As the New York Times reported 9/12/16, Visa Program Up for Renewal Amid Allegations of Fraud
A contentious visa program that allows wealthy foreigners to obtain a green card by investing in economic development projects will expire at the end of this month unless Congress acts to extend it.Indeed, one of the one-time poster children for EB-5 progress, a project in Vermont, has been the subject of fraud charges.
The program, called EB-5, allows foreign investors to gain a quicker path to citizenship by investing from $500,000 to more than $1 million to finance a business that eventually employs, directly or indirectly, at least 10 American workers in economically depressed areas.
Developers and supporters in Congress say the program, run by theDepartment of Homeland Security, has brought billions of dollars to areas that would otherwise not have access to capital.
But the program has been marred by fraud and used to build large projects in wealthier areas like Manhattan and the Las Vegas Strip instead of high-unemployment or rural areas. Federal investigators have also discovered that attempts to infiltrate the program were made by people with possible ties to Chinese and Iranian intelligence, and that international fugitives who laundered money in their home countries gained citizenship through the program.
The new bill, sponsored by Congressman Bob Goodlatte (R-Va.), would raise the minimum amount investors would need to pump in to get a green card. That in itself was expected. But what makes it unusual is a provision that would require existing investors to retroactively cough up the additional amounts. It is this provision, real estate insiders say, that could cause investors to pull their money out of U.S. real estate projects, leaving developers in the lurch.The retroactive provision would go back to applications filed by investors starting in June 2015, but that could be a bargaining chip. After all, Goodlatte has received a good amount of cash from EB-5 promoters.
It would also crack down on developers’ ability to present their projects as being in high-unemployment areas by creatively cobbling together census tracts, a process some have likened to gerrymandering. Many New York developers, including theRelated Companies and Extell Development, have been accused of manipulating census tracts to make sure their developments are located in “Targeted Employment Areas,” allowing them to qualify for the lower investment threshold.The Hill reported that Sen. John Cornyn (R-TX) confirmed that EB-5 would be extended until December. He and Sen. Chuck Schumer (D-NY) blocked reform effort last year.
Under the bill, combining census tracts would no longer be permitted. In addition, approximately 2,000 visas would be reserved for projects in rural areas, which are seen as high-risk. Those visas would not be reallocated to urban projects even if they remain unused.
Grassley, separately, sent a letter to Homeland Security Secretary Jeh Johnson on Monday, writing that the program "has significant problems that not only pose a threat to our national security, but also threaten the integrity of our financial and legal immigration systems."
The Iowa Republican added that he is concerned that foreign governments and corporations "are increasingly taking advantage" of the program. He wants a briefing on policies that permit foreign ownership of an EB-5 regional center or allow foreign corporations to profit from the projects.
It has come to my attention that USCIS has approved several large-scale EB-5 projects in affluent, gateway markets that involve Chinese companies (and/or their domestic subsidiaries) with substantial financial interests in the underlying real estate assets. For many years, China has been the major source country for immigrant investors. To attract these investors, U.S.-based EB-5 regional centers often contract with Chinese EB-5 capital placement firms to recruit investors for their respective projects. These Chinese firms are not subject to U.S. securities regulations; and are able to collect monetary payments from U.S. regional centers and in some instances even obtain equity interests in the EB-5 project. Regional centers typically pay top placement agents an up-front fee of $75,000 or more per $500,000 investment they obtain, plus a 3 to 8 percent share of the interest over the term of the loan.
Moreover, EB-5 investment projects that create a tangible output, such as a real estate development, that is principally if not exclusively available for the enjoyment only of the foreign investors themselves, have a snake-eating-its-own-tail quality about them that Congress absolutely did not intend; they subordinate any benefit to the American people actually living in the Targeted Employment Area to the benefit of wealthy foreign investors. Despite these conflicts of interests, USCIS has approved several other EB-5 projects that are owned or influenced by foreign corporations and foreign governments to develop major real estate projects in Illinois, New York, and California. ...The EB-5 program has derailed from the original intent of revitalizing distressed and urban communities who desperately need the additional investment capital. Instead, the program is increasingly becoming dominated by mega-projects in the most affluent areas, and foreign corporations are mostly likely to reap the economic benefits... Pacific Park, also in New York, is seventy percent owned by Chinese-owned Greenland....
It is obvious that foreign corporations and foreign governments are increasingly taking advantage of the EB-5 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.
The Department of Homeland Security's U.S. Citizenship and Immigration Services (USCIS) has recently taken steps intended to enhance fraud detection and mitigation activities for the Employment-Based Fifth Preference Immigrant Investor Program (EB-5 Program) and address previous GAO recommendations.
This includes actions such as conducting and planning additional risk assessments to gather additional information on potential fraud risks to the program. For example, USCIS is leveraging overseas staff to investigate potential fraud associated with unlawful sources of immigrant investor funds and is conducting a site visit pilot to help assess the potential risks of fraud among EB-5 program investments. USCIS is also taking steps to collect more information about EB-5 program investments and immigrant investors through new, revised forms and expanding its use of background checks, among other things, to help improve its ability to identify specific incidence of fraud. However, fraud mitigation in the EB-5 Program is hindered by a reliance on voluminous paper files, which limit the agency's ability to collect and analyze program information.
GAO recommends that USCIS develop a fraud risk profile that aligns with leading practices identified in GAO's Fraud Risk Framework. The Department of Homeland Security concurred with GAO's recommendation.