Senate bill proposes new EB-5 compliance requirements

On June 3, 2015 the bipartisan leaders of the Senate Judiciary, Patrick Leahy (D-VT) and Chuck Grassley (R-IA), introduced legislation to extend the EB-5 Regional Center program for another five years.

Despite a flurry of discussion and concern from industry participants and experts, as currently drafted, S. 1501 would significantly modify the EB-5 program. Proposed modifications to investment requirements for immigration include:

  • Increase in minimum investment amount. Within Targeted Employment Areas (TEAs), the minimum investment would increase from $500,000 to $800,000; outside of TEAs, the minimum would increase from $1,000,000 to $1,200,000.
  • Restriction of definition of Targeted Employment Area. TEA designation would only be available to rural areas, closed military bases, or single census tracts with at least 150% the national average unemployment rate.
  • Modified job creation requirements. At least 10% of job requirements would need to be met through direct job creation, and no more than 30% of a project’s job creation could result from non-EB-5 funding sources.
  • Additional scrutiny on source of funds. Seven years of investor tax returns would be required to legitimize fund sources, and investors would need to provide source of funds evidence for both their subscription proceeds and their administrative fees. Additional limitations on eligibility of funds sourced from loans or gifts would be introduced.

For EB-5 Regional Centers, the bill would introduce additional regulatory requirements, including:

  • Increased financial reporting and transparency. All Regional Centers, as well as all parties associated with the Regional Centers in a particular offering, will have to prepare for increased annual reporting and compliance responsibilities that extend far beyond today’s current I-924A filing and would include background checks prohibiting participation by individuals with certain violations or criminal acts or discipline in their past, enhanced disclosures for investors, and status updates reported to the USCIS.
  • Mandatory business plan filings and pre-approval for all projects. Regional Centers would be required to submit a complete business plan, economic report, offering memorandum, and sample marketing materials for USCIS approval prior to releasing any projects to market or filing any investor I-526 petitions.
  • $20,000 annual Regional Center fee to fund industry regulation. Contributions to the regulatory fund would be used to fund domestic and international audits, investigations, and site visits for Regional Centers and their projects.
  • Additional restrictions on Regional Center management eligibility. Regional Center principals and management would be required to be U.S. citizens or lawful permanent residents who have not previously been convicted of securities violations or fraud or subject to discipline as an attorney.

Many stakeholders in the EB-5 industry have advocated for higher standards of Regional Center compliance. Ideally, the legislation will prevent misuse of the Regional Center program and promote the program’s integrity.

Regardless of how the proposed legislation evolves and whether it eventually is enacted as law, it is likely that the regulations will bring new reporting and administrative requirements. This will make it more important than ever for EB-5 issuers to find effective and efficient ways to manage their project’s documentation and fund accounting needs.

NES Financial’s Intelligent EB-5 Solutions streamline reporting, minimize risk, and ensure compliance, allowing projects to run efficiently and effectively even when faced with potential regulatory changes.

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2015-06-18T07:00:01+00:00 June 18th, 2015|Categories: EB-5|Tags: , , , , , |