Five Things to Know about EB-5 Source and Path Issues Relating to Third Party Money Exchangers

USCIS has begun to issue Requests for Evidence (“RFEs”) on the use of third party money exchangers by EB-5 investors to invest capital in a new U.S. commercial enterprise (“NCE”).  Until recently, Form I-526 petitions of Chinese investors who have used third party money exchangers had been approved without RFEs, though USCIS has previously raised this issue for investors who used Hawala or Sarafi brokers to transfer EB-5 capital from the Middle East.  This is a widespread issue for the EB-5 industry, though responses will vary based on the specific facts of each case.

The fact pattern now being questioned generally is as follows:  A Chinese EB-5 investor transfers investment funds to a third party money exchanger’s account in mainland China.  The third party money exchanger subsequently transfers an equivalent amount from an account outside mainland China (usually Hong Kong) to the EB-5 investors or to the NCE or escrow account on behalf of the EB-5 investor.  Of course, the conservative approach is for the capital (either RMB or USD) to be deposited into the EB-5 investor’s account prior to being transferred to the NCE.

Here are 5 things to know about this important issue:

1. EB-5 Requirements.    An EB-5 investor must demonstrate that he or she has placed his or her own capital at risk, i.e. that he or she was the legal owner of the invested capital.  In addition, an EB-5 investor must demonstrate that the invested capital was obtained through lawful means.  USCIS requires EB-5 investors to document the path of investment funds to the NCE.  This requires more than merely submitting bank letters or statements documenting the depot of funds into the bank account of the NCE.  In these cases, because the EB-5 investor’s money never left Mainland China, USCIS is questioning whether the funds received by the NCE from the third party money actually belonged to the EB-5 investor and whether the use of a third party money exchanger violates any local law.

2.      Currency Swap. Black’s Law Dictionary defines “Currency Swap” as “An agreement to swap specified payment obligations denominated in one currency for specified payment obligations denominated in another currency”.  An EB-5 investor must demonstrate, usually through a currency swap agreement, that the funds transferred from the third party money exchanger to the bank account of either the EB-5 investor or NCE outside of Mainland China are in fact the EB-5 investor’s own funds.

3. Relationship between EB-5 investor and Third Party Money Exchanger.  USCIS is asking for evidence demonstrating the relationship between the EB-5 investor and the third party money exchanger (for example, how long have they known each other, how did they meet).  If the third party money exchanger is a money service business, USCIS will want evidence that the exchanger is a legitimate business and has a license or registration to carry out such transactions under local law.  This may require an explanation and evidence of any regulations in China/Hong Kong/Macau regarding currency swaps.

4. Lawful Source of Funds.   The new RFEs may also ask for evidence demonstrating that the capital transferred by the third party money exchanger was lawfully obtained.  This includes income certificates, business licenses, and bank statements showing the transfer out of his or her account.

5. Change in Policy?   The new RFEs indicate USCIS has made a change in policy in dealing with third party money exchangers to transfer EB-5 investment funds out of China.  This coincides with new currency restrictions being implemented by Chinese authorities to prevent the outflow of capital.  Note, however, that the proposed changes to EB-5 program would require more information about the use of third party money exchangers and other individuals used by EB-5 investors to transfer investment capital to the NCE.

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• Bernard Wolfsdorf
• Joseph "Joey" Barnett
• Vivian Zhu
• U.S. Citizenship and Immigration Services