Chuck Grassley

United States Senator from Iowa

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Grassley Denounces Inaction on Flawed EB-5 Visa Program

Dec 08, 2016

Prepared Senate Floor Statement by Senator Chuck Grassley of Iowa
Chairman, Senate Judiciary Committee
EB-5 Regional Center Program Reforms
Thursday, December 08, 2016

Mr. President,  

One year ago, Ranking Member Leahy and I came to the floor to express frustration that the EB-5 regional center program was extended without reforms. I could easily read the same statement I gave at that time and it would be just as relevant today.  We are very disappointed that reforms were not included in the continuing resolution, which extended this very flawed immigration program. 

The EB-5 regional center program has been plagued by fraud and abuse.  It poses significant national security risks.  There are serious allegations that the program may be facilitating terrorist travel, economic espionage, money laundering and investment fraud.  Yet, the continuing resolution before us fails to include much needed reforms.  So after another year, we have yet another missed opportunity. 

The Chairs and Ranking Members of the House and Senate Judiciary Committees have agreed on a package of reforms.  We have worked in a bipartisan and bicameral fashion.  We have agreed on every aspect.  We instituted compliance measures. We instituted background checks. And we instituted transparency provisions.  We made sure that rural and distressed urban areas benefited from the program, as Congress always intended, and as Senator Leahy very clearly laid out the problems.

Despite the bipartisan support, not a single one of our recommendations will be implemented. Instead of reforming the program, we have status quo.   

The status quo means this: 
•    Investments can be spent before business plans are approved. 
•    Regional Center operators can charge excessive fees of foreign nationals in addition to their required investments.  
•    None of the jobs created have to be “direct” or verifiable jobs but rather are “indirect” and based on estimates or economic modeling. Again, not knowing for sure if jobs are created.
•    Investment funds are not adequately vetted. 
•    Gifts and loans from anyone are acceptable sources of funds from foreign nationals.
•    There’s no prohibition against foreign governments owning or operating regional centers or projects.
•    Regional centers can be rented or sold without government oversight or approval.
•    Regional centers don’t have to certify that they comply with securities laws.  
•    There’s no set of sanctions for violations, no recourse for bad actors.
•    There are no required background checks on anyone associated with a regional center.
•    The investment level is lower than Congress ever intended.  
•    Gerrymandering continues and rural and urban distressed areas lose out.  
•    Site visits or even audits are not required.  
•    There’s no transparency on how funds are spent, who is paid, and what investors are told about the projects they invest in.  
•    The preferential treatment we have seen in the past is enabled without strict code of conduct rules.  

Now, that's just some of the things that are wrong. So the four of us on the two committees, in a bicameral and bipartisan way, tried to address awareness and to have process for dialogue leading to reform. My committee held two hearings this year. The house held one. Staff met with every interested stakeholders that asked, and we offered more concessions than we did last year.  To top it off, we were ready to provide a six-year reauthorization.  This would have provided long term stability for investors and regional centers.    

But, let’s talk about why this package was not acceptable to some – notably the U.S. Chamber of Commerce that was the most rigid in not compromising.  Here’s a list of issues raised by this leading voice of business in opposition to our package: 
•    They want, in effect, one investment level.  They don’t want any meaningful discount for rural or urban distressed areas. And, don't forget, this law was passed 20 years ago to help rural and high-employment areas. That's the purpose of it. 
•    They don’t want visa set asides for areas that Congress selected as targeted employment areas for fear that investors in affluent areas would have to wait slightly longer for a visa.
•    They didn’t want to incentivize foreign investors to fund manufacturing projects that create long term, sustainable and real jobs that this country desperately needs.  
•    They wanted to make it harder for rural areas to qualify at a discount investment level even though it’s common knowledge that small and rural communities have a harder time attracting capital. 
•    They wanted certifications and compliance measures to be delegated to the agency.  They didn’t want Congress to dictate transparency and reporting requirements.  Our job is to legislate – not delegate!  Delegating authority to the Executive Branch on this program would result in more of the same.  Because even by the departments in charge, there's very little oversight or monitoring now, even if it might be required by law. But not enough of it is required by law. That's why you get away with this stuff. 
•    The chamber didn't like a provision saying a foreign national had to be 18 years old to invest and obtain a green card through the program. They would like children as young as 14 to be able to make these major financial decisions and invest up to $1 million—a fourteen-year old to do that.
•    They wanted restrictions on where investor funds came from lifted.  Our package limited a foreign national from taking out a questionable loan or taking gifts from unknown sources.  One way to find out what’s wrong is to follow the money. We wanted to be sure that those investing were doing so because they obtained funds lawfully.  The Chamber of Commerce wanted no such restrictions.
•    They wanted foreign governments and sovereign wealth funds to own EB-5 projects.  They wanted to delay rules saying foreign governments could not own or administer regional centers by requiring bureaucratic rulemaking.  Despite the changes we made this year on this very strict provision, they continued to water it down in every negotiating session that we had.
•    They didn’t want regional centers to have to consult with local officials about EB-5 projects to ensure that economic development efforts were coordinated.  
•    They wanted to do away with a requirement that a foreign investor would have to create at least one direct job before obtaining a green card.  Now here you've got a situation where a program was instituted 25 years ago to create jobs, particularly in rural America and high unemployment areas, to create jobs, and they don't even want the investors to show that they're going to create at least one job. Right now, they use economic modeling to show indirect jobs. Neither the existence of those jobs nor the location of those jobs can truly be verified. Now, when you have the federal government setting up a program like this, that's supposed to create jobs in rural areas and high unemployment areas, wouldn't you think there ought to be a way of showing those jobs are actually created?
•    They raised new concerns about provisions that have been discussed since last June – such as, requiring regional centers to pay a fee to an enforcement and monitoring fund.  
•    They wanted a three-day notification of a site visit by the agency to determine if the regional center truly exists. Sure, tell the inspectors you're coming, so you can get everything in order before the inspectors get there.
•    They fought efforts to require transparency of how investor funds were used.  This is a major problem of the program.  Nearly every story of fraud relates to how regional center operators use EB-5 funds for their own personal gain and luxury. This program is meant to create jobs, not to help individuals in charge of the program have personal gain and, more importantly, even the luxury that might go with that.
•    But, the kicker in all of this is that these business interests insist on more visas and to make them cheaper.  They want Congress to increase immigration numbers – through controversial recapture mechanisms or by exempting certain people from the annual cap.  The pro-EB5 groups want more visas for an already faulty program – which means more money in their pockets.  
•    On top of that, they asked us to make the visa cheaper than it is under current law.  I refused to do that.  I refuse to go below the $1 million level that has been in law since 1990.  The demand for visas is there.  There’s no justification to further cheapen this program and the green cards that come with it.  

We will have five months until we are faced with another reauthorization.  In that time, however, I expect that proposed rules changing the investment level and stopping gerrymandering will be published by the end of the year by the Obama Administration – and I will support these proposed rules.  I will be asking the new Trump administration to keep them and build off of them.  

Now, in regard to the new administration coming in, they've took a very strong position on various immigration issues, and in taking that position, I would expect them to consider very closely the fraud and the misuse of the EB-5 program. When the Obama administration sees things wrong with it and they can correct those things through regulation, those regulations are some that should be backed up very solidly by the new administration coming in

Next year, I will continue to work with Senator Leahy and the House Judiciary Committee.  But, I will also work closely with the incoming Ranking Member, Senator Feinstein.  She is not a fan of this program at all, and has been vocal about closing it down because of all the fault we find with it whether it's fraud or misuse of the program or possible terrorist activity taking advantage of it or whatever national security reasons. And some of these have been pointed out by law enforcement agencies at the federal level.

So I want everyone to know that change is coming.  I have always wanted to reform the program.  But, I’m not sure the industry will ever come around.  

The leadership of this body and the other body could help by ending this program in a continuing resolution, let it sunset and all those people come to the table with a more compromising point of view to correct everything that's wrong here. But the industry love the status quo and the billions of dollars that pour in to affluent areas. And consequently the money is not directed to where it was intended. In 1990 when this legislation was passed, which was to rural areas and high unemployment areas. So I'm not sure with the attitude of the industry that reforms are possible. So, it may be time to do away with it completely.  

I said it one year ago and I’ll repeat:  Maybe we should spend our time, resources and efforts in other programs that benefit the American people as opposed to benefiting the well healed and the well connected.  Maybe it’s time this program goes away.  

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