[Congressional Record (Bound Edition), Volume 162 (2016), Part 10]
[Senate]
[Pages 13414-13416]
[From the U.S. Government Publishing Office, www.gpo.gov]




                      EB-5 REGIONAL CENTER PROGRAM

  Mr. LEAHY. Mr. President, the reason I have come to the floor today--
and I will be joined by Senator Grassley--is to share my concern and 
his concern about the EB-5 Regional Center Program. The authorization 
of this program is set to expire at the end of the month, but Senate 
leadership wants to extend the EB-5 Program as part of the continuing 
resolution. I want the Senators to know that if this flawed program is 
not reformed, I believe it should end. I can no longer support a 
straight extension of the program.
  For years, I strongly supported the EB-5 Program. I even championed 
its reauthorization. I did so because EB-5 was designed to bring in 
investment and jobs to underserved rural and urban communities. For 
some time, that is what it did. In my home State of Vermont, 
communities such as Warren and Vergennes used EB-5 to create and save 
jobs during difficult economic times. They are EB-5 success stories, 
but that was the EB-5 yesterday. The EB-5 Program today is mired in 
fraud and abuse. It has strayed from its important policy goals. The 
incentives Congress created to direct investment to underserved areas--
the very reason I supported this program--have been rendered 
meaningless.
  The program has become an unintended boon for the wealthiest business 
districts in the country. Affluent areas now dominate the program. They 
exploit incentives that were intended for underserved areas, a practice 
Department of Homeland Security Secretary Johnson has rightly described 
as gerrymandering. It has reached the point where a luxury hotel in 
Beverly Hills, CA, qualifies as a distressed urban area. Only in the 
world of EB-5 is Beverly Hills considered economically distressed.
  This type of abuse today is not the exception, it is the rule. 
Currently, 90 percent of EB-5 capital goes to areas that rely on 
gerrymandering to qualify as distressed--90 percent. That is why the 
civil rights community, led by the Leadership Conference on Civil and 
Human Rights, has so strongly criticized this program.
  Far from being a tool for economic development and job creation, EB-5 
is now serving as a corporate subsidy for wealthy developers, allowing 
them to save tens of millions of dollars in financing. It is no wonder 
these developers fight so hard against reforms that would restore 
incentives for EB-5 to do what it was supposed to do when it began--
promote investment in rural and poor urban areas.
  I am not suggesting that affluent areas should never qualify, I am 
merely suggesting they should not qualify for the unique incentives 
that Congress intended for underserved communities because these 
underserved communities have far more trouble attracting capital to 
create jobs.
  Unfortunately, gerrymandering and abused incentives are only part of 
the problem. In recent years, EB-5 has become riddled with fraud. 
Review after review--conducted by the GAO, the Inspector General, and 
by Senator Grassley and me on the Judiciary Committee--have revealed 
serious vulnerabilities in the program. Investors have been defrauded. 
They have lost money and their immigration benefits have been put in 
jeopardy.
  Communities that once hoped to benefit from this program have been 
left to pick up the pieces. From California to Florida, and from Texas 
to even my home State of Vermont, allegations of fraud have stained 
this program. Since 2013, the Securities and Exchange Commission has 
filed dozens of EB-5-related enforcement actions. As of last year, over 
50 more Federal investigations were ongoing. Fraud will continue 
unabated until we give the Department of Homeland Security the tools it 
needs to guard against abuse.
  We have an obligation in Congress to ensure that Federal agencies can 
do their job. The Department of Homeland Security has made some 
administrative improvements to EB-5, but Secretary Johnson has made it 
clear to both me and Senator Grassley that congressional action is 
necessary.
  For 5 years, I worked with both Democrats and Republicans to reform 
EB-5. In 2013, I included EB-5 reforms in the Senate-passed 
comprehensive immigration reform. That received a bipartisan vote of 68 
votes in the Senate, but the House of Representatives failed to allow a 
vote on those reforms. Since then, I have continued to work with 
Senator Grassley to review and reform the EB-5 Program.
  Last year, he and I negotiated far-reaching reforms with our 
counterparts in the House Judiciary Committee. Senator Grassley and I 
pushed to have that four corners agreement included in the omnibus 
appropriations bill at the end of last year. But big city developers 
still viewed our reforms as a threat to their bottom line, and they 
have worked aggressively to block our efforts.
  Unfortunately, leaders in Congress sided with the developers and 
extended the EB-5 Program without reform. Senator Grassley and I are 
not going to relent in our efforts to reform this program.
  I see the distinguished Senator from Iowa on the floor. He will be 
speaking on this, but I would note that at the very beginning of the 
new year, we worked together to continue a series of public hearings to 
keep pushing for reform. We are united in our belief that it is 
unacceptable that Congress has failed to respond to an overwhelming 
consensus for reform. A full revamping of the program is required. A 
Band-Aid is not good enough. Powerful corporate interests must not be 
allowed to derail improvements that can guard against fraud, protect 
investors, and also help our most distressed communities.
  The powerful developers want only ``window dressing'' reform 
proposals that do little to change the status quo. We cannot accept so-
called reforms that the SEC believes would, in fact, leave holes in 
enforcement efforts.
  Senator Grassley and I, along with our counterparts in both parties 
in the House Judiciary Committee, have put forward meaningful reforms. 
These reforms were developed in consultation with the Department of 
Homeland Security and the SEC. They are tailored to prevent the rampant 
fraud we are seeing today. They are necessary to save EB-5 from itself.
  As the American people learn more about how the EB-5 Program is being 
abused, the louder the calls will be for its reform or even its 
termination. I believe we could still fix EB-5, but I cannot support 
simply extending it yet again. I do not come to this decision lightly, 
but I cannot support a continuing resolution that leaves these flaws in 
place. The time has come, either reform EB-5 or get rid of it.
  The PRESIDING OFFICER. The Senator from Iowa.
  Mr. GRASSLEY. Mr. President, I rise to fully support everything 
Senator Leahy has said. I have my own remarks on the same subject.

[[Page 13415]]

  When Senator Leahy and I are done--and I may be the end of that--if 
Senator Leahy wants to speak, I ask unanimous consent to speak for 60 
seconds on another item.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRASSLEY. Mr. President, in 1990, Congress created the EB-5 visa, 
which was intended to create new employment for U.S. workers and to 
infuse new capital into the country. Two years later, Congress revised 
the EB-5 category by establishing a pilot program allowing investors to 
use regional centers to pool their investments. This pilot program 
still exists, nearly 25 years later, but it is deeply flawed, lacks 
adequate oversight, and has veered far away from congressional intent.
  The Regional Center Program expires on September 30 of this year. In 
my view, it is in need of a major overhaul if it is going to be 
reauthorized. I have said that repeatedly on the Senate floor, in 
hearings, and in letters to Senate leadership.
  Despite the need for reform, the fiscal year 2016 Omnibus 
appropriations bill included a straight and clean extension of the 
program. This was a disappointment given the alarm bells and the 
whistleblower allegations. It was a missed opportunity. It is my hope 
that both House and Senate leaders will find a way to include reforms 
in a continuing resolution or simply leave it off the table for a later 
date.
  The Senate Judiciary Committee held two hearings this year on the 
program. We discussed the flaws and corruption. We noted the many 
vulnerabilities. We had stakeholders weigh in. We heard from local 
leaders, associations representing workers and regional centers. We 
listened to academics and government officials. We received feedback 
from all types of industries, as well as immigration and securities 
attorneys. We talked to other Senate offices and committees.
  We have outlined the problems. Allow me to mention a few of them. 
Under the EB-5 Regional Center Program: Investments can be spent before 
business plans are approved. Regional center operators can charge 
excessive fees of foreign nationals in addition to their required 
investments. Jobs created are not ``direct'' or verifiable jobs but 
rather are ``indirect'' and based on estimates and economic modeling. 
All jobs created by a project are counted by the foreign national when 
obtaining a green card, even if EB-5 money is only a fraction of the 
total invested. Investment funds are not adequately vetted. Gifts and 
loans are acceptable sources of funds from foreign nationals. The 
investment level has been stagnant for nearly 25 years. There is no 
prohibition against foreign governments owning or operating regional 
centers or projects.
  Regional centers can be rented or sold without government oversight 
or approval. Regional centers don't have to certify they comply with 
securities laws. There is no oversight of promoters who work overseas 
for the regional centers. There is no set of sanctions for violations, 
no recourse for bad actors. There are no required background checks on 
anyone associated with a regional center. Regional centers draw 
targeted employment area boundaries around poor areas in order to come 
in at a lower investment level, yet the jobs created are not actually 
created in those areas, and the projects aren't actually in those 
areas. Every targeted employment area designation is rubberstamped by 
the agency. Adjudicators are pressured to get to a yes, especially for 
those politically connected. Visas are not properly scrutinized. They 
have been approved despite national security warnings. Files and 
applications lack basic and necessary information to monitor 
compliance. The agency does not do site visits for each and every 
project. There is no transparency on how funds are spent, who is paid, 
and what investors are told about the projects they invest in.
  Then there are the national security problems. Our committee has 
received numerous briefings and classified documents to show this side 
of the story.
  The enforcement arm of the Department of Homeland Security wrote an 
internal memo that raises significant concerns about the program. There 
was an interagency working group that reviewed fraud and other national 
security vulnerabilities in 2010. Members of the working group made 
recommendations to reform the program, including the recommendation to 
sunset the regional center model due to crippling fraud and national 
security vulnerabilities.
  Not all of these recommendations were communicated to Congress. This 
week, Chairman Chaffetz, Mr. Cummings, and I sent a letter to the 
Director of the agency in charge and asked for documents relating to 
this working group. I also sent a letter to Secretary Johnson, calling 
on him to investigate the policies and guidance that permit foreign 
ownership of an EB-5 regional center. It is obvious that foreign 
corporations and foreign governments are increasingly taking advantage 
of the 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 investment and ownership in 
EB-5 real estate projects. I asked for a top-to-bottom review to ensure 
that U.S. interests are protected in the EB-5 program.
  The Securities and Exchange Commission has brought over a dozen suits 
against regional centers and operators. U.S. investors and foreign 
nationals are being duped and left high and dry. Just this week another 
individual was indicted for devising a scheme to defraud and obtain 
money and property from investors. This person was able to take in 
millions of dollars from foreign investors and use the money for his 
personal gain. I have seen it time and again. But, under current law, 
such individuals are not banned from the program in the future.
  Aside from the vulnerabilities, the benefits of the program are 
questionable. Even the Government Accountability Office says it is hard 
to ascertain the economic benefits.
  Most of the visas are going to urban and affluent areas at a 
discounted rate when Congress specifically intended to steer some visas 
to rural and high unemployment areas. Census tracts are stitched 
together to incorporate remote public housing developments so that 
highrises, hotels, casinos and resorts can attract investors for less 
than the statutory $1 million requirement.
  The Judiciary Committee held a hearing on this specific issue. Though 
Congress intended for most EB-5 investments to be made at the $1 
million level, nearly all are made at the $500,000 level because of 
gerrymandering. That is just not right. Gerrymandering allows very 
affluent areas to benefit from the lower investment threshold, 
resulting in little incentive to invest EB-5 funds in distressed or 
rural areas, as was envisioned by Senators when it was created.
  The senior Senator from New York says we don't know how cities work. 
He doesn't think projects should or could be built in the Bronx. He 
says they will commute and work on 5th Avenue where luxury condos are 
being built. Those in New York jump over rivers and go through Central 
Park just to connect to low-income neighborhoods.
  As a result, smaller and economically depressed cities are forced to 
compete with Beverly Hills, Miami, and Manhattan. Foreign investors--
who ultimately want a green card--want to put their money in glitzy 
hotels and luxurious condo projects where there is a higher return.
  Targeted employment areas are at the heart of the controversy about 
EB-5 and are the principal reason we were unable to pass commonsense 
reforms last year. Yet we proposed a lot of good reforms. For example, 
the Grassley-Leahy-Conyers-Goodlatte proposal, for the first time, 
incentivized EB-5 investment in manufacturing and infrastructure 
projects.
  Manufacturing employers create direct, long-term, quality jobs in 
their communities. As for infrastructure, we have lots of needs in the 
Midwest, including rail and river transportation, wastewater treatment 
plants, and bridges. More EB-5 capital in infrastructure projects would 
reduce the

[[Page 13416]]

burden on taxpayers, especially when local governments are up against 
Federal mandates.
  We also proposed reallocating the visas--carving out enough for rural 
and high unemployment areas but leaving more than half of the visas for 
projects that come in at the higher investment level. We even offered 
to give affluent areas their own carve-out. Yet one proposal suggested 
to us was to make the visas cheaper. They want to reduce the amount an 
investor has to pay for a green card. They also want more visas. The 
demand for visas is through the roof, yet they want to reduce the 
price.
  My colleagues and I have been willing to engage with other Members on 
this issue. We have made so many concessions. I am not sure how much 
more we can give, especially when there are increasing calls to end the 
program. The status quo is not acceptable. It is time for things to 
change.
  I encourage my colleagues to join the ranking member and me in our 
request for reforms. I hope this body will think twice before allowing 
the program to continue as is.

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