A Positive for the Foreign National Investor PEPs and FACTA


Politically exposed persons (PEPs), and foreign nationals who possess a U.S. temporary visa, before residency by investment may be subject to the U.S. foreign account tax compliance act (FATCA) and the financial action task force (FATF).


Foreign National Investors (hereinafter FNIs) may obtain U.S. permanent residency by their investment of personal funds (USD$500,000.00 or USD $ 1 million), into a U.S. business which creates U.S. jobs by compliance with the U.S. immigration laws and regulations, as part of the EB-5 Immigrant Investor Program. The preparation and filing of the FNI petition with the United States Citizenship and Immigration Services (USCIS), which includes evidence of the lawful source of funds, to be approved by the USCIS, is the first step towards U.S. residency.


The EB-5 regulations and policy state the FNIs shall provide evidence and authenticate the lawful source of personal investment funds, which includes bank account deposits and withdrawals.


Proof of compliance with FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA)requirements and written statements or reports from the financial institutions detailing how they applied increased deep due diligence on POLITICALLY EXPOSED PERSONS (PEPs), such as a current or former senior foreign political figures (including both elected and non-elected executive, legislative, and administrative persons and members of political parties), their immediate family, and their close associates (including anyone widely known to maintain a close relationship with the public figure and anyone in a position to conduct substantial financial transactions on behalf of the political figure), as a result of the Panama Papers, puts the FNI in a positive position when showing the authentication and transfer of the lawful source of funds especially when referring to foreign bank accounts deposits and withdrawals.

Notification to the USCIS of compliance adds to the authentication of the lawful source of funds evidence.


It is worth noting, that the FNI may be considered a U.S. taxpayer, and subject to worldwide tax. As a result, the FNI must comply with FATCA requirements.


The FNI is considered a U.S. taxpayer if s/he is physically present in the U.S. for more than 183 days in one year. The FNI may be legally in the U.S. as a B-2 visitor, F-1 student, E-2 investor, L-1 intracompany executive transferee, or professional working status, and may be earning income through employment or real estate holdings or by corporate business dividends or profits.


A person who is present in the United States for less than 183 days, but at least 31 days, during a single year may still be considered a U.S. tax resident in that year if the sum of the number of days the person was present in the United States during the current year and the 2 preceding years (when multiplied by the applicable fraction) equals at least 183 days.


FATCA requires Foreign Financial Institutions (FFIs) to report to the U.S. Internal Revenue Service (IRS), information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.


Many countries, such as China and Brazil, are signatories with the FATCA Intergovernmental Agreement (IGA).


FFIs report bank account information to the IRS, while the FNI also will be required to report the bank account information to the Department of Treasury, by submitting an electronically special form.


If the FNI does not comply with the reporting requirements, s/he will face penalties. The penalty can be substantial e.g., the FNI may have USD $1 million in a foreign bank account. The IRS will take 50% of the balance in this account for 6 years, totaling a penalty of USD $3 million.


Currently there has been an increase in the number of PEPs intending to obtain U.S. residency by their investment. Politically Exposed Persons include a current or former senior foreign political figures, their immediate family, and their close associates. A “senior foreign political figure” is a senior official in the executive, legislative, administrative, military or judicial branches of a foreign government (whether elected or not), a senior official of a major foreign political party, or a senior executive of a foreign government-owned corporation.270 In addition, a senior foreign political figure includes any corporation, business, or other entity that has been formed by, or for the benefit of, a senior foreign political figure. A “close associate” of a senior foreign political figure is a person who is widely and publicly known to maintain an unusually close relationship with the senior foreign political figure, and includes a person who is in a position to conduct substantial domestic and international financial transactions on behalf of the senior foreign political figure.

Offshore banking in Panama has become popular for PEPs because the Privacy laws in Panama restrict disclosure of information on bank deposits and there are no reporting requirements.


However, reporting requirements for PEPs will be determined by whether they are U.S. tax payers.

Even if the PEPs are not U.S. tax payers, their source of funds from bank accounts in Panama will be open to extensive due diligence and scrutiny by the USCIS, IRS, and Department of Treasury, more so today because of the Panama Papers incident.


Recently, the New York Times, revealed in a report, that the well-known law firm Mossack Fonseca in Panama represented many clients in regard to tax planning. The law firm represented many U.S. tax payers and PEPs, but misguided them unlawfully, in evading U.S. tax and avoiding compliance with the financial disclosure laws.


PEP clients of the law firm included individuals connected to Russian President Vladimir Putin; Prime Minister of Iceland; Prime Minister of Ukraine; King Salman of Saudi Arabia, and relative of Syrian President Bashar Al Assad, just to name a few.


As a result of tax evasion, money laundering, and non-compliance with reporting requirements, the Financial Action Task Force (FATF) was formed and most countries became signatories.

Through FATF, international cooperation amongst banks and financial institutions have led to heightened scrutiny of deposits in accounts, deeper due diligence (Know Your Customer), and enforcing reporting requirements.

The United Nations Convention Against Corruption (UNCAC) and its signatories have also enhanced scrutiny of PEPs.


In addition, U.S. Bank Secrecy Act requires bank due diligence on depositors in U.S. banks, and this due diligence will apply to U.S. banks in Panama.


In the preparation of the EB-5 petition to obtain residency, a FNI can obtain documentation to show compliance with the reporting requirements, use documents to show how the financial institutions used comprehensive due diligence as to the FNI and, state how their bank or financial institution scrutinized their account deposits and withdrawals.

This documentation as evidence in their EB-5 Residency Petition will support the credibility of the FNI authentication of the lawful source of personal investment funds, to be invested in the EB-5 project.


A Positive for the FNI?


Author: Edward C. Beshara IMCM, Attorney at Law/Managing Partner, Beshara Professional  Association

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