Investor Due Diligence and the Source of EB-5 Funds – Wrapping up Part 3/3 of ABIL’s 2011 Webinar Series (Session 1)

Webinar Articles: Part 1 | Part 2 | Part 3

The first EB-5 investor due diligence checklist provided by ABIL’s attorney presenters during last month’s webinar included several questions investors should ask before committing to a specific EB-5 project or regional center.

But many regional centers are new. They won’t have a significant track record of I-526 approvals, and it’s unlikely they will have had any investors reach the I-829 stage – especially if the regional center is less than two years old.

That does not mean EB-5 projects being handled by new regional centers should be avoided, however. Many of them may be a good fit for the regional center investor, and ABIL’s presenters (pictured) provided an additional due diligence checklist to help investors understand the business histories of regional center operators:

• Obtain bank reference of EB-5 general partner and/or principals.
• Obtain Dunn and Bradstreet on general partners and/or principals.
• Any past lawsuits? (Regional Center, general partners or principals)
• Any past criminal convictions? (general partners or principals)
• When was the regional center established?
• How long has the EB-5 company been doing business? Any previous business?
• When can the investment be sold?  When can the client get his or her money ($900,000) back? How many investors have received a return of investment money?
• How is the amount determined?
• How many years of experience does the general partner or EB-5  principal in the investment project have in working with immigrant investor programs?
• What precautions are taken to monitor job creation? What steps are taken if the requisite job creation has not occurred?

The source and path of EB-5 funds

Toward the end of the webinar, all four attorneys stressed the significance of showing the immigration agency where all EB-5 funds actually came from.

Every EB-5 investor must reveal to USCIS exactly how he or she has $900,000 to $1.8 million to invest in an EB-5 project. Earned income, according to Kehrela Hodkinson, is the most straightforward when it comes to showing the source of funds. The investor simply submits tax returns or wage slips.

Investment income is different. If the investor sold a home and put the profits in an investment account before finally moving the money to a checking account, for example, he or she would also have to show the immigration agency the history of those funds passing from one account to the next. This is true of all investment income used toward an EB-5 visa.

For EB-5 investors qualifying with gifted money, it is also necessary to show USCIS how the giftor of funds came into the money. Similarly, those investors with “old money” will need to show documentation detailing the history of how those funds were acquired, held, and/or invested.

As Stephen Yale-Loehr noted, investors unable to follow procedures and fulfill the requirements exactly as USCIS specifies will not be able to clear the I-829 stage and will have to leave the United States.

Whether it’s the source of funds, the number of jobs created, or some other specific factor related to the process of qualifying for and obtaining an EB-5 visa, the bottom line to investors is that it is absolutely imperative that all requirements are understood – and, ultimately, met in full.

This article was the last of three updates covering attorney commentary during ABIL’s April EB-5 webinar. Visit ABIL’s website to view the Powerpoint presentation that accompanied the event.