EB- 5 Investors From Sanctioned Countries? No Problem–Just Follow the OFAC Rules
By Doreen Edelman, Shareholder, Co-chair of Global Business Team, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
Yes, there are stories about investors and EB-5 Regional Centers having trouble dealing with the Department of Treasury’s Office of Foreign Assets Control (“OFAC”). But while these EB-5 applicants, and the applicants’ Regional Center and immigration counsel, will face some additional obstacles, sanctions do not preclude these investors from obtaining an EB-5 visa.
Sanctions can present problems for potential EB-5 investors since applicants for EB-5 visas must establish that they have a lawful source of funds and that they are able to lawfully transfer these funds into an American account. U.S. banks may have their own internal policies or general restrictions limiting their ability to accept funds from sanctioned countries. However, if they are open to accepting the funds, the parties involved must still ensure that there are no prohibitions imposed on the transfer by OFAC. OFAC is responsible for both comprehensive sanctions imposed country-wide and targeted sanctions imposed on certain entities and individuals. Furthermore, sanctions do not necessarily impose a complete bar on activities that involve these countries, entities, and individuals, but rather may require specific OFAC authorization for a particular transaction.
Three Steps to Determine OFAC Requirements under Country-Wide Programs
Before commencing any transfer of funds in conjunction with the I-526 Petition for an EB-5 visa, Regional Centers must determine if investors from a particular sanctioned country require specific authorization from OFAC to transfer the investor’s EB-5 funds. To determine what type of authorization is required in a particular situation, the parties should answer the following three questions:
- Is authorization generally required to transfer funds into the United States from this particular country or from individuals who are nationals of this particular country?
- If so, is a general license available?
- If a general license is not available, is it possible to obtain a specific license?
If the OFAC regulations include a general license, then you do not need to file for transaction-specific approval. The general license itself authorizes the transfer of funds and the experts at the bank should be aware of this exception. If the OFAC country program does not have a general license available for the transfer of the investment funds, it may be possible to apply for a transaction-specific license. OFAC reviews these applications on a case-by-case basis and will issue an actual license for the specific transaction authorizing the transfer of specific funds from the particular investor to the particular Regional Center for EB-5 investment purposes.
When a general license is available, experienced immigration lawyers and Regional Centers sometimes request a legal review of the transaction and an opinion letter from an attorney familiar with OFAC regulations in order to provide evidence to financial institutions that the transfer does not violate a specific sanctions program. The legal opinion should be detailed and include all aspects of the transaction so that it is clear what the investor can and cannot do. This letter should confirm the specific regulatory authority authorizing the transfer and demonstrate that the transfer is consistent with OFAC regulatory requirements and Patriot Act due diligence requirements.
Obtaining a specific license will require similar details regarding the specific path of funds. Depending on the country, the specific fact pattern and the time of year, a specific license application can take many months to be processed. Therefore, immigration attorneys and Regional Centers should review OFAC requirements that may touch on a particular EB-5 transaction as soon as they have a potential investor. (Early review will also highlight what other OFAC concerns may affect the investor and the transaction. See below.)
Both the Regional Center and investor should discuss any additional prohibitions to ensure that the parties all understand the details. For instance, for a transfer from Iran, all Iranian investors must understand that they likely cannot continue to participate in Iranian businesses once they become U.S. Persons. Only under very limited circumstances can they participate in Iranian transactions. Even under the recent Iranian nuclear deal, U.S. Persons still generally cannot own or work with Iranian businesses absent a specific license from OFAC. Thus, Regional Centers benefit from dialogue with potential investors from sanctioned countries because such dialogue ensures that investors know the limitations up front and will not be surprised at the end of the process.
Entities, Individuals, and Restricted Parties Screening
Also, Regional Centers will want to conduct restricted party screenings to ensure that the entities and individuals involved in each transaction are not on any of the restricted parties lists administered by OFAC and other government agencies. If an entity or individual is restricted from doing business in the United States or with a U.S. Person, it will be necessary to obtain a specific license, if available, to authorize the particular activities that would otherwise be prohibited. This restricted parties screening is in addition to any specific country sanctions program explained above. Restricted parties screenings are a separate requirement that applies to all U.S. Persons and is not limited to parties from sanctioned countries.
Any entity transacting with a foreign party should run a restricted parties screening before it does business with that foreign party to ensure compliance with U.S. law. If the foreign party appears on a restricted parties list, the U.S. party may be violating U.S. law by doing business with it. Screening lists are available online on OFAC’s website as well as on other government agency websites. There is also commercial software available that screens parties against a comprehensive list of all restricted parties lists administered by U.S. government agencies. These are the same searches that financial institutions are required to perform for each transaction. If you have OFAC legal counsel, your counsel may be willing to do the screening for you. We suggest that you keep a copy of your screening report as evidence of your diligence. This screening should be part of a Regional Center’s initial due diligence for all potential investors.
Furthermore, before becoming a U.S. Person, EB-5 applicants will generally want to ensure that all of their personal funds and investments are transferred out of Iran before they become a U.S. Person subject to U.S. jurisdiction. Because U.S. Persons will often require specific licenses in order to transfer personal funds from a sanctioned bank into the United States, it is imperative that EB-5 applicants are aware of how their U.S. status will affect their access to money and any investments they may have in a sanctioned country or entity. This often requires individualized planning in consultation with both an immigration and OFAC attorney.
While sanctions do impose additional steps for certain EB-5 investors, their immigration attorney, and the applicable Regional Center, once you learn the process you can add it to your checklist. It doesn’t have to cause additional angst, and you certainly do not have to avoid otherwise qualified investors merely because of OFAC requirements.