Prepared Floor Statement of Senator Chuck Grassley of Iowa

Chairman, Senate Judiciary Committee

EB-5 and the Omnibus

Thursday, December 17, 2015

 

Mr. President,

 

At 1:30 am Wednesday morning, an omnibus appropriations bill was filed to keep the government operating for the remainder of the 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 by 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 too serious to ignore.  Yet, the omnibus bill fails to include much needed reforms.

 

The spending bill being considered by the House and Senate is a major disappointment.  I'm frustrated that, despite the alarm bells and whistleblowers warning us about the program, Republican and Democrat leadership in the House and Senate decided to simply extend the program without any changes.  This was a missed opportunity.

 

What makes this especially frustrating is that the Chairs and Ranking Members of the House and Senate Judiciary Committees 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.  We worked in a bi-partisan fashion.  We agreed on every aspect, believing in our heart of hearts that we were doing the right thing.  We found common ground on national security reforms.  We made sure that rural and distressed urban areas benefited from the program.  We instituted compliance measures, background checks, and transparency provisions.

 

Through months of hard work, we put together a great deal. But despite this broad, bi-partisan 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 here on Capitol Hill?on this island surrounded by reality?that we can choose to plug our ears and refuse to listen to commonly accepted facts. The Government Accountability Office, the media, industry experts, members of congress, and 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 who were spearheading EB-5 reform? Why did they ignore the GAO, the FBI, and the Secretary of Homeland Security?

 

Allow me to remind my colleagues why the EB-5 Regional Center program is in need of reform.

 

For several years, I've kept close tabs on the program, thanks in part to the reports of wrongdoing brought forward 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 program. This whistleblower said in a Senate committee hearing:

"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 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 the problems. 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. 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.

 

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 securities laws. Third Party promoters engaged by regional centers to recruit potential investors overseas fall outside of 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 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."

 

How many more intelligence reports are needed to understand the problems?  How many more headlines are needed before we have the will to deal with them?  How many more whistleblowers are going to be demoted for speaking 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 that since 2012.

 

Our bill would have done that.  But, the fact that our bipartisan bill was dismissed 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 dollars for a make-believe building project he never intended to finish. The article explains 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 non-existent projects. The Securities and Exchange Commission encountered another fake project in which two men in Kansas purported to build an ethanol plant in Kansas. 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."

 

The report goes on to say that millions of dollars of investor money was used for other purposes?even going to another completely unrelated project in the Philippines.

 

Just last month, the National Law Review reported another case in which the Securities and Exchange Commission 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 owner 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. 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 a green card.

 

A lot of the debate in the past two months has been on Targeted Employment Area reforms. The Targeted Employment Areas created by Congress to steer foreign investments to rural and distressed areas have been greatly abused.  The designations have been gerrymandered to include the most lavish of developments in the richest neighborhoods.

 

The Hudson Yards Project has generated millions of dollars for a luxury apartment complex in mid-town Manhattan.

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."

 

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.

 

Some may say that there wasn't enough debate or public input on EB-5 reforms. Well, let me walk you through just how much debate we've had on this issue.

 

The Judiciary Committee held a hearing on the program in late 2011.  In every hearing since in which Secretary Johnson has testified, the issue of EB-5 has come up.  The Homeland Security and Government Affairs Committee, as well as other House committees, have had hearings on the 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. Part of that bill included EB-5 reforms, some of which are in the Judiciary Committees agreement.

 

Then, in 2014, the House Judiciary Committee voted out a bill that included some changes to 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, The American Job Creation and Investment Promotion Reform Act.  It was a tough, serious bill to overhaul the program.

 

And since June, we have listened to members.  We have heard input from their constituents and the regional centers in their states.    We listened to shareholders.  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 have worked with them and the Securities and Exchange Commission on language.  We consulted various congressional committees.

 

We took this input, and made changes to our bill. On November 7, we circulated a new draft with Chairman Goodlatte.   Ranking member Conyers joined our conversations as well, and has provided invaluable input.

 

So, again, we had a bipartisan and bicameral agreement with the four leaders of the committee of jurisdiction.  Leadership of both bodies said that committees would do their jobs and be relevant to the legislative process again.   And, we weren't the only ones who wanted action.

 

On November 6, Chairmen Corker and Johnson 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 the ability to terminate questionable centers.

 

Senator Feinstein said she'd 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."

 

Two weekends ago, Judiciary staff was asked to come in and talk to Democrat and Republican leadership.  Staff was asked to hear out the U.S. Chamber of Commerce, the Real Estate Roundtable, and other industry representatives.

 

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 level to ensure they could use the program.  An agreement was in the works.

 

Yet, when they returned the next day for discussions, the Chamber and Real Estate Roundtable, along with a small group of developers represented by a law firm in town, came with a new list of demands.  They had half a dozen major issues, not to count their so-called technical changes.

After nearly 12 hours in a room with EB-5 protectionists, Judiciary Committee staff conceded and tried to find common ground.  They left with an agreement in concept.

 

But the next day when staff were called in to finalize the language, the industry said they wanted more. This is a common theme.  The industry wanted more. And more. And more.

 

It made one really wonder if they actually wanted a bill with reforms.

 

Then, after all the concessions made to the industry, some members in the Senate asked us to make even more concessions.

 

Despite all these challenges, the four corners of the Judiciary Committee compromised even more. We gave in on many areas. We tried to strike an agreement?as much as we knew it weakened our bill - because the security reforms are so desperately needed.

 

But after all that, our House and Senate leadership failed us.  They extended the program without changes for 10 months.  No reforms. No plugs to national security.  No safeguards against fraud and abuse.

 

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

 

Am I disappointed that the leadership simply extended a very flawed program?  Yes.  But, I also know that the product we had provided them on Monday night was a very flawed bill.  It was 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.

 

According to ABC News, more than $30 million was spent this year alone on lobbying efforts against reforms.  I would like unanimous consent to insert into the record this article, titled, "Lobbyists Declare Victory After Visa Reform Measure Dies Quietly."

 

Well, it's time for things to change.  I was for reform.  I wanted to make it better.

 

But, now I'm not so sure reforms are possible.  It may be time to do away with it completely.

 

Maybe we should spend our time, resources and efforts in other programs that benefit the American people.  Maybe it's time this program goes away.

 

The next 10 months will be spent exposing the realities and the vulnerabilities of this program.  As Chairman, I will exercise oversight of this program even more than I have.  I will ask tough questions and make more recommendations.

 

My quest to either have EB-5 reforms or end the program has just begun.

 

This is not the end.  This is just the beginning.

 

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WASHINGTON - Sen. Chuck Grassley of Iowa today praised the inclusion of a five-year extension of the wind energy production tax credit, his provisions to enhance Section 529 college savings plans, his measures to protect taxpayer rights and more welcome provisions in the newly released bipartisan, bicameral omnibus budget and tax package before Congress.

"Certainty and predictability in tax policy are necessary so businesses can plan and invest accordingly, which is important for job creation." Grassley said.  "A five-year extension of the wind energy provision will support jobs.  It supports the renewable energy that consumers want for a cleaner environment and energy independence from countries that wish to do us harm.  The college savings provisions help families and students afford college.  They improve a tax incentive that's popular with Iowans and others around the country who work hard to save money for their children and grandchildren to get an education.  The IRS provisions are necessary to get the agency more focused on its number one job of taxpayer service."

The five-year extension of the wind energy production tax credit is a victory for wind energy producers.  The extension is meant to lead to a phase-down of the industry-specific tax credit.  As included, the wind production tax credit will be 100 percent in 2015 and 2016, 80 percent in 2017, 60 percent in 2018 and 40 percent in 2019.

"As the father of the first wind energy tax credit in 1992, I can say that the tax credit was never meant to be permanent," Grassley said.  "I also can say that the wind energy industry is the only energy industry that came forward with a phase-out plan.  The oil and nuclear industries have benefited from tax incentives that have been permanently on the books for decades.  The five-year extension for wind energy brings about the best possible long-term outcome that provides certainty, predictability and a responsible phase-down of a tax incentive for a renewable energy source."

On education, the tax package before Congress includes Grassley's provisions to improve the already successful Section 529 savings program.  Grassley's provisions allow 529 funds to purchase a computer on the same tax-favorable basis as other required materials; cut outdated, unnecessary rules that increase paperwork and costs on plan administrators; and  provide tax and penalty relief in instances where a student may have to withdraw from school for illness or other reasons.

Grassley introduced his bipartisan provisions in February.  His reforms build on improvements to 529 college savings plans enacted in 2001 and 2006 under Grassley's leadership on the Finance Committee and with broad bipartisan, bicameral support.   The 2001 law made distributions from the plans tax-free if used for education expenses but it was scheduled to expire.  The 2006 law made the tax-free provision permanent.  The President proposed eliminating the 529 program earlier this year, drawing opposition from parents and Congress.

The measure includes another long-time Grassley provision, the extension of an above-the-line deduction for qualified tuition and related expenses for higher education. The provision extends the above-the-line deduction for qualified tuition and related expenses. The deduction is capped at $4,000 or $2,000 for individuals, depending on income.  Another long-time Grassley priority included is an extension and modification of a deduction for certain expenses of elementary and secondary school teachers, including school supplies that they purchase out of pocket.

The tax package includes an extension of the existing biodiesel fuel blenders credit, the small agri-biodiesel producer credit, the tax credit for cellulosic biofuels producers, the alternative fuel vehicle refueling tax credit, and bonus depreciation for cellulosic biofuel facilities.  Grassley authored the initial version of many of the alternative fuels provisions when Finance Committee chairman.

Grassley hoped to include his bipartisan provision to modify the biodiesel blenders credit to a domestic production credit.  "I'm disappointed that my common-sense, cost reduction modification was not included," Grassley said.  "We shouldn't provide a U.S. taxpayer benefit to imported biofuels.  The domestic production credit would have made sure that U.S. policy incentivizes a domestic industry instead of benefiting foreign producers, and I'll continue to push this reform.  Still, a blenders credit will help a growing industry that creates jobs and gives consumers alternatives to fossil fuels.  The more fuel options, the better to meet demand."

The measure includes the enhanced per-child tax credit, making it permanent and indexing it for inflation.  "This is helpful for families facing the tremendous expense of raising children," Grassley said.

The tax package permanently extends enhanced Section 179 expensing for equipment purchases, which is popular with farmers and small businesses.  This allows farmers and small business owners to deduct the cost, up to a limit, of major equipment and property purchases that contribute to farm and business operations and job creation.  The permanence is a major achievement because this provision has been temporary over the last several years.

Included is a bipartisan measure Grassley led to increase the alternative tax liability limitation for small property and casualty insurance companies. These small companies largely serve rural communities, which rely on this adjustment to provide additional surplus and cash flow used to pay customers' insurance claims.

"This provision helps to ensure that small mutual insurance companies will continue to be able to serve rural residents who have unique circumstances, such as living far from a fire station, and so are often unable to obtain private property insurance through traditional insurance companies," Grassley said.

The package includes several provisions from Grassley's Taxpayer Bill of Rights Enhancement Act of 2015, introduced in June amid gross mismanagement and inappropriate actions by IRS employees that have shaken what little confidence taxpayers may have had in the agency.  The provisions include :

--Codifying the Taxpayer Bill of Rights, which includes the right to:  be informed; quality service; pay no more than the correct amount of tax; challenge the position of the IRS and be heard; appeal a decision of the IRS in an independent forum; finality; privacy; confidentiality; retain representation; and a fair and just tax system and requires the IRS commissioner to ensure that IRS employees are familiar with and act in accordance with these rights.

--Prohibiting IRS employees from using personal email accounts for official business. This codifies an already established agency policy barring use of personal email accounts by IRS employees for official governmental business.

--Declaratory judgments for 501(c)(4) and other exempt organizations. The provision permits 501(c)(4) organizations and other exempt organizations to seek review in federal court in instances where the IRS fails to act on an application in a timely manner or makes a negative determination as to their tax-exempt status.

--Termination of employment of Internal Revenue Service employees for taking official actions for political purposes. The provision makes clear that taking official action for political purposes is an offense for which the employee should be terminated. The bill amends the Internal Revenue Service Restructuring and Reform Act of 1998 to expand the grounds for termination of employment of an IRS employee to include performing, delaying, or failing to perform any official action (including an audit) by an IRS employee for the purpose of extracting personal gain or benefit for a political purpose.

"The IRS has never been anyone's favorite agency," Grassley said.  "But it shouldn't repel and mistreat the people it exists to serve.  The IRS' level of customer service might be at all-time low.  Taxpayers are at a disadvantage with an agency that has tremendous power over their money.  The IRS might talk about good customer service.  Too often, talk is all there is.  The IRS needs to walk the walk.  These changes will help swing the pendulum away from agency self-preservation and back to taxpayer service."

The tax package adopts Grassley-led policy to ensure that those granted deferred action under the President's executive actions on immigration cannot retroactively get the Earned Income Tax Credit based on earnings from work performed illegally in the United States.

Grassley is former chairman and a senior member of the Finance Committee, with jurisdiction over the IRS.  Grassley championed the 1988, 1996 and 1998 taxpayer rights laws currently on the books.

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Tuesday, December 15, 2015

Senator Chuck Grassley made the following statement after the U.S. Department of Agriculture released the final rules on the actively engaged provisions of the 2014 farm bill.  Grassley led the effort to get passed in both the Senate and the House provisions that would have established a farm payment cap of $250,000 and tightened loopholes that have allowed some non-farmers to game the system.  Despite receiving a majority of support in both bodies of Congress, the conference committee tied the hands of the U.S. Department of Agriculture by including a watered down version that allowed loopholes to remain.

"The final rule issued by the Department of Agriculture to reduce abuses of the actively engaged loophole is a first step.  While this rule still isn't as stringent as the reforms approved by both bodies of Congress through my payment limit amendment, it represents a good faith effort by the department to make the farm bill more defensible, despite the indefensible loopholes left open by the conference committee.

"Meaningful and enforceable limits on farm subsidies are the right thing to do.  Taking steps to end farm payments to people who don't farm is good for agriculture going forward and helps begin to bring the program back to its original intent.

"If the farm bill is reopened in the omnibus appropriations bill by allowing unlimited subsidies to farmers by reviving commodity certificates, it creates long-term consequences for agriculture and puts at risk the positive step this final rule takes."

 

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WASHINGTON - Sen. Chuck Grassley of Iowa and Sen. Chris Murphy of Connecticut have urged the U.S. Senate Committee on Energy and Natural Resources to consider the National Liberty Memorial Clarification Act of 2015, a bill that would keep the creation of the National Liberty Memorial - a monument to commemorate the tens of thousands of slaves and free black persons who fought for freedom and independence in the American Revolution - on track.

In a letter to Chairwoman Lisa Murkowski (R-Alaska) and Ranking Member Maria Cantwell (D-Wash.) of the Senate Committee on Energy and Natural Resources, Murphy and Grassley requested that the committee leaders schedule a hearing on the bill early in the next session of Congress so that it can be reported to the full Senate as soon as possible. The National Liberty Memorial Clarification Act was referred to the Senate committee earlier this year after it passed the U.S. House of Representatives by a vote of 402-0.

"We are strong supporters of the creation of the National Liberty Memorial to honor the thousands of enslaved and free black persons who fought in the Revolutionary War.  However, we understand that red tape has led to delays in the final approval of the design and location for the memorial.  In order to streamline the process and keep the memorial on track to be completed in the current authorization period, the U.S. House of Representatives passed H.R. 1949, the National Liberty Memorial Clarification Act of 2015, on September 17, 2015," wrote the Senators. "H.R. 1949 has now been referred to your committee. We ask that you schedule a hearing early in the next session of Congress to consider this bill with a view to it being reported to the full Senate for consideration as soon as possible."

Grassley's work to get the memorial built began when several young Iowans took an interest in the effort and helped with the initial push for the memorial. One soldier of special interest to many Iowans is Cato Mead, an African American Revolutionary War patriot who spent his final years in southeast Iowa.  There is a monument dedicated to Mead in the Montrose Cemetery in Lee County.

Murphy became involved in the effort after former U.S. Senators Chris Dodd and Joseph Lieberman successfully led the fight to pass legislation that, in 2013, was signed into law by President Obama and authorized construction of the new memorial. At least 820 African American soldiers served in the Revolutionary War from Connecticut.

The National Liberty Memorial will be built by Liberty Fund D.C., a private nonprofit established to lead the effort to construct the memorial. No taxpayer dollars will be used to fund the construction of the memorial.

The full text of the letter is below:

 

The Honorable Lisa Murkowski, Chairwoman

The Honorable Maria Cantwell, Ranking Member

Senate Committee on Energy and Natural Resources

304 Dirksen Senate Office Building

Washington, D.C. 20510

Dear Chairwoman Murkowski and Ranking Member Cantwell,

We are strong supporters of the creation of the National Liberty Memorial to honor the thousands of enslaved and free black persons who fought in the Revolutionary War.  The memorial has been authorized by Congress to be established in Area I or Area II in Washington, D.C. However, we understand that red tape has led to delays in the final approval of the design and location for the memorial.  In order to streamline the process and keep the memorial on track to be completed in the current authorization period, the U.S. House of Representatives passed H.R. 1949, the National Liberty Memorial Clarification Act of 2015, on September 17, 2015, by a vote of 402-0.

H.R. 1949 has now been referred to your committee.  We ask that you schedule a hearing early in the next session of Congress to consider this bill with a view to it being reported to the full Senate for consideration as soon as possible.

Thank you for your consideration of our request.

Sincerely,

Charles E. Grassley                       Christopher Murphy

United States Senator                        United States Senator

A signed copy of the letter is available here.

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