Cryptocurrency in EB-5 with Max Dilendorf – Episode 96
In recent weeks, USCIS has issued a number of RFEs requesting more documentation than ever for third-party transfers. On this episode, Mona, Mark and Rebecca are joined by Max Dilendorf to discuss the rising scrutiny of parallel transfers and how foreign investors might leverage cryptocurrency as an alternative source of funds. Listen in to understand how digital currency works, how transactions are tracked on the blockchain, and how tokens like Bitcoin can be used in EB-5.
USCIS is busy. Busy issuing RFEs related to third-party transfers for EB-5! In just the last few weeks, the agency has started asking for a great deal more documentation than ever before around parallel transfers. And as USCIS makes it more challenging for foreign investors in countries with transfer limits to prove their source of funds, cryptocurrency is likely to gain popularity as a viable alternative.
Max Dilendorf is the Managing Partner at Dilendorf Khurdayan, PLLC, a law firm specializing in complex real estate transactions, cryptocurrency and security token offerings (STOs). Max is regularly invited to speak on the topic of regulating blockchain technology, and he was named one of Super Lawyers’ New York Metro Area Rising Stars in Real Estate and Technology Transactions for 2018 and 2019. On this episode of EB-5 Investment Voice, Max joins Mona, Mark and Rebecca to explain how digital currency works and share his experience helping foreign investors acquire assets with cryptocurrency.
Mona and Rebecca discuss the rising USCIS scrutiny around third-party transfers and the growing popularity of cryptocurrency in EB-5, and Max weighs in on the benefits of digital currency like Bitcoin in terms of tracking the source of funds on the blockchain. Listen in for insight around the challenges of using crypto for EB-5 and learn how to prove that an investor’s digital currency was obtained lawfully.
The Rising Scrutiny Around Parallel Transfers
- USCIS wants to make sure that funds coming into the US are legally and lawfully earned, including EB-5 funds directed through third-party or parallel transfers. But in just the last few weeks, RFEs are asking for a great deal more documentation than ever before.
- Many countries have limits on how much currency can be transferred, making third-party transfers necessary to participate in EB-5. Chinese citizens, for example, are only permitted to transfer a maximum of $50K annually.
- As it becomes more and more difficult for EB-5 applicants to get third-party transfers approved by USCIS, investors may turn to cryptocurrency as an alternative. The agency has gotten much more comfortable with digital currency in recent few years, learning how to document source of funds through the blockchain.
The Growing Popularity of Cryptocurrency
- Max’s firm jumped into digital currency in 2017. Since then, they have watched its popularity grow around the world.
- In Max’s experience, cryptocurrency is used widely in Southeast Asia, Russia, Europe and the US. He has also observed that regulators are getting more and more comfortable with digital transactions.
How Digital Currency Works
- Cryptocurrency like Bitcoin runs on decentralized software operated by thousands of computers. Transactions are verified by these computers, known as miners, rather than a bank.
- Digital currency can be used by foreign investors to make real estate purchases in one of two ways: 1) the seller agrees to accept cryptocurrency, or 2) the foreign investors pays with crypto, and it is automatically converted to US dollars.
How Digital Currency is Tracked
- All cryptocurrency transactions are recorded on the public blockchain. This makes it easy to verify how and when digital currency was acquired.
- When Max’s firm facilitates crypto transactions, they run KYC (know your customer) and money laundering checks to verify the source of funds. They also leverage a title report to follow the path of the digital currency, ensuring it was not near any illicit wallets or exchanges (including those on the sanctions list).
How Price Fluctuation Impacts Cryptocurrency
- Although the value of many cryptocurrencies like Bitcoin have an ever-changing exchange value, there is no fluctuation risk in using Bitcoin for an EB-5 transaction, as digital currency can be converted to US dollars before the money is transferred.
- There are also a number of stablecoins, a new class of digital currency that minimizes price volatility. Stablecoins are attached to a reserve asset like the US dollar or the price of gold, for example.
- Stablecoin use is prevalent in China and Vietnam, where this form of digital currency is used as payments for imports and exports. For comparison, Bitcoin and Ether are used for 80% of crypto transactions in the US, whereas structured stablecoins are used for 80% of crypto transactions in Asia.
How to Address RFEs for Cryptocurrency
- The challenge around using digital currency like Bitcoin for EB-5 lies in the fact that it can be difficult to tie a petitioner’s identity to a digital wallet. In addition, crypto miners and traders may have conducted thousands of transactions on multiple exchanges, making it harder to establish source of funds and prove that the crypto in question belongs to the investor.
- Bitcoin miners, for example, must demonstrate to USCIS that they purchased the specialized software equipment and put in the time necessary to earn the Bitcoin they intend to use for EB-5. They must also explain that they are the only one with access to the wallets where the money is held.