turnaround of the I-526 adjudications. We certainly see a net improvement on I-829s. So, we’re hoping that now with Biden in place, and the new head of USCIS, maybe some priority will be given to a more efficient adjudication process for all the I-526 filings.

Sam (01:09:25):
Very good. Thank you. Thank you, guys. I think that’s all the time we have for questions for today. So, I want to, first thing, thank Joey and Stuart for taking time to share their experience and some of the recent RFEs and issues and things that they’ve encountered with USCIS. It’s really important to work with a team that has seen a lot of the types of questions that USCIS has asked over an extended period of several years. And so, thank you both for taking time to join us today. And if there are follow-up questions that we couldn’t cover, please reach out—everyone’s contact information is listed on the screen. Anything immigration-related or South Africa–related, please reach out to Stuart and Joey, and then anything related to the two projects that we discussed, or if you were interested in getting a copy of the slides that we covered today or a link to the video recording as well, please email us, and we’ll be happy to send over a link and the PDF slides for reference as well. So yeah, with that, thank you again, Joey and Stuart, for joining us, and yeah, we’ll leave it there.