Various observers have raised concerns that South Dakota's use of the EB-5 visa investment program may have opened our doors to Chinese spies and mafia. Now, two years after Iowa Senator Charles Grassley started beating the drum about the possible national security risks posed by EB-5, ABC News goes to town and trumpets the evidence we've had for two years that EB-5 is rank with fraud and corruption:

But an ABC News investigation found that in addition to reaching wealthy foreign investors, the program has become a magnet for those seeking to sidestep the scrutiny of the traditional immigration process. In one case, immigration officials pushed through a visa application from Chinese investor in a Las Vegas hotel project despite an internal review that found the investor had previously been turned back at the border, and much of his visa application had likely been fabricated, immigration records show.

A Feb. 1, 2013 Homeland Security internal review obtained by ABC News also lays out in stark detail the breadth of the troubles afflicting some of the roughly 600 so-called regional centers -- private sector entities certified by Homeland Security to recruit foreign investors for specific business ventures that will qualify for EB-5 visas. The document summarizes 41 investigations, some open and some now closed, into allegations ranging from espionage to fraud to drug trafficking involving investors in various EB-5 investment projects [Brian Ross and Matthew Mosk, "Whistleblowers: US Gave Visas to Suspected Forgers, Fraudsters, Criminals," ABC News, 2015.02.03].

Ross and Mosk mention our own Senator Mike Rounds and his love of EB-5, though they fail to get into the details. They also mention well-placed Democrats Terry McAuliffe and Nevada Senator Harry Reid (whom this blog mentioned in connection with EB-5 last November) as having used EB-5 to do favors at the expense of national interests.

ABC News also mentions an EB-5 connection to Iranian terror networks (also reported on this blog in December 2013). ABC News says that EB-5 will come before the Senate Judiciary Committee, which Senator Grassley chairs, this year. Fortunately for us, Senator Mike Rounds is not on that committee. Maybe he'll be called to testify about why he gave such strong support to a program that appears to promoted crime, corruption, and possibly risks to American security in projects across the nation.

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Senator Charles Grassley (R-IA) continues to press his case that the EB-5 visa investment program threatens national security. In response to Democrats' pushing ahead with the nomination of Alejandro Mayorkas as deupty secretary of the Department of Homeland Security, Senator Grassley yesterday released a recent redacted internal memo from Homeland Security Investigations that Grassley says justifies his concerns.

The memo calls into question the integrity of the "regional center" model, used in South Dakota and across the country to recruit and manage foreign investments of $500,000 to $1,000,000 in various business ventures. South Dakota's EB-5 regional center is under investigation by the FBI. According to the HSI memo, the entire EB-5 program has been subject to scrutiny for two years:

The EB-5 program and the RC model in particular, became the focus of an interagency review in early FY 2012. In reviewing the program, ICE Homeland Security investigations (HSI) representatives learned that USCIS was not conducting background record checks of RC operators, managers, and principals. Based on this review USCIS changed business practices to include checking EB-5 sponsor company names, associated addresses, and individuals against the TECS subject record database. USCIS has since found a number of links between EB-5 sponsors, businesses, principals, and associated addresses, with the subjects of HSI and other agency investigations [Homeland Security Investigations, internal memo, 2013, released by Senator Charles Grassley, 2013.12.12].

A number of links—the memo gives the example of an EB-5 investor representing "an Iranian front company suspected of involvement in facilitating terrorism and proliferation activities." But Homeland Security is saying that sloppy oversight of and by the regional centers has allowed multiple instances of shady suspects getting into the country.

The HSI memo lists seven major vulnerabilities of the EB-5 program:

  1. Export of Sensitive Technology / Economic Espionage
  2. Use by Foreign Government Agents / Espionage
  3. Use by Terrorists
  4. Investment Fraud by Regional Center
  5. Investment Fraud by Investors
  6. Fraud Conspiracies by Investors and Regional Center
  7. Illicit Finance / Money Laundering

No wonder Governor Dennis Daugaard is backing away, hemming-and-hawingly, from EB-5.

Homeland Security says those vulnerabilities arise from EB-5's relatively lax and hard-to-verify eligibility criteria:

Unlike most other permanent resident visa classifications, EB-5 beneficiaries do not need to establish a significant and verifiable background for program eligibility. For example, permanent resident classifications for employment require proof of education and/or experience, while family-based visas require positively demonstrating bona-fide relationships. These classifications provide greater information that can be researched, vetted, or cross-checked than that required of an EB-5 applicant. Conversely, the primary requirement for EB-5 eligibility is a lawful source of investment income. However, verifying the legitimacy of investment income sources is difficult. Therefore, the primary qualifying criteria for EB-5 beneficiaries is both limited in scope and hard to confirm [HSI via Grassley, 2013].

Homeland Security also questions the job creation formulas the regional centers use to determine whether each EB-5 investment has created the ten jobs necessary to win permanent U.S. residence for the EB-5 investor:

HSI... has reason to believe that the RCs are greatly exaggerating their indirect and induced job creation figures. By not having to provide evidence of jobs directly created, the RC inherently creates an opportunity for fraud, where the business goal can be initiating projects that give the appearance of creating job growth, with the sole intent to meet USCIS criteria rather than produce jobs [HSI via Grassley, 2013].

Anyone think Northern Beef Packers, a boondoggle that burned up money from 160 EB-5 investors, took four years to build and open, and employed meat packers for only nine months before going belly up, might fit the description of "giv[ing] the appearance of creating job growth"?

Homeland Security recommended major changes in the EB-5 program:

  • Double the minimum investment amount, which hasn't changed since regional centers began running EB-5 in 1992.
  • Restrict EB-5 visas to direct participants in EB-5-funded businesses.
  • Count only direct job creation, not the mathematical figments of indirect jobs.

But Homeland Security would rather see the EB-5 program dead:

...HSI maintains there are no safeguards that can be put in place that will ensure the integrity of the [Regional Center] Model [HSI via Grassley, 2013].

Despite this advice from Homeland Security, South Dakota's Congressional delegation and President Obama all supported the reauthorization of EB-5 in 2012.

The EB-5 scandal in South Dakota is about more than misdirected money. It is about how the privatization of an immigration program opens the door for secretive schemers to put personal profit over national security.

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My Chinese is worse than Mike Rounds's. But luckily for Rounds and China, everybody speaks dollar. The Chinese state news office archives this article from July 2009 showing then-Governor Rounds, his economic development chief Richard Benda, and EB-5 visa hustler Joop Bollen happily escorting Chinese executive Wang Limin around the state and talking up Basin Electric's Deer Creek Station, a combined cycle gas power plant built in part with what appear to be $110 million in investments from 220 EB-5 visa investors via two limited partnerships (SDIF LP3 and SDIF LP7) run under the South Dakota Investment Fund.

Governor Marion Michael Rounds meets with Chinese business executive Wang Limin. Photo credit: China.com.cn, 2009.07.15.

Governor Marion Michael Rounds meets with Chinese business executive Wang Limin. Photo credit: China.com.cn, 2009.07.15.

There's Smiling Mike, not looking terribly gubernatorial as he does official business in that rumpled shirt and blue jeans, eh, Joel? Pat?

Richard Benda, Wang Limin, and Joop Bollen at Pierre airport. Photo credit: China.com.cn, 2009.07.15.

Richard Benda, Wang Limin, and Joop Bollen at Pierre airport. Photo credit: China.com.cn, 2009.07.15.

There's Richard Benda, Wang, and Bollen at the Pierre airport, getting ready to fly.

And so on.

These photos touch in part on why Senator Charles Grassley of Iowa has seen fit to push an investigation of the EB-5 program that now includes the Northern Beef Packers debacle and the EB-5 visa investments solicited and managed by SDRC's Joop Bollen, former GOED boss Richard Benda, and former Governor Mike Rounds. Review this PDF packet of inquiries and memos from Senator Grassley's office, and you'll find Senator Grassley is alarmed that, among other things, the EB-5 visa program may open a window through which Chinese intelligence could spy on the United States.

This packet doesn't mention South Dakota, but it does mention situations in which lower-level officials in the United States Customs and Immigration Service blocked EB-5 investors for security reasons but were overruled by USCIS chief Alejandro Mayorkas. Senator Grassley also finds FBI agents alarmed that their San Diego building was constructed with EB-5 investment from China.

That's tenuous stuff, but think about it: Imagine the Cold War were still on. Imagine the EB-5 program had existed then. Imagine we found out that major projects were being built with millions of dollars sent to us by Russians who in return got clean immigration papers, sometimes expedited by our own officials over the concerns of lower staff. Might we not have worried about national security in that situation?

Yes, the Northern Beef Packers/EB-5/SDRC/Bollen-Benda-Rounds story is complicated. Keep watching....

p.s.: Note that the administration of Rounds's ascendant lieutenant, Dennis Daugaard, is distancing itself from the EB-5 visa program:

Venhuizen said Daugaard still sees value in the EB-5 program as an economic development tool, but of more limited value than at the peak of EB-5 activity half a dozen years ago.

“Certainly, we have a lot of other economic development tools that are more valuable and more important,” Venhuizen said. “Some of these projects are very concerning and could make anyone hesitant about the program, but on the flip side, there have also been some notable successes, including in South Dakota, where projects that were successful were funded in part by that program” [Dirk Lammers, "Beef Plant, Federal Program Investigated," AP via that Sioux Falls paper, 2013.11.01].

Let's see how many other ways the current administration seeks daylight between itself and its predecessor.

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