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

Sam (00:00:09):
Hi everyone. This is Sam Silverman. Thank you for taking time to join us on today’s webinar. Today, we’re going to be talking about source-of-funds best practices for Vietnamese nationals. And today I’m joined by my partner, Mike Schoenfeld, and Phuong Le, who’s going to be discussing some of the specifics for Vietnamese investors during today’s webinar. If you have any questions, please use the chat box on your screen to submit them, and we’ll try and cover as many as we can at the end of the webinar. Okay.

Sam (00:00:45):
All right. Let’s move to the table of contents. So, this is a short overview of what we’re going to try to cover on today’s webinar, starting with a little bit about the speakers and a little bit about EB5 Affiliate Network network. We’re going to talk generally about source of funds and how does it fit together in the context of the overall EB-5 visa application process. We’ll talk about some common source-of-funds issues and pitfalls that investors face and specifically best practices for those investors who are going to have sources of funds that will derive from Vietnamese assets. And then, we’ll spend a little time walking through a specific case study, and then open it up for questions at the end of the webinar. So, again, any questions, please use the chat box, submit them, and we’ll try and cover as many of those at the end of today’s webinar next. So, before we jump into the main content that we’re going to cover today, we just want to share that we recently launched our new targeted employment area, TEA, map. You can instantly determine if a project site anywhere in the US or Puerto Rico is in a targeted employment area and qualifies at the $900,000 investment amount. And you can enter your email and get a free, complete report. So, if you’re looking to see if a project could work as a TEA, check out our map—it’s completely free and it’s on eb5an.com

Sam (00:02:22):
One other free, helpful resource that a lot of our clients and investors reference is our guidebook. We just updated it in September 2020. It’s also available for free at our site, eb5guidebook.com, or if you want a hard copy, you can get one at Amazon.com as well.

Sam (00:02:47):
Okay, great. Now we’ll shift gears and give a quick introduction about EB5 Affiliate Network.

Mike (00:03:22):
All right. Great. Great. So, this is Mike Schoenfeld, also managing partner of EB5 Affiliate Network. On the slide is a little bit more of our backgrounds for both Sam and myself. And one thing that we think it’s important to note is that we both come from more of a traditional financial consultant background. We both worked together at the Boston Consulting Group, and then I was in private equity afterwards, and Sam was working in the Gulf Coast in real estate development. And what we saw was an opportunity to come in and add some of this institutional knowledge to the EB-5 industry. And that’s what we’ve done over the past seven years.

Sam (00:04:05):
That’s right. Thank you. Thank you for jumping in there, Mike. If we move on to the next slide here… so a bit more about our company. So, as I mentioned, we’ve been in business for about seven years now. And what we are is one of the largest regional center operators—we own and operate 14 regional centers that cover over 20 states. And through those, we’ve sponsored almost a billion dollars of capital, with over $4 billion of total development costs on projects that have been sponsored, and we’ve managed to maintain 100% approval on all projects that have applied through our regional centers.

Sam (00:04:56):
Next slide, please. This map highlights the regional center geographic coverage that we have. So, we own 14 regional centers that each cover an entire state or multiple states. And if you look at the map, you can see we cover a vast majority of the major metro areas and both coasts of the United States with our original network—basically any site, any project site located in those areas is a project we can sponsor, regardless of industry type or asset class. And that’s a great point. So, for those that aren’t as familiar, EB-5 projects need to be sponsored by a regional center if you’re going to count indirect and induced jobs. And the vast majority, over 95%, of EB-5 investors do choose to go through a regional center–sponsored project, and we are able to sponsor projects with these regional centers. On this slide, we highlight one of things that I think is most important about our company—the investors that we’ve sponsored and that have invested in EB5AN projects from over 60 different countries. And we think that that highlights that investors from all across the world, with different values, always find a lot of value in the approach that EB5AN puts into structuring the projects that we have sponsored.

Sam (00:06:31):
And now we’ll turn it over to our special guest panelist for today. He’ll provide you some of his background and experience.

Phuong (00:06:39):
Thank you, Sarah. Thank you, Mike. This is Phuong Le. I’ve known Sam and Mike and the EB5 Affiliate Network team for a number of years. So it’s good to join them on this webinar, too. A little bit about my background… I have been an attorney for well over 13 years, almost all of that specifically EB-5. So, we’ve helped thousands of investors from around the world, including hundreds of families from Vietnam. So, for me, I represented all parties in the whole entire EB-5 lifecycle—regional centers, developers, migration agents, and investors as well. So, typically, we do quite a bit of project work, but obviously, the investor side is quite important as well. So, next slide, please. So, as you can tell, we travel, write, and lecture quite a bit, as the tagline says. Those of you who are familiar with the industry have probably seen me or my colleagues speaking at seminars or through our articles or doing various presentations. So, in the last few years, I’ve been in Vietnam quite a bit. And so, I’ve had quite a bit experience working with investors and the various source-of-funds issues they run into. Hopefully we’ll share some of that today. Next slide, please.

Mike (00:08:08):
Great. So, I’ll cover a little bit about the background of source of funds and some of the most common strategies used for it, but we won’t go too in depth because in the second half of the presentation, we’ll start talking about those areas specifically for investors from Vietnam. So, the first thing to think about is what the source of funds is—what is it, and why is it important? So, when an investor is going through the EB-5 process and submitting their individual I-526 petition, there’s two portions for that petition. The first portion is about the project—all of the details on how the project is going to create the jobs, how the capital is going to be invested. The NCE, the JCE, all of the meat of EB-5 on the project side comes into this portion of the application. But the second piece of the application is specific to the individual investor. And on this side, a large part of the focus is on the source of funds. So, now, at $900,000, you have to legally show where all of the funds have come from for making the investment. Next slide, please.

Mike (00:09:26):
Next slide. Great. So, when documenting the source of funds, there are four main categories that we see across all different investor groups. And quite often, it’s a combination of the four of these. First is ordinary income. So, if you’re in a country where it’s easy to show your tax records, such as your W2, then you’re able to show your ordinary income. The next most common one is capital gains. So, if you bought a condominium unit for $200,000 and later sold it for a million dollars 15 years later, you’re able to use that gain as part of your source of funds. Okay. Next is a gift or inheritance from the family. So, gifts, inheritances are allowed to be used, but you do also have to show them where those funds originally came from. And fourth, this is becoming more common—loans.

Mike (00:10:26):
Historically, you would need this loan to be secured by an asset that you had as an investor, but there are changing regulations now, and we can get more into that later on unsecured loans and other loan structures that could potentially work. So, just generally, when you’re thinking about that EB-5 investment source of funds, you’re able to use any lawfully obtained source of funds. But you do need to be able to show the documentation of how that money was earned. And then, also, especially for Vietnam, there are some transfer restrictions. So, you also have to be able to show how money was transferred out, and on the next slide, we’ll very quickly touch on this. And we won’t go too in depth because that’s going to be in the next section. So, when we’re thinking about ordinary income, this is, as I mentioned, the money earned by the investor or their spouse, and it’s shown through any official documentation from the company or from the government taxation side showing where the ordinary income came from.

Mike (00:11:38):
On the next slide, we’ll cover capital gains. So, with capital gains, this, as I mentioned before, could be real estate, but quite often this is also stock investments, business growth, and the sale of a business. Anything that under U.S. taxation you would think of as a capital gain could qualify for this category. And this is a very common method that investors use to show their source of funds. One thing to note here is you do need to work all the way back to the beginning. So, if we go back to the example of buying a condominium for $200,000 and selling it for a million dollars, you need to show how you originally earned the money to be able to buy the asset. So, it’s not as simple as saying, I made a million dollars on a home sale. You actually have to go back all the way to where the funds were acquired to purchase that home in the first place.

Phuong (00:12:32):
This is Phuong, and I’m glad Mike brought this up because this is probably the most common method that Vietnamese investors use to fund their EB-5 investments. And we’ll go into it later on, but it’s exactly like you mentioned—you might have lot of money now, but you just have to explain how you got the money to purchase your first piece of property or first piece of land. So, that’s going to be a key issue that lot of investors face.

Mike (00:13:03):
Exactly. And then, in the next section, for gifts from family members and friends, most often it’s going to be from a family member because if it is truly a gift, there should not be the expectation of repayment. And, not many people have that good of friends that are going to give them $900,000 or a portion of it, just because, so quite often, this is going to be from a family member that is gifting the money. And as you can see on the slide, some of the things that you will need is the backup behind that gift from the family members or the friends and how they actually obtained those funds, what your relationship is. And the government is, of course, going to dig in a little bit—if a million dollars just magically shows up in your account from a random person that is not a family member, they may really dig into that. So, you have to have a lot of evidence here for how that part works.

Mike (00:14:05):
And then, the last method, which is gaining in popularity, are loans from third parties. And as I mentioned before, typically, loans will need to be at market terms against an asset of some kind. So, if you have a home in California, where it’s $2 million, you could probably get a loan against that for a million dollars and use that to be able to fund your investment. But it does get a little bit messier if the property is owned overseas, or if it’s very hard to establish the valuation. And that’s something else that we’ll get in to for Vietnam specifically.

Mike (00:14:52):
I’ll turn it over because the source of funds is very country-specific. And now, we’ll dive into all of these categories and how it looks in Vietnam and for Vietnamese nationals and the specific pitfalls and nuances that you really need to think about as you go through the process.

Phuong (00:15:16):
Well, thank you for that great overview. And it’s funny because it’s true because no matter what, where you come from in the world, typically, almost all investors fall into one of these four categories. Now, like Mike mentioned, investors from certain countries tend to have very similar patterns. So, over time, you do see a lot that investors tend to fund their investments from certain categories of these four. What are you going to find out is that a lot of Vietnamese investors are going to be… if an investment is from the sale of real estate or from the sale of property or land—in Vietnam this is very popular—but we’ll go through these one by one. So, the first part is in terms of ordinary income. Next slide, please.

Phuong (00:16:10):
Okay. So, for Vietnam, there are people who are able to fund their EB-5 investments from their own business, by and large. It’s very rare to find someone who works for a company and has saved and has cumulated their salary and savings over a number of years. The people who use business income are usually going to be people who either are entrepreneurs or run their own businesses. And if, depending on how you are, if you are a recent company—let’s say under major profit, then you’re probably going to get a shareholder loan from your company itself. Another situation that we see that’s actually pretty common is a lot of people in Vietnam are just entrepreneurs. They actually start very small. It can be what’s known as a hassle business, where literally you have, like, a two-, three-story building, and then you just use the first-floor storefront.

Phuong (00:17:06):
So, we’ve had investors who sell textiles, who sell incense, and they essentially accumulate that money over time. A lot of them really like the cash space. So, by and large, it’s going to be the self-employed entrepreneur. Then, if they do use this category, they’re gonna use that. They’re going to use their own business their EB-5 investments. However, there quite a bit of paperwork involved, as you can imagine. And it’s a very cash-based economy. Not everyone has 20, 30 years of receipts. And so, you can use this, but by and large, it’s not the most optimal method of funding your investments. Okay. So, to the extent possible, this is not the preferred method, but it does work. Next slide, please.

Phuong (00:17:58):
Okay. So, capital gains—but in plain English, or for Vietnam in particular, what really happens for most people who who’ve accumulated wealth, real estate is by far the most common one. The common pattern is most people who have used real estate, be it a property, a condo, or a building built long ago, what we see over and over again is they bought something before 2003, right? And after 2003, there seemed to be some sort of economic boom, where the property values just exploded exponentially. It’s by far the most common method. And I think… so, the way it works, the reason why it works is this: like Mike said, when, later on, if you are selling your property or taking out a loan on your property, and you’re saying it’s worth a million dollars, that’s pretty straightforward.

Phuong (00:19:00):
That, probably, is pretty easy. Typically, you’re going to have the bank come in, you’re going to have their own appraisal report. And then, it’s not hard to prove the value of, say, your property when you’re getting a loan where you’re selling it to them as well. The reason why this, this, this is preferred because it goes all the way to the beginning as well in a very cash-based economy. Most people have, let’s see… most people have bought property with a very low amount of money. So, it’s not hard for them to show that. It’s hard for you to show that you have $300,000, but it’s not hard for you to prove the source of funds for, say, $20,000. And later on, it exploded to like $500,000, $1 million dollars. So that’s the reason why this is very common.

Phuong (00:19:57):
So, gifts or inheritances for family and friends—this is also very common. And when we say gifts or inheritance it’s because usually it’s going to be a combination of things. So, for investors who are minors, investors who are going to school, going to the US for college to begin their careers… I mean, not many 18-year-olds or 17-year-olds have a million dollars in the bank. So, what’s going to happen is you have a parent or maybe a grandparent or an uncle who is going to give you that money, either through #property, or they’re going to sell some property they have, and they’re going to give it to you in cash for you to configure investments. When that happens, you really have a dual source of funds. It’s not really the investment your focus is on. It’s the gift source, be it the parent or the relative. So, whoever is gifting the funds has to be comfortable with providing evidence of, you know, where they accumulated that money, from where, how did they buy their property and their records from back then. Next slide.

Phuong (00:21:16):
So, documenting loans from third parties… and this, although Mike mentioned before that you could use unsecured loans, it actually pops up in both contexts for whether you’re using a loan secured by, say, your land or your condo or your house, or you use cash proceeds just from a credit line, right? It all goes back to the credibility of the lender. So, it’s very unlikely that… so, if someone like, say, Bank of America or Asia CCB gave you a loan, then these are explained, there aren’t as many questions about where HSBC, you know, got their money from their worldwide bank. So, chances are, they’ll be able to show how they underwritten your loan. Why do you have such a huge line of credit? And it will make more sense, but it’s very common for these informal transactions where it’s, maybe, a family friend who has a company, right?

Phuong (00:22:11):
A company who’s willing to give you, say, a loan or an unsecured loan and those kinds of situations—we usually want a declaration from whoever the lender is explaining, like, you know, why would you be willing to give this particular investor this loan for them to fund the investment? And more importantly, where did this… essentially, get your source of funds from who the lender is. You have to give a little bit of background about, say, if you’re using say a company—we’ll probably want your business registration, you know, a couple of years of financial reporting that show how you could earn the money in order to fund that loan. And actually the loan agreement itself. So, if you are going to get an unsecured loan, it sounds great in theory, but you have to be able to provide documentation from third-party vendors as well.

Mike (00:23:01):
And so, I guess, amongst all four of these sources of funds, what would you say is the absolute most common method from Vietnam? And what would you say is the one that people think they can use but ends up being a bad idea because of the documentation?

Phuong (00:23:19):
It’s definitely real estate. It’s definitely real estate, because the thing is, for just the way of Vietnam, it’s like, they didn’t really have a recordkeeping system or tax-keeping system until relatively recently. For example, like before 2009, you didn’t even have to pay personal income tax. So, part of it is like, we’re working with USCIS for each of these investors, and it was through no fault of their own. So, when you are putting together a petition, you have to be able to educate an USCIS adjudicator who might have no background on your country’s, you know, taxing or national recordkeeping systems, and have them explain how to understand why something is the way it is. So Vietnam is really very cash-based economy where even the local tax selection wasn’t really, like, systematically, until much more recently, prepared to use real estate, where you were able to purchase for a relatively low amount of money, say $10,000 or $20,000.

Phuong (00:24:16):
So, Mike, in a situation where you have someone who is just running a simple household business, and they’re selling textiles, maybe they’re doing gold trading, they can probably, you know, put together enough records from, say, the customers with declarations or pictures, or, you know, purchase orders to kind of show that, you know, they were able to earn $10,000 to $20,000. And then, later on, when they sell it, that story is completed pretty easily because the bank, whoever’s underwriting the loan, whoever they’re purchasing from, you could probably get an appraisal report. The one that’s more difficult is either business income or, even, sometimes, a loan from third parties. And the reason why is it all goes down to, it’s fine for you to provide your own records, but sometimes, when you try to get records from other parties, such as like, another… there might be a company that’s willing to give you a loan based on your relationship, but they might not necessarily want to give you their business registration or, you know, if you ask them for national records, you know, they probably don’t want to do that for a long time. So, that’s why we always sit down with people, and we think of different possible options for them. And then we focus on one.

Mike (00:25:26):
Got it. That makes a lot of sense. Let’s move on to the next slide because I think this is probably one of the other most discussed topics, especially coming from Vietnam with currency controls. So, can you walk through the typical path of funds and what the restrictions are in Vietnam and how some strategies are being utilized to move money?

Phuong (00:25:47):
Sure, Mike. And I think this is… you kind of need to discuss source of funds in today’s world for Vietnam, and China, for that matter, without discussing passive funds. So this is probably… I think it’s well understood now that this is probably the most heavily audited or heavily RFE’d issue that we’ve seen across the board in the last few years. So, it used to be that when you were putting together an I-526 petition, as Mike laid out in the beginning, there were really only two issues that USCIS was typically focused on. They want to know what project you’re investing in—essentially, where it’s going to be. Does it have enough money to be completed, and, you know, will there be sufficient jobs? And then, they typically move on to the investor source of funds and try to figure out, like, did you prove that you had enough money to fund the investment?

Phuong (00:26:37):
But now there’s a third leg of that journey now, which is the path of funds. From what we’ve seen in the last few years, USCIS has taken a heavy interest or heavy focus on “How did these investors from these countries transfer their money to the US? And, basically was it even legal to begin with?” All of that, we think, is a little bit overly broad, but that’s the reality of the situation. This issue pops up the most with both investors from China and Vietnam for one simple reason, and that’s currency controls, right? So, you know, it was well understood that you might be able to prove the $900,000 or $1.8 million that you have, and for the most part, I think most investors are able to do that, or their migration agents can help them do that.

Phuong (00:27:27):
But then it comes to the partner who you’re transferring the money out to. Now, to transfer your money out, typically, it’s very difficult, as anyone who’s tried to do it will tell you. You typically have to get a permit. So, you’re trying to transfer an outgoing transfer to invest for EB-5. You probably have to go to the government and request a permit specifically for that purpose. It’s got to get mired in red tape. There might be a big application fee. And at the end of the day, it might just get lost in limbo. So, because of that, it’s common for, say, a secondary market to pop up for people to step in and help investors transfer their money. So, for USCIS, what they’re asking essentially is, “How did you, after you got all this money, how did you exactly transfer your money from Vietnam to us?”

Phuong (00:28:14):
Okay. From a legal standpoint, all that you’ve ever had to do, all you’ve ever had to prove throughout the years, is simply ownership of funds. When you look at Matter of Izummi, which is the case of controls here, all that USCIS has really asked for in the past is like, “When you are transferring your money from your country to the US, you know, can we follow the path from A to B to C to D?” That’s the way it was for a number of years. And that’s the way it’s working. That’s the way it makes sense because, really, the investor should only have to prove their particular source of funds. What we’re seeing now is because, over the last few years, really since EB-5 started, the most common way for investors in Vietnam to transfer the money to the US is to go through… say they find an overseas company with the equivalent U.S. money to help them swap funds and transfer to the US, or they find a currency exchange company, kind of like, for example, you can help them transfer their money.

Phuong (00:29:15):
So now what USCIS is going to ask is, “So we understand where you got your money from, but we don’t understand what this third party is doing, or whether it’s even legal.” So, what we see is, for example, with import–export companies—it’s very common—it’s a hub of, like, connected businesses. You have import–export companies in Singapore, in Hong Kong, and in other countries who will have U.S. dollars earned from the normal business rates. And they might have a representative in Vietnam, they might have a branch in Vietnam, where the investor can go over there, essentially hand their Vietnamese money to the representative in dong, and then, say, the import–export company oversees the transfer of the money in U.S. dollars to the NCE’s account in the US. What we’re seeing USCIS demand is they want to essentially do source of funds for, say, the import export–company. They’ll ask, well, “When was this company registered? You know, is it legally allowed to transfer USD as part of its business practices?”

Phuong (00:30:23):
And, also, it goes a step further, and usually they’ll ask, “So, this $500,000 or $1 million dollars that you have in the bank, we want to see where you’re earning it from, right?” So, these import–export companies or any, really, third-party company overseas that’s conducting these swaps, we’re seeing USCIS request that they provide customer contracts, invoices, bank statements. So, essentially, it’s almost like we have to conduct a source of funds for the import–export company as well. So, that’s an issue that we see popping up over and over again. There was this new issue popping up where currency exchanges… these can be a little bit more straightforward—when I say “currency exchange,” maybe a better way of looking at it is, it’s almost like if you were able to find the equivalent of Western Union, who would be able to help the investors transfer their money, right?

Phuong (00:31:14):
You have these companies overseas and in Hong Kong, in Australia, that can buy, sell, trade currencies. They’re basically forex traders. So, for those particular companies, if you have a business registration that specifically allows you to transfer currencies, USCIS has been willing to accept that. Now, all three of these particular methods USCIS has approved. It’s just that there’s sophistication, and the amount of detail that they’re asking for has constantly evolved in the last three or four or five years. So, this is something that we advise investors to be well-prepared for in order to transfer funds. And as part of the EB-5 process, I think it’s something that you can’t overlook at all.

Sam (00:31:57):
And so, one common question that comes up, you know, given that context, is, you know, for an investor who’s filing now, you know, given that USCIS has become a lot more sophisticated, you know, what’s the best practice? Is it, you know, that, you know, you basically advise the investor, “Listen, you know, in the initial application, we need to include all of those source-of-funds documents, bank statements, registrations, et cetera, for that intermediary company, as part of the initial EB-5 filing, or at least, you know, make sure that that company is willing to provide that documentation in the future if we need it”? And then, I’m sure, you know, there’s probably a of different transfer companies. You know, obviously, some are willing to provide those materials. Others are not. You know, how do you make sure that, you know, a new investor coming in now, you know, goes with a company that either is going to give you the records you need now, or, you know, is willing to comply in the future, if it comes up?

Phuong (00:32:58):
Those are great questions, Sam, and you’ve hit the issue squarely on the head, right? So, part of it is what we find really difficult and completely unfair to every single investor in the last few years. It’s a different issue if you’re filing today and we can properly advise, but by and large, these investors who’ve filed their I-526 petitions have complied with the rules that existed at the time, they thought, right? So whatever the rules, whatever the requirements were at the time they filed, that’s what they prepared the petition based on. Now what’s happening is, as you can imagine, if you find, initially, an import–export company or an overseas company that was willing to simply swap your Vietnamese money with their USD, and that’s been accepted in the past, you can imagine the reluctance or hesitation to provide, you know, evidence of their own business documents about the customers, invoices, contracts.

Phuong (00:33:58):
It makes it very difficult because, even when the investor asks for them, a lot of times, I mean, sometimes they’ll be willing to comply, but there’ve been situations where these companies are very confused, and it’s only the investor that gets harmed in those situations. Nowadays, I think, as part of the consultation process, it’s nice if you can hold people to promises that they’ll be willing to provide whatever you request from them in the future. But I think we all know that that’s not really the case. So, when we prepare I-526 petitions nowadays, if we don’t have that sufficient evidence to establish path of funds, we basically advise investors that you need to find a better transfer process because this is a huge red flag or huge backend liability for you. And it is possible. It is possible.

Phuong (00:34:46):
So, in terms of best practices, an issue that we haven’t even discussed here that’s on this diagram is number four. So, there are various methods, but probably the most efficient, cheapest, and safest way is, look, if you have a family or friend that has an account in the US and has an account in Vietnam, and let’s say they have a green card, or they have U.S. citizenship, you can go ahead and engage their help in order to, essentially, transfer the funds from Vietnam to the US on your behalf. We won’t really get into the details there, but you’re allowed to do that. You’re allowed to do that. So, for example, if I had an account in the US and had an account in Vietnam, you know, like, I’m allowed to transfer money from my account in Vietnam to the US. So, that’s something that’s legal… there’s some recordkeeping that you have to put together, but it is a possible process.

Phuong (00:35:44):
Another way is if you find a registered currency exchange that is legally authorized to accept outgoing transfers from Vietnam, right, and swap that money and transfer that money to the US, you can do that as well. The reason why those currency exchanges weren’t used in the past, by and large, their fees are a little bit higher than what investors were willing to pay for, but as it is right now, unless you can find an alternative, I’d try this method. It might be something that’s just the cost of investing that you just kind of have to begin as part of the process, right? So, I would advise that unless you can get those documents beforehand, the path-of-funds documents, run it by immigration counsel and get their sign-off. I think it’s too risky to file now. Hopefully later. You need to have that ready to go before you file.

Sam (00:36:43):
Got it. Okay. That makes sense. We can keep going through the slides. Thank you. Fine.

Sam (00:36:53):
So this slide that we’re going to walk through now, this is a more complicated structure. And we chose this one to discuss because it kind of illustrates a number of different aspects of the topics that we’ve covered on today’s webinar. So, in general, before we dive into the specifics on this chart, what we’re trying to illustrate here is that an investor overseas in Vietnam has a friend in the United States. And that friend has a consulting company that’s generating income. And it’s generating, if we look at the number, kind of above 5 and 7 on the right side, it’s generating about $300,000 in after-tax income. And it’s done that for the last five years. It’s about $1.5 million in profit. And this friend in the US has decided to help out his Vietnamese friend by making a loan.

Sam (00:37:54):
And it turns out that the investor in Vietnam has a real estate asset over in Vietnam, an multi-family apartment building, and is willing to provide a mortgage on that building in exchange for this loan of $900,000, right? And so, in this case, because the loan here is being made by an individual, this individual’s company proceeds that were earned, there’s going to be additional source-of-funds documentation that’s needed to substantiate that that business owner who’s lending the money earned those funds legally, right? It’s not like the funds are coming from a major bank, like a Wells Fargo, you know, they’re coming from a small business. And so, you’ve got to prove that that small business earned the funds legally, right? And so, you know, looking at 5 and 7 on the right side there, you’re going to have to provide all the documentation associated with the operation of that business.

Sam (00:38:58):
So, EIN number, operating agreement, registration, all of that. And then, on 7, all the bank statements showing that that income was actually generated from arm’s length services that were provided and, you know, payments were made for those services from third parties to that company, and the appropriate annual tax filings were made and taxes were paid. And so, the money that’s now being loaned is, actually, truly, after-tax legitimate income for services that were performed properly. And then, looking up at number 6, you know, who is the lender, right? In this case, it’s an individual, through income earned from this business. So, you know, passport, Social Security information on that individual person. Then, on number 4, as Phuong mentioned earlier, we want to make sure that any loan transaction is going to be a market rate transaction, right? So, you can’t do a 50-year loan at 0.1% interest, right?

Sam (00:40:07):
It’s going to be, you know, probably a 5- to 10-year loan, and it’s gotta be at, you know, a market rate interest rate that’s going to make sense. And most importantly, the asset that the money’s being loaned against has to be worth more than the amount of the loan. In this case, let’s say it’s $900,000. So, you’d want to have, you know, number 2 there on the left, some current documentation from a third party confirming that, you know, that piece of real estate is actually worth at least $900,000. Otherwise, you know, no lender is going to loan money on something that’s worth less than the collateral is, right? So that kind of the two major parts happening on the loan side of the transaction. Then, you know, all of the documents that Phuong mentioned earlier, you know, how does this investor acquire this piece of real estate to begin with?

Sam (00:41:03):
Obviously, it’s gone up in value since they’ve owned it, but where’s the seed capital, where did they get the money to buy this or develop this property originally, right? And so, you’re going to have to show, you know, income or assets around the initial purchase time, you know, whatever the initial purchase value was and how the investor has got that capital to buy the building or, if inherited, how they inherited it. You know, how did they start? How did they get it to begin with? That’s also going to have to be illustrated, right? So, in general with these source-of-funds structures, you know, this is a structure we’ve seen several times. The good thing about this structure is you avoid having any currency control issue because it’s U.S. dollars being loaned, and that money doesn’t need to be converted.

Sam (00:41:58):
And it’s already in the US because the lender’s in the US, so, you know, you can avoid… and there are some banks in the US that will open an account for an investor sight unseen. And so, that money could just go directly into a new account that could be opened remotely and then from that personal account directly into the new commercial enterprise of the project. So, you know, that’s the good news about a structure like this. The bad news is that, you know, you’ve got to have all the documentation associated with the lender, because it’s not a traditional bank that’s making the loan. And you also have to show all of the sourcing documents for the asset—in this case, the piece of real estate—as well. And so, those are, kind of, the two major sets of documents or work that’s going to need to be shown. But I’ll let Phuong jump in. Is there anything else you think specifically for Vietnamese investors or Vietnamese-based assets that, you know, you’d want to also include or mention for this?

Phuong (00:43:03):
Yeah, it’s funny because this does work, but you also, like, like Sam said, you need a very good friend to do this, right? So, the documents you are using, numbers 5, 6, and 7, to give a little bit background on your friend’s consulting business, are the same sort of documents that you will have to provide if you were using a third-party import–export company overseas, or any company overseas who’s giving you a loan or completing a currency swap for you, basically. I mean, if you look at it from USCIS standpoint, they just want to know, is this a real business? You know, what did he do, and how are they getting the money? So, it’s going to be the analysis. In terms of number 4, the loan agreement and everything else are important.

Phuong (00:43:52):
A few other things I would note here is also, given how long USCIS takes to adjudicate I-526 petitions now, the investors should also be able to show that if you are getting a loan to fund your EB-5 investment, if it’s a five-year loan—and hopefully it doesn’t take this long—but it’s not uncommon for USCIS to come back later on and ask you to prove that you paid off the loan already. So, that should be something that you also able, or are prepared to, show evidence of in the future. Also, for a loan agreement that you’re taking out, there should be no restrictions, and this is something that’s offered in the past. If you’re getting a loan in order to fund your EB-5 investment, please make sure that loan agreement also says that there’s no restrictions on using it for investments or securities, because we have seen that in the past. Right. You can imagine it’s… for example, you take out, say, a home equity line of credit, and the bank is cool with you using that money to renovate the bathroom, but they might not allow you to use that for, say, day trading. So be very careful about that.

Sam (00:45:02):
Got it. Yep. Yep. That makes sense. Let’s move on to the next slide. So, one thing that we’ve put together here to help kind of illustrate how the process mechanically works once the investor has worked with their immigration counsel to help outline exactly how they’re going to show the source of funds, whether it’s inheritance gift, income, capital gain, multiple sources, one source—all of those records and documents need to be organized and presented USCIS in a logical form, right? And so, each investor files a cover letter that explains the project that they’re investing in and how that project meets EB-5 rules and requirements as kind of the first half of the letter. The second half of the letter explains how that individual investor’s money has been sourced correctly, lawfully, and how it ended up from the investor’s assets and personal accounts into the project.

Sam (00:46:15):
And so, this is kind of a short template letter that we’ve put together to help kind of illustrate how that section of the letter could look and what types of documents are going to be needed and referenced and included in the application package with USCIS. So, it’s kind of meant to explain, tell the story of how you got the money and how the money was moved from one account to the other, and then include all of the documents that kind of substantiate that story you’re telling of how that money arrived into the project, you know, as it is today. Next slide.

Sam (00:47:08):
Yep. Yeah. So, this is a more detailed list of what some of those exhibits could look like, right? And this is going to be highly variable, you know, per investor. So, you know, some investors just inherited all the money. That’s only going to require inheritance-related documents. Other investors had a business or, you know, a piece of real estate that went up in value and took a loan or sold it, or they had a stock portfolio. So, this is going to be very, very variable. But just to give you an idea, you know, these listed exhibits can get quite long. And so, it’s really important to work with competent and experienced immigration counsel to make sure that you’re not missing any of the exhibits that you’re going to need. And again, all of these are also going to have to be in English if they’re not already in English, so they would have to be translated as well.

Sam (00:48:03):
And keep in mind that if, you know, if you miss one or two of these, you know, it’s just going to delay the process. USCIS would issue a request for evidence, or RFE, and then you’d have a few months to respond to that. They would ask, you know, for whatever documents they thought they needed. You’d have a few months to track those documents down, get them translated, and respond, and then hope that they were accepted or, you know, face another round of questions or a denial if, you know, you’re not able to provide them or they were insufficient, right? So, it can be really important to, or is really important to, try to make sure you get it right the first time, because if you don’t, then it’s likely, it’s definitely going to be a delay of at least months. And that’s just months of time you’re not going to be able to get to the US and, you know, also probably result in increased scrutiny on any newly submitted documents that, you know, should have been submitted the first time.

Mike (00:52:49):
So, Jeremy, I’m not sure if you can go through on the chat box and see if we had any questions from any of the participants.

Mike (00:53:12):
So, one question that I saw is, so when an investor’s thinking about their source of funds, what’s the first step that they should do? And I personally think that once you’re starting to go through that process of really thinking the source of funds, you should be reaching out to a qualified immigration attorney that can help walk you through what the best strategy would be based on your own individual situation. This is a very complex process, as I’m sure you’ve noticed throughout the webinar today. And it is something that you’re likely only going to go through once. So, it’s worth leaning on a very capable immigration attorney to help with the structuring of that.

Jeremy:
One question we have here is for a loan transaction: at what point in the immigration process can the investor safely terminate the loan? Can that happen prior to I-526 approval?

Mike (00:54:11):
That’s a great question. I think Phuong should take that one.

Phuong (00:54:20):
Yeah, no, that’s a good question. But there’s always variations of this question, right? How long do I have to keep this loan for? What terms and everything else? Is it okay if it comes from a family friend? A point that Sam brought up earlier is what I would keep in mind here. It has to be a real market transaction. It has to be a real loan, right? So, the thing is, if you want to get a loan term for two, four, five years and everything else, you can go ahead and do that, but you also have to be prepared later on if you USCIS comes back and goes like, “Hey, look, you have this loan for two years, you know, I understand your good family friend gave you this loan, maybe with no interest, but that only makes sense if you paid it off, so did you pay it off?”

Phuong:
So, it’s not really a matter of, did you terminate your loan at the I-526 stage, at the I-829 stage? It’s more like if they come back later on and ask for proof that, like, “Look, did the loan mature? Was this resolved with some sort of payout?” you better prepared to submit evidence of however it was resolved, right? If you paid it off, you paid it off. But what if what happened was all of a sudden your generous vendor decided to rip up the loan contract? Well, that looks a little weird, right? So, I mean, I think you understand what I mean here.

Sam (00:55:42):
Yep. Yep. And to add to that, you know, to get a little more specific, you know, in a lot of these loan situations with friends, it’s more common to see, you know, “Okay, yeah, I want to loan you the money,” or I guess, backing up, usually the more common situation we see is, “Listen, you know, I really like you, but I don’t want to just gift you the money.” Right? Like, I like you a lot, but I’m not willing to just give you $900,000, but what I’m willing to do is I’m willing to loan it to you, you know, at a market rate and, you know, set it up in a way where, you know, you’re going to, you know, kind of repay me eventually once you get the money back from your EB-5 investment, right? That’s kind of the more common situation.

Sam (00:56:28):
And so, you know, in that, in that type of a situation, you know, you want to, you know, work with the appropriate legal counsel to make sure that the loan term, you know… is a five-year loan? Is it a six-year loan? Does the loan have any extensions? What’s the interest rate on the loan? You know, you can do it, you can do an interest-only loan, you know, where the payments accrue, right, where you don’t have all those payments being made every single year, right? And then you just have to report that implied interest on your tax return as income. But, you know, there’s a number of different, you know, considerations to think about in the loan, you know, in the loan-type scenario. So, you really want to make sure you get good legal counsel, you know, before you have, you know, your friend or family member, or even a business loan, you know, is made to make sure you’ve got the right documents and the right flexibility in place.

Sam (00:57:26):
Because as Phuong mentioned, these current processing times, they’re years out. And so, you know, you don’t want to have them come back and say, you know, well, this should have happened based on the original loan, and then it didn’t, and then, now, you’re not even getting it approved, you know, because it doesn’t smell right, you know, at the time they’re actually adjudicating it. Next question, Jeremy.

Jeremy:
Okay. One more question. If the investor terminates early, prior to I-526 approval, and repays the loan, does the investor have to prove the source of funds that they used to repay the loan? Does the investor need to be prepared for such documents?

Phuong (00:58:32):
I mean, you typically do, because part of it is like, where did this chunk of cash come from, right? I mean, whenever you do things, you’re going to hear stories about, like, well, why do I have to do that, because XYZ did the same thing over there and didn’t have to do it. But the thing is, these are not crazy questions for USCIS to come back and be like, “Okay, well, like, look, you had this obligation, you know, for your EB-5 loan.” When you say terminate, what you’re really probably saying is “paying off,” right? Or early buyout. But what they’re going to say is, like, “Well, like, look, where did you get the money in order to, like, pay this off? Was it a generous family member? Or did you have some other bucket of cash that you hadn’t discussed before?”

Phuong (00:59:13):
That’s why, when we go through these source-of-funds analyses, like Mike and Sam were saying, part of is if you use a loan, we will also look through, actually, the loan agreement and tell you, like, “Look, this is a terminal loan.” Like, this is how flexible it is. For a lot of these, like, loans, if we anticipate that it’s gonna mature before the I-526 is adjudicated, we’ll also have to tell you, “You should be prepared to send us evidence about how you’re going to pay it off, because it’s pretty likely that USCIS will ask, you know?” So, I would say that you should be prepared to have the evidence available, and your counsel should have told you, too.

Sam (00:59:59):
Thank you. Thank you, Phuong. All right. I think that pretty much covers it. If there were any questions that we didn’t get to, please reach out to us—the contact information for both EB5AN and for Phuong should be on the screen. If not, Jeremy will advance, and we’ll have that up in a second. And yeah, the most important thing is, you know, there are ways to navigate this. It may not be very clear at the start how an investor’s source-of-funds documentation is going to look, but once you’ve engaged, you know, competent legal counsel who’s familiar with a lot of these issues that occur in Vietnam for investors from Vietnam, it’ll be much easier to determine what the best strategy is going to be based on that investor’s particular assets and records that are available and friends that, you know, may be able to help.

Sam (01:00:58):
Once you kind of see the full picture, then it’s much easier to determine which is going to be the, you know, the path of least resistance to be able to document the source of funds for that particular client. And one other point I forgot to mention earlier is that this documentation for source of funds is only required with respect to the capital investment. So, the $900,000—it’s not required for payment of any administrative fee that’s separate from the minimum capital investment. So, that’s important, you know, to keep in mind as well when you’re going through the process. Yeah. So, thank you. Thank you for joining us. And a video recording of this webinar will be on our YouTube channel next week. And if anyone is interested in getting the slides that we covered on today’s webinar, just shoot us an email at info@EB5AN.com, and we’re happy to send a copy of the slides as well. And, you know, please reach out to Phuong with any immigration-related questions. So, thank you again for joining.

Phuong (01:02:20):
Yeah, we appreciate your time. Thanks, everybody.