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One of the most commonly raised questions from our Chinese clients is: How do I get my money out of China?
It is a well-known fact that under China’s currency exchange controls, Chinese nationals are only allowed to exchange $50,000 annually. In the past years, Chinese investors have been mainly using the following methods to export Chinese currency out of China:
- Assistance of friends and family. The investor recruits a group of friends and family (usually 11-12 individuals for a $500,000 investment) who exchange $50,000 each and transfer the said funds to the investor’s account overseas. Widely known as “ant migration,” this method basically turns currency exchange into a team project. Further restrictions placed by the Chinese regulators this year has made the process even more excruciating for the Chinese investors.
- Parallel transfer. This involves a single intermediary who accepts the RMB funds in China and transfers U.S. Dollars of equivalent value from an account overseas. This method has recently become a regular target of RFEs issued by USCIS. Although our firm has successfully defended against those RFEs, we still advise our clients that under the current adjudication environment, this method is intrinsically risky.
- Currency exchange through other financial institutions. Prior to 2016, certain qualified financial institutions were allowed to act as currency exchangers. This channel has ceased to exist following the government crackdown.
Given the bleak outlook on the currency exchange policy, Chinese investors are scrambling to find alternative currency export options. One of the alternatives which has been garnering increasing attention is Bitcoin. The idea is that since Bitcoin is a borderless crypto-currency, a Chinese EB-5 investor can exchange the sourced RMB funds into U.S. Dollars by purchasing Bitcoin in China and selling it overseas.
So is Bitcoin the perfect solution?
A couple of caveats before we delve into the topic: First, I do not proclaim to be an expert on Bitcoin. The article will leave the discussion of how Bitcoin works to the experts, and focus solely on the viability of currency exchange through Bitcoin in the context of EB-5 adjudication. Second, as U.S. immigration attorneys, we cannot and will not discuss the legality of sale and purchase of bitcoins in China.
For Chinese EB-5 investors who are interested in exploring the Bitcoin option, here are the concerns that they need to know:
- Amid a broader crackdown against virtual currencies by the Chinese government, the three major digital exchanges specializing in Bitcoin trading in China successively announced in September 2017 that they would suspend Bitcoin trading indefinitely by the end of October 2017.
- According to Bloomberg News[1], OTC transactions will still be allowed after the ban takes effect. However, the process is likely to be slower and come with increased credit risk.
- It is rumored that while holding of bitcoins is currently legal, those with high volume Bitcoin trading activities may be subject to government monitoring.
- To sell bitcoins outside of China, a Chinese resident will need to register on a digital exchange overseas. Such exchanges usually have very strict registration requirements. Traders should be prepared to submit information such as date of birth, address, trading experience, profession, income, as well as official identification documents to the website. The digital exchange may also impose a trading cap based on the information and documents provided.
However, things are not all doom and gloom. If the investor manages to overcome the practicality concerns noted above, we think a well-documented Bitcoin transaction would be sufficient to meet the source of funds requirements under the EB-5 regulations. After all, buying and selling bitcoins on a legitimate online exchange is essentially no different from buying and selling your precious AAPL or TSLA shares on the NASDAQ exchange. So long as the entire process is well-documented, the investor should be able to prove, by a preponderance of the evidence, that the currency exchange transaction involving Bitcoin is lawful.
Having said that, this does not mean that this option is without challenges in the context of EB-5 adjudication.
- First, the investor and the immigration attorney must know how to properly document the purchase, holding, and sale of bitcoins. This is a very complicated process that requires some level of sophistication in Bitcoin trading.
- Second, documenting the purchase of bitcoins in China after the trading ban takes effect may create a dilemma. On one hand, the investor (buyer) will have to show USCIS the direct link of using the sourced RMB funds to purchase bitcoins from the seller in order to prove the unbroken path of funds. On the other hand, due to various concerns discussed above, the parties to the transaction may not want to document their transaction bluntly on their bank statements.
- Third, the investor should be prepared to submit all the documents and information used to meet the registration requirements on the online exchange to USCIS.
- Last but not the least, despite its theoretical viability, this option is still largely unchartered territory in practice. Given its unpredictability in I-526 adjudication, we will never know for sure what additional documents or information USCIS may request until the case is adjudicated a year and a half later.
As Johann Wolfgang von Goethe famously put it, “daring ideas are like chessmen moved forward; they may be beaten, but they may start a winning game.” Even though it is clear from the discussion that Bitcoin may not be the perfect solution, it still has the potential to become a viable alternative for EB-5 investors who are seasoned Bitcoin traders.
[1] https://www.bloomberg.com/news/articles/2017-09-11/china-is-said-to-ban-bitcoin-exchanges-while-allowing-otc-trades-j7fofh20
The material contained in this article does not constitute direct legal advice and is for informational purposes only. An attorney-client relationship is not presumed or intended by receipt or review of this presentation. The information provided should never replace informed counsel when specific immigration-related guidance is needed.
© 2017 Klasko Immigration Law Partners, LLP. All rights reserved. Information may not be reproduced, displayed, modified or distributed without the express prior written permission of Klasko Immigration Law Partners, LLP. For permission, contact dlundy@klaskolaw.com.
