By MARJAN KASRA, and Babak Hojjat of The Law Offices of Marjan Kasra, LLC
In 2014, Iranian EB-5 cases represented 0.7% of the entire EB-5 pool, trailing India at 8th place; while that may not seem significant, with the Chinese retrogression issues, and talk of easement of existing sanctions, this segment of the EB-5 market may be of particular interest to EB-5 projects, as an emerging pool of investors. That being said, navigating through a successful Petition can be quite challenging for an EB-5 practitioner new to this segment of the market.
Prior to October 22, 2012, a U.S. entity was obligated to acquire a Specific OFAC License prior to its ability to legally accept funds from an Iranian National; on said date, OFAC issued an amended General License, allowing US projects to accept EB-5 and E-2 investment funds without having to procure a Specific License. This fact cut down on the processing time for Iranian cases by about 8 months (average time to obtain Specific License in 2012). This General License, however, is by no means a carte blanche for U.S. projects.
Firstly, U.S. entities still need to do their due diligence in making sure that the funds coming from Iran have not originated from an Iranian financial institution which is on OFAC’s Specially Designated List (SDN), or more commonly referred to as “Bad Banks.” Secondly, U.S. entities need to ensure that the individual investor and their spouse do not appear on the SDN list. In our practice, we have noted that some projects are not mindful of this distinction, and assume they are authorized to accept funds from an Iranian National, citing the expanded 2012 General License. This misstep by a Regional Center can prove to be fatal to both the Investor, and to the Regional Center. In fact, Under 50 US Code’s Sections 1705 (b) and (c), if a U.S. entity violates US economic sanctions laws against Iran, said entity may be subject to criminal violations that carry fines of up to $1 million and prison terms of up to 20years, or both; Civil violations carry fines of twice the value of the transaction, or up to $250,000, whichever is greater.
Common challenges specific to Iranian EB-5 Money Transfers
When representing an Investor, or a Regional Center, and Iranian funds are involved, it is the policy of our Firm to act as a “gate keeper” and to fully evaluate the source and path of funds, prior to allowing Investor’s funds to be transferred to a given U.S. Project, in order to protect both the Investor and the Regional Center. Oftentimes there may be name similarities on the SDN list, which need to be addressed head on. Additionally, we spend a significant block of time in evaluating Investor’s pool of funds, and to counsel and educate the Investor regarding path of their funds, before they initiate any transfers.
As there is no direct banking relationship between the U.S. and Iran, some investors may gravitate toward use of an old-world method commonly referred to as the “Hawala system.” This is where an individual in Iran pays a certain sum to a money exchange house, called “Sarrafi” in Iran, and in return, the Sarrafi (for a set fee per U.S. Dollar), utilizes its connections in the U.S. to have local contacts here deposit an equivalent of said sum into the intended recipient’s bank account; the local contacts are generally US persons who have family in Iran, and are trying to accomplish the reverse goal of transferring money from U.S. to Iran. It is important to note that use of said system is completely illegal under U.S. laws, and is considered a form of money laundering, as the source and path of deposited funds are not verifiable. Therefore, it is crucial for an EB-5 practitioner to be aware of this system, and to counsel unassuming Iranian clients against use of said system; interestingly the word “Hawala” literally means “to Wire Funds” in Persian. So even if you utilize a Persian translator, keep in mind to explain the distinction between the literal meaning, and the illegal method of transfer.
Realizing that there is no direct banking relationship between U.S. and Iran, OFAC and USCIS generally allow for use of a reputable Sarrafi, provided that the Sarrafi utilizes a Third Country bank (not on any SDN lists) as an intermediary bank for said transfer. If done properly, both the source and path of the funds are verifiable.
Therefore, evaluating your client’s Iranian bank and the method of money transfer early on, are some of the added considerations which are not only inherent to an Iranian EB-5 Petition, but also necessary steps for a favorable outcome.
RFE Trends with Iranian Investors
When representing an Iranian Investor, in addition to doing our due diligence in sourcing the funds, we have made it our practice to seek an independent Counsel’s OFAC opinion letter, and to include said opinion letter as one of our Exhibits submitted to USCIS, as further evidence of legality of both source, and path of funds to a given project. This is especially important in light of recent increase of Iranian-specific RFE’s (as brought to our attention by other EB-5 practitioners), questioning the legality of source and path of funds from Iran. Furthermore, there appears to be an emerging divergence of opinion between OFAC and USCIS regarding legality of funds from Iran.
Historically, USCIS has denied EB-5 petitions, citing OFAC regulations as the basis, if the source or path of funds located in Iran has involved a “bad bank.” It is clear that OFAC is in line with USCIS in asserting an absolute embargo on transactions involving banks that are under Iranian government ownership. Where USCIS and OFAC seem to diverge in practice (no clear written guidance from USCIS), is as follows: While OFAC is more concerned about the bank-entity where the funds-transfer originates from (right before departing Iran) and the path thereafter, USCIS takes it a step further, and appears interested in identifying the path the funds took prior to landing at the last bank-entity in Iran. At our Firm, we have experienced USCIS RFE’s going as far back as 1991 (for a 2013 filing) in the “path of funds” context.
As noted at a Stakeholder’s meeting conducted at the California Service Center, OFAC has expressed the view that involvement of SDN bank terminates at the juncture where the funds “rest” in a Non-SDN bank, noting that at said juncture, the SDN bank no longer has an interest in the funds. However, USCIS utilizes a more stringent standard and has, in the past denied EB-5 cases where funds traveled through an SDN bank. Therefore USCIS appears to take a more broad approach in determining the legality of funds from Iran. For example, when the pool of funds involves sale of a real estate, which at some point was secured by a bank on the SDN list (which is not at all uncommon), is USCIS going to challenge “legality” of path of funds? It is the opinion of this author that determination of legality of funds entering United States is a question which should be left to OFAC; therefore, a plausible argument can be made that USCIS may in fact be circumventing OFAC’s authority in certain cases. As such, it would be interesting to observe success of EB-5 Practitioner’s arguments rooted in this circumvention of authority.
The 2012 OFAC expansion of the General License may have played a part in the rise of RFE’s concerning Source and Path of funds, perhaps as a result of less stringent sourcing of funds practiced by Attorneys and Regional Centers alike.
Another ripple effect of the 2012 OFAC expansion on USCIS decisions may be observed with the upcoming I-829 adjudications; historically the question of lawful source of funds is determined at the I-526 stage. Under 8 CFR Section 216.6(c) (2), Regulations do provide for the legality of the source and path of funds to be revisited at the I-829 stage; with less OFAC oversight since October of 2012, it would be interesting to see whether the upcoming I-829 adjudicators may be more inclined to revisit this question.
Additional considerations when representing Iranian Investors
One of the challenges of sourcing of Iranian Investor’s funds has to do with the fact that filing of tax returns in Iran is not as commonplace as with other countries. That being said, majority of Iranian Investors are comprised of highly educated professionals and successful businessmen and women, and we have found that the deficiency in tax returns is curable by submitting professional licenses (i.e. Medical License for a physician) and or Corporation Licenses, in combination with business bank records and regular deposits to personal accounts. In addition, personal sworn statements from Investors appear to fill in some gaps. If presented with a challenge regarding legality of source of funds, an EB-5 practitioner should take into consideration the investor’s profile at the time he/she acquired the asset (or leveraged asset) in question, and try to put together a coherent chain of events, leading to wealth generation for your client. Keep in mind that the standard of proof for EB-5 cases is “Preponderance of evidence,” and that persuasive argument skills may come in handy when placing your client’s case before an adjudicator.
Another consideration for an EB-5 practitioner is with acceptance of legal fees form an Iranian National. 31 CFR Section 560.525(a)(1) and 560.525(a)(4) allows a US person to provide legal advice to a an Iranian National, and the OFAC General License allows an Attorney to accept legal fees without having to first procure a Specific License. However, an EB-5 Attorney still needs to make sure that the person being represented is not on the SDN list; if representing an entity, make sure that the entity is not owned 50 percent or more by an SDN. If you later learn that the person or entity was on the SDN list, you are required to file a report to OFAC within 10-days, or be held in violation of OFAC regulations under CFR Section 501.603.
Another very important conversation to have with your Iranian Investor, as part of your due diligence, has to do with the fact that under OFAC regulations, once your client becomes a U.S. person, they must divest any interest they may have in their business in Iran, regardless of how successful that business may be. So while they may continue their business activities while jumping through all the OFAC and USCIS hoops, once they gain their LPR status, and are considered a “U.S. Person,” they are subject to OFAC regulations, and prohibited in further business activity in their home country.
Knowledge about a set of OFAC rules and regulations, in combination with familiarity with the local Iranian banking, Iranian Real and Personal Property rules and customs are necessary ingredients to a successful Iranian EB-5 Petition. When tackling your first Iranian EB-5 case, it is advisable to seek advice from an Attorney who specializes in this demanding area of EB-5 practice, as common missteps can lead to flawed Petitions and could translate to heavy fines and penalties to a Regional Center. At our Firm, we often co-counsel with EB-5 Practitioners; given the source and path of funds challenges with Iranian clientele, an EB-5 practitioner has to do considerable planning, early on, to ensure a successful outcome.
Owner, Law Office of Marjan Kasra, LLC