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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