EB-5 gets critical editorials ("a government visa-giveaway program"); Kushner's sister steps back

Finally, thanks to the high-profile and very dubious effort by the Kushner Companies to raise EB-5 funds in China for One Journal Square, we're getting a flurry of reporting on and commentary regarding the investor visa program.

Everyone's piling on, though a few months ago, few in the media were interested--and problems with EB-5 have been evident for years. There have been cycles of brief attention, but nothing sustained.

The media attention is important, because typical coverage--see this pre-Kushner article in the Commercial Observer--concerns a narrow range of industry players, interested perhaps in belated reforms but not the fundamental nature of the program.

Given EB-5's concentrated benefits and diffuse costs, few represent the public interest, so media attention helps right the balance.

A Times editorial

From a lead editorial from the New York Times on Tuesday, 5/9/17, The Kushners and Their Golden Visas:

[Kushner sister] Ms. [Nicole] Meyer’s disturbing investor pitch was made possible by the EB-5 investor visa, which opens an express lane into the United States for those who can afford to invest nearly 10 times what the median American household earns in a year. The program, which covers business investments as well as real estate, was created in 1990 and took off in the past 10 years as developers figured out how to turn it into a cheap source of capital. Investors are willing to settle for low returns if it means they gain permanent residence status in the United States. Affluent Chinese families seeking a foothold in a stable democracy snap up most of the visas, which are capped at 10,000 a year.
The EB-5 program has been a scandal magnet. The Government Accountability Office and the inspector general of the Department of Homeland Security say that immigration officials do not properly vet applications for fraud and illicit sources of money. The real estate industry also games the system by using the dark arts of gerrymandering. Under the program, investors have to put at least $1 million, and it has to lead to creation or preservation of at least 10 permanent, full-time jobs. But the minimum investment drops to $500,000 if applicants invest in rural areas or places with elevated unemployment. Developers working in, say, Midtown Manhattan or Beverly Hills can say that nearby depressed neighborhoods are included in the area when they apply for the program.
Defenders of EB-5 say it fosters investment and creates jobs. But many real estate projects funded through the program, including the Kushner Companies’ One Journal Square development in Jersey City, would almost surely have happened anyway.

The Times notes there are pending bills to eliminate or reform the program, but that "influential real estate groups" benefit. The page does not firmly recommend killing the program, and I bet there aren't (yet) votes in Congress to do so.

If EB-5 survives, even with reforms, the middlemen will continue to make bank, and dubious job-creation calculations will be permitted.

Note that the Washington Post on 5/8/17 more pointedly published The Trump administration has a chance to end a corruption-prone visa program:

This is not a government visa-selling program. It is a government visa-giveaway program; the private-sector businesses, in effect, sell them, in return for low-cost financing of projects they would probably do anyway. Ending EB-5 would be an easy step on the path to rational immigration reform.

The Post has previously been well ahead of the Times in critiquing EB-5.

From the comments

Several commenters rightly pointed out that Kushner's company is hardly the only one taking advantage of EB-5, and that it proceeded robustly under the Obama Administration. Both true, though, as others noted, no one in Obama's family tried to take advantage of proximity to power.

Some suggested it was not bad policy; others said it was. I think there's a threshold question: should we essentially sell visas (as do other countries, like Australia and the U.K.)? If so, should we sell them this way? We could, most simply, auction them off and put the money into the U.S. Treasury, cutting out all the middlement.

Or, as one commenter wrote:

Let's talk about a $5 Million investment that creates above median wage manufacturing jobs, with an automatic (from the investor) plus a requirement that the investor drop of say $25K (Put into a trust) per worker in the corporate retirement fund; The "Investor" and all associated financial entity's should be statutorily barred from any benefits from the Retirement Fund.

Another wrote:

Let's up the ante to maybe $20M with the proviso that 25% of the investment be placed in a sort of escrow against the failure of the qualifying investment project to compensate local authorities for the potential damage that a project might leave in its wake. Moreover, limit the projects to those that will produce permanent local jobs or infrastructure improvements.

Advancing the story: insider steps back

In the wake of the publicity, Nicole Kushner Meyer--third from left, in photo from migration agency Qiaowai site--has backed out of EB-5 road-show presentations in China.

And, as reported yesterday by the Washington Post, Changes to visa program could set back Kushner family’s real estate company, proposed changes that would make it more expensive for investors in wealthy urban areas--which can masquerade as high-unemployment zones under loose EB-5 rules--could threaten projects like One Journal Square.

The Times, in coverage today headlined Kushner Companies Backs Out of Chinese Investor Events After Furor, reported:

Even in China, where business and politics often mix, there was a hint of indignation. State-run news media published reports asking whether the company was benefiting from unfair competition.
“Caution urged on Kushner project,” read a headline in the Global Times newspaper.
But Hao Junbo, a lawyer in Beijing, said Ms. Meyer’s emphasis on family connections would probably prove to be a winning message in China.
“Chinese people have a tradition of worshiping powerful officials,” he said. “It’s an innate attraction to Chinese investors. They will automatically label the program as one with official backing after they hear the name of Trump’s son-in-law.”

Spreading the wealth?

The Post reported:

Sen. Charles E. Grassley ­(R-Iowa), a longtime critic of the EB-5 program, said Thursday that Kushner’s sister may have left investors with the false impression that they would get special treatment because of her brother’s position in the White House.
Grassley, who says the visa program should be used to help create jobs in rural and economically depressed areas, sent a letter to Kelly demanding that he quickly implement the proposed program changes.

Note that Grassley is more interested in spreading the wealth to his own state than killing the program.

Inside access for EB-5 middleman?

The Post also reported regarding the Kushner's EB-5 connect:

Nicholas Mastroianni III, president of U.S. Immigration Fund, a firm that specializes in pooling EB-5 investors, contributed $100,000 to the Trump inauguration. He was invited to an exclusive dinner with Trump’s future Cabinet members on Jan. 18, days after the changes were proposed. [Department of Homeland Security Secretary John] Kelly was one of the Cabinet members who mingled with top donors at the event.
The Palm Beach Post reported last month that the two sat at the same table. A spokesman for Mastroianni initially told The Post that he did not think the report was accurate but did not respond to follow-up requests for comment.
Lapan, the DHS spokesman, said Kelly has no recollection of meeting Mastroianni at the dinner.

That's not exactly a lot of candor from Mastroianni's spokesman.