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Charles G.
Republican IA

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  • Eb-5 Program

    by Senator Chuck Grassley

    Posted on 2015-12-17

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    GRASSLEY. Mr. President, at 1:30 a.m. Wednesday morning, an omnibus appropriations bill was filed to keep government operating for the remainder of this fiscal year. This bill, which will be voted on by the House on Friday, includes a straight and clean extension of a program called the EB-5 Immigrant Investor Program. This program has been plagued with fraud and abuse, but more importantly it poses significant national security risks. Allegations suggesting the EB-5 program may be facilitating terrorist travel, economic espionage, money laundering, and investment fraud are warnings against this bill too serious to ignore. Yet they are being ignored. The omnibus bill fails to include much needed reforms.

    The spending bill being considered by the House and Senate is a major disappointment. I am frustrated that despite the alarm bells and whistleblowers, warning us in Congress about the EB-5 program, Republican and Democratic leadership in the House and Senate decided to simply extend the program without any changes. This was a missed opportunity to protect America.

    What makes this especially frustrating is that the chairs and ranking members of the House and Senate Judiciary Committees--both Republican and Democratic--agreed on a bill. We had consensus. I appreciate the support of Senator Leahy, the ranking member of the committee. I also commend Chairman Goodlatte, Ranking Member Conyers, Congressmen Issa and Lofgren. In a bipartisan way, we worked this bill out. We agreed on every aspect--maybe naively but believing in our hearts that we were doing the right thing. We found common ground on national security reforms. We made sure rural and distressed urban areas benefited from the program, as was intended when it was first written. We instituted compliance measures, background checks, and transparency provisions. All of those things were meant to protect our national security and weed out waste, fraud, and abuse. Through months of hard work, we put together a great deal, but despite this broad, bipartisan support, and the work of the committees of jurisdiction, not a single one of our recommendations will be implemented. Instead of reforming the program, some Members of leadership have chosen the status quo. This failure to heed calls for reform proves that some would rather side with special interest groups, land developers, and those with deep pockets.

    It is widely acknowledged that the EB-5 program is riddled with flaws and corruption. Maybe it is only on Capitol Hill--an island surrounded by reality--that we can choose to plug our ears and then refuse to listen to commonly accepted facts. The Government Accountability Office, our free media, industry experts, Members of Congress, and even Federal agency officials have concurred that the program is a serious problem with serious vulnerabilities.

    Why did congressional leaders ignore the chairmen and ranking members of both the House and Senate committees who were spearheading EB-5 reform? Why, at the same time--and maybe more importantly because they aren't colleagues--did they ignore the Government Accountability Office or ignore the FBI or ignore the Secretary of Homeland Security? Allow me to remind my colleagues why the EB-5 Regional Center is in need of reform. For several years I have kept close tabs on this program, thanks in part to the reports of wrongdoing brought forth by whistleblowers. The fact is that other Federal agencies, including the FBI, have raised national security concerns. Whistleblowers say that requests from politically influential people were being expedited. Last June, Congress heard from a whistleblower who was harassed for speaking out against the problem--in reference to the countries of China, Russia, Pakistan, and Malaysia, countries not known to be friends of the United States.

    This whistleblower said: EB-5 applicants from China, Russia, Pakistan and Malaysia had been approved in as little as 16 days and in less than a month in most. The files lacked the basic and necessary law enforcement queries . . . I could not identify how USCIS [Customs Immigration Service] was holding each regional center accountable. I was also unable to verify how an applicant was tracked once he or she entered the country. In addition, a complete and detailed account of the funds that went into the EB-5 project was never completed or produced after several requests. During the course of my investigation it became very clear that the EB-5 program has serious security challenges.

    There are also classified reports that detail these problems, much as the whistleblower said. Our committee has received numerous briefings and classified documents to show this side of the story. Our own executive branch agencies have communicated to us their concerns about the program. Just listen to these people concerned about it. Officials within the Securities and Exchange Commission, the FBI, and Immigration and Customs Enforcement expressed concerns about the program and how prone it is to fraud. We ought to be concerned about waste, fraud, and mismanagement. We ought to be concerned about national security. The way this bill is ending up, with just a 10-month extension, nobody is taking that into consideration.

    An internal national security report stated the following: As in any instance where significant investment funds are raised . . . the regional center model is vulnerable to abuse. The capital raising activities inherent in the regional center model raise concerns about investor fraud and other conduct that may violate US security laws. Third Party promoters engaged by regional centers to recruit potential investors overseas fall outside of the U.S. Citizenship and Immigration Services' regulatory authority and may make false claims or promises about investment opportunities. Unregistered broker-dealers may operate outside of U.S. Citizenship and Immigration Services' statutory [[Page S8753]] oversight to match prospective investors with project developers. Moreover, the statute and regulations do not expressly prohibit persons with criminal records from owning, managing, or recruiting for regional centers.

    Just think of that, ``Statute and regulations do not expressly prohibit persons with criminal records from owning, managing, or recruiting for regional centers.'' Don't we think that is a threat we ought to be considering? How many more intelligence reports are needed for my colleagues to understand this problem? How many more headlines are needed before we have the will to deal with this problem? How many more whistleblowers are going to be demoted for telling us about these problems, merely committing the one crime that whistleblowers commit-- telling the truth.

    The Secretary of Homeland Security sent a letter to the Judiciary Committee and requested more authority to deny, terminate or revoke a regional center's designation. They wanted more authority to root out the bad apples. They have been requesting this since 2012. Considering that the Secretary of Homeland Security would say that--and he has to carry out this legislation and can't prevent some of the bad things that are happening from happening under existing law--that ought to be enough to guarantee Congress would pay heed to these problems and do something about it. As I indicated, our bill would have done just that. But the fact that our bipartisan bill was dismissed by congressional leadership means bad actors and bad regional centers will continue to operate.

    The EB-5 program also encourages a whole host of financial fraud and corruption. The program's abundant loopholes and lack of regulation have created a virtual playing field for unethical gamesmanship and con artists. Fortune Magazine reported how one man cheated potential immigrants out of $147 million for a make-believe building project he never intended to finish. The article explained how the trickster claimed the project would create over 8,000 jobs. In reality, some 290 foreigners were tricked out of their cash. This is not the only example of how regional centers can be used to defraud people out of millions of dollars for nonexistent projects.

    Another government agency we ought to pay some attention to, the Securities and Exchange Commission, encountered another fake project in which two men in Kansas purported to build an ethanol plant in that State. The Commission stated in a litigation release that ``the plant was never built and the promised jobs never created, yet the [two men] continued to misrepresent to investors that the project was ongoing.'' That same report goes on to say that millions of dollars of investor money was used for other purposes--can you believe this?--even going to another completely unrelated project in the Philippines.

    Just last month, the National Law Review reported another case in which Security and Exchange Commissioner filed suit against the owner of a regional center who allegedly stole $8.5 million in EB-5 funds. The owner claimed that all the money provided from the foreign investors would be held in escrow until the approval of their green cards. Instead, the article reports that the owner of the regional center blew the money on two different personal homes, a luxury Mercedes, a BMW, and a private yacht. All the while, clueless investors were exploited by loopholes in the EB-5 program.

    For example, the article states that both the investors and the owners of the regional center were represented by the same attorney. But for many potential EB-5 immigrants, a safe investment is not the main concern because it is simple. You can buy your way into the United States. Paying $500,000 is simply the price of admission that they are able and willing to pay. For these wealthy elites, a profitable investment is just icing on the cake of buying green cards.

    I hope some of my colleagues will talk to Senator Feinstein about why she thinks this program should be wiped out. Even considering our reforms, she still takes that view. She feels it is just plain wrong to sell access to the United States through buying a green card.

    A lot of the debate in the past 2 months has been on targeted employment area reforms. The targeted employment areas created by Congress to steer foreign investment to rural and distressed areas have been greatly abused. The designations have been gerrymandered-- gerrymandered just like congressional districts--to include the most lavish developments in the richest neighborhoods, where this law of 20 years was never expected to be used because these are not distressed areas as were anticipated by the original law.

    The Hudson Yards project has generated millions of dollars for a luxury apartment complex in Midtown Manhattan. Manhattan was in here complaining about needing investment, when every day you read in the newspaper that Chinese entrepreneurs are investing in New York all the time. Not far away, another flagrant example of gerrymandering is the Battery Maritime Building, right next to Wall Street, in Lower Manhattan. The New York Times described it by saying it ``snakes up through the Lower East Side, skirting the wealthy enclaves of Battery Park City and Tribeca, and then jumps across the East River to annex the Farragut Houses project in Brooklyn.'' That is the gerrymandering that goes on here to get a project in a very wealthy part of New York to qualify.

    I have to ask my fellow Senators: How many more media reports will it take to understand the extent of EB-5 gerrymandering? Have the Senators who helped table our reforms ever read those reports in the Wall Street Journal? I can say with certainty that the status quo will not benefit middle America. It benefits New York City and other affluent areas at the expense of areas in Iowa, Kentucky, Wisconsin, and Vermont. Another way to put it is that it is not going to benefit those who were the original intent of the legislation when passed two decades ago. It was supposed to deal with rural areas and with high-unemployment areas.

    Some may say that there wasn't enough debate or public input on EB-5 reforms. Well, I would like to walk through how much debate we have had on this issue, besides what is very obvious from the newspaper reports or from what whistleblowers say or what the FBI says or what the Securities and Exchange Commission says or even what the Secretary of Homeland Security says.

    In the history of our leading up to this legislation, the Judiciary Committee held a hearing on the program in late 2011 and at every hearing since in which Secretary Johnson has testified, the issue of EB-5 has come up. The Homeland Security and Governmental Affairs Committee, as well as House committees, have had hearings on this program.

    In 2013 the Senate debated an immigration bill that was over 1,000 pages long. In a few short months, we voted that bill out of this body. Parts of the bill that we were working on to be included in this omnibus appropriations bill included EB-5 reforms that we talked about in that immigration bill of 2 years ago.

    Then in 2014, the House Judiciary Committee voted out a bill that included some changes in the program. The bill would have raised the investment level to $1.6 million. This year in June, Senator Leahy and I introduced S. 1501. We called it the American Job Creation and Investment Promotion Reform Act. It was a tough, serious bill to overhaul the program.

    Since June, we have listened to other Members of Congress. We have heard input from their constituents and regional centers in their States. We listened to stakeholders. We met with lawyers, lobbyists, and regional center operators. We listened to groups that represented trade and labor union groups. We met with the agency at the Department of Homeland Security that runs the program. We worked with them and the Securities and Exchange Commission on language. We consulted other congressional committees.

    We took this input from a wide range of sources and made changes to our bill. On November 7, we circulated a new draft with Chairman Goodlatte, chairman of the House Judiciary Committee. Ranking Member Conyers of that committee joined our conversations, as well, and I want to tell you that Ranking Member Conyers has had invaluable input into this bill.

    [[Page S8754]] Again, I want to emphasize--because that is what the leadership of this body is always talking about: Do things in a bipartisan way. Again, we had a bipartisan, bicameral agreement with the four leaders of the committees of jurisdiction. The leaderships of both bodies said that committees would do their job and be relevant to the legislative process again, except for the EB-5 program, evidently.

    We weren't the only ones who wanted action. We had colleagues such as Chairman Corker and Chairman Johnson, who on November 6 joined me in sending a letter to Leaders McConnell and Reid, urging them to include critical provisions that would better guard against fraud and abuse and give the Department of Homeland Security the ability to terminate centers that Secretary Johnson didn't feel he had the authority to terminate and where there was obvious fraud.

    As I said about Senator Feinstein when I referred to her position on this issue, she would prefer to see the program end. In early November she wrote: We have seen in recent years that the program is particularly vulnerable to securities fraud. According to legal complaints, applicants for some projects were swindled out of their investment, and jobs were never created. . . . When the program comes up for renewal in December, Congress should allow the program to die.

    She is a respected Member of this body and very involved in national security and intelligence issues. When she sees something wrong with a program such as this, we ought to give it proper attention.

    Two weeks ago the Judiciary staff was asked, after all these changes were made in the bill, to come in and talk to Democratic and Republican leadership. Staff was asked to hear out the U.S. Chamber of Commerce, the Real Estate Roundtable, and other industry representatives. I don't think there is anything wrong with listening to anybody's view about any legislation we have--whether it is an individual or an organization representing individuals. But to have them right there in the room writing legislation, I think, goes a little bit too far.

    On that first day of December negotiations, there was a lot of discussion about how New York wouldn't be able to compete with rural America if our reforms were enacted. They thought the bill was unfair to urban areas, and they wanted every project in the country to qualify for the special targeted employment area designation. The solution was to provide a set-aside of visas at the higher levels to ensure they could use the program. It was apparent that an agreement was in the works. But, when you have these greedy people coming to talk to you, there is no end to what they are going to ask for.

    When the group returned the next day for discussion, the U.S. Chamber of Commerce and the Real Estate Roundtable, along with a small group of developers represented by law firms in town, came with yet another new list of demands. They had half a dozen major issues, not to mention their so called technical changes.

    After nearly 12 hours in the room with EB-5 protectionists, Judiciary Committee staff conceded and tried to find common ground, because we wanted to at least take care of these national security issues and get some of the fraud out of the program. The group I am talking about left with an agreement in concept. But again, you think you are satisfied, and you have something to go on, and then all of a sudden you find out the next day, when staff was called in to finalize the language, that the industry said they wanted more.

    This is a very common theme. The industry wants more, and they wanted more, and they wanted more. It made one really wonder if they actually wanted a bill with reforms.

    This was an effort to hoodwink people into what we thought were good- faith negotiations, and it turned out it wasn't in good faith. Then, after all the concessions made to the industries, some Members in the Senate came to us and wanted to make even more concessions. Despite all these challenges, the four corners of the Judiciary Committees compromised more. We gave in on many areas for the sake of national security and, hopefully, taking fraud out. We tried to strike an agreement, as much as it made the bill weaker, because the security reforms are also desperately needed. But after all of that, our House and Senate leadership failed us. They extended the program without any changes whatsoever for 10 months in the appropriations bill that we will vote on tomorrow. No reforms. No plugs for national security. No safeguards against fraud and abuse--it will go on for at least another 10 months.

    The bill we presented to the Republican and Democratic leadership took into consideration edits from the industry, immigration attorneys, and several congressional offices.

    I am very disappointed that the leadership simply extended a very flawed program. But I also know the product we provided them on Monday night did not accomplish much that we were hoping to do. It was a very flawed, compromised bill. It was too watered down. It was a giveaway to New York City, Texas, and rich developers who simply wanted to protect their projects. It was a giveaway to affluent urban areas and a failure for rural America.

    This morning we had the benefit of some enlightenment as to how this happened. I have an ABC News report stating that more than $30 million was spent this year alone in a lobbying effort against the reforms--$30 million.

    Mr. President, I ask unanimous consent that the ABC News article entitled ``Lobbyists Declare Victory After Visa Reform Measure Dies Quietly'' be printed in the Record.

    There being no objection, the material was ordered to be printed in the Record, as follows: [From ABC News, Dec. 17, 2015] Lobbyists Declare Victory After Visa Reform Measure Dies Quietly (By Matthew Mosk) After a multi-million dollar lobbying effort, congressional leaders Tuesday night quietly scuttled a bi-partisan attempt to reform a little-known immigration program that offers wealthy foreigners access to visas and U.S. Green Cards but has been beset by allegations of fraud and abuse.

    The EB-5 program, called so due to its visa designation, allows rich foreign nationals a shortcut to a Green Card as long as they invest $500,000 in a designated job-creating project in the U.S. Designed to spur the American economy, the program is also feared to have been exploited by spies, money launderers and other criminals, as revealed in an ABC News investigation earlier this year.

    ``There are well-documented national security concerns and abuse of the program, and a bipartisan, bicameral agreement on reform,'' Sen. Chuck Grassley told ABC News in a written statement. ``It should have been a no-brainer, but now it's a missed opportunity.'' But there were opponents to reform with money to spend-- private groups that paid out more than $30 million in a lobbying effort to protect the EB-5 program this year alone, including more than $23 million from the National Association of Realtors, according to an analysis of lobbying registration reports for ABC News by the Center for Responsive Politics.

    At the Capitol, the legislation was defeated by a group of lawmakers led by New York Democrat Chuck Schumer, who argued that security improvements were a good idea, but the way the reform was written would unfairly hurt investments in his home state.

    Regardless of how it died, lobbying groups cheered the reforms' downfall Tuesday night. A lobbyist for one group, called the ``EB-5 Investment Coalition.'' posted a message on Twitter declaring victory.

    ``So proud of our EB-5 Investment Coalition . . . TY [Thank You] Schumer, Cornyn and Flake,'' it read, referring to other opposition lawmakers Sens. John Cornyn, R-Texas, and Jeff Flake, R-Ariz.

    `In Dire Need of Reform' Sen. Patrick Leahy, D-Vermont, who worked with Grassley on the program's overhaul, said the EB-5 program has ``long been abused and is in dire need of reform.'' ``We pushed aggressively for its inclusion in the omnibus appropriations bill but congressional leadership inexcusably rejected this much-needed reform,'' he said.

    Brokers who advertise overseas as agents who can help procure visas for wealthy investors have repeatedly been accused of defrauding those foreigners who put up $500,000 in the hopes of obtaining a Green Card. The EB-5 program was being abused so frequently this way that the Securities and Exchange Commission took the unusual step of posting a public warning to potential investors to be wary of such offers.

    ABC News reported on an EB-5 program that promised to use foreign investment to rebuild New Orleans in the aftermath of hurricane Katrina. Investors sued, alleging the money had been squandered or stolen, and said they were unable to get Green Cards because no jobs were created.

    The program was also criticized for how it was used legally.

    Critics say that while it is intended to funnel EB-5 foreign investment to business [[Page S8755]] projects in poor regions around the country and in turn promote job growth, a majority of the funds are actually supporting high-end real estate projects in wealthy areas.

    ``This program was established to help areas with high unemployment, but it's been hijacked by investors with $500,000 putting their money in Chelsea, not the Bronx,'' said Nancy Zirkin, executive vice president of The Leadership Conference on Civil and Human Rights, which supported the reform bill. ``Our communities, in Baltimore and Ferguson and other places, need the infrastructure and just aren't getting it.'' Outside opposition to the reform proposal was led largely by real estate developers who have increasingly come to rely on the money from foreign investors, mainly from China.

    To add to the pressure from Leahy and Grassley to impose new restrictions on foreign investment visas, there was also pressure for Congress to act because the entire EB-5 program was set to expire this month.

    Unexpected Defeat in Congress Leahy and Grassley, both senior members of their parties in high ranking positions, said they thought they had the support needed to push through the reform measure. But during weeks of discussions behind closed doors, Sen. Chuck Schumer (D-N.Y.) emerged as a staunch opponent, arguing that the changes to the program would unfairly limit the amount of EB- 5 money that could be used on projects in New York City. That's because of a provision in the reform proposal intended to more narrowly direct the investment money to projects in low income areas.

    At present, close to 20 percent of the investment funds raised by foreign investors seeking visas winds up backing a New York City development. Many of those projects include glitzy high rise buildings in wealthier parts of New York. But even those projects, Schumer argued, were able to create large numbers of jobs in neighboring, low income parts of the city.

    A spokesperson for the senator told ABC News that Schumer did not oppose efforts to eliminate national security and fraud risks associated with the program.

    ``Sen. Schumer supports reforms that will bring transparency and accountability to the EB-5 program, but strongly believes that the EB-5 program should continue to act as a catalyst for thousands upon thousands of jobs throughout New York,'' said Matt House, a Schumer spokesman. ``The proposed reforms would have crippled the program and would have held back job growth in urban and low-income areas in cities across the country.'' Negotiators said Schumer attracted support from Republican Sens. Cornyn and Flake. Instead of passing the reform measures, they agreed, they would extend the program for another 10 months without making any changes.

    Grassley expressed deep disappointment in the outcome.

    ``Leadership allowed the negotiations to be hijacked by a small number of special interest groups who wanted the status-quo and the necessary reforms were shoved aside,'' he told ABC News.

    A Washington, D.C. group called IIUSA, formed to advocate for EB-5 investment, posted a statement online expressing gratitude for the decision by Congress to keep the EB-5 program running.

    ``IIUSA will continue to advocate for a long term reauthorization with reasonable reforms that succeed in enhancing Program integrity and effectiveness,'' the statement said.

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