By Natalia Polukhtin | Attorney, Global Practice Group
With an enormous pool of cryptocurrency capital currently in circulation, it is no longer a question whether funds that originated from crypto trade are becoming a part of the EB5 process, but rather how to present the source of these funds in a cohesive format that is compliant with the evidentiary standards of the United States Citizenship and Immigration Services (USCIS).
The unprecedented economic impact of the COVID-19 pandemic revealed a shift in the perception of asset protection mechanisms used by investors. As countries closed borders and shut down non-essential local businesses, the investment community increased its reliance on assets that are fungible, global in application, and fully decentralized – cryptocurrency. Cryptocurrency is a digital medium of exchange. The first and most famous example of cryptocurrency – Bitcoin – was described by its presumed inventor, Satoshi Nakamoto, as “an electronic payment system based on cryptographic proof instead of trust.”[1] Cryptocurrencies are regulated by users, rather than Governments. Ownership of cryptocurrency is proved cryptographically, in the form of verified and recorded transactions called blockchain.
Once the “outcast” of investment trends, investment in digital currencies saw a remarkable rise in 2020. This occurred despite many factors that would normally make investors cautious in allocating their assets, such as the global health crisis, Brexit, and turbulent US-China relations. The crypto trade market that was just few years ago dominated by individual tech-savvy investors is now becoming more mainstream, with the recently introduced option to buy and sell Bitcoins using a PayPal account. However, both immigration practitioners and USCIS adjudicators, are still not fully receptive to cases involving cryptocurrency. The novelty of the issue, lack of distinct policy guidance, and complexity of evidentiary materials render these types of EB5 petitions especially challenging.
In documenting the source of their investment funds, EB5 petitioners must demonstrate that the investment capital was obtained lawfully and can be clearly attributed to the investor.[2] In cases involving digital assets, the investment’s adherence to these requirements is frequently challenged by USCIS through Requests for Evidence (RFEs). USCIS often alleges that the funds either do not appear legitimate, cannot be traced to the investor, or cannot be properly authenticated. This article explores the most recent trends in RFEs concerning cryptocurrency trade and possible ways of addressing them.
“Cryptic” issues of legality
Since EB-5 regulations exclude “[a]ssets acquired, directly or indirectly, by unlawful means (such as criminal activities)” from the permissible source of capital,[3] the main concern raised by USCIS relates to the issue of whether cryptocurrency trade as a source of the investment funds produces “legal capital.” The answer to this question greatly depends on where the investor’s money is coming from.
In a common scenario, an investor using cryptocurrency will convert his or her digital assets into conventional currency prior to investing the funds into the investment project. However, when proceeds from the sale of digital coins originate from a country with no legal framework for or other restrictions on cryptocurrency exchange, the adjudicator may question the “legality” of these funds. For example, while some countries such as Algeria, Egypt and Morocco ban the purchase, sale, use, and holding of cryptocurrency outright, other countries such as Saudi Arabia, Jordan, and Turkey ban the use of cryptocurrency for the purchase of tangible goods or prohibit banking institutions from dealing with companies that sell purely digital assets. In such cases, USCIS will typically issue an RFE asking for an explanation as to how the digital tokens were converted by the investor into conventional currency without violating domestic laws. This inquiry is arguably outside of the scope of USCIS’s review because the focus should be on the source of funds, rather than on investor’s compliance with foreign laws. Nevertheless, the question still must be taken into consideration until there is policy guidance or established precedent regarding this form of investment.
This challenge to “legality” is better addressed preventively when evaluating the source of funds, rather than reactively post-filing. Investors who wish to use cryptocurrency as the source of their investment, should be advised to consult with their attorneys before those crypto assets have been converted into USD or other national currency. In this case, they can be advised in advance to conduct transactions only in jurisdictions with established regulatory frameworks for cryptocurrency exchanges. The decentralized nature of digital assets allows investors to select an appropriate jurisdiction, assuming the investor can otherwise legally open a bank account to deposit the proceeds there. When the conversion happens in a crypto-friendly country, such as Australia, Estonia, Liechtenstein, Malta, New Zealand, Portugal, Singapore, Sweden, or Switzerland, the “paper trail” documenting the nexus between the digital conversion and deposit of conventional currency into investors’ accounts may be more easily explained compared to the countries where digital trade is banned or restricted.
Filling the “gaps”
The second trend apparent from recent RFEs concerning origination of funds from digital trade is challenges to the “path of funds.” Due to the perceived anonymity of digital trade, this path rarely presents an uninterrupted chain of documented transactions from “mining[4],” to appreciation in value, to conversion, and ultimately – to the investment. Relying on Matter of Ho[5], USCIS frequently claims that substantial “gaps” in transactions “lead to reevaluation of reliability and sufficiency of the remaining evidence offered in support of the visa petition.”[6]
Anecdotal evidence suggests that at least in a narrow context, when the investor’s digital wallet can be linked to his or her real-life identity through collateral evidence, USCIS is receptive to the argument that the petitioner has satisfied his burden of proof by demonstrating a sufficient nexus between the links in the chain of custody of the asset. As in all immigration cases, the standard in adjudication of EB5 petitions is “preponderance of evidence.” Remarkably, the Policy Manual specifically advises USCIS adjudicators that the petitioner “does not need to remove all doubt.” [7] The Policy Manual instructs that even when the adjudicator has some doubt, when the petitioner submitted relevant, probative, and credible evidence, he has satisfied the standard of proof[8]. Furthermore, a USCIS Policy Memorandum reiterated the appropriate adjudication standard specifically in the context of EB5 cases, pointing out that the preponderance of evidence standard “is a lower standard of proof than both the standard of “clear and convincing,” and the standard of “beyond a reasonable doubt”.[9]
Armed with these policies, a petitioner deriving his or her wealth from crypto trade may satisfy the burden of proof by showing bank receipts consistent with the volume of trade and documents reflecting tax compliance (in many countries, including the U.S., cryptocurrency is classified as property and is a subject to the tax on capital gains). Additionally, to satisfy the “more likely than not” criteria, a petitioner may wish to supplement core documents with collateral evidence such as: materials, showing that he or she is an experienced trader, proof of income sufficient to make an initial investment into mining equipment or first purchase of Bitcoins, or evidence of bank deposits reflective of the manifested value of the portfolio and cryptocurrency price fluctuations.
“Let me see your ID”
Another issue a practitioner submitting I-526 identifying cryptocurrency as a source of funds may expect to encounter is a challenge to the authentication of a digital wallet used by the investor in trade. A “wallet” is a device,program or service that stores the public and private keys for cryptocurrency transactions. These keys can be used to track ownership, receive, and spend cryptocurrencies.
The struggle USCIS has with the concept of digital assets is apparent from adjudicators’ frequent attempts to apply standards of conventional asset transfers to the cryptocurrency trade. The USCIS adjudicator may issue an RFE observing that digital wallets “do not contain Petitioner’s photograph, legal name, or address” that would assist in authentication[10]. Citing Matter of Soffici, USCIS claims that “unsubstantiated information is not sufficient to satisfy a petitioner’s burden of proof.”[11]
In many cases, the most readily available way to authenticate the wallet is to affirmatively supplement an investor’s trade ledger with an affidavit claiming ownership of the wallet. Even though USCIS is notorious for dismissing petitioners’ affidavits and sworn statements as “self-serving” or “non-credible,” regulations expressly allow presentation of affidavits when certain record do not exist or are unavailable.[12] Even in the context of removal proceedings, Federal Regulations provide that “[t]he testimony of the applicant, if credible, may be sufficient to sustain the burden of proof without corroboration.”[13] Inclusion of a detailed affidavit authenticating the digital wallet of the investor may assist in preserving the issue for appeal or later judicial challenge of a denial.
Conclusion
Despite many predictions of a collapse and dramatic fluctuations in value, cryptocurrency has become a prominent player in financial markets and cannot be ignored as a possible source of capital for EB5 programs. There is a hope that under the current Presidential administrative agencies, including the Department of Homeland Security, will become more adaptive to the realities of modern economies. These aspirations are supported by the recent appointment of Gary Gensler, who has taught courses on digital currencies at MIT, as Chairman of the Securities and Exchange Commission. Meanwhile, investors seeking to introduce funds sourced from the crypto trade must rely on empirical knowledge of experienced attorneys and the evolving experience of USCIS adjudicators.
[1] Nakamoto, Satoshi, Bitcoin: A Peer-to-Peer Electronic Cash System (2008), https://bitcoin.org/bitcoin.pdf (last accessed April 29, 2021)
[2] 8 CFR §204.6(j)(3)
[3] 8 C.F.R. § 204.6(e)
[4] Cryptocurrency “mining” is a process by which high powered computers solve complex computational math problems that cannot be solved by hand resulting in the production of new Bitcoin, and ensuring that the payment network is trustworthy and secure by verifying its transaction information.
[5] 22 I&N Dec. 206 (Assoc. Comm’r 1998)
[6] Quoted from actual RFE issued in January, 2021.
[7] USCIS Policy Manual, vol. 6, Part G, citing Matter of E-M-, 20 I&N Dec. 77, 79-80 (Comm’r 1989))
[8] Id.
[9] “EB-5 Adjudication Policy” (May 30, 2013) PM-602-0083
[10] Quoted from actual RFE issued in Nov. 2020.
[11] 22 I&N Dec. 158, 165 (Assoc.Comm’r 1998).
[12] 8 CFR 103.2(b)(2)
[13] 8 CFR §208.16(c)(2).
