Congress is now considering reauthorization of the scandal-ridden EB-5 foreign investor program, which will expire at the end of this month unless lawmakers act to extend it. Reform proposals intended to curb the worst abuses have been advanced by Sens. Charles Grassley, R-Iowa, and Patrick Leahy, D-Vt. But even if those measures would be effective — of which there is no guarantee — we believe the program should be allowed to expire.
EB-5 grants permanent residency in the United States to up to 10,000 foreign nationals each year who are willing to invest $500,000 to $1 million in an enterprise that eventually creates at least 10 full-time, permanent jobs in economically depressed areas of the country. Grassley and Leahy assert that fraud is rampant in EB-5, and see reauthorization as the means to increase oversight and address other issues, such as national security concerns.
Leahy has had ample opportunity to observe the fraud issue first hand in his home state, in the context of a series of development projects at Jay Peak and in the city of Newport, of which he was an early booster. The developers were accused this year by the U.S. Securities and Exchange Commission of engaging in a massive fraudulent enterprise over eight years in which they systematically looted millions of dollars from foreign investors. One of the developers, William Stenger, has reached a settlement with the government; the case against the other, Ariel Quiros, is pending.
Elsewhere, EB-5 money has also been used to build luxury condos, convention centers and hotels in wealthy areas, even though it is supposed to target rural or high-unemployment urban areas. This apparently has been accomplished by a sort of gerrymandering in which developers added a few low-income neighborhoods to wealthier ones in order to qualify.
And according to The New York Times, federal investigators have learned that people with possible ties to the Chinese and Iranian intelligence services have tried to make use of the program. Moreover, a Government Accountability Office report concluded that EB-5 contains no mechanism to ensure that foreign investments are not being made with laundered money that originated in criminal activities such as the drug trade or human trafficking.
Developers and other supporters argue that the program, which is operated under the auspices of the Department of Homeland Security, has brought big investments in areas that generally lack access to capital. We tend to think that projects that have merit will attract investors no matter where they are located. But even if not, surely the government could devise tax incentives that would spark domestic investment in these hard-pressed areas.
Scandal aside, the program is fundamentally flawed and should be allowed to go out of business. It assigns immigration priority to a group of people whose primary qualification is wealth, and who, by virtue of it, get a short-cut to permanent residency for themselves and their families. This must be profoundly discouraging to other applicants who are assessed on such factors as their education and job skills. Moreover, it sends the wrong message to the rest of the world about what America values most. Surely, the United States is already wealthy enough to assess those seeking admission not on how much money they have accumulated so far but rather on their ability to contribute, spiritually as well as materially, to the common good for years to come.
- Vermont EB5 Regional Center
- UNITED STATES SECURITIES AND EXCHANGE COMMISSION
- Chuck Grassley
- Patrick Leahy
- Ariel Quiros
- Bill Stenger
- State of Vermont vs Bill Stenger & Ariel Quiros
- UNITED STATES SECURITIES AND EXCHANGE COMMISSION vs Ariel Quiros & Bill Stenger
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