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.

Q:  I haven't paid taxes, individual or business, because my country of residence doesn't require it or it isn't customary. Is this a problem?

A: Catharine: We normally tell clients if they can provide income tax returns, it’s great to do so. If they can't, it's not going to make or break their petition. 

We let them know that if USCIS EB5 sends a request for evidence (RFE) for copies of their income tax returns, they will need to either produce them or get a letter from an attorney in their country of residence stating the legal reason behind why they can't provide those tax returns.

I always request tax returns but I’ll still file a petition if I don't have them. 

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 EB5 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.

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 EB5 Program. We were also there; we're old!

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 EB5 visa 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?

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.

EB5 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.

The EB5 Securities Roundtable is an informal, independent group of EB-5 securities attorneys organized to facilitate best practices in the offerings of EB-5 securities.This roundtable has been working to provide comments to legislation (commonly known as the Integrity Bill) that we expect will be proposed by Congress to improve the integrity of the EB-5 program.

CMB recently published a blog titled EB-5 Due Diligence - Third Party Websites: Considering one of the many independent EB-5 due diligence services? in which they dismiss the notion that investors are served by retaining a due diligence firm before selecting an EB-5 investment.

There are a number of responsibilities involved in supervising the New Commercial Enterprise's (NCE’s) EB5 loan to the Job Creating Enterprise (JCE). What are the best practices for ensuring proper supervision and what are the potential issues that can arise?

David Appel: One common issue is when a project starts and there's no money in the budget for supervising and administering the loan to the JCE. 

Examining EB5 Loan for Job creation

Lets explore how to structure, manage and monitor a deal so that investors are afforded significant protection against fraud.

Rupy Cheema: The first question we ask when looking at an offering is what is the NCE industry knowledge and experience? When I conduct a site visit and meet the NCE management, I want to better understand the manager’s experience with underwriting a loan or investment.

Do they understand the industry and the market they are investing in? Do they have access to the market data they need to prepare cash-flow models? Do they have an investment committee that ultimately makes the investment decisions?