by Erin Corber, Attorney, Trow & Rahal PC
The exponential increase in the number of investors seeking green cards through use of the EB-5 investment program over the last decade has created thousands of jobs for U.S. workers, injected billions of dollars into the U.S. economy, and led to the construction of key commercial enterprises that provide valuable services and accommodations all over the United States. The increased impact of the EB-5 program on the U.S. economy, however, has also led to rising scrutiny of the program by the U.S. government. The rising popularity of EB-5 investment has also seen increasing numbers of reports of fraud and other abuses of the program resulting in numerous enforcement actions by the SEC and other government bodies across the United States.
In navigating the increasingly complex regulatory environment of the EB-5 Regional Center program, attorneys, investors and regional centers must all be vigilant in ensuring their compliance with all statutes, regulations and rules that impact EB-5 investment at the federal and state level. EB-5 investment that is sourced from countries and individuals subject to sanctions by the U.S. Department of Treasury Office of Foreign Asset Control (OFAC) face additional obstacles. And while investors from these nations are not precluded from seeking U.S. immigration via EB-5 investment, the parties to these transactions must take additional steps to ensure that the transfer of funds and the investment itself is and remains authorized by OFAC. Any failure to comply with OFAC’s rules and regulations can result in the denial of an investor’s petition, claims of attorney malpractice, and fines or other penalties to the Regional Center, escrow agent, and the new commercial enterprise. Investors and regional centers must therefore ensure that the initial transfer of EB-5 investment funds does not run afoul of OFAC sanctions. But the parties’ compliance obligations do not end with the transfer of the investor’s funds. Questions remain as to what the parties’ obligations are with regards to funds originating from a sanctioned nation if a green card no longer becomes an option for the investor. A close examination of the opportunities and potential pitfalls that arise with investments sourced from Iran provides insight into best practices for all parties to an EB-5 transaction when funds are sourced from a country that is subject to sanctions.
OFAC Licensing Requirements
Investors seeking a green card through the EB-5 program must demonstrate the lawful source of the funds for their investment, which means that for immigration eligibility nationals from certain countries that are subject to U.S. sanctions may require a license from OFAC in order to transfer funds to a U.S. business. OFAC administers comprehensive sanctions, which are imposed on a country as a whole, as well as targeted sanctions against specific entities or individuals. These sanctions target specific economic activities and sectors, and it is important at the outset to determine if a given transaction is sanctionable under OFAC rules and regulations…