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EB-5 Insights

Where Government Policies and Business Realities Converge

Posted in EB-5 Investment, Securities Law

Nearly all U.S. broker-dealers are members of the Financial Industry Regulatory Authority (FINRA).  FINRA regulates, and provides oversight and guidance for its member firms.  When a broker-dealer becomes a FINRA member, they enter into a membership agreement which, among other things, specifies which financial products and services the broker-dealer is permitted to offer to its clients.  Engaging in securities transactions that are not authorized by broker-dealer’s membership agreement can subject that broker-dealer to penalties and enforcement actions.

Many broker-dealers whose membership agreements grant them authority to sell private placements assume that this gives them the ability to sell EB-5 securities.  However, if a firm has authority to sell private placements, that does not necessarily mean that they are qualified to sell EB-5 securities.  While sold as a private placement within the U.S., EB-5 securities are a specialized product which require additional controls, policies and procedures.  EB-5 issuers who seek to engage a broker-dealer to sell their offerings, should learn about that broker-dealer’s experience with EB-5 securities.

An existing broker dealer can seek permission from FINRA to sell new products by filing a continuing membership application (CMA).  Under FINRA Rule 1017, a member firm is required to submit a CMA when there has been (or will be) a “material change in business operations.”  In interpretative guidance, FINRA has stated that whether or not an event is a “material change in business” ultimately depends on “an assessment of all relevant facts and circumstances.”  See NASD NTM 00-73.  The factors to be considered are: the nature of the proposed expansion; the relationship, if any, between the proposed new business line and the firm’s existing business; the effect the proposed expansion is likely to have on the firm’s capital; the qualifications of the firm’s personnel; and the degree to which the firm’s existing financial, operational, supervisory, and compliance systems can accommodate the new business line.  Depending on the broker-dealer’s current business and membership agreement, selling EB-5 products for the first time may require the broker-dealer to file a CMA.  Broker-dealers that are uncertain whether or not they have the authority to distribute EB-5 securities (or any other product), should consult with counsel, and if in doubt, can solicit an opinion from FINRA by filing a materiality consultation request.

Greenberg Traurig’s Broker-Dealer group has considerable experience dealing with sales of EB-5 securities and other issues involving the filing of CMAs. Issuers with questions about engaging a broker-dealer and broker-dealers looking to submit a CMA or a materiality consultation request should contact a GT attorney.

Posted in EB-3, Visa

I recently returned from a month in Vietnam meeting with clients and potential immigrants to the United States.  Over the course of the past five years and in my travels to Vietnam, I have watched the EB-5 program grow in popularity as a tool for Vietnamese nationals to self-sponsor for a U.S. green card.  In fact, Vietnam now ranks second in EB-5 visa usage worldwide.

The growing interest in immigration to the U.S. has also spurned in Vietnam a new trend, with some immigration agents promoting the EB-3 visa program, to target clients that cannot afford the EB-5 program or wish to spend less money to immigrate to the U.S.  This development is alarming, as in many cases, the way the EB-3 program is being described and offered to the Vietnamese public is inconsistent with the U.S. Citizenship and Immigration Service (USCIS) and U.S. Department of Labor Regulations (DOL) laws and regulations.  In the most egregious cases, these EB-3 for sale programs intentionally circumvent the legal requirements and are fraudulent.

By way of background, EB-3 stands for Employment-Based Third preference category – a concept long existent in U.S. immigration law and a valid means to a green card when properly used.  Employment-based sponsorship in U.S. immigration is divided into several preference categories, with the Employment-Based Third category being reserved for sponsorship for positions requiring:

  • Less than two years’ training or experience (unskilled workers).  This is predominately the focus of the Vietnamese EB-3 for sale programs; or
  • At least two years of experience in the field of expertise (skilled workers); or
  • A Bachelor’s degree.

The process of employment-based sponsorship in the EB-3 category entails a three step process:

1.  A PERM application is processed and filed by the employer with the DOL.  The process involves the U.S. employer engaging in various methods of recruitment to find U.S. workers for the position.  This is because the DOL’s main purpose is to ensure that U.S. workers get preference for jobs.  The DOL determines the prevailing wage rate for the position that the employer is required to pay. Only after recruitment is completed, and if the employer can show that it was not able to find minimally qualified, able, or willing U.S. workers for the position, would the DOL certify and approve a PERM application.  If the sponsoring organization receives applications from interested individuals in the U.S. in response to the ads but does not review and interview the applicants or disclose receiving the applications to the DOL, the sponsoring company and all persons involved in the process can be subject to enforcement action.

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Posted in Events

The EB-5 Investment Coalition will be hosting a legislative workshop in Washington, D.C. from April 12 to April 14, 2016, in order to continue the Coalition’s efforts to build the path to long-term EB-5 Regional Center Program Reauthorization.  The legislative workshop will include interactive and thoughtful roundtable discussions with experts in the EB-5 industry who will confront some of the toughest policy and political issues facing the industry. Participants in the roundtable include Greenberg Traurig attorneys Laura Reiff, Kate Kalmykov, Matthew Virkstis, Kristen Ng, and Legislative Professional Robert Maples. The legislative workshop will also offer a unique experience and insight into Capitol Hill, including attendance at a Senate Judiciary Hearing on EB-5 reform, visits with elected officials, a reception, breakfast, and an EB-5 staff briefing on the Hill with some of EB-5’s biggest champions in the Senate and the House of Representatives.  This is a unique and intimate event that will allow for interaction with fellow stakeholders and Members of Congress.

Register here.

Posted in China, Immigration, Visa

Greenberg Traurig attorney Kate Kalmykov recently appeared on China Business Network (CBN), China’s largest financial and business informational TV channel with an audience of 600 million viewers within China, Hong Kong and Singapore.  Amongst its many initiatives, CBN partners with the United Nations Development Programme to enhance China’s participation in global dialogue on a variety of topics.

Kate appeared on the VISAlution television program to discuss the EB-5 program including current trends, visa usage and immigration due diligence considerations.  VISAlution is a talk show that focuses on providing audience members with up to date information on immigration, overseas education, overseas investment, and international travel.

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Posted in China, Events

Greenberg Traurig Attorneys, Kate Kalmykov and Laura Reiff, were honored to again receive the “Summit Ambassador Award” awarded by Invest in America during the summit in Shanghai on March 11-13.

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Award recipients including Greenberg Traurig Laura Reiff and Kate Kalmykov

 

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Kate Kalmykov accepts the Summit Ambassador Award.

Posted in China, Events

Greenberg Traurig’s EB-5 team attended the 2016 Invest in America Summit events in Shanghai from March 11-13 to kick off the largest U.S.-themed investment conference and exhibition in China. Once again, the Summit was held in three Chinese cities: Shanghai, Shenzhen and Beijing.

Invest in America welcomed U.S. investment projects, regional centers, real estate brokerage firms, franchises, private equity and venture capital companies, financial services, attorneys, CPAs, international trade agencies, government officials, and colleges to participate in exhibitions and presentations. The Summit provided information to investors and business executives who were eager to learn more about investment and business opportunities in the United States.

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Posted in China, EB-5 Investment, Private Equity

私募基金已经成为了覆盖房地产、科技、能源和医疗等多个产业的投资方式。私募集金投资成功促进了全体经济增长,也挽救了许多上市公司通过传统金融体系融资中遇到的困境。一些原本在美国的私募集金为了吸引外国资本已经转移到例如开曼群岛和英属维珍群岛等离岸中心,或建立了平行离岸或从属基金来吸引外国资本。许多外籍投资人通常不喜欢在美国参与直接投资,因为他们在美国的投资所得需要按照联邦个人所得税(并有潜在的美国遗产和赠与税)进行纳税。直接投资(或实质意义上的直接投资)需要遵循美国税法规定交纳个人所得税。美国联邦税收的双重收费机制对外籍投资人参与美国经济造成了很大障碍。 

在这种情况下,私募基金经常成立非美国的隔离公司,面向外籍投资人。非美国的隔离公司允许投资人直接投入离岸基金,然后由离岸基金再转投入进美国资产。这个结构的优点是离岸基金可以直接调回资本并投入美国资产,而外籍投资人不用担心联邦税收问题。这个结构也允许外籍投资人避免了一些由于投资所产生的美国联邦纳税义务。任何美国联邦税收或申报义务程度上,非美国的隔离公司、而不是外籍投资人,需要履行交税申报责任。 

需要注意的一点是,美国公民和永久居民(一般为绿卡持有者)通常偏向于直接投入美国资产或通过财政透明的交易机构进行投资,以确保联邦个人税收水平保持在一级。保证在仅一级是因为该投资人在世界其它地方的收入都要按照联邦所得税规定交税。 

最近,中国投资人开始了解通过私募基金形式参与美国投资的优势。随着中国经济不断增长,个人财富增加,境外投资开始变得引人注目。近年来,中国开放了自由贸易区,例如在上海,中国公司和个人可以更自由地参与境外投资。但首要的问题是,过去几年中国经济增长放缓,中国政府在国内保存资金储备的情况下,还是否允许增加境外投资。加之中国目前的外汇管制,人民币的贬值,是否可能会令中国政府收紧境外投资。当然,根据相同原理,用人民币换成美元作为对货币贬值的对冲,也使得中国公司和个人增加向境外投资的需求。我们相信,在上海自贸区建立一个私募基金是由可能实现的,建立私募基金后,向自贸区管理委员会提交申请允许向开曼或英属维珍群岛投资,然后将投资转入例如房地产类的在美资产。除非申请中明确指出向美国资产投资,上海自由贸易区委员可能不允许中国投资者集合进行“先募资后发掘项目”的净壳投资方式。 

有些在自贸区创立的基金已有相对成功的境外投资批准。随着时间推移,境外投资的趋势也会越来越明显,但由于中国目前对于如何实现经济增长和中产阶级增加,还面临一些挑战。我们相信对于境外投资的开放,将会同时刺激对中国境内投资的增长,也会帮助实现中国最终实现其建立自己GDP和扩展中产阶级财富的目标。这些复杂的模式需要多方专业人才、优秀的律师和基金管理公司的共同参与。 

移民中介帮助EB-5投资人集合资金可以同时拓展向客户介绍新产品的能力,使中国投资者(在EB-5投资之外)受益。对于移民中介来说,基金的建立是一个非常好的境外投资机会,也应作为一项产品来认真考虑。 

获取更多信息,请访问我们律师事务所的私募基金主页:http://www.gtlaw.com/Experience/Practices/Private-Equity 或联系Bruce Rosetto律师:http://www.gtlaw.com/People/Bruce-C-Rosetto

 

Posted in China, EB-5 Investment, Private Equity

Private equity funds have become a staple of investment in every industry sector from real estate to technology to energy to healthcare and more. The investment success of private equity funds has enabled growth in the overall economy and has been a saving grace to many private and public firms who have had difficulty in obtaining growth capital from traditional financial institutions.  Some private equity funds originally based in the US have moved offshore or formed offshore parallel or feeder funds in jurisdictions like the Cayman Islands and British Virgin Islands (BVI) in order to attract foreign capital.  Many foreign investors who are not U.S. citizens or U.S. resident aliens generally do not wish to invest directly in the US as doing so could cause them to be directly subject to US federal income tax (and potentially U.S. estate and gift taxes) with respect to certain of their U.S. investments.  In addition, a direct (or deemed direct) investment can require compliance with certain U.S. filing obligations including the filing of U.S. federal income tax returns.  The dual outcomes of direct US federal taxation and U.S. federal filing obligations can be impossible obstacles for foreign investors who would otherwise want to participate in the dynamic US economy.

As a result, private equity funds frequently form a non-US blocker corporation targeted to foreign investors.  Such a non-US blocker generally allows foreign investors to invest directly into that offshore fund, which in turn, invests in US assets.  The primary benefit of such a structure is that the offshore fund can then redeploy the capital and invest directly into US assets without the foreign investor directly being subject to US federal taxes.  Moreover, it generally can also allow such foreign investor to avoid certain applicable US federal tax filing obligations attributable to such investments.  To the extent there are any US federal income taxes or US filing obligations, the non-US blocker corporation, rather than the foreign investors, generally would bear such taxes and comply with the applicable US filing obligations.

As a note, US citizens and US resident aliens (generally those with a US green card) usually prefer to invest directly in US assets or through entities treated as fiscally transparent for US federal tax purposes to try to ensure one level of US federal income tax.  Ensuring only one level of US federal income tax is material since such persons are generally already subject to US federal income tax on their worldwide income.

Recently, Chinese investors have begun to look at the benefits of participating in US investments through the mechanism of private equity funds. With the success of the China economic engine and its creation of wealth, outbound investment interest is becoming increasingly desirable. In recent years, China has opened free trade zones, for example in Shanghai, which has liberalized and made more flexible the ability of Chinese companies and individuals to participate in outbound investments. The big question is whether the Chinese government will allow the growth of outbound investment at a time when the China economy, which has been slowing the last few years, is in need of maintaining the capital inside China to encourage its own growth.  Add to this the fact that the currency of China, the RMB, has been depreciating, and is expected to continue to depreciate in value, causes concern that the Chinese government will seek to restrict outbound investment.  Of course, this same rationale has accelerated the desire of Chinese business and individuals to hedge the depreciating value of their assets by converting RMBs into currencies such as the US Dollar which has proven to be a more stable currency. In light of this, it is still possible to establish a private equity fund in places like the Shanghai Free Trade Zone (SFTZ) and file an application with the Management Commission of that zone to permit outbound investment into funds established in the Cayman Islands or BVI for purposes of then investing into US assets, commercial real estate being a prime target. The US investment will need to be identified upfront as the SFTZ Management Commission is unlikely to allow the aggregation of Chinese investors into a blind pool investment vehicle.

Some funds created in these free trade zones have had good success in getting rapid approval for making outbound investments. Time will tell if these recent trends accelerate in allowing greater outbound investments, but as China struggles with how to grow its economy and grow its own middle class, opening the outbound investment pipeline may simultaneously cause acceleration of inbound investments into China, thus accomplishing the ultimate goal of China of building its own GDP and expanding the wealth of the middle class of China.  These are complex structures requiring multi-disciplinary expertise, competent legal advisors, and appropriate fund administration.

Circumstances being what they are, the potential for migration agents who have had great success in raising capital for the EB-5 sector to greatly expand their ability to offer new products to its client base while providing significant benefits to Chinese investors (outside EB-5 investment) has never been better. The formation of funds that would allow outside investment is a great opportunity for migration agents and should be seriously considered.

For additional information, please read more about Greenberg Traurig’s Private Equity Practice or contact Bruce C. Rosetto.

Posted in EB-5 Investment, Visa, Visa Bulletin

The Department of State (DOS) has released the April 2016 Visa Bulletin, with the Application Final Action Date chart for employment-based applications reflecting some substantial movement. Notably, the 2nd preference category for China-mainland born applicants has moved ahead one month to Sept. 1, 2012, and for India born applicants it has moved ahead a few weeks to Nov. 8, 2008. The 3rd preference and Other Workers categories have moved ahead at least one month for all applicants. The Final Action Date cut-off for China-mainland born applicants is now Feb. 1, 2014, for all EB-5 category applicants, keeping with the slow, but forward, trend of advancing priority date processing in that category. There was no movement in the Dates for Filing chart for employment-based categories.

On March 10, 2016, in its monthly powwow with Charlie Oppenheim, Chief of Visa Control and Reporting Division at the DOS, the AILA DOS Liaison Committee discussed visa trends and analysis with the visa guru. Charlie’s February predictions of continued forward movement in the EB-2 and EB-3 China categories came to pass as noted above. The expert attributes this to an increase in I-485 adjustment applications in these categories coming to a close. Moving forward, Charlie is hopeful that better data sharing and analytics will be implemented between DOS and USCIS so as to better enable DOS to predict upcoming visa numbers.

With regard to the Final Action Date chart, “Charlie must make assumptions regarding upcoming demand based on the available data and his prior experience in an effort to stabilize Final Action Date movements. Charlie prefers to advance the Final Action Dates conservatively in the hope of avoiding a retrogression later in the fiscal year, especially in categories that are subject to upgrades and downgrades. Unfortunately the need to generate sufficient demand to use all numbers available under the annual limits often requires aggressive forward movement of the dates.” By way of example, this is precisely what happened with the EB-3 Worldwide cut-off date, which has advanced 16 months in the past year, and is now only one month behind today’s calendar date [as of March 10, 2016].

New NVC EB-5 Investor Assistance Desk Unveiled to the Exaltation of Practitioners Everywhere

Along with new priority dates, the April Visa Bulletin also included an announcement regarding a new outlet for assistance at the National Visa Center (NVC) for EB-5 case processing. Specifically, the NVC has created a dedicated email address (NVCeb5@state.gov) to address EB-5 inquiries. This email box will be staffed with officers who are knowledgeable in EB-5 matters in an effort to improve customer service. EB-5 practitioners are rightly ecstatic about this development after enduring years of understaffed helpdesks with inadequately trained agents which witnessed inordinately long response delays and, in some instances, a complete unresponsiveness to submitted inquiries and requests.  The EB-5 community is hopeful that communicating with the NVC will be more streamlined and accurate in light of this positive development.

Posted in Bonds, EB-5 Investment

EB-5  is a growing and acceptable financing methodology as part of the capital stack in many U.S. projects, with real estate assets remaining the primary focus for investment of such capital.  As other projects seek to take advantage of this opportunity to attract capital, the question arises as to whether government bond financed projects are suitable investments for EB-5 capital. In a typical structure, the EB-5 investor invests in a specially formed entity that, in turn, buys the governmental entity’s bonds; the bonds finance an eligible project and the investor’s money is traced to project costs. Of course, the risk of loss as a result of a default on the bonds also flows through to the EB-5 investor.

EB-5 investment in bonds related to government infrastructure projects can be a suitable investment; however, as with any investment, proper due diligence is a necessity. While the risks and benefits of an investment in a bond financed project must be evaluated on a project by project basis, there are some general principles of due diligence that apply to analysis of these investments.

The time period over which the EB-5 investor to receive the full return of his/her EB-5 investment should be a critical part of any evaluation, as bond related investments tend to be long-term, and the risk profile of a long-term obligation is different from a 5 year investment that is typical investment time frame for an EB-5 investment.

Generally speaking, the higher the quality of the bond investment, the lower the yield offered to investors. Inversely, a low quality bond product must offer a higher rate of return to an investor as an incentive to attract such investor. If there’s any doubt about the ability of the bond issuer to pay off an investor on time, a high yield offering could be a poor choice as the risk of getting repaid on your investment is greater.  Investors with a low risk tolerance should stick with high quality bonds even though the lower yield may be less attractive to an individual investor.

How do we tell if a bond is a high quality bond? One tool for evaluation of quality is a credit rating provided by independent institutions, or “rating agencies,” such as Moody’s, Fitch and Standard & Poor’s.   A triple A (AAA) bond is the highest rating. BBB/Baa is the lowest rating that qualifies for commercial bank investments and this rating on a bond makes it a borderline group for which, in Standard & Poor’s words, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to repay the investor. Dipping below BBB/Baa ratings takes you into speculative territory. Because of their higher risk of default, such bonds must pay higher yields to attract an investor BUT “high yield” is the marketing name for what most people call junk bonds.

The fact that the bond is issued by a government entity, in and of itself, is not determinative in the analysis whether a bond investment is a suitable investment for an EB-5 investor. Foreign investors should not fool themselves into believing that an investment in a government intrinsically safer and less risky than an investment in a privately sponsored vehicle just because of  the involvement of a government entity.  Rather, an investor should investigate how the government is involved in the project.  Is the governmental entity merely a conduit issuer of a privately owned and operated facility?  Or are they providing actual financial support, either directly in the form of a payment guaranty or pledge of tax or other revenues, or indirectly through tax abatements or other subsidies?

In summary, here are a few factors an EB-5 investor should look at when evaluating the risk of any government bond investment:

  1. Financial condition of the issuer of the bonds.  The financial statements of the bond issuer should be evaluated carefully, in much the same way as one would review those of a private entity. Financial reporting rules and accounting principles differ for governmental entities, so particular care should be taken in the evaluation of these materials by someone who knows the rules for government accounting in the United States. The stronger the balance sheet, the greater the likelihood that the investor will receive the benefit of what is being bargained for.
  2. Credit rating of the Bond.  This is how the rating agency rates the strength and risk level of the investment. A triple A bond (AAA) designates a strong likelihood of repayment. Anything below that has a higher degree of risk, often offset by enticing the investor with a higher coupon rate. A bond rating of A- or lower should cause concern and the lower the rating, the higher the risk.
  3. Historical track record of repayment of prior bonds.
  4. Level and nature of governmental issuer involvement and financial support or subsidization of the project.
  5. Length of investment.  A typical bond term may be 20 years or longer. A typical EB-5 investment is approximately 5 years. Does it make sense to have principal tied up for that many years or is the investor better off getting its principal back sooner to reinvest how the investor thinks best?  This is a question that can only be answered by the risk tolerance of the investor but suffice it to say, a long term investment of capital is not optimal for every investor.