By Joe Guzzardi
September 16, 2016
A little-known visa, the EB-5, has been so widely linked to fraud and abuse that Congress has targeted it for an overhaul. The Washington D.C. legislators would have to look no further than to a tiny Vermont town near the Canadian border, Newport, to see the economic misery EB-5 has wrought.
First, the back story. The EB-5 program allows foreign nationals to invest $1 million, or $500,000 in rural or high unemployment areas, in a commercial business. In exchange, the investors receive green cards and eventually, U.S. citizenship; essentially, EB-5 puts citizenship up for sale. EB-5 supporters defend the visa on the grounds that the businesses the foreign nationals invest in must eventually employ, directly or indirectly, a minimum of ten American workers.
But unsurprisingly to its numerous critics, the EB-5 quickly spun out of control and veered far away from its original intent. Instead of creating manufacturing jobs, developers have exploited the EB-5 to build luxury condos, convention centers, and upscale hotels. Each year, the federal government issues about 10,000 EB-5 visas, 80 percent of which go to wealthy Chinese citizens.
The increased EB-5 scamming has become so pervasive and so obvious that Senate Minority Leader Harry Reid, (D-Nev.) and the Chairs of the Senate Appropriations Committee wrote to Majority Leader Mitch Mc Connell (R-Ky.) demanding reforms. The letter pointed to “cases of fraud and securities violations, money laundering, exploitation of investors, abused program incentives, and failed projects,” and called for providing the Department of Homeland Security with the tools necessary to expand background checks, to conduct onsite visits and audits, as well as to better scrutinize projects and investors. Reid and his Senate colleagues also demanded better compliance with securities laws, and higher investment thresholds in the hope that more money will go to the needy communities the EB-5 programs was created to help.
Among those communities in need, but devastated by an unscrupulous EB-5 investor, is Newport. According to Vermont’s Valley News, with enthusiastic support from Governor Peter Shumlin and a state congressional delegation, a 2013 EB-5 project promised to revitalize downtown Newport with a half a dozen new projects including a biomedical research plant that would allegedly create 10,000 new jobs. The projects had a $600 million price tag. But on my recent trip to the northern border that included a visit to Newport, the site of the proposed Renaissance Block Redevelopment Center, was a gaping hole that Shumlin confessed was, in a dramatic change of heart, “a complete bust.” An unsealed Securities and Exchange Commission report found that Newport’s EB-5 investors were “systematically looted” of $200 million. The SEC charged that one of the Renaissance project’s founders, Florida businessman Ariel Quiros, had allocated $50 million for personal expenses including the purchase of a $2.5 million New York condominium.
The EB-5 visa sunsets on September 30, and Congress has tentatively moved to eliminate the fraud widely associated with the program. But a better solution would be simply to let EB-5 expire. California Senator Dianne Feinstein identified the best reason to end EB-5 when she said that the visa sends a terrible message to the millions of immigrants patiently waiting their turn to enter the United States legally. EB-5, said Feinstein, announces that American citizenship is for sale, and America should have higher values.
A Californians for Population Stabilization Senior Writing Fellow, Joe can be contacted at [email protected] and followed on Twitter @joeguzzardi19