EB-5 Reform Bill Introduced in Senate

By Preston Huennekens | FAIR Take | November 2019

Senators Lindsey Graham (R-S.C.), Mike Rounds (R-S.D.), and John Cornyn (R-Texas) introduced a bill that would alter the controversial EB-5 immigrant investor program. The EB-5 program allows wealthy foreigners to acquire green cards if they invest in a business in the United States that creates or preserves 10 permanent full-time jobs for Americans. Widespread fraud plagues the EB-5 program. It also fails to stimulate rural communities, with investors flocking instead to New York City, Los Angeles, and other major metropolitan areas.

The Department of Homeland Security (DHS) recently finalized new rules governing the program that take effect November 21. The new rules raise the minimum required investment and give DHS the power to designate areas fit for EB-5 investment, rather than local entities. Investors, adept at gaming the program in its current form, oppose the rule changes.

At the same time, these senators have crafted legislation behind-the-scenes with EB-5 lobbyists that would water down these rule changes and includes some troubling provisions. The senators named their bill the “Immigrant Investor Program Reform Act” (S. 2778). If it became law, the bill would extend the EB-5 program’s authorization until 2025 and establish new minimum investment levels. It would also allow 30,000 people in the EB-5 backlog to get work authorization through a massive expansion of parole.

EB-5 investors can invest in a regular project or can invest a smaller amount of money in a “targeted employment area” (TEA) – generally a place with few people and few opportunities. This bill would raise the initial investment amount to $1.1 million for regular projects and $1 million flat for TEA projects. It was previously only $500,000 for TEAs. These amounts would rise with the consumer price index after 2022. The bill also introduces some oversight measures, including an “integrity fund” paid for by fees on EB-5 applicants.

This bill would allow the 30,000 queued EB-5 visa applicants to enter the United States through a little-known administrative tool known as parole. In the context of immigration, the DHS secretary has the power to individually allow aliens to remain in the United States and get work authorization. Parole is applicable when aliens are otherwise not admissible to the U.S., despite applying for a visa. It is usually only used in case-by-case bases for humanitarian reasons. Using it to bring broad classes of aliens into the country is wrong and sets a dangerous precedent. In the future, an open-borders DHS secretary could abuse this mechanism to justify decisions such as Deferred Action for Childhood Arrivals (DACA).

To use this bill as a mechanism to reduce a backlog for wealthy investors is ridiculous. Politicians, immigration experts, and the media criticize the EB-5 program as a failure. The Bloomberg editorial board called for the program’s end in 2018:

The program’s goal of promoting inward investment and jobs is worthy, but this approach has worked badly. Almost all the investment goes to New York City, San Francisco, Houston and other metropolitan areas, where it provides cheap financing for real estate developments that achieve their “high-unemployment” designation through gerrymandered districts. The Department of Homeland Security says it can only “speculate” about the overall effect on investment and jobs. A plausible speculation is that the effect is minimal.

The bill is unnecessary now that DHS plans to implement new rules at the end of November. Those rules address many of the concerns the Bloomberg piece cites. The new rules will drive most investment out of urban areas and into rural communities that need investment. DHS will have a firmer hand in enforcing and overseeing the program’s rules, rather than relying on local actors or the investors themselves.

The Graham-Rounds-Cornyn bill is a weak, developer-supported attempt to water down the impending rules changes and bring in 30,000 EB-5 backlogged visa applicants for no real reason. Senators Chuck Grassley (R-Iowa) and Patrick Leahy (D-Vt.) introduced the bipartisan EB-5 Reform and Integrity Act (S. 2540) that goes farther in combatting fraud and improving transparency. The Grassley-Leahy bill, importantly, does not sneak in 30,000 visa applicants through the parole process, but rather decreases petition processing times so as to avoid future backlogs.

The EB-5 program is largely unnecessary, ridden with fraud, and betrays its original purpose. The Immigrant Investor Program Reform Act is a weak attempt at reform that paroles thousands of aliens into the United States for no clear reason. Instead of caving to EB-5 developers and lobbyists, the Senate should welcome the new November rule changes to EB-5 and work to enhance and strengthen these measures.