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.
Kurt: Dan, as someone who generally works outside the EB-5 industry, how do the provisions we've been seeing in the draft legislation compare to requirements you normally see for other funds?
Dan: Any time there's a pooled investment vehicle, whether it's EB-5 or a private fund, there's always the risk that the fund sponsor or manager could act against the investor's best interests. Having third parties involved, either a fund administrator or auditor, protects the investors’ interests and it protects the industry’s reputation and ability to operate smoothly.
Ultimately, it would be best if third-party involvement and protective measures were expanded to encompass the entire lifecycle of the EB-5 fund.
Kurt: Bob, are the Account Transparency requirements of Section P good for the EB-5 industry as compared to the more extensive custodial requirements investment advisors face?
Bob: Within the investment advisory business, there exists a requirement of independent administration for the purpose of protecting investors from the conversion of funds.
I can't think of the last mutual fund caught converting money and there's a good reason for that. It's because they have an extensive legislative mandate including the requirement to have an independent administrator and an independent distributor.
The EB-5 industry is not being singled out here. Almost everyone else who has invested in the U.S. has had the benefit of a third-party overseeing the manager. Whether you're doing EB-5, commodities, securities, real estate, etc., you're in a regulated industry when you're handling other people's money and it's important that investor funds be handled properly.
The U.S. Congress realizes that managers of EB-5 funds need to provide investors with the same protections that individuals in other investment deals are afforded.