As a continuation of our monthly guest blogger series, we would like to welcome back David Souders as today’s guest blogger. David is an insurance broker and risk management consultant who has been involved with the EB-5 program for years.
Our firm’s EB-5 Regional Center clients are always looking for ways to manage their risk because this will in turn lower the cost of insurance. One easy way to go about reducing the cost of several types of insurance is to use an escrow in combination with a client communications platform administered by a third party provider, such as NES Financial.
Although an escrow is not a requirement in EB-5, it has become best practice. Theft and misappropriation of funds are less likely to occur when your EB-5 Regional Center uses escrows to hold investors’ deposits. Typically, an independent third party (escrow agent) holds and administers the funds under the conditions specified in the escrow agreement. The agreement specifies when and to whom the funds can be dispersed, decreasing the chance that the funds will be misused. Should an investor file a lawsuit against your EB-5 Regional Center, escrow documentation can easily track the history and location of your funds, making the claim easier to defend. In short, using an escrow to hold funds during your investors’ I-526 application process reduces risk for everyone involved.
Offer investors transparency with third party solutions
In addition to the use of an escrow, our professional liability underwriters also like to see evidence that our clients are transparent in their communications, with reports and filings readily available to investors. It is much easier for someone to make a claim against a Regional Center for lack of transparency when it can be demonstrated that important documents impacting investment decisions were either not communicated in the first place or not in the appropriate format.
Using third party solutions, such as those offered by NES Financial, can help solve for this problem by offering both Regional Centers and their investors the utmost transparency of everything that is happening throughout the entire EB-5 process.
Read David’s other guest blog, “Why EB-5 Regional Center insurance should never be an afterthought” here.
What is EB-5? Find out more by downloading our EB-5 Solution Kit.
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