Banking and Finance

Senator Tom Coburn’s Report Irrationally Condemns the EB-5 Program

 At the end of January, 2015, US Senator Tom Coburn’s office issued an internal report assessing the mission and performance of the Department of Homeland Security. It is no secret that Senator Tom Coburn, a former Ranking Member of Committee on Homeland Security and Government Affairs, is one of the most prominent opponents of the EB-5 Immigrant Investor Program. His report unapologetically reflects that bias.

EB-5 visas account for less than one percent of the total permanent-residence visas issued in 2014, but have become a critical source of capital for high-profile urban-development projects in cities like New York, Seattle, and Los Angeles. Senator Coburn’s latest report comes as Congress is poised to take up the program’s reauthorization later this year and just as Congressman Jared Polis introduced a bill that would ensure the permanency of the program.

Senator Coburn’s Infamous Letters:

EB-5 practitioners may recall that in early 2014, Senator  Coburn circumvented USCIS and DHS OIG processes, by seeking extensive information directly from every approved regional center, as well as from its trade group, the Association to Invest In the USA (IIUSA). The senator justified his “oversight efforts,” as a means to “shed light on various challenges facing the federal government that should be addressed by agency management and congressional oversight.”

Many regional centers challenged the Senator’s request, as it asked for internal, sensitive data which, it was argued, could impair the RC’s ability to serve existing center clients, allowing one regional center to leverage and exploit competitive commercial information amassed by another regional center.

Approximately 53 percent (or 227 of 430) of the EB-5 regional centers did not provide any form of response. Roughly half of the 203 regional centers that did respond to the letter reported not receiving any EB-5 investments since that time. Fewer than 60 regional centers disclosed either that they had received EB-5 investments or that they were awaiting USCIS approval. Only 43 of the EB-5 regional centers that responded disclosed the amounts of the EB-5 investments they had received, which totaled an estimated $3.585 billion. Twenty-one (21) regional centers asserted that the information requested was confidential and proprietary. Ten (10) regional centers provided responses that did not contain any of the information requested in Senator Coburn’s letter.

Coburn’s Groundless Critique

The Senator’s criticism of the EB-5 Program focused on national security. The report stated that there are “significant vulnerabilities in this EB-5 visa program, including the potential for it to be exploited by criminals, terrorists, foreign government agencies and intelligence operatives, and other adversaries.” It echoes some of the absurdities posited in the leaked memo by Sen. Chuck Grassley asserting that HSI fears that Iranian operatives may have infiltrated the program.

There is no explanation as to how he arrived at this illogical conclusion, other than by making unfounded assumptions. The senator overlooked the important fact that EB-5 investors undergo rigorous scrutiny at various different levels, beginning with the funds being they are required to deposit in escrow. An EB-5 applicant is expected to disclose the source of the investment, requiring the investor to provide probative documentation in the form of  bank statements, incorporation records, transaction records, five-year tax filings, and more -  an onerous process for a would be terrorist.

The report further asserted that “USCIS also manages a program which invites fraud . . . . This includes investing in USCIS-approved “Regional Centers,” which pools funds and makes investments.”  The Senator’s unsubstantiated claim also ignores the diligent and effective work of the State Department, the SEC and other bodies that our tax dollars pay to deter law breakers. The Senator’s report comes at a time when – as confirmed by the latest Stakeholder Engagement reports — USCIS has moved aggressively to strengthen and improve the EB-5 program by increasing security concerns, program integrity, predictability and transparency.

EB-5 is a Priority of the White House

Although Coburn’s report conveys an extremely negative tone regarding the EB-5 Program, the report reveals that the Department of Homeland Security and the White House view the EB-5 Program as a priority component of economic growth and job creation. Participation in the EB-5 visa program has increased significantly under the current administration, from 1,360 immigrant investors in 2008 to reaching the cap of 10,000 investors in 2014. Meanwhile, the number of regional centers approved to participate has grown to at least 601.

Moreover, the White House contemplates expanding the EB-5 program to foster economic growth. The President’s Council on Jobs and Competitiveness, which issued an interim report recommending “five common-sense initiatives to boost jobs and competitiveness,”  even suggested that the 10,000 cap should be eliminated altogether and that the EB-5 Program should be advertised worldwide.

The Jobs Council agreed that “we need to fully subscribe and radically expand” the EB-5 program. The Jobs Council further stated that, “If the EB-5 program reaches maximum capacity, it could result annually in the creation of approximately 4,000 new businesses, $2 billion to $4 billion of foreign investment capital and create 40,000 jobs. But streamlining the application process and fully subscribing the program is just a start. Why have any cap on this kind of visa at all? Why not advertise it worldwide?”

The EB-5 Program –  Up-front Friend not Unsavory Foe

In late 2014, Senator Chuck Grassley (R-Iowa), a long-time EB-5 opponent, replaced enthusiastic EB-5 supporter Senator Patrick Leahy (D-Vermont), as the new chairman of the Judiciary Committee. Senator Grassley and Senator Coburn joined forces to express their views, emphasizing the purported impartiality of their judgments concerning the EB-5 Program. In support of a letter written to regional centers, they cited the “Forensic Assessment of Financial Flows Related to EB-5 Regional Center,” a report written by or on behalf of the National Security Staff for the White House in late 2013. The timing of that Assessment is telling and Grassley’s and Coburn’s use of the Assessment is intentional.

Events occurring in 2013 changed the EB-5 industry tremendously. A, That year, the biggest securities fraud in EB-5 history, involving  the Chicago Convention Center (ACCC), was exposed by the Securities and Exchange Commission (SEC). The Regional Center established by Mr. Anshoo Sethi sold $145 million in securities to more than 250 investors, primarily from China. The SEC awarded $14.7 million, the second largest whistle blower award ever granted , to Mr. Michael Sears, an investment adviser who spent 30 minutes to fill out a whistle blower form on the SEC website disclosing suspicious activities he observed in the ACCC’s marketing efforts.

Interestingly, the Grassley/Coburn letter to approved regional centers demanding information, also came at a time the Senate was debating President Obama’s nomination of former USCIS director, Alejandro Mayorkas to serve as Deputy Secretary of the Department of Homeland Security (DHS). In seven pages of dense, three-column text published on December 20, 2013 in the Congressional Record (pp. S9072-S9079), the EB-5 regional center program figured more prominently than any other area managed by Director Mayorkas during his four-year term at USCIS. Over strong objection by Mr. Mayorkas, Republicans claimed that whistleblower complaints had been filed alleging improper intervention by Mr. Mayorkas in an adjudication of an EB-5 regional center project headed by Anthony Rodham, Hillary Rodham Clinton’s younger brother, resulting in a long-simmering investigation by the DHS Office of Inspector General.

Senator Grassley and Senator Coburn revealed that in the face of this controversy, White House and National Security Staff (NSS) had initiated an inter-agency review of the EB-5 program, the draft stated that the “capital raising activities inherent in the regional center model raise concerns about investor fraud and other conduct that may violate U.S. securities laws” and “there is risk that EB-5 program participants may attempt to use the program as a tool or channel for money laundering, tax evasion, or other illicit financial conduct.”  The NSS draft document reviewed cases of fraud and criminal activity in the program and wrote, “the case studies reveal that one of the primary vulnerabilities is that regional center developers may take immigrant investor money under false pretenses and fail to undertake or execute on the business plans presented to both the investors and USCIS. The consequences are also possible violations of federal immigration laws, securities laws, and criminal laws, in addition to possible state law violations.”

Regrettably, the Grassley/Coburn opposition to the EB5 investor program, particularly as operated in the regional center context, took advantage of the unfortunate, isolated events of 2013 as support for their mischaracterization of the program and its impact. The Coburn report affords a strong indication of how much work is yet to be carried out on the Hill to ensure that the EB5 Investment Program undergoes a smooth transition to permanency when the Pilot Program comes up for renewal by the September 30, 2015 deadline.

Conclusion:

It is simply absurd and unsupported to single out the EB5 Investor  Visa as the entry point for so- called terrorists or criminals seeking to unlawfully gain entry to the United States. To engage in the tedious, highly scrutinized application process, pay out investment money and various fees close to $600,000, create the required number of jobs, navigate rigorous compliance requirements, and  submit to ongoing scrutiny in order to come and live in the US, is not an economically  or operationally viable option for terrorist infiltration.

Senator Coburn’s accusations towards the EB-5 Program are no more than fear mongering. The EB5 Program has not been exploited by criminals and terrorists for money laundering and tax evasion. His report is riddled with assumptions and errors, blatantly ignoring  the positive impact of the EB5 program  in favor of his biased view of regional centers.

Indeed, more than 85% of the EB-5 applicants are from China. Their motivation in  applying for the EB-5 visa over the past few years  is to enable their children’s access to education in US schools. Most of these investors refinanced or sold their homes to make the cash investment $500,000 into US based new commercial enterprises.

The EB5 Program is responsible for a $5.5 billion direct foreign investment into the US economy. This cash injection has not only created American jobs as required in the EB5 projects, but has created the value added in EB-5 service suppliers such as lawyers, accountants, investment advisers, marketing firms, banks, brokers/dealers, and others in the business sector.

[Footnotes contained in the original article were omitted.]

 Mona Shah has over 17 years of legal experience, with more than 13 years concentrated in U.S. immigration law and litigation. Mona’s extensive knowledge of all facets of U.S. immigration law, and her practical expertise ranges from specialist business petitions to complicated, multi-issue deportation and removal litigation. Mona Shah and Associates, represents individual, high profile and corporate clients from all over the world. Mona is highly proficient and experienced in EB-5 law and practice, and is the author of a published book for investors on the EB-5 laws and procedures (EB5 for the Chinese Investor, available on Amazon). The second updated edition is scheduled to be published shortly. Mona has been voted Top 25 EB-5 Attorneys by eb5investors.com two years in a row and Top 10 EB-5 Attorneys by eb5info.com. She is also an adjunct professor at the Zicklin School of Business at Baruch University.

 Yi Song is an attorney at Mona Shah & Associates in New York City. Yi is a dual licensed attorney in New York and in People’s Republic of China. At Mona Shah & Associates, Yi practices EB-5 law and securities law. Prior to joining Mona Shah & Associates, she worked at a securities litigation firm in Manhattan. Yi serves on the advisory board of eb5investors.com Magazine Chinese Edition and is a speaker on American Immigration Lawyers Association (AILA) EB-5 Conference. She writes a column for the Chinese newspaper Legal Weekly on American law and society. She is a graduate from Georgetown University Law Center in Washington, DC.

Read more from Mona Shah & Associates

For more information about LexisNexis products and solutions, please connect with us through our corporate site.