EB-5 Chief Gets a Gentle Grilling on EB-5 Problems

By David North on February 2, 2016

Nicholas Colucci, the DHS official in charge of the EB-5 program within USCIS, got a sustained, fact-based, but courteous, grilling for two hours earlier today as he sought to defend the administration's handling of the controversial immigrant investor program at a hearing before the full Senate Judiciary Committee.

With the chair of the committee, Chuck Grassley (R-Iowa), and the senior Democratic member, Pat Leahy (D-Vt.), both calling for drastic reforms in the program, and Sen. Dianne Feinstein (D-Calif.) seeking to kill the program completely, Colucci spent much of his time at the witness table skillfully (I must admit) bobbing and weaving as he faced a barrage of tough questions about the fraud-ridden program.

The other witness, Stephen L. Cohen, Associate Director, Division of Enforcement, Securities and Exchange Commission, had an easier time. He told of 19 investigations of EB-5 projects, half of which uncovered fraud, with his agency cleaning up after DHS mistakes (not his words). He had a much more pleasant morning than Colucci, and he never had to be defensive about what SEC does in this field.

When asked about the possibility of unclean money being used to fund the EB-5 investments by aliens, Colucci kept saying that the agency was paying attention to the problem, but the "burden of proof was on the petitioner" (the alien). In the courtly tradition of the Senate, no one said "yes, but your agency makes the judgment on whether or not the burden is met."

Much of the conversation was about the "targeted employment areas", sets of census tracts that are supposed to have at least 150 percent of the nation's unemployment rate, but that are often ungainly territories that string together a Fifth Avenue site with a distant slum. EB-5 funds are supposed to be spent in depressed areas, such as properly selected TEAs. His response was that his agency's regulations gave the states total control of this economic mapping. No one asked: "Why hasn't your agency repealed that regulation?"

Another way for DHS to fend off embarrassing questions is for the agency to not compile statistics on sensitive topics. The agency, for example, could easily total up the investments in each of the states and territories that have EB-5 investments, but that would mean demonstrating that most of the money is being spent in ritzy urban locations where other sources of financing are easily available. So Colucci could say, with surface honesty, that he did not know how the money was distributed among the states. He did say that the states with the largest allocations of EB-5 funds were, in order, California, New York, Texas, and Florida.

Similarly, he claimed no knowledge when asked about the extent to which foreign governments had stakes in the EB-5 program as investors or as owners of the EB-5-created regional centers that steer aliens' money into specific projects. (We will cover what is known on that subject in a subsequent posting.)

The Judiciary Committee has 20 members (11 Republicans and nine Democrats), and 11 of them attended the hearing, some only briefly. This showed a high level of interest in the program. For understandable reasons — it was the morning after the Iowa caucuses — Ted Cruz (R-Texas) was not among them.

The only voice against the extension of the law, a key part of which is now scheduled to expire on September 30, was that of Sen. Feinstein. Four others, Grassley, Leahy, Jeff Sessions (R-Ala.), and David Perdue (R-Ga.), asked tough questions and were clearly worried about the extent of fraud and national security problems, as well as the heavy urban tilt in the use of the moneys.

Five other senators, through their soft questions, signaled their support for the status quo or only mild changes in the program. In that category were Jeff Flake (R-Ariz.), who has written a mild reform bill; Chuck Schumer (D-N.Y.), who is quite happy with the current urban tilt of the program; Richard Blumenthal (D-Conn.); John Cornyn (R-Texas); and Amy Klobuchar (D-Minn.).

I could not quite make out the position of Sen. Thom Tillis, the freshman GOP senator from North Carolina, who was also present. So neither side has a pronounced majority.

There was one interesting development involving another freshman Republican senator, David Perdue of Georgia. He alone took a (totally appropriate) global view of the situation, pointing out that the $2-3 billion in EB-5 funds brought annually to our economy is a tiny sum when compared to the routine additional foreign investment in the United States of $250 billion a year. He also made a comparison of the size of the EB-5 funds to the $2 trillion held by corporations and "trapped overseas by our tax policies". Refreshing.

(Disclosure: The last time that the U.S. Senate had a hearing on EB-5, back in 2011, I was the only witness opposing the program; I was invited to it by Sen. Grassley.)