The EB-5 visa program has undergone a significant transformation, becoming more secure and sophisticated for investors, developers, and regional centers in the U.S. since the 2022 Reform and Integrity Act (RIA) was enacted.
Jill Jones, Head of Specialty Administration and General Counsel in the U.S. at JTC Group, emphasizes the pivotal role that EB-5 fund administrators play in ensuring compliance, transparency, and efficiency within this visa program, helping safeguard its integrity and supporting its ongoing success in the United States.
JTC Group provides comprehensive EB-5 administration solutions to EB-5 stakeholders, focusing on ensuring legal compliance, transactional transparency, and effective fund administration.
Jones highlights that this financial service, now mandated under the RIA, is crucial for safeguarding against the misuse of EB-5 funds and reducing the risks posed by “bad actors.” It also strengthens the appeal of EB-5 projects, helping to drive investment momentum and support the industry’s growth.
What key trends do you observe in the EB-5 market and how have they influenced what EB-5 administration solutions you deliver to clients?
JTC acquired NES Financial in 2020, a firm that had been an EB-5 fund administrator dedicated to promoting best practices since 2009. Although fund administration wasn’t required before the Reform and Integrity Act (RIA) passage, it was widely regarded as a best practice to safeguard investors. Back then, due to a lack of regulations, the EB-5 industry was often likened to the “Wild Wild West.” The key trend we see is the adoption of more robust reporting and transparency. As such, fund administrators have become essential in adding legitimacy to the program.
The more structured and transparent the EB-5 program becomes, the greater the chance that Congress will solidify its permanence. We believe it’s a beautiful program that does a lot of good, but it’s frustrating that the spotlight often falls on the bad actors. At JTC, we’ve made it a priority to showcase how fund administrators elevate the EB-5 industry, providing greater security and transparency to all participants.
Why does EB-5, compared with other employment-based visa programs and the U.S. immigration industry in general, draw that kind of attention?
There’s sometimes a misconception from those unfamiliar with the program that the program is simply a mechanism for buying a green card rather than a vehicle to bring wealthy, sophisticated foreign nationals into the United States and to create new jobs for US citizens and residents already living here. What often gets overlooked are the significant positive impacts EB-5 projects create. While the media may focus on instances where things go wrong, the reality is that the program has led to meaningful outcomes, like building charter schools that benefit local communities and creating hundreds of thousands of jobs for U.S. workers. It’s important to remember that these projects are not about “foreigners taking jobs” but rather about fostering economic growth and creating opportunities for U.S. citizens and residents.
How have the RIA and the fund administration contributed to improving the image and trust in the EB-5 program?
The reform has successfully reduced the incidents of bad actors, which shows that it’s doing exactly what it was meant to do. The program has come a long way. Initially, following the enactment of the RIA, there was some hesitation, especially because there were many players in the EB-5 space who hadn’t budgeted for the cost of bringing in additional vendors, such as a fund administrator. EB-5 issuers don’t always have funds available to pay such fees upfront, as they often don’t generate revenue until after securing investors and putting their investment dollars to work. It’s up to the fund administrators to demonstrate their value, showing how they can enhance security, transparency, and compliance in the EB-5 process, which, in turn, can help them raise funds even faster.
How important is the fund administrator for service providers involved in the EB-5 investment today?
True fund administration is a service that extends beyond the initial fundraising phase. There are records for each investor that are important once the capital investment is deployed to the job creating enterprise, while the funds are in use in job creating activity and again when it comes time to wind up the investment and return the funds to the investors. For example, you can expect a proportional share of the interest to accrue for the benefit of each investor, for fees to be charged for management of the fund or operation of the EB-5 regional center, and for investors to be ready to be paid back at different times etc. It’s essential to plan for the expense of the fund administrator from the beginning through the very end. Having a fund administrator in place adds value. It not only enhances the project’s appeal to both investors and developers but also enables them to move forward confidently, ensuring that the project as well as the investors achieve their intended goals.
What should investors research about the fund administrator when doing their EB-5 project due diligence?
First, it’s crucial to examine the entire team involved in creating the project’s offering documents, particularly the securities and immigration counsel. Investors need to see that all offering documents are designed in compliance with both securities and immigration laws. It’s important to know whether these advisers have specific experience with the nuances of EB-5 offerings. Their track record in successfully designing and implementing EB-5 projects is a significant factor.
Equally important is the role of the EB-5 fund administrator. Unlike traditional private equity fund administration, EB-5 administration is a more comprehensive endeavor. Investors should evaluate not only the detail and quality of the reporting provided by the fund administrator but also how the fund administrator performs its duties as a cosignatory, a new requirement under the RIA. When executed properly, the added oversight and reporting by the fund administrator enhances the integrity of the investment process.
Mistakes can occur in the EB-5 investment process, more often due to human error than intentional fraud. Therefor, it’s crucial to ensure that all financial transactions are initiated and reviewed meticulously. Investors should insist on oversight and transparency throughout the process, as this builds trust and confidence in the administration of their funds and the overall success of their immigration journeys.
Many fund administration providers, such as JTC, offer online portals that allow investors to log in and access statements, which can be very helpful. However, having the ability to monitor real-time information is even more valuable. This immediate access allows investors to stay informed about their investments and offers visibility into how things are progressing. By focusing on these aspects, investors can take comfort in a more secure investment experience.
What key challenges do you see clients facing that the EB-5 fund administrator can help them overcome?
In the early stages, I observed that developers were drawn to the EB-5 program due to the challenges they faced with traditional lending. Accessing alternative sources of financing became crucial. However, many developers do not have experience in issuing securities offerings, meaning they didn’t have the internal resources for bookkeeping or managing banking relationships and all of the applicable regulations. This is where an EB-5 administrator can be very beneficial. We manage the back office tasks, allowing developers to focus on the essential aspects of developing their projects.
How have JTC’s EB-5 administration solutions helped clients navigate the complexities of the EB-5 investment lifecycle?
We began by addressing our clients’ challenges, initially focusing on escrow services due to our banking relationships, which enabled us to facilitate the receipt of funds from overseas. Our technology also allowed us to perform sub-accounting in a cost-effective manner, which banks often struggled to do.
As we worked on the escrow side, we noticed that many of our clients were relying on spreadsheets for tasks that could be better handled by fund administrators. This insight led us to develop our fund administration services.
When clients prepared their annual filings with the U.S. Citizenship and Immigration Services (USCIS), they were reminded of the need for immigration records, including the number of jobs created, details about each investor’s dependents and important deadlines for responding to RFEs or managing child age-outs. To address this, we incorporated an immigration workflow component into our services.
Additionally, since most EB-5 projects are structured as loans, we introduced a loan administration service that provides monthly statements to track interest accruals, payments made, and expenses accrued. While not all clients have utilized this service in the past, we’re seeing an increasing interest as the market becomes more sophisticated.
What type of service are your EB-5 clients requesting the most?
Our Cosignatory service has become the most popular due to the requirements of the RIA. We ensure that funds are closely monitored and deployed as intended and stated in the offering documents. Following that, fund administration is our second most popular service, although it can mean different things to different clients, and the time commitment can vary significantly. If we interpret the RIA strictly, fund administration begins when the offering is put out to the market and continues until the fund closes, with record-keeping extending for an additional five years. This means true fund administration is a long-term engagement.
Our escrow services rank third in demand. Many banks are hesitant to accept foreign funds from investors they do not have a prior relationship with, as they prefer depositors who can visit a branch and provide identification in person. To address this, we have worked diligently to identify banks that are willing to participate, some of which can even provide lending resources and offer higher returns on the funds while they are held, all while minimizing the risk of compliance issues that could result in the bank shutting down the account and forcing the issuer to find alternative solutions.
Can you interact with the EB-5 investor while providing these services to your clients?
Our primary customers are regional centers or issuers, but we also engage with investors through our online portal. Investors may contact us if they encounter issues logging in or if they’re seeking specific statements. Additionally, we use our portal to share updates about the EB-5 project, allowing us to push information from the project manager directly to the investors.
What other opportunities can your EB-5 clients obtain from your fund administration service?
One significant outcome of the RIA is that every regional center is required to undergo an audit at least once every five years, and many are experiencing their first audit now. USCIS is particularly focused on reviewing formation documents, articles of incorporation, operating agreements, and several years’ worth of bank statements. However, many regional centers have experienced employee turnover, meaning new staff members may not be familiar with where these historical documents are stored. While they can access records created during their tenure, locating older files can be a challenge.
To assist our clients, we emphasize that we have been securely storing these important documents for them all along. We can compile everything into a well-organized folder to ensure they are ready for their audits. Additionally, we can be engaged to provide a retrofit process where we begin working with the regional centers immediately to gather historical data and get the records up to date. This involves creating a comprehensive list of required documents and gathering them systematically, so the regional centers are fully prepared when the audit request comes in.
Have any issues of this regional center auditing process come to JTC’s attention?
What surprised me the most was that USCIS is now asking regional center staff to log into their platforms and demonstrate access to their accounting. For those who have been managing their accounting internally, this means pulling someone from their team into the audit meeting to manage the request. However, for those using an external fund administrator, they may need to arrange for their fund administrator to participate in the audit, stating, “I’ve hired an expert to handle this; let them show you.”
When the RIA was first enacted, we recognized the need to monitor this process but couldn’t fully predict what it would ultimately entail. Unlike a financial audit under GAAP, USCIS is performing a more government-style audit, which has created an excellent opportunity for us to provide support and guidance to our clients during this process.
What are your thoughts about the future of the EB-5 industry and RCs complying with RIA?
I’m not only prepared to see the industry embrace and comply with the RIA, I’m optimistic about the future of the industry. It has matured significantly, and the recent audits are proof. The participants who are active today are either long-standing stakeholders or those who are genuinely committed to the program, which bodes well for its future.
Our mission is to deliver the transparency that the government seeks in the EB-5 industry. We are dedicated to ensuring that the program remains viable and continues to grow. We’re actively pursuing permanent reauthorization and advocating for an increase in available visas. Ultimately, we want to see the program do the good it was intended to do for many years to come.
DISCLAIMER: The views expressed in this article are solely the views of the author and do not necessarily represent the views of the publisher, its employees. or its affiliates. The information found on this website is intended to be general information; it is not legal or financial advice. Specific legal or financial advice can only be given by a licensed professional with full knowledge of all the facts and circumstances of your particular situation. You should seek consultation with legal, immigration, and financial experts prior to participating in the EB-5 program Posting a question on this website does not create an attorney-client relationship. All questions you post will be available to the public; do not include confidential information in your question.
