Connecticut, US
Iranian nationals and citizens are emerging as a significant pool of potential EB-5 investors, making up 0.7% of total EB-5 investors in 2014. This growth in interest from Iran in the EB-5 program is due to recent changes in the Office of Foreign Asset Control (OFAC)’s economic sanctions for Iran. Iran is likely to be a large potential emerging market for the EB-5 space as a country of over 80 million people, with a large population of highly educated individuals.
On October 22, 2012, OFAC issued an amended General License for Iranian nationals and citizens interested in obtaining a U.S. visa, and transactions are authorized for U.S. persons who engage in providing financial services to Iran in connection with individual EB-5 applications. Although General License significantly decreased barriers to entry, in order to navigate the convoluted space of Iranian EB-5 investment, we strongly recommend for investors to seek experienced immigration counsel and financial advisors, as Iranian investors continue to face significant hurdles. To ensure a successful process, here are few steps you can take.
Perform a Specially Designated Nationals and Blocked Persons (SDN) Check
Transactions and dealings with individuals and institutions on the SDN List are still prohibited. OFAC prevents U.S. persons from doing business with any financial institutions, businesses, or individuals on the SDN List; U.S. persons who violate these restrictions are subject to severe criminal and civil fines and punishments. As such, it is critical for all U.S. persons involved in the transaction (including attorneys, Regional Centers, escrow banks, financial and tax advisors, etc.) to ensure that the investor and his dependents are not on the SDN list, that their funds do not pass through financial institutions on the SDN list, and that the funds were not derived through a business on the SDN list.
This check should be completed through searching the Department of the Treasury’s most updated list. This check against the SDN List should be completed in an initial screening.
Advise the Iranian Investor of Consequences of Becoming a U.S. Person
Although not strictly an immigration law matter, competent counsel should make Iranian investors aware that they should plan ahead for when they become a conditional permanent resident. Once the investor becomes a permanent resident, they fall under OFAC’s definition of a U.S. person, and must divest their interest in businesses located in Iran. Moreover, making further transfers of funds out of Iran into the United States for personal use and living expenses will face the same issues as described above.
Selecting an Investment Opportunity
Many Iranian investors face difficulty in selecting an appropriate investment, especially when they wish to invest under the Regional Center model; this is a critical consideration, as more than 97% of all EB-5 investors in 2015 chose to invest with a Regional Center.
Regional Center and project selection is often one of the most challenging aspects of representing an Iranian investor, as the most widely used Regional Centers in the United States often partner with a variety of stakeholders in order to ensure a project’s success, including developers, escrow banks, and broker dealers. It is necessary to ensure that the Regional Center and all of their partner stakeholders do not have internal policies which prohibit receiving funds from Iranian investors. As an initial matter, it is important to note that many broker-dealers have internal restrictions against accepting funds from ‘high-risk’ countries, such as Iran, and will not allow acceptance of funds which have at any time passed through Iran. Further, many escrow banks do not accept funds which have originated from or flow through Iran and any projects which have set up accounts with these escrow banks will not accept Iranian investment. As seasoned EB-5 practitioners understand, this matter of escrow banks is further complicated by the general scarcity of escrow banks with which projects can contract; due to the complexities of the EB-5 space, only a handful of U.S. banks are willing to set up EB-5 escrow accounts in the first place. As such, there are major roadblocks against Iranian EB-5 investment in the majority of commonly used Regional Center EB-5 projects.
Moreover, even after a Regional Center and project has been selected, many will impose an additional layer of compliance due diligence for Iranian investors. This second layer of compliance due diligence often requires a third-party opinion letter discussing how the investment is in compliance with OFAC regulations, which may take anywhere between 30-60 days for issuance and often incurs additional fees.
As such, EB-5 project selection can be an extensive process, as counsel must understand which projects are available for Iranian investment in addition to performing the typical, necessary immigration and project due diligence.
Ensuring that the Source and Path of Funds is Lawful and Traceable
Based on the OFAC regulations above, which restrict the transfer of funds from Iran into the U.S., as well as applicable state laws and regulations, an Iranian investor faces significant hurdles when attempting to transfer money outside of Iran. Due to these difficulties, many investors utilize the hawala system or a sarrafi in order to perform money exchanges in order to move funds into the United States.
The hawala system or sarrafi, as commonly known in Iran, is a remittance system which operates outside of the traditional banking system. A hawala transaction can be extremely complex, but the general fact pattern is as follows: an Iranian investor speaks to a hawaladar (hawala dealer) in Iran, and gives funds to the hawaladar; the hawaladar then contacts a third-party in the United States, and the third-party arranges completely unrelated funds in the United States for purposes of the EB-5 investment.
For purposes of demonstrating the lawful path and source of funds, practitioners should be wary of the hawala or sarrafi system, and should keep the following critical considerations in mind. First, it is essential to distinguish legitimate transactions (“white hawala”) from illegal transactions (“black hawala”), which have serious money laundering implications. U.S. persons receiving black hawala funds may face serious civil and criminal consequences. Further, many hawala transfers lack adequate documentation demonstrating transfer and of the source of third-party funds; this is a particular area of concern for demonstrating the lawful source and path of funds for EB-5 investments.
After the I-526: Processing Times and RFEs
After the I-526 is submitted, Iranian investors have a historically longer processing time and increased the likelihood of receiving Requests for Evidence (RFEs) on their pending applications. It is common for USCIS to issue RFEs on the source and path of funds for Iranian investors, delaying the adjudication of the I-526.
The practical pointers above are only a general guide to EB-5 considerations unique to Iranian investors and do not provide a comprehensive roadmap to ensuring a successful outcome. There are many additional complexities which arise in the course of representing Iranian investors, and as a general practice, Iranian investors interested in the EB-5 program should seek seasoned immigration counsel and financial advisors in preparing a successful case.