3rd Party Escrow Oversight with Reid Thomas – Episode 32
Although the law does not require third-party oversights of escrow for EB-5 projects, the USCIS advocates the use of third-party administrators as a safeguard to issuers and investors alike. This is what today’s show is all about as Reid Thomas discusses the Innovation Summit, NES Financials, and everything there is to know about third-party oversight.
Listen to “3rd Party Escrow Oversight with Reid Thomas” on Spreaker.
Reid Thomas from NES Financial joins Monah Shah and Mark Deal to talk about what went on during the Innovation Summit 2017 held in New York. This annual road show aimed to talk about the current issues and trends in the EB-5 business. They also talked about what causes challenges or create opportunities in order to promote solutions that allow people to take advantage of these opportunities.
Aside from New York, the road show was also held in Miami and Los Angeles. The conference was very well attended by different people from the EB-5 industry including the leading immigration firms, leading securities firms, clients, developers and regional centers.
Innovation Summit 2017
- The main topic of the conference was introducing innovative solutions that focused on the emerging trend of convergence between private equity and EB-5 capital. With data from a customer base of more than 550+ projects, NES was able to spot the trend wherein developers look not just at EB-5 capital but also invest alongside private equity as well. For this specific trend, there was more momentum in Latin America, Europe, Middle East, South Africa and hasn’t slowed down since.
What NES does
- The company started last 2005 with the idea that there were certain types of financial transactions where banks are generally afraid of dealing with money, where there was a lot of compliance and reporting, and a potential and history of fraud and abuse. NES wasn’t in the EB-5 business until 2010. There are a lot of financial sectors that suffer from these conditions.
- NES was the largest provider of 10/31 exchanges, processing about $700 billion of 10/31 money annually. Realizing that EB-5 has the same characteristics and financial needs, NES built the solution to do escrow administration. Over the years, NES has continued to innovate, adding more and more solutions as they progress.
What is a third-party administrator?
- Currently, USCIS is advocating the use of a third-party administrator. This is an independent company that provides a level of tracking, oversight or control, over the movement and management of the money. If a developer has gone out of his way to get a third-party developer in, it gives integrity towards the developer. Based on NES research, the projects that adopt these third-party best practices not only fund faster, but also have the most solid funding.
- There are very few banks that deal with EB-5 escrow. And whenever you do go to a bank via escrow, there are issues relating to control and hold back. Many people underestimate the banking complexity. Out of the 6000+ banks in the U.S., less than a dozen take EB-5 deposits on a regular basis. Nonetheless, banks partner with NES because they help mitigate risks.
- The small developer who needs the money might not see the need to use NES services considering that EB-5 does not require it. But it has been a best practice which even the USCIS is advocating.
- The EB-5 process is a complex process where money flows through different entities over an extended period of time. As part of immigration process, it is essential to be able to show if the money is fully invested, if it remained at risk, and if it created jobs. This involves a tremendous amount of tracking in ways that go way beyond what traditional private equity funds need to do.
- NES is not a registered investment adviser. It is a provider of services not just to issuers, but to all stakeholders, including banks as well as investors. NES is being used by 100% of the larger projects and 80% of other projects coming to the EB-5 market. If a smaller project wants to compete against a big project, they have to offer that same levels of security and transparency to investors. Investors can login using NES solutions and see exactly where their money is at any point in time.
What is a hold back?
- Previously, money was put in escrow until the petition was approved or denied. Since the time processing has gone so long, it is not practical to do that anymore. Money is then released earlier, but a portion of the money is held back until the approval. After processing 1200+ successful i-526 approvals using that solution, NES helped this issue get cleared up.
How does NES help attorneys?
- Immigration workflow is a place where all immigration-related documentation can be tracked. Documents such as 526s, 829s, RFEs, to name a few are consolidated in the tool created by NES. When it comes to filing any petition, it would be much quicker to get access to the information any attorney needs to help investor. This does not replace the attorney’s own case management system, but rather it aims to consolidate information which increases the likelihood to the immigrant’s success.
How does NES help developers?
- If a developer doesn’t hire an independent 3rd party to track the flow of the money into the project for job creation and immigration result, it is assumed that the developer will have to do that themselves. This is a burden outside of what a developer wants to do, which is to build or develop properties. They can think of it as outsourcing the problem to NES. NES has built a technology to automate all of this which proves to be more efficient and cost effective on the side of the developers. NES tracks expenditures, creates audit trails and provides supporting evidence for all financial activity within the project.
Why Escrow?
- Escrow accounts are not required in the EB-5 process at all. But one advantage of it is it protects the investor and issuer by putting additional controls in place. Because of very long processing times which doesn’t line up with the time capital is needed by the investors, NES has devised a new solution that combines escrow capabilities with drawdown account control capabilities.