EB-5 Investment Program Must Be Cautious of Unlawfully Sourced Funds

close-up pen on the money

The federal courts in the Philadelphia Eastern District recently ordered a default judgement that every USCIS designated Regional Center needs to take note of.  The judgement was ordered against an EB-5 investment limited partnership, due to use of funds directly traceable to corrupted proceeds. This case serves as a cautionary tale for Regional Centers: take all necessary precautions to ensure only lawfully sourced funds are being used for investments they manage.

 

In the case brought about by the Philadelphia District Court, the forfeiture in Rem was against a limited partnership interest involving the daughter-in-law of former Korean President Chun Doo-hwan. An EB-5 investment was made by the daughter-in-law under the guise of a business capital deposit. The given Regional Center accepted the deposit, as the funds came through a legitimate bank account. However, under further investigation, U.S. and Korean law enforcement confirmed her funding came from her father-in-law’s proceeds of corruption, an unacceptable source of EB-5 funding under federal law. The Regional Center was also held responsible for not performing enough due diligence to ensure the funds were from a legal source, and the $500,000 involved was seized.

 

The lesson is clear: a bank account is not a sufficient threshold of due diligence. Instead, Regional Centers need to ask more questions to understand the background of their EB-5 candidates. They are advised to run an Office of Foreign Assets Control (OFAC) background screen of the client and immediate family members that are providing EB-5 investment funds. Additionally, Regional Centers are strongly encouraged to document their center’s practice on reviewing the source of all incoming funds. The burden of proof of due diligence is heavily on the Regional Center.

 

An EB-5 Regional Center under investigation will see a significant reduction in investigation and seizure costs, if it can show it exercised due diligence against preventing unlawful funds from entering into an investment. Still, it is important to have a qualified EB-5 attorney by your side, as they possess the ability to clear a Regional Center of complicity if a problem does occur. The attorneys at Hirson Immigration are available to provide guidance. Contact our office today at (949)383-5358 for more information.