Senate Floor Statement of Chuck Grassley of Iowa
Chairman, Senate Judiciary Committee
Expiration of the EB-5 Regional Center Program
September 22, 2016
In 1990, Congress created the EB-5 visa, which was intended to create new employment for U.S. workers and to infuse new capital into the country.
Two years later, Congress revised the EB-5 category by establishing a pilot program allowing investors to use regional centers to pool their investments. This “pilot” program still exists, nearly 25 years later, but it’s deeply flawed, lacks adequate oversight, and has veered far away from congressional intent.
The regional center program expires on September 30 of this year. In my view, it is need of a major overhaul if it is going to be reauthorized. I have said that repeatedly – on the floor, in hearings, and in letters to Senate leadership.
Despite the need for reform, the fiscal year 2016 omnibus appropriations bill included a straight and clean extension of the program. This was a disappointment given the alarm bells and whistleblower allegations. It was a missed opportunity.
It’s my hope that both House and Senate leaders will find a way to include reforms in a continuing resolution, or simply leave it off the table for a later date.
The Senate Judiciary Committee held two hearings this year on the program. We discussed the flaws and corruption. We noted the many vulnerabilities.
We had stakeholders weigh in. We heard from local leaders, associations representing workers and regional centers. We listened to academics and government officials. We received feedback from all types of industries as well as immigration and securities attorneys. We talked to other Senate offices and committees.
We have outlined the problems. Allow me to mention a few of them. Under the EB-5 regional center program:
That’s a long list, but not a complete list. There’s a bigger problem I want to spend some time on.
Then there are the national security problems. Our committee has received numerous briefings and classified documents to show this side of the story.
The enforcement arm of the Department of Homeland Security wrote an internal memo that raises significant concerns about the program. And, there was an interagency working group that reviewed fraud and other national security vulnerabilities in 2010. Members of the working group made recommendations to reform the program, including the recommendation to sunset the Regional Center Model due to crippling fraud and national security vulnerabilities.
Not all of these recommendations were communicated to Congress. This week, Chairman Chaffetz, Mr. Cummings and I sent a letter to the Director of the agency in charge and asked for documents related to this working group. Members of the House Oversight Committee are as interested in this as the Judiciary Committee
I also recently sent a letter to Secretary Johnson calling on him to investigate the policies and guidance that permit foreign ownership of an EB-5 regional center. It is obvious that foreign corporations and foreign governments are increasingly taking advantage of the regional center program to establish ownership in U.S. based real estate projects. I am concerned that this may allow foreign corporations and foreign governments to profit from marketing U.S. green cards to their citizens in return for investments and ownership in EB-5 real estate projects. I asked for a top to bottom review to ensure that U.S. interests are protected in the EB-5 program.
The Securities and Exchange Commission has brought over a dozen suits against regional centers and operators. U.S. investors and foreign nationals are being duped and left high and dry.
Just this week, another individual was indicted for devising a scheme to defraud and obtain money and property from investors. This person was able to take in millions of dollars from foreign investors and use the money for his personal gain. We have seen it time and again. But, under current law, such individuals aren’t banned from the program in the future.
Aside from the vulnerabilities, the benefits of the program are questionable. Even the Government Accountability Office says it’s hard to ascertain the economic benefits of the EB-5 program.
Most of the visas are going to urban and affluent areas at a discounted rate when Congress specifically intended to steer some visas to rural and high unemployment areas. Census tracts are stitched together to incorporate remote public housing developments so that high rises, hotels, casinos and resorts can attract investors for less than the statutory $1 million requirement.
The Judiciary Committee held a hearing on this specific issue. Though Congress intended for most EB-5 investments to be made at the $1 million level, nearly all are made at the $500,000 level because of gerrymandering. And, that’s just not what was intended.
Gerrymandering allows very affluent areas to benefit from the lower investment threshold, resulting in little incentive to invest EB-5 funds in distressed or rural areas, as was envisioned by Senators when it was created.
The senior Senator from New York says we don’t know how cities work. He doesn’t think projects should or could be built in the Bronx. He says they’ll commute and work on 5th Avenue where the luxury condos are being built.
Those in New York jump over rivers and go through Central Park just to connect to low income neighborhoods.
As a result, smaller and economically depressed cities are forced to compete with Beverly Hills, Miami and Manhattan. Foreign investors – who ultimately want a green card – want to put their money in glitzy hotels and luxurious condo projects where there seems to be higher return.
Targeted Employment Areas are at the heart of the controversy about EB-5 and the principal reason we were unable to pass common sense reforms last year.
Yet, we proposed a lot of good reforms. For example, the Grassley-Leahy-Conyers-Goodlatte proposal, for the first time, incentivized EB-5 investment in manufacturing and infrastructure projects. Manufacturing employers create direct, long-term, quality jobs in communities. As for infrastructure, we have a lot of needs in the Midwest, including rail and river transportation, wastewater treatment plants, and bridges. More EB-5 capital in infrastructure projects would reduce the burden on taxpayers, especially when local governments are up against federal mandates.
We also proposed reallocating the visas – carving out enough for rural and high unemployment areas, but leaving more than half of the visas for projects that come in at the higher investment level. We even offered to give the affluent areas their own carve out.
Yet, one proposal suggested to us was to make the visas cheaper. They want to reduce the amount an investor has to pay for a green card. They also want more visas. The demand for visas is through the roof, yet they want to reduce the price.
My colleagues and I have been willing to engage with other members on this issue. We have made so many concessions. I’m not sure how much more we can give, especially when there’s increasing calls to end the program.
Status quo is not acceptable. It’s time for things to change.
I encourage my colleagues to join the Ranking Member and me in our request for reforms. I hope this body will think twice before allowing the program to continue as is.