Special Challenges in Documenting the Source of Funds for Clients from Transitional Countries

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1 Where, Investor, Are You From? Country Specific Issues Cletus M. Weber (dl), Mercer Island, WA Doreen M. Edelman, Washington DC Robert P. Gaffney, San Francisco, CA Special Challenges in Documenting the Source of Funds for Clients from Transitional Countries Introduction Background: Regulations and Requirements Challenges in preparing I-526 petition for clients from transitional countries: Tax Reporting Establishing Source of Funds Currency Exchange and Remittance Restrictions Difficulties at Consular Posts

2 KNOW THE REQUIREMENTS for documenting the lawful source of funds set forth in the regulations 8 CFR 204.6(j)(3) To establish that capital has been obtained through lawful means, the petitioner must be accompanied by: Foreign business registration records Tax Returns: Corporate, partnership, and personal, or any other tax returns of any kind filed within five years, with any taxing jurisdiction in or outside the United States Evidence identifying any other source(s) of capital; or Judgments or evidence of all pending governmental civil or criminal actions, governmental administrative proceedings, and any private civil actions (pending or otherwise) involving monetary judgments against the petitioner from any court in or outside the United States within the past fifteen years PRACTICAL POINTERS for approaching challenging cases from Educate the Client as to the requirements of the law and then pro-actively seek the client s participation in developing the case strategy Use detailed Intake Questionnaires to: Obtain information regarding client s the immigration history and any admissibility issues Obtain biographical information to help you understand the client s educational, occupational and entrepreneurial background Ascertain the availability of tax documentation from a variety of sources Actively solicit client input on the source of capital issue often the client will have thought about the issues INCOME TAX NON-COMPLIANCE COMPLIANCE: : The absence of credible income tax documentation makes it difficult to document a level a of income. PRC tax law available online at PRC Clients often unable to provide income tax records showing a level of income from employment or the operation of a business Important to develop a real world understanding of the client s lifestyle Common practice for individuals in the PRC, Vietnam and other transitional economies to report very modest wage, if any, to tax authorities, and to rely upon substantial off book expense allowances

3 INCOME TAX NON-COMPLIANCE COMPLIANCE: : The absence of credible income tax documentation makes it difficult to document a level of income. If tax returns not available, client may be able to provide banking records showing actual receipt of income from employment or the operation of a business Be aware of inherent risks in using a stream of income in the absence of tax documentation. USCIS or Consular Officer may take the position that - Tax records are typically viewed as the best evidence of personal income; and/ or Funds that are owed in the form of unpaid taxes to the petitioner s government may not be considered the personal capital of the investor CORPORATE DISTRIBUTION OR LOAN Major investor in a closely held company may be able to obtain formal shareholder and board approval for a substantial one-time profit distribution or loan If taking this approach, need to consider: Source of petitioner s initial capital investment in the corporation Profitability of corporation and ability to pay dividend. Examine corporate financial statements and tax returns. Tax ramifications Distribution: No S-Corporation type provisions for corporations in China creates double taxation issue Loan: Possible federal tax ramifications to U.S. resident of forgiveness or non-repayment of the loan Secure of loan by pledge of collateral to clarify that the assets of the EB-5 enterprise are not being used to secure the loan PRIVATE LOANS If a loan is extended to the petitioner by a creditor that is not a bank or licensed lending institution, document the financial ability of the creditor to extend the loan. In private loan arrangement, document the context of the loan and the manner in which the petitioner intends to repay the loan (both go to credibility)

4 Currency Exchange Remittance Restrictions The PRC controls the exchange of Chinese currency and limits the remittance of foreign currency to $50,000 per year per individual, as do Iran, India, and other countries. IN PRACTICE: Common work around for PRC investors involves the cooperation of family and friends to serve as accommodation remitters to collectively accomplish the remittance of larger sums, often to an account in Hong Kong owned by the client PRC SAFE directive issued in late 2009 expressly prohibits the use of multiple parties With increasing frequency, PRC banks are refusing to accommodate multiple remittances seeking to circumvent the directive and also remittance by individuals to business bank accounts in the U.S. ALSO COMMON, are various informal private currency exchange arrangements involving friends or business associates outside of China. Requires full and complete tracing documents. COMMUNIST PARTY MEMBERSHIP INA 212(a)(3)(D) excludes any immigrant who is or has been a member of or affiliated with the Communist Party or any other totalitarian party, domestic or foreign Exceptions for non-meaningful membership and former members (quit the Party for at least 5 years) Under the Bylaws of the CCP, a person who stops paying dues and participating in Party activities for two years is deemed to no longer be a party member. A discretionary waiver is available to an applicant who is the spouse, parent, son or daughter, brother or sister of a U.S. citizen or a lawful permanent resident Three bases for the waiver: for humanitarian purposes, to ensure family unity, or when it is otherwise in the public interest, if the noncitizen is not a threat to U.S. security OFAC Export Compliance Considerations for EB-5 Lawyers

5 What Is OFAC? Office of Foreign Assets Control (OFAC): in the Department of the Treasury administers a series of laws that impose economic sanctions against hostile targets to further U.S. foreign policy and national security objectives. These targets include: foreign governments (i.e., Iran, Sudan, and Cuba), individuals (i.e., terrorists and narcotics traffickers), entities (i.e., drug front companies and charities linked to terrorist groups), and practices (i.e., trade in non-certified rough diamonds and proliferation of weapons of mass destruction). OFAC Laws and Regulations Apply to U.S. Persons Foreign investors probably are not U.S. persons "U.S. person" is defined to include: U.S. citizens U.S. permanent resident alien any legal entity organized under U.S. law Regional centers, investment enterprises, and funding family members are U.S. persons who are facilitating or otherwise involved in the transactions Iran Sanctions Administered by OFAC Comprehensive economic sanctions Effects EB-5 transactions

6 Iran Sanctions Who Applies for a License? A "U.S. person" must apply for a special license with OFAC in order to accept money or provide services to an Iranian investor Lawyers are exempt under a general license The license application process is not related to the issue of embargoed banks Iran Sanctions What Facts Trigger an OFAC Question from USCIS or a determination to apply for a license by a U. S. Person? Iranians in Iran with funding sources from Iran Iranians living outside Iran if funding came from Iran Non-Iranians if funding came from Iran Other facts may trigger review: Iranians living outside of Iran with funding coming from outside of Iran (but funding originated in Iran) Note: OFAC has asked USCIS to narrow this review Iran Sanctions How Does the Process Work? A U.S. person applies for a license with the following information: Name Iranian national ID number Information regarding residency Information regarding source of funds Information regarding the regional center There is no application format Each situation is unique OFAC usually handles the process informally if it has questions Timing of process varies depending on case load/personnel at OFAC

7 Iran Sanctions In Addition the the Iranian BANK EMBARGO There is an absolute EMBARGO on transactions coming from Specially Designated Iranian banks Specially Designated banks have Iranian government ownership This is an issue because of EB-5 applications There is no license available Money can not come to U.S. from a listed bank. Plan accordingly! Iran Sanctions Top Five Sticky Issues 5. USCIS and OFAC may not be on the same page. 4. If USCIS sees Iran in your petition, assume OFAC issues will be triggered even if the Investor has been out of the country for years. 3. If the Investor lives in more than one place, consider the issue of residency. 2. The issues are very fluid, plan ahead, and expect each time may be different. 1. Review the Specially Designated banking issue carefully with each investor. Inform your potential clients as soon as you meet them! Syria Sanctions New Sanctions Introduced in August of 2011 Similar to the Iran Sanctions New Program = Constant Changes STAY INFORMED!!!

8 Syria Sanctions Important Rules to Know All services to Syria have been prohibited EB-5 visa transactions are considered a prohibited service and require a license While legal services are authorized, payment for legal services is prohibited and requires a license The Government of Syria and certain Syrian banks, individuals, and entities have been blocked Before an EB-5 visa transaction takes place ALL parties must be screened to ensure no blocked parties are involved Other OFAC Sanction Programs In addition to the Iranian and Syrian sanction programs, OFAC also administers broad trade and financial sanctions against the following countries: Burma, Cuba, North Korea, and Sudan Other geographic areas where sanction programs apply and certain entities are blocked are: Balkans, Belarus, Cote d'ivoire, Democratic Republic of the Congo, Iraq, Former Liberian Regime of Charles Taylor, Lebanon, Libya, North Korea, Somalia, and Zimbabwe Questions & Answers

9 Disclaimer This presentation outline and the presentation itself are for general educational purposes only and are not intended to provide specific guidance or legal advice about what to do or not to do in any particular case. You should not rely on this general information to make decisions about specific immigration matters. If you are not yourself a lawyer, you should seek the assistance of an immigration lawyer to help you resolve these issues. Thank you.