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Bring Foreign Capital to the US via Crowdfunding
© Image: TheSohoLoft.com
editorial

Bring Foreign Capital to the US via Crowdfunding

Editor's Note: This post comes to us from David Drake, a founding board member of Crowdfund Intermediary Regulatory Advocates (CfIRA), and a partner at LDJ Capital. Drake explains how the SEC can enable foreigners without a Social Security Number to invest in crowdfunding opportunities. (Also see Drake's previous posts, which deal with education, fraud protection, transparency and creating a whistleblower program, advertising and investment advice, consumer protection, due diligence, "held of record" matters, the Reg. D, Rule 506 exemption proposal, and general solicitation regulation). The original appeared here, and we are reposting the article with the author's permission. 

Crowd funding had $1.5 billion in transactions in 2011. Because of the attention being given to the crowd funding bill, we are looking at a $3.2 billion market in 2012. Almost all of that projected market is currently happening outside crowd funding for equity transactions. In this nascent industry, half of that projection is also from the production of US companies. Now our holding firm, The Soho Loft, is proposing that we should export our expertise abroad. The US Commerce department agrees.

At our first meeting with the SEC, we quickly learned there would only be one self-regulatory organization involved, FINRA. Shortly thereafter, we revamped CFIRA so part of it became a trade association (CFPA) while the acronym CFIRA was modified to mean the Crowd Fund Intermediary Regulatory Advocates. This positioned our organization to actively lobby for a regulatory environment that would facilitate effective crowd funding for equity.

One of the topics we haven’t asked the SEC about during my last three visits is how do we get foreigners without social security numbers to place investments in the US? This is extremely difficult when tracking investors is legally required. It seems logical to use an SSN for this, but there might be a more effective option. Our next conversation with the SEC will include this question, and I will highlight the recommendation that foreign investors should not be excluded. We will ask the SEC to consider allowing foreign investors to invest with an Individual Taxpayer Identification Number (ITIN). The IRS passed an ITIN regulation on Dec. 17, 2003. It reads, in part:

“Foreign buyers and sellers of U.S. real property interests need Taxpayer Identification Numbers (TINs) to request reduced tax withholding when disposing of the property interest, and to pay any required withholding. Individuals who do not qualify for Social Security Numbers (SSN) may obtain Individual Taxpayer Identification Numbers (ITINs) to meet the requirement to supply a TIN.

The Internal Revenue Service implemented new procedures, effective December 17, 2003, to strengthen controls on ITINs and ensure the numbers are issued for tax administration purposes only.”

ITINs would help import capital to the US and brand US innovation and early-stage investment without having to do expensive road shows and face-to-face meetings.

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