The EB5 partnered business is issuing some form of a security for the funds invested in the business. As such, the business is the issuer of the security and under the laws and regulations of the Security & Exchange Commission (SEC). To protect the public, the SEC requires issuers to register their securities before selling them or only sell them under an exemption. A sale to an accredited investor is a most common exemption used by EB 5 businesses. Thus, the business has a responsibility to either register its securities or ensure that the investor meets accredited investor income requirements.
The requirement that investment funds be traced is a material requirement of an EB5 security sale. Tracing is required to prevent ill-gotten money from being laundered through a U.S. government program. If the business takes funds that cannot be traced, there is a risk that it might be involved in money laundering. Hence, there is a liability if the business does not trace money used in an EB5 investment.