EB-5 Retrospective: Five Approaches to Successful EB-5 Banking

08.06.15 | Archived

bonnienovellaFive Approaches to Successful EB-5 Banking: Dissecting Banking Issues with EB-5 Projects (Vol. 3, Issue 2, July 2015, Pgs.35-36)
by Bonnie Novella, VP Business Development, NES Financial

Far too often, new EB-­-5 project sponsors do not fully understand the complexity faced by banks in EB-­-5, and as a result are unprepared for all of the facets of the banking relationship. Issuers should understand the enhanced regulatory climate in which banks operate, notice how bank risk officers are increasingly affecting account management, and finally, be fully prepared to support bank compliance requests.  Put simply, EB-­-5 project sponsors must think differently about their relationship with banks and consider the complexity and risk that EB-­-5 can introduce to that partnership.

Let’s start with a shocking fact:  there are 6,414 banks holding $11.8T in the US as of May, 2015 according to the Federal Deposit Insurance Corporation (fdic.gov), but over 99% of these institutions refuse to accept EB-­-5 deposits into escrow accounts due to the perceived risk of the EB-­-5 program. At the same time, EB-­-5 project sponsors are highly dependent on the banks for EB-­-5 success.  Over a five to seven year period, EB-­-5 capital moves through as many as four or five bank accounts (usually through more than one institution) as dollars are invested in a project.

Bank officers may decide at any time to exit any one client type, region, market or deposit type – and this is a top-­-down, non-­-negotiable position.   Over the last few years, this has occurred too often in the EB-­-5 universe. Several banks that once accepted EB-­-5 deposits into escrow suddenly decided to exit the market and decline new accounts. In some cases the banks involved also resigned as escrow agents, forcing issuers to find alternative arrangements and risk losing investors.

Issuers may find bank rules onerous, but certainly need the banks to be non-­-disruptive partners in the process.  Here are five approaches that issuers can take to avoid disruption, stay efficient, and ensure EB-­-5 banking success:

(1)  Change the Way You Think about Banks as Escrow Agents:   Due to the size of the escrow deposit, issuers may expect to take a negotiating posture with banks, as happens often with terms on a note or credit facility. This is not advisable in EB-­-5 banking – especially with escrow accounts. A supportive approach is more advisable, considering the short list of banks that accept the EB-­-5 escrow agent role.   Think about selecting a bank partner who is a solid institution, has experience in EB-­-5 or partners with an experienced escrow administrator, is trusted by EB-­-5 investors, and protects investor interests. In turn, this will improve the banking relationship and allow your team to sell positions in your offering faster.

(2) Plan Ahead: All banks have lists of countries from which they will refuse to accept investor monies. This list does not necessarily relate to the list of USCIS investor countries and in some cases is longer than the list of countries prohibited under OFAC rules. There are also currency restrictions related to extracting money from certain countries. This can affect many aspects of the relationship – for example investors needing to use wire transfers from related parties, sometimes referred to FBO Wires (“for the benefit of”), which some banks do not accept. The key is to discuss the likely national origin of your investors with your financial partners in advance to select the best banking partner for your offering.

(3) Plan the capital stack carefully:  Some banks have begun offering “early release” escrow structures to EB-­-5 project sponsors in direct reaction to the USCIS posted average waiting times of 14.1 month for an I-­-526 approval (uscis.gov). However, it can be difficult to align escrow release terms acceptable to the bank with the timing needs of the project. Bridge financing can help. Line up bridge or mezzanine financing in advance and use EB-­-5 funds to pay back the bridge – preferably after I-­-526 approval for maximum investor protection. If a project needs capital too fast and has no other capital sources to fill the gap in time before I-­-526 approval, reconsider whether this is truly a suitable project for EB-­-5. Use of bridge financing may speed up fund raising and allow the project to use more conservative escrow structures, diminishing risk in the eyes of the bank officer.

(4) Comply with Document Requests Swiftly and Completely:  There are banking trends that appear to be common across all institutions – specifically, related to compliance requests. Banks are under tremendous regulatory pressure, resulting in evolving rules and document requests, and more analysis of an EB-­-5 offering prior to account opening. Banks must comply with Anti-­-Money Laundering laws (AML), Bank Secrecy Act (BSA), Office of Foreign Asset Controls (OFAC) and a list of other regulating entities. While Know-­-Your-­-Client (KYC) procedures vary slightly from bank to bank, there is a long list of documents that the bank will require related to the entities opening accounts, entities party to the relationship, persons involved, and the investors placing money into escrow. Rules may, in fact, change along the way as risk officers react to changing regulatory requirements or new risk mitigation procedures at their institution. It is important for project sponsors and issuers to know that the risk and compliance officers of the bank make the rules – period.  (It’s not the banker, local branch manager or other friendly relationship manager.)  Compliance is mandatory and non-­-negotiable.

(5) Maintain a Central Repository of Documents:  There are numerous documents that will be required to comply with bank requests and EB-­-5 immigration processes. Be prepared and efficient by storing these documents in a central repository so that audit and compliance requests are easy to support.

Banks are an integral part of the EB-­-5 program, beginning with the first dollar raised and continuing through the eventual return of capital. The project team must consider the regulatory pressure placed on banks and protect the sensitive relationship to EB-­-5.  Sponsors should choose projects that can be patient for EB-­-5 capital using conservative escrow structures, and should respond quickly to bank compliance requests. Following these guidelines and the five approaches outlined above will support smooth bank interactions and EB-­-5 success.  The IIUSA Banking Committee is working to present collateral for IIUSA members, to educate and inform them about banking and related regulatory issues. The Committee collateral is in a final edit stage for release in the coming weeks.

RCBJ Retrospective articles are reprinted from IIUSA’s Regional Center Business Journal trade magazine. Opinions expressed within these articles do not necessarily represent the views of IIUSA and are provided for educational purposes.  
Banking institutions and financial services providers play a pivotal role throughout the EB-5 process in managing risk for the investors and project.

On this webinar, recorded July 30, 2015, our expert panel consisting of IIUSA Banking Committee members will discuss the important role a bank plays in an EB-5 transaction in today’s regulatory environment, including compliance with the Bank Secrecy Act (BSA), Anti-Money Laundering (AML) and Know Your Customer (“KYC”) regulations.

Furthermore, our panelists will explain what steps project issuers and Regional Centers can take to avoid disruption, stay efficient and ensure EB-5 banking success.

  • Bonnie Novella – Chair, IIUSA Banking Committee; VP Business Development at NES Financial
  • Michael Hines – Director of Specialized Escrow Products, Banc of California
  • Bob Kraft – Director IIUSA; Chairman, President, and CEO of FirstPathway Partners
  • Daniel B. Lundy – Partner, Klasko Immigration Law Partners
  • Dan Shields – President, AscendAmerica, LLC
  • Steve Shpilsky – Managing Principal, California Real Estate Regional Center, LLC


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