If the EB-5 investor has a legitimate source of income from employment , they do not need to prove how all the other funds in their account or accounts were acquired ; they only need to prove that the funds came from that source .

We ’ ve all grown up believing that EB-5 investors must document “ SPOF ” — the source of funds and the path of funds . Two co-equal requirements — that the investor ’ s funds came from a lawful source and tracing every penny of the investor ’ s funds often through multiple transactions and sometimes for decades .

There is only one problem . The requirement for a lawful source of funds is a legal requirement . It is contained in the regulations at 8CFR § 204.6 ( e ). Which regulation creates the path of funds requirement ? As pointed out to Judge Friedman of the D . C . District Court in the Battineni case , and as Judge Friedman concurs , there is no regulatory path of funds requirement .

As many readers of this article know , I have long advocated that there is a difference between law and lore . The law can only be found in one of three placesthe statute , the regulations , or precedent decisions . The lore is everything else , including the USCIS Policy Manual , USCIS memos and FAQs , and U . S . Citizenship and Immigration Services ( USCIS ) adjudications .

It turns out that the law does contain a “ path of funds ” requirement . The problem is that it is not the requirement that USCIS has long imposed on EB-5 investors . Rather , as Judge Friedman recognizes , the requirement comes from one paragraph in the Matter of Izummi precedent decision that requires proving that the funds are the investor ’ s , the lender ’ s , or the giftor ’ s “ own funds .”

In other words , once you prove that the source of funds of an investor , lender , or giftor is lawful , you only need to prove that the funds came from that

By H . Ronald Klasko

source . You do not have to prove which dollars were used ; you do not have to prove how all the money got into the bank account . If there is a sufficient lawful source of income from employment , you do not have to prove how all the other money in the account or accounts were obtained and whether the dollars for the investment came from the employment income .

This is a big deal . Since it is not the result of a new statute or new regulation or a new precedent decision , and since it has always been the law , it applies equally to new or previous applications .

Three Significant Lessons From the Battineni Case

First , the decision directly and unequivocally rejects the U . S . government ’ s long-standing definition and application of the path of funds requirement . Instead , it reestablishes the original path of funds requirement as set forth in Matter of Izzumi ; viz ., path of funds requires proving that the funds being transferred came from the investor , or the lender , or the giftor .

Second , the investor , the lender , or the giftor does not have to “ trace every penny .” If the investor , lender , or giftor has proven a lawful source of funds , he does not need to prove which funds in their account were used for the transfer . The investor , the lender , or the giftor must only prove the immediate source of funds . If , for example , an investor ’ s source of funds was a sale of real estate , they should not be required to document how they acquired the funds to purchase the real estate 20 years ago .

It turns out that the law really does contain a “ path of funds ” requirement . The problem is that it is not the requirement that USCIS has long imposed on EB-5 investors .