The Senate held a hearing this week on the EB-5 visa program that provides for foreign investors to receive permanent resident status and eventually apply for citizenship. CF&P scholars have argued that the program is of great value to the U.S. economy and should be preserved.
Unsurprisingly given the current news cycle, the hearing frequently strayed into matters unrelated to the EB-5 program. Unfortunately, even when on topic it left much to be desired.
Right off the bat, Chairman Grassley set the tone with a statement assailing the program. Let’s consider a few of his claims.
I’ll only mention some of the most egregious recent cases.
This past January, a group of over 120 Chinese nationals sued an Idaho real estate development company and claimed they were fraudulently coerced into investing over $60 million. The real estate company in question allegedly promised there was “zero risk” to invest in their specific EB-5 project, a claim that clearly violates the program’s requirements that capital be at risk. As a result, this specific EB-5 project was terminated by USCIS and the investors’ immigration status was jeopardized—all because this project misrepresented themselves in order to gain quick, easy money.
In May, the SEC barred two EB-5 companies from selling securities after it was discovered the companies’ president and manager fraudulently raised $22.5 million in EB-5 capital from Chinese investors. According to the SEC, these two companies were supposed to use the raised money for the development of a condominium complex. Instead, the companies’ President and his wife stole more than $12 million in order to purchase homes for themselves.
Finally, and also in May, two Maryland residents were charged with defrauding 31 immigrant investors and using money intended to create jobs after Hurricane Katrina for personal gain. The indictment claims the duo contracted with New Orleans to create a $15.5 million investment fund, but instead used the money to buy themselves vacation and rental properties.
Stories like these are often used to portray the EB-5 program as riddled with fraud. Yet when considering the thousands of successful projects undertaken as part of the program and the billions it has brought into the U.S., the listed incidents seem less significant.
This is why CF&P recently joined a coalition of free-market groups in authoring a letter in support of protecting the EB-5 program from regulatory sabotage. As the letter highlights, “According to research by the American Action Forum, the program has increased foreign investment in the United States by $20 billion since 2008 and created over 174,000 jobs. If the EB-5 program was doubled, U.S. GDP would increase by $11 billion annually. In addition, according to a 2017 Department of Commerce report, the EB-5 program has increased investment in the U.S. by $5.8 billion in 2012 and 2013.”
But there’s also one very important thing that all these examples given by Grassley have in common: they were stopped. Crime is a fact of life, but if those attempting it are being caught and punished than that generally means the system is working. Could EB-5 oversight be improved? Almost certainly, and there are a host of widely accepted legislative reforms being discussed, which is all the more reason why regulators should not subvert the process and impose requirements that would have the effect of severely restricting the program.
And speaking of improvements to the program, one of the issues that ought to have been discussed was how the government has long been cheating would-be immigrants by erroneously counting family members against the 10,000 yearly cap. There’s a huge backlog of EB-5 applicants, which it’s important to remember are individuals eager to bring investment into the United States, that wouldn’t exist if Congress had been properly adhering to the law, as explained by the Cato Institute’s David Bier.
Here’s another complaint from Grassley:
For the past four and a half years, I’ve worked in a bipartisan, bicameral fashion with Senators Leahy, Chairman Goodlatte, and then-Ranking Member John Conyers to reform this program. Our staffers have spent countless hours, often working nights, weekends, and holidays, to produce consensus reform packages. Each and every time we’ve gotten an agreement at the last minute, powerful, well-connected EB-5 industry groups have torpedoed our efforts.
…Let that sink in for a minute. In spite of the fact that reforms were agreed to by Congressional offices and had the support of the largest EB-5 trade association, they didn’t become law because a few EB-5 businesses with a lot of money used their political connections and influence to block them.
This is a common complaint from Grassley, repeated in a recent Washington Times op-ed that was rebutted by our own Dan Mitchell, that is nonsensical on its face. If, as he claims, Congressional offices supported his legislation, then who stopped it? He can complain about “big moneyed” interests all he wants, but they don’t get a vote. Either his ideas had sufficient Congressional support to pass or they did not. Clearly, they did not. And now rather than actually reach an agreement that could move through Congress, he wants to impose by regulatory fiat the changes he could not enact by law. That’s not how our system is supposed to work.
But back to Grassley’s statement:
While legislative reforms are absolutely necessary, thankfully there is much the administration can do on its own to end corruption in this program. Since January of last year, there have been pending regulations at the Department of Homeland Security, which would modernize the program and ensure capital is actually flowing to rural and underserved urban areas.
Here we get a peek at what is actually motivating much of this assault. Senator Grassley wants investment capital to flow to the places he desires rather than letting the market work to determine which investments will provide the greatest return and, therefore, create the most value for the U.S. economy. I’m sure it’s just coincidence that, as a representative of rural Iowa, he wants capital “flowing to rural … areas.”
Finally, it’s telling that the only witness at the hearing was an administration official hostile to the program who also happened to be a former Grassley staffer. Not represented were any of the estimated 174,000 Americans who have jobs thanks to EB-5 investments. But that’s ok, we’re going to continue speaking for them and everyone else that benefits when the U.S. competes to bring new foreign investment into the country.
