Regional Center Annual Statements
Kurt: Within the 'Integrity Act of 2015', regional centers are being asked to file annual statements which include providing bona fides and background checks on principals of the regional center, the new commercial enterprise, and the job-creating entity.
The regional center needs to provide written agreements with each of its affiliates prescribing rules and standards. Ronnie, can you talk a little bit about some of the EB5 requirements that regional centers are being asked to certify on an annual basis?
Ronnie: This whole Integrity Bill and the issue of EB5 regional center responsibility and liability is very much a philosophical issue. I have some ambivalence about the issue. On the one hand, we all want the program to get better.
Somebody needs to take ultimate responsibility first for the offering materials and second for the methodology of marketing. The former is a ’33 Act (Securities Act of 1933) issue and the latter is a ’34 Act (Securities Exchange Act of 1934) issue.
The real question becomes are we doing away with the rent-a-center? Because if you impose these liabilities on the EB5 regional center, it becomes, to some degree, an indemnitor insurance policy. If something goes wrong, the regional center is in the line of attack.
I assume that would mean, under securities laws, the principals of the regional center may be under a line of attack as well. This would create a heightened risk and responsibility for regional centers that don't want to be issuers. We need to distinguish that.
Now I'll answer your question. There are multiple roles a regional center plays. One role is that it sponsors a program wherein it allows it’s license to be used to sponsor an EB5 project. Regional centers can also be managers of the NCE entity, and they may be actively involved in the process, with a very different level of responsibility.
The other option is that they may go outside; and may hire professionals. They may take care of undertaking the preparation of all the offering documents. They may even indirectly or directly handle the raising of funds.
Clearly, when we look at the different roles a regional center plays it goes to the question of who was the sponsor. Given that backdrop, we have to look at a lot of the EB5 regional centers which are clearly not equipped to handle the potential reporting requirements, disclosure requirements, due diligence requirements, that would be imposed in the proposed legislation.
Kurt: The point you're making is a good one, that is, what's the likelihood of this bill becoming law and why even bother focusing on this if it's not the law now?
Of course, most of what's in this bill came out in the June 2015 Grassley/Leahy bill, and I don't think much changed in the December draft. When the December draft was killed, we saw the integrity measures (and a few other items) come out in its own bill, in what we're now referring to as the Integrity Act of 2015.
Michael, do you mind if I put to you the question “Why are we even bothering with this webinar if this is not the law?”
Michael: The answer to why we bother is because, evidently, the government cares. Congress cares. The agencies (SEC and USCIS) care. A lot of people are concerned about the EB 5 visa program.
It, unfairly, in my opinion, gets a black eye because so many of these concerns appear to go unanswered.
What we've seen is that the Congress has got this clear intent to make modifications to the Program. It seems very uncertain whether the modifications will be approved or implemented by September 30, 2016, although it is not impossible that they might.
It's unlikely, however, because of the political climate, as far as the elections are concerned. But sooner or later, if not by September 30, 2016, then at some time thereafter, perhaps in 2017 post-election, this effort is expected to persist.
The work that people are putting in now on addressing the Integrity Act (and before that, the combined integrity provisions and the EB5 program provisions that were in the S.1501 bill and the bills in November and December), we have beaded a number of improvements.
By “we” I mean the EB5 industry stakeholders; we have brought about improvements in the legislation that's pending. We're looking now to make further improvements on the integrity provisions because that's what's in front of us currently.
This bill is alive. It may die but it is absolutely alive at this moment. It seems prudent for us to add improvements to a bill that, sooner or later, is likely to be adopted and impact our industry. It's smart for us to push those improvements now, because we can’t be entirely certain that nothing will happen by September 30, 2016.
Unfortunately, our experience over the last few months has demonstrated that Congress has this disturbing habit of sending out proposed legislation and saying, "You've got 24 hours to provide us with feedback and comments."
We had better be protected against such sudden push. It’s better to be prepared, even if it's over-prepared, than to be under-prepared, and not be able to weigh in on something that's suddenly going to become law.
Then later, we're crying about it, but there's nothing we can do to change it.
Ronnie: I think the whole point of why we’re having this webinar today is because of what happened late last year.
Legislation was proposed, we weren’t prepared to address the issues and panic generally ensued. It was hard to negotiate in the short period of time when you have deadlines and need appropriate resolution. And I am sure we can all agree that that proposed legislation was not appropriate.
That is why there are now committees that have been organized to focus on integrity, both from an integrity standpoint and an immigration standpoint.
I think we, as a group of professionals, want to come to a consensus resolution where we create a position paper, addressing the concerns of the Integrity Bill. Even if we don't agree with the bill, at least we can look at the components of the bill and focus on how we would make it better.
That way, when the time comes, we'll be organized as an EB5 group to correctly influence the process because we, the ones practicing this every day, are probably more adept at providing valuable input than the legislators and their staff who aren't really in the weeds every day.
I think this process is a very valuable one. It's really hard to pick and choose what might happen, but I think we need to be prepared on all fronts to deal with all of these issues, some of which we’re addressing today.