By Richard Kristof
We understand how busy regional center operators are and that it’s difficult to find the time to implement a new system that replaces their spreadsheets and linked files. How much less time will they have when the new compliance requirements are enacted into law? It will never be an ideal time to implement a new system, but it becomes progressively more difficult the longer it’s put off.
An EB-5 Industry Specific Toolset?
Most sub-industries must wait until they reach critical mass for a technology provider to make the investment in a market-specific product. Now that the EB-5 industry has reached the 10,000-visa threshold it’s time for there to be a specific toolset. The growth of an industry can easily outpace the technology available to manage and track critical details.
EB-5 Presents Unique Technology Challenges
Traditional CRMs do a great job of tracking leads through a sales process, but they aren’t wired to understand the complex relationship between agents, attorneys and projects. It takes a deliberate effort to build a platform that can handle the workflow, tie together the relationships and track the documents for EB-5 investments.
EB5 Regulations Will Soon Change Significantly—Will You be Ready?
Until recently, oversight of the EB-5 industry was limited. But now several high-profile fraud cases have put the program in the crosshairs of regulators who will be looking for evidence that the program is providing secure storage of documents, the ability to track and report on important elements and oversight of funds. Given the possibility that regulators could “drop in” for a look at the books, operators should be ready with at least the basic documentation and proof that documents are securely stored.
Ready or not, change is coming. If recent events haven’t been enough to convince you that additional scrutiny isn’t imminent, there is no need to read further.
Still reading? Are you ready for U.S. Citizenship and Immigrant Services, the U.S. Securities and Exchange Commission, or other authorities to come knocking at your door to look over your regional center records? The EB-5 industry is under attack and given the high-profile fraud cases that attack will result in an aggressive approach toward the industry. This will potentially mean uncertainty and inconvenience for operators while regulators “take the temperature” of the community to determine how widespread the malfeasance really is.
There are two distinct groups. There are those who recognize that this is serious, and others who still feel that they can “always get caught up if they need to.” Those who adapt to these regulatory compliance changes will flourish while those who maintain a “status quo” business philosophy will perish. Running an EB-5 regional center using spreadsheets and documents stored on unsecured servers is dangerous and irresponsible.
Best Practices
Change happens in every industry and the EB-5 industry is no different. Until the visa cap was reached there were a small number of regional centers making the rules as they blazed new paths. Now that the number of regional centers exceeds 800 there needs to be the expectation of a set of best practices that govern how the business will be run, tracked, and reported and with that comes the need for a technology solution.
Garbage In = Garbage Out
We’ve all heard this expression (GIGO). It refers to the quality and completeness of what you put into any system. Technology is not a magic bullet; it won’t cure bad habits or fix sloppy data entry. What it will do is make those things obvious by running reports that make anomalies obvious—like a report that shows all investors birthdates where because of a data entry error an investor shows up as 2 years old or even 200 years old. Fixing errors when they are presented like that makes it much easier.
Managing Complex Relationships
Relationships in the EB-5 industry exist that are not found in other industries. Relationships between agents, attorneys, regional centers and investors can be addressed in technology when it is specifically built for the industry. Will you have the ability to show the relationships between all of the moving parts or will you take weeks to prepare? Regulators may come unannounced and expect the materials to be organized when they arrive. How organized are you today? Will it take hours or weeks to prepare your documents for inspection? It seems likely that a few good, honest regional centers will be made examples of just because they can’t easily answer basic questions during a surprise inspection.
Whether you use technology or not, you should be prepared to address questions about your project, the background of all principals and the current versions of all paperwork. Imagine the difference when regulators show up and see a well-organized, professional system in which temporary remote access allows them to leave your office and get you back to business quickly.
Do you Know and Trust the People You’re Presenting to Investors?
Background checks are certainly part of proper due diligence. However, there has never been a more important time for operators to self-check and make available a high-level summary that says: “all of our key principals have been checked for criminal, credit, and driving records—they have also been verified for certifications, prior work and educational history.” After the recent news, there is no program that should consider itself above the need for some internally focused diligence of its people.
So, if you are already organized and not using technology, consider putting your data on a platform that is purposely built for the EB-5 industry at a time that calls out for a technology solution to enhance efficiency. If you are not yet organized, take the time to do it right while you have the chance and consider putting your data on a compliant platform before it’s too late.
Organized, Efficient & Compliant
The excuse for outdated technology use had been the absence of a suitable system to manage the complete activities of the EB-5 industry. A traditional CRM lacks the ability to form complex relationships between projects, investors, agents, attorneys and the mountain of documents each of them bring to the relationship. CRMs do not contemplate the workflow necessary to process I-924, I-526 and I-829 documents, along with the multitude of other procedure oriented functions that are more enterprise resource planning in nature.
Given the prospective, but inevitable, elements included in the Integrity Act (S.2415 / H.R.4530) we know that increased federal oversight of the EB-5 industry is coming in one form or another and based on the recent high profile cases of EB-5 fraud there will be a concerted effort to rout out non-compliance.
Anecdotal evidence suggests that a typical regional center can expect to invest one man-month for every year of every project to bring records up to the level suitable for SEC level review. If a regional center has two projects; one three years old and the other two, that would be approximately five man months to bring all records to acceptable levels. It’s not that the data does not exist in the regional center. It is the factor of organization and a variety of versions of documents and notes that were never organized and finally snowballed out of control.
Additional responsibilities will fall on regional center operators based on upcoming legislation, including the requirement for background verification for all regional center, NCE and JCE principals and the possible extension to major contractors performing work on EB-5 projects. Controls for handling release of escrow should comply with established industry best practices.
While these measures will serve to strengthen our industry, they will be challenging for operators that do not have a plan and the necessary adaptive tools.
Future Technology Considerations
The EB-5 market sets the stage for many other vehicles to work with investors. The latest consideration is the new crowdfunding phenomenon and there are many possibilities for investors coming out of EB-5 projects in which technology can be an enabler. Now is the time for conversations about how technology can help create advantages for regional centers that adopt it correctly.
Richard Kristof
Richard Kristof is the CEO of ISCoA, the makers of EB5 Suite. His expertise is in multi-supplier platform integration, standards-based approaches to content development, gamification, predictive analytics and neurocognition. As a leader in outsourcing, he created many successful models to provide clients with the infrastructure needed to run their business without worrying about the operation of complex back-office functions. He has a deep background in financial services that extends from working in a Wall Street-based investment company to doing global acquisitions and investments.
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