At a recent webinar hosted by JTC Americas, industry experts discussed the risks of proceeding with planned offerings before all regulations are finalized and how to protect yourself and investors.
The EB-5 industry has been abuzz with the passage of the EB-5 Reform and Integrity Act, which renewed the Regional Center program for five years, along with adding a wealth of new integrity measures and reporting requirements that significantly increased the administrative burden on Regional Centers.
While much of the discussion has centered around what these changes will mean for Regional Centers and how to best utilize the 60-day window before the program is fully reauthorized, an important aspect of the law that shouldn’t be overlooked is all the things that aren’t made clear. The bill outlines requirements for fund administration, creates new TEA amounts, and requires a Regional Center for all pooled investments, certain aspects are not entirely defined, forcing the industry to wait for clarification.
For example, it was unclear when the law was first passed whether Regional Centers that had operated under the old program would have to file completely new applications to be designated under the new law. A recent announcement from USCIS now makes it clear that “all entities seeking regional center designation” must provide “a proposal in compliance with the new program requirements.” This will significantly slow down the progress of many projects as RC’s are forced to reapply.
Many Regional Centers have been looking for guidance on how to navigate a time when not everything is clear: should they wait for all new regulations to be released, or proceed with offerings in order to beat the competition to market?
This topic was a major focus of JTC’s recent webinar, “A New Era for EB-5: Navigating the Reform and Integrity Act of 2022.” The event featured a panel of industry experts including H. Ronald Klasko from Klasko Immigration Law Partners, Robert Divine of Baker Donelson, Ronald R. Fieldstone from Saul Ewing Arnstein & Lehr, and JTC’s own Jill Jones.
In addition to answering questions from attendees eager to better understand the new EB-5 rules, they also held a lively discussion about the best strategies for a period when we haven’t gotten the final word on all regulations and don’t know when we’ll get it.
“There’s a lot we don’t know, and a lot that’s going to depend on the Immigration Service,” said H. Ronald Klasko, Managing Partner, Klasko Immigration Law Partners, LLP. His advice was to prepare all the documents that might be needed so you’ll be ready when clarification comes. Even if you can’t accept investment yet, you can develop the compliance procedures, agent registration, and fund administration policies that will be necessary.
Robert C. Divine, Shareholder, Baker Donelson, agreed: “all you can do is get ready with what you need to file.” He pointed out that there are many complex aspects to the law, including rules for promotors and agents overseas, that may cause delays. But at the same time, investors will want to take advantage of things like visas reserved for rural areas, so filing applications as soon as they’re available could create big advantages.
Ronald R. Fieldstone, Partner, Saul Ewing Arnstein & Lehr, LLP, offered a very specific (and aggressive) philosophy: “go forward quickly.” The statute itself can’t be changed, so as long as you follow everything that you know is required of you, then you’re acting in good faith.
Some of the ways to avoid conflict with regulations that are still up in the air, according to Fieldstone, are to put in writing what is still unknown about the new law and the risk involved in proceeding given those unknowns, so it is clear to investors what is going on. “You’ve got to do the best you can to mitigate the risk of a bad position being taken,” he added.
Divine offered a little bit more caution: “it makes sense to try to get ahead of the game, but there’s some risks associated with it too.” The biggest element, in his view, is to make sure investors are aware of the areas of uncertainty. “People can be as aggressive as they want to, but they need to disclose to their investors the risks that may be associated with that.”
One of the things that is already understood about the new law is its fund administration requirement. In the absence of an independent financial audit, a third-party fund administrator must be retained for all NCEs, and each NCE must deposit and maintain the capital investment of each investor alien in a separate account, including amounts held in escrow. The fund administrator will be required to track, verify, and approve fund transfers to make sure capital properly flows to the JCE, an element the panelists agreed was of the utmost importance.
“The most important thing is to be able to track the money,” said Divine.
This aspect of the law is where JTC’s years of experience with EB-5 will come in handy, as we offer both EB-5 escrow solutions and fund administration for Regional Centers. In fact, Senator Chuck Grassley (R-IA) reached out to JTC when drafting the bill.
“We do feel like it was drafted for a group that does what we do,” said Jill Jones, General Counsel, JTC Americas. With licensed attorneys and CPAs that fit the RIA requirements of the new law, “JTC is equipped to handle the list that they put forth of what’s going to be required of a fund administrator.”
JTC Americas is ready to consult with Regional Centers to help them determine what they need to do in order to ensure full compliance with the new regulations. No matter what stage your project is at, we can help you find a solution to meet your unique needs.
Together We Grow
Watch the webinar to learn more about what industry experts have to say about preparing a marketing strategy that will be in line with the new rules!