EB-5 Investors Can Avoid Potentially Devastating Penalties by Complying with OFAC Regulations

With President Trump’s travel ban now being implemented, even if on a scaled down level, U.S. visa applicants from Iran, Iraq, Libya, Somalia, Sudan, and Syria should be well aware of increased visa processing times and the additional scrutiny during the U.S. consular process.  This includes a determination that the visa applicant qualifies for the immigration benefit he/she is applying for.  For EB-5 visa applicants, it’s critical that regulations of both U.S. Citizenship and Immigration Services (“USCIS”) and the U.S. Department of the Treasury Office of Foreign Assets Control (“OFAC”) are properly followed.

One of the most important aspects to filing an approvable Form I-526 to obtain conditional permanent residency within the U.S. through an EB-5 visa is the inclusion of a credible source of funds report that shows the lawful source and path of funds in a clearly documented manner.    For nationals from certain countries on which the U.S. administers sanctions, an immigrant investor may also need to obtain additional approval from OFAC prior to transferring funds to a U.S. business.  Failure to follow OFAC rules and regulations can result in a Form I-526 denial, claims of attorney malpractice, and even fines/penalties to the Regional Center, escrow agent, and/or new commercial enterprise.  This blog provides insight on working with such nationals to apply for OFAC approval and how to prepare a Form I-526 filing for a national from a targeted country.

1. What Countries? OFAC administers different sanction programs against certain countries, which can either include comprehensive trade restrictions or target specific individuals or entities.  The list of countries in which OFAC has active sanction programs include Belarus, Burma, Burundi, Central African Republic, Ivory Coast, Cuba, Iran, Iraq, Lebanon, Libya, North Korea, Somalia, Sudan, South Sudan, Syria, Ukraine/Russia, Venezuela, Yemen, and Zimbabwe.  Since all U.S. persons (including U.S. citizens, permanent residents regardless where located, and all persons and entities within the U.S.) must comply with OFAC regulations, immigration attorneys should ensure that each immigrant investor files in accordance with the OFAC framework.  Additionally, securities and corporate attorneys should ensure that Regional Centers, new commercial enterprises, and job-creating entities have policies and procedures in place that comply with OFAC regulations.
2. Is a Specific or General License Needed for EB-5? It depends.  In some situations, authority to engage in certain transactions is provided by means of a general license, like the Iranian Transactions and Sanctions Regulations pursuant to 31 CFR § 560.505(c).  In instances where a general license does not exist, a written request for a specific license must be filed with OFAC to permit a person or entity to engage in a transaction which otherwise would be prohibited.  In general, for a specific license, submit a letter to OFAC’s licensing division or online which identifies the applicant, the relevant sanction program, any individual on the SDN-List, the proposed transaction and why you believe it is prohibited, all parties directly or indirectly involved in the transaction, and all transactions and associated money flows at issue.  If you are unsure of whether a specific license is required for a client’s EB-5 case, it is also possible to request an advisory opinion from OFAC that no such license is necessary.  More information on licensing procedures can be found here.  Also note that foreign nationals may require an OFAC licenses to move any additional (non-EB-5) personal funds from a targeted country to the U.S.
3. What is the SDN-List? The Specially Designated Nationals (“SDN”)-List incorporates the names of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries.  The SDN-List includes over 6,000 names, is consistently updated by OFAC, and is searchable on the OFAC website.  Immigration attorneys and Regional Centers should use this tool to ensure that funds coming from banks in targeted countries are not on the SDN-list.  Note that it has been the position of OFAC in the past that the involvement of banks on the SDN list in which funds sent in furtherance of an application for an EB-5 visa terminates when the funds come to rest in a non-SDN bank prior to their being transferred to the U.S.  However, it is possible that USCIS may not defer to OFAC in determining whether an immigrant investor has met the lawful source and path of funds requirement.
4. What are the Penalties for Non-Compliance? The fines for violations of OFAC regulations can be substantial.  Under OFAC’s Economic Sanctions Enforcement Guidelines, civil penalties can range from $1,000 to $250,000.00 per transaction.  When OFAC has determined that a civil money penalty is appropriate, it will issue a Pre-Penalty Notice specifying details of the purported violation and proposed amount of the penalty and offer the subject an opportunity to respond. OFAC distinguishes between egregious and non-egregious cases with emphasis on the extent to which the conduct is a willful or reckless violation of law committed with a high level of awareness of the conduct violating the law or regulation.  OFAC can also refer the matter to appropriate law enforcement agencies for criminal investigation and/or prosecution.
5. How to Prepare for Form I-526? It is important that any necessary OFAC licensure be obtained prior to the transfer of any funds to a U.S. person or entity to meet the “approvable at the time of filing” requirement.  It is just as important to not rely solely on the investor’s statements of what had happened in the past with verifying documentation, since USCIS will likely ask for such documentation, if not originally provided and modifying facts in RFE or NOID responses reduces credibility.  In addition to the standard types of documents included in any other EB-5 investor’s Form I-526, immigration attorneys should be prepared to clearly demonstrate compliance with OFAC’s rules and regulations when documenting a client’s lawful source and path of funds.  Correspondence to and from OFAC regarding specific license requests or an independent attorney’s OFAC opinion letter can be included with the Form I-526.

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Mentions

• U.S. Citizenship and Immigration Services
• Joseph "Joey" Barnett