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House Hearing on Investor Visa Reforms (3/8/17)

Posted by Kurt Reuss on March 10, 2017

On Wednesday, March 8, 2017, the Judiciary Committee of the United States House of Representatives held hearings on the Department of Homeland Security (DHS) in reforming the Investor Visa program.

For those not familiar with U.S. legislation, rule-making through regulation is often utilized by agencies that oversee particular programs to implement changes that would not necessarily require a bill to be passed by the House and Senate on to the President. With that in mind, several areas of interest to both market participants and investors were discussed.

Several members acknowledged the importance and appreciation of the recent “Notice of proposed rulemaking” put forth by Jeh Johnson and DHS.

 
 
 
 
 
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Comments related to Department of Homeland Security and Jeh Johnson 

The overall theme of the hearings was concern that the EB-5 program has “strayed further and further from Congress’ intent”, which is to attract high-net worth individuals to immigrate to the U.S., which has been determined by Congress to be in the national best interest, to attract entrepreneurial talent, and to create jobs especially in hard hit rural and depressed areas.

How the 'Account Transparency Requirements' Compare to Custodial Rules for Investment Advisors

Posted by Kurt Reuss on January 19, 2017

Reid: As an industry, we need to accept that integrity measures are coming and we should embrace them. Most of the proposed requirements are already best practices, so as an industry we should be selective about what we push back on.

We should accept and implement the provisions that are not unduly burdensome and focus our efforts on combating the parts of the bill that are truly problematic.

A lot of what we see in HR 5992 has been widely deployed by the industry already and that fact hasn’t been lost on USCIS. USCIS is proposing that the director have online access because they're aware that many projects currently have that capability.

Additionally, the scope of the Account Transparency requirement is relatively narrow compared to the overall lifecycle of an EB-5 investment. The legislation is somewhat vague, but it isn’t difficult to discern what the best practices are. I encourage the industry to get in front of these best practices so they don’t become legislated later.

Why 'Account Transparency' is Needed

Posted by Kurt Reuss on January 03, 2017

Kurt: In EB-5 from January 2013 to 2015, the SEC received over 100 tips, complaints and referrals related to possible securities fraud violations. As of May 2015, the SEC and other enforcement agencies had 35 open investigations primarily involving securities fraud in EB-5. In 2016, the SEC Office of Compliance Examination listed EB-5 as one of its annual Examination Priorities.

There's obviously a need for more control and transprarency of EB-5 investor funds and the Account Transparency Requirement (Section P of HR 5992) is an attempt to address that need.

Account Transparency rules come into effect as soon as the EB-5 investor’s money gets deposited into either an escrow account or into the NCE's account, and its protections continue until the funds are released into the JCE's account or into the project.

Some of the items addressed in the bill include: eliminating co-mingling of investor funds; preventing the premature release of investor funds from escrow; ensuring that investor fund transfers are first approved by an independent signatory.

And if the NCE is affiliated with either the JCE or the regional center then the signatory's role continues until all funds have been deployed into the project.

Reid: It's important to look at what's driving this to understand the intended scope of the provision.

Gerrymandered Census Tracts Have A Long EB-5 History

Posted by Kurt Reuss on September 16, 2016

After reading Elliot Winer’s article, who is someone I've known for years, I thought I would share these docs (Edward Kennedy Letter, the first TEA Designation Letter) which we have kept since EB-5 was conceived as part of the Act in 1989-1990.

About a week ago, I was asked by an EB-5 practitioner why I thought EB-5 TEA methods had slipped into using census-shared or, excuse the expression, "gerrymandered" Census Tract arrays?  I told this fellow that Massachusetts and the INS (USCIS) had allowed this technique from before the Industry was accepted or recognized as a viable financial alternative by the investment community.

It looks like we in Massachusetts elongated (again, “gerrymandered") the Census Tract array from the very beginning for very good reasons. We did this in Boston in 1991.

Please notice the letter from Senator Ted Kennedy (who introduced the Act for consideration in 1989) showing the makeup of the 1991 Senate Judiciary Committee! It seems to show that Senators Grassley and Leahy, and other notables, were at least aware of the genesis of Senator Kennedy's legislative interest in the EB-5 Program. We were also there; we're old!

Preparing for the Integrity Provisions in New EB-5 Legislation

Posted by Kurt Reuss on September 15, 2016

Bob: Getting ahead of legislative changes rather than waiting for them is very important. As far as we know, there is no date certain set for when new requirements are going to be imposed.

But there's no question that the folks working on Capitol Hill are ultimately going to put revised legislation forward.  We just don't know when this legislation is going to be enacted and when it's going to become an active requirement. 

Whatever the case, you'll have to be prepared to change your internal business processes because whatever cookie cutter approach you have to newly instituted regulation is probably not going to be looked upon favorably.

Kurt: Why do you suspect that a cookie cutter approach won’t be an effective strategy?

Goodlatte Bill Would Pretty Much End TEAs As We Know Them

Posted by Kurt Reuss on September 12, 2016

The TEA provisions in the Goodlatte Bill are even more restrictive than thos proposed in the final Grassley-Leahy Bill last December. I would go so far as to say that the Goodlatte Bill would pretty much end TEAs as we know them.

Projects would need to be in a qualifying tract with no combinations allowed, nor would block groups which about 15 states currently rely upon. I would estimate that about 90% of current TEAs would no longer qualify. 

Potentially Shorter EB5 Investments Terms

Posted by Kurt Reuss on July 09, 2015

Under the Grassley Leahy bill, investors will have the ability to potentially skip over the conditional residency part of the their application process. Do you think that is going to have an effect on the typical five plus year investment timeline, because the I829s might start getting adjudicated in a more consistent and timely manner?

Angelo Paparelli: I-829s are to be adjudicated more quickly based on (the bill's) proposed fund to be created and additional filing fees that are authorized for speedier processing. 

Ron Klasko: A important provision in the bill that we were not at all expecting is likely to address an issue that we've all been dealing with; the need to prepare the offering documents for the possibility and likelihood that the EB5 loans might have to go out six, seven or even eight years, which also brings up the issue of redeployment of EB5 funds.

Regarding the Senate's EB5 Reauthorization Bill, what is the Big Picture?

Posted by Kurt Reuss on July 07, 2015

Angelo Paparell: What is the big picture here? What is this bill going to do to the industry? There's a restriction on the amount of capital that can be raised from non-EB5 funds; there are disclosure requirements and the tax return submission requirements are now 7 years.

What are these changes going to do to the industry? Some have suggested that USCIS is now authorized to hire more expensive staff to review these applications and petitions. But what if the industry dries up because there isn't a big enough appetite and other nations offer more attractive citizenship or residency options. I'd like some predictions on where we're going.  

Ron Klasko: I think there are two key parts to this bill that if they were enacted in their present form would at the very least do very serious harm to the EB5 industry and render many and possibly most present projects unable to use EB5 money.

Certification With Securities Laws May Pose Problems

Posted by Kurt Reuss on July 07, 2015

John Tishler: There are new processes for "approval of investment in a new commercial enterprise" in the (Grassley-Leahy) bill. One curious item; the bill states that a regional center needs to include with its pre-approval submission the documents filed with the SEC. 

Normally there wouldn't be any.  Form D, if you're going to rely on Regulation D, must be filed 15 days after your first sale, and obviously your first sale is not going to be occurring before you have approval of your business plan under this new regime. So that one is not particularly troublesome; but there is a much longer list of offering documents that need to be included. 

Do Exemplar Filings Need To Be 'Shovel Ready'?

Posted by Kurt Reuss on July 02, 2015

I imagine that as regional centers and issuers rush to file project exemplars, we're probably going to see a lot projects that aren't fully baked when they get to USCIS. Is USCIS likely to have a threshold of what was or wasn't worthy of being filed prior to the enactment date? 

Ron Klasko: We really don't know. The procedure described in the bill is not an exemplar. The language is “approval of a business plan”, which seems to mean what we now call an exemplar and we don't know what standards would be applied. 

Traditionally the standard of an acceptable exemplar is that it is basically shovel ready. Assuming the exemplar is approved, it would mean that all the I-526s would be immediately approvable. If there are any significant changes after the fact, then the exemplar would be of no further validity. Unfortunately, there's a catch 22 in all of this because the language of the bill does not grandfather other changes in the law, including significant changes to what counts for job creation. 

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