by Mariza McKee, Partner, Kutak Rock LLP and Kurt Ruess, CO-Founder, EB5 Diligence
In 2017, EB-5 dealmakers may be welcoming a new member to the deal team to provide a check on how EB-5 investment flows from investment accounts to deployment for job creation. Although there are a few exceptions, generally accepted business practices for most EB-5 deals do not call for the engagement of a third party to act as an usher of EB-5 funds through the investment and deployment cycles. As such, a mandate for independent signatories may cause many in our industry to start the search for the right qualified professional(s) to perform these services for their transactions. In this Integrity Spotlight article, we begin exploring a category of service provider that might be worth evaluating as a contender – an independent fund administrator.
Section (P) (Account Transparency Requirement) of H.R. 5992, a bill introduced in the House of Representatives in late September 2016, proposes that each new commercial enterprise (NCE) create a separate account to hold EB-5 investments at third-party banks or other financial institutions and that independent authorized signatories provide written consent before EB-5 investments are transferred – whether back to the investor, to the NCE, or to the job creating entity (JCE). The bill calls for the authorized signatory to be “independent of, and not directly or indirectly related to” the NCE, regional center associated with the NCE, JCE, or any of the principals or managers of these entities and either: (1) an officer at the bank or financial institution where the account is maintained; (2) an attorney, (3) a CPA, (4) a broker-dealer, or (5) a signatory otherwise authorized by the Director of USCIS. See Section 203(b)(5) of H.R. 5992. Although not specifically included in the enumerated list of authorized signatory candidates, an independent fund administrator may be eligible for authorization by the Director and may be among the most well-equipped professionals to provide oversight and signatory services to the EB-5 industry if Section (P) becomes law. Further, there has been an indication that future proposed bills may even go so far as to require that a fund administrator be engaged by an NCE to perform co-signatory and other functions in connection with the administration of EB-5 investment funds.
Based on review of a 2009 report prepared by the Alternative Investment Management Association (AIMA), Guide to Sound Practices for Hedge Fund Administrators, fund administrator engagements can be viewed in terms of phases of the fund’s life cycle. The report lists five primary phases of engagement – Start-up Phase, Interaction with Investors, NAV Calculation, Completing the Service, and Support and Review. The report provides a best practice-based educational overview of the types of services that could fall within these five phases of fund administration. One takeaway from this report is that a fund administrator’s role is defined by its service listing, which can vary based on the customer and should be tailored on a fund-by-fund basis.