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The Need for Best Practices in EB-5 Administration Remains Strong as Ever

19th Jul 2022

Thanks to our longstanding commitment to best practices, JTC’s EB-5 fund administration solution has our clients prepared for the future

The passage of the EB-5 Reform and Integrity Act of 2022 has brought with it many changes to the EB-5 Regional Center program, such as increased investment amounts in Targeted Employment Areas and rules regarding escrow accounts for investor capital.

However, some of the biggest changes relate to administrative duties. A third-party fund administrator will be required to avoid a yearly audit except in certain situations, and there are much greater transparency requirements: records must be kept for five years, relevant portions of annual statements must be shared with investors, and applications must include broad certifications of securities and other compliance information, including all marketing fees paid.

Most RC’s will have to create new administrative policies and be vigilant about following them. The penalties for misstatements or noncompliance can include suspension, fines, or even termination of the Regional Center. With so much at stake, Regional Centers cannot afford to make mistakes. You need to work with an administrator who will get things right the first time, with experience in providing solutions that adhere to industry best practices.

JTC has served the EB-5 industry for many years, and we’ve seen plenty of changes in the EB-5 space, both regulatory and industry driven. We’ve seen many program reauthorizations. We’ve seen visa retrogression. We’ve seen investment minimums increase, then decrease again. But the most important change we’ve seen, and the one we’re proudest to have contributed to, has been the EB-5 industry’s embrace of best practices in administration.

As the EB-5 market has matured, stakeholders have increasingly sought to bring administrative standards up to par with those found in other, more established financial industries, such as private equity. Rigorous third-party oversight, tracking of funds, 24/7 investor transparency, audit preparedness, and a tireless focus on understanding evolving compliance requirements have all become standard in our industry — and this shift has benefited EB-5 issuers, projects, and investors alike.

Now that many of these best practices have become the law of the land, it remains as crucial as ever for issuers to adhere to them, both for their own security and to distinguish themselves with an increasingly savvy pool of potential EB-5 investors.

Below, we outline the most crucial aspects of EB-5 fund administration, based on the three core pillars of security, transparency and compliance.

1. Security: Independent, third-party EB-5 Fund Administration

Keeping investor funds secure is essential, and an EB-5 issuer’s track record in secure handling of funds (and timely repayment) is a top due diligence consideration for EB-5 investors. In fact, prospective investors commonly filter EB-5 issuers based on whether or not they employ third-party administration in the handling of funds.

The EB-5 Reform and Integrity Act of 2022 states that, for all NCEs, a third-party fund administrator must be retained, unless waived under certain circumstances (including an annual independent financial audit). The NCE must deposit and maintain the capital investments of all investor aliens in separate accounts, including amounts held in escrow.

Financial statements will be required for both the NCE and JCE, with specific requirements for each. Fund administrators will be required to monitor, track, verify, and approve fund transfers to make sure capital properly flows to the JCE.

While some fund administrators may be able to handle some of those functions, JTC is able to offer a complete suite of fund administration and escrow solutions for Regional Centers. We recommend an administration approach that covers the entire EB-5 life cycle, from navigating escrow and depository requirements, to streamlining multi-level fund administration, to providing audit trails for issuers, investors and regulators.

2. Transparency: A web-based portal for all investor info and communications

EB-5 investors are navigating a complicated, multi-year process, and for many, their life savings is at stake. Clear, honest communication and frequent reporting matter to these individuals — after all, their entire future in the United States depends upon their EB-5 petition, and issuer communication is often the only window they have into its progress.

The new rules for Regional Centers require many new disclosures meant to add transparency regarding promotors and agents, including those abroad, who must now register with USCIS and show that they do not have bad actors. They must also have written agreements with issuers and fully disclose all fees to investors. Regional Centers must provide annual reports and disclose any material changes to projects so investors are not kept in the dark.

At JTC, we provide our EB-5 issuer clients with a proprietary web-based portal for their investors. This way, everyone involved has real-time access to fund and immigration status updates. The portal also facilitates easy communication and document sharing between issuers and investors.

3. Compliance: Diligent tracking and audit readiness

Given that a successful EB-5 petition relies on a host of both securities and immigration compliance requirements, it is crucial that issuers maintain an airtight process of documentation.

For all new projects under the Reform and Integrity Act, Regional Centers must file an exemplar petition before any I-526’s for that project can be filed. New EB-5 offering documents must contain the kinds of project-specific information and disclosures we have come to be familiar with, but they must now also disclose all fees paid to finders, marketing agents and brokers, as well as certify the project’s securities law compliance, with the previously mentioned penalties if the rules are not followed.

Investors will also have increased anxiety over compliance issues under the new law, since their visa applications hang in the balance should the issuer violate the rules. Audits from USCIS will be required every five years, and all documentation must be stored for those audits.

JTC’s fund administration solution can help you store and distribute key documents and track movement of funds. All documents will be stored in our online portal for the duration of the reportable time period so you’ll be prepared for an audit when and if necessary. Our online document management system will allow you to store and provide access to key documents throughout the life of the project and as long as any regulations require.

For investors, JTC’s online portal offers tools to track important dates and milestones, flow of funds, and job creation necessary for the investors’ compliance with immigration laws and regulations. We also collect, aggregate, sort and process data and documentation necessary for issuers’ compliance with securities laws and regulations, and we’re able to generate a verifiable audit trail at any point in the process.

The next era of EB-5 will involve much greater scrutiny for projects, investors, and anyone working with the Regional Center. In order to make sure you’re compliant, you’ll want to work with a third-party administrator that can handle every aspect of the new law and that has experience operating under EB-5 best practices. Get in touch with a JTC representative today to learn how we can help you navigate the coming challenges.

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