Critics say immigrant investor visas subsidize real estate projects in wealthy areas
By Kent Hoover
Tampa Bay Business Journal
Published: Feb 2, 2016

Congress is considering major reforms to a visa program that rewards up to 10,000 visas a year to foreigners who invest in new businesses in the U.S..

The EB-5 immigrant investor program has resulted in $8.7 billion worth of foreign investment in U.S. businesses over the past three years and has created more than 35,000 jobs in America, according to U.S. Citizenship and Immigration Services.

Most of this money isn't invested directly in U.S. startups. Instead it's invested with nearly 800 USCIS-approved regional centers, public or private entities that promote economic development in certain areas. In this case, foreign investors don't have to show that their money has created jobs in specific businesses; instead they get credit for jobs created indirectly by the development projects funded by regional centers.

That's where the program is being abused, according to some members of Congress. To be eligible for visas that can ultimately lead to green cards, foreign investors must invest $1 million in new businesses that create 10 jobs in the U.S. But that threshold falls to $500,000 if the investment is made in a rural area or areas with higher-than-average unemployment.

Some states are gerrymandering the boundaries of so-called "targeted employment areas” to make new hotels and other commercial real estate projects in well-to-do areas eligible for the reduced EB-5 visa investment requirement.

"Census tracts are stitched together to incorporate remote public housing developments so that high rises, hotels, casinos and resorts can attract investors for less than the statutory $1 million requirement,” said Sen. Chuck Grassley, R-Iowa, who chairs the Senate Judiciary Committee.

"How many more projects in midtown Manhattan at the expense of rural America need to be highlighted?” Grassley said at a Tuesday hearing on the issue.

Sen. Patrick Leahy of Vermont, the committee's ranking Democrat, said the program "too often serves as a corporate subsidy for mega developers.”

Grassley and Leahy failed last year to enact legislation that they say would restore the program to its original intent - "ensuring meaningful incentives to invest in underserved areas,” in Leahy's words.

But they're going to try again this year, helped by the fact that the program will expire at the end of September if Congress takes no action.

But Sen. Chuck Schumer, D-N.Y., said it would be wrong to impose a rural model on EB-5 investments. New York City has poor people as well, he said, and residents of the South Bronx travel across several census district to work in or on a new Manhattan office tower financed through the EB-5 program.

"I don't see why a poor person who lives in the South Bronx should be any less entitled to the benefits of the program than a poor person in Iowa or Vermont or anywhere else,” Schumer said.

USCIS is considering issuing regulations to ensure that states use more consistent criteria to define targeted employment areas, said Nicholas Colucci, who heads the Immigrant Investor Program Office.

Where EB-5 dollars are being invested isn't the only problem with the program, however. Grassley said the program is "riddled with flaws and corruption.”

Foreigners, for example, get credit for a project's job creation even if EB-5 money is only a fraction of the total money invested in the business venture.

The Securities and Exchange Commission has filed 19 cases over the past three years involving EB-5 offerings, nearly half of which involved allegations of fraud.

Plus, the Department of Homeland Security's enforcement arm has expressed concerns that the program "could be used by Iranian operatives to infiltrate the United States,” Grassley said, and is vulnerable to exports of sensitive technology, economic espionage and use by foreign government agents and terrorists.

"My view is this program should expire,” said Sen. Dianne Feinstein, D-Calif.

She's not only concerned about fraud and national security, she doesn't think it's right to "provide a special path for the wealthy to become citizens” when 4.4 million are waiting in line for visas.

"The right to immigrate should not be for sale,” Feinstein said.

Other senators, however, said the program should be reformed, but maintained because of its positive impact on the U.S. economy.

Other immigration programs, such as H-1B visas for highly skilled workers, also exist in order to serve America's economic needs, said Sen. Jeff Flake, R-Ariz.

The EB-5 visa program "is one just one of those programs, and it has been a very successful one.”