When the System Is the Scam
by

The best rackets are legitimate.

A century ago, the people accepted flagrant public corruption. Dim cynicism the popular spirit, it’s likely they’d still be so disposed today. But the politicians and their swarms of supplicants have acquired subtlety and subterfuge. Why press their luck?

We still have the graft and boodle that Lincoln Steffens chronicled in The Shame of the Cities, but now it’s all above-board. The best schemes are almost indistinguishable from the regular function of government. Almost. In the back rooms, somebody puts in a word for somebody, somebody threatens somebody, but that’s the part we don’t hear about.

It’s the bad luck of Terry McAuliffe, the Clinton barnacle-turned-Democratic governor of Virginia and a rumored presidential candidate in 2020, that his wheedling and arm-twisting inside the federal bureaucracy is now a matter of public record. He got sued last week, along with Hillary Clinton’s brother Anthony Rodham, accused of running “a $120 million scam” to defraud Chinese immigrants.

Did McAuliffe break the law? That’s almost beside the point. The essence of modern graft is crony capitalism — you don’t break the law, you make the law work for you.

The game: set up an obstacle, then offer a way past it for a price. We usually think of crony capitalism as tilting the field in favor of one company or one industry through preferential regulation, but McAuliffe’s arrangement was an even purer form. After all, what is the nature of government? It is to forbid, to restrict, to alter affairs from their natural course. Government creates problems and then pretends to offer a solution.

The EB-5 investor visa program is one long chain of government-created problems and solutions.

Foreign direct investment is of course an unalloyed good for the U.S. economy, but immigration law stands in the way of many potential investors. The laissez-faire thing to do would be to make visas freely available and get out of the way, but that would be too simple.

So the actual process involves a million-dollar minimum investment in exchange for a visa, which was too high, so Congress created a $500,000 alternative, but complicated it by requiring the investment be for a Targeted Employment Area where jobs were scarce — usually the sticks or the ghetto. There are job creation minimums, and if you want to pool investors, the project has to be approved by the government.

Basically, instead of a free-flowing river of capital, you get a series of interconnecting locks like the Panama Canal. Only some of these ventures don’t get you across Panama. McAuliffe’s sure didn’t.

McAuliffe was one of the guys who ran GreenTech, a company whose business model was designed to fit even more government regulations and incentives: GreenTech made electric cars, little Neighborhood Electric Vehicles that go 25 mph, and cost $16,000. You’ll notice I said “made,” and not “sold,” as there has been zero consumer interest in a pricey golf cart that can’t even hold golf clubs.

McAuliffe used to brag about being the “founder” of the company, which wasn’t quite right, but closer to the truth than the distancing attitude he has now, with a spokeswoman describing GreenTech as “a company Governor McAuliffe left five years ago.”

In April 2013, McAuliffe announced that he had left the company, claiming he had done so four months earlier, after my former employer Watchdog.org investigated his dealings in GreenTech, and in particular its use of the EB-5 visa program. The response from GreenTech was a federal lawsuit, later dismissed, to try to shut down the reporting.

GreenTech objected most of all to the use of the term “fraud” in the reports, although the term was an analyst’s opinion of the EB-5 funding model, not the entire business. The complaints ranged from the petty — Watchdog had referred to GreenTech HQ as a “broom closet” — to the apparently disingenuous — Watchdog made “false assertions that EB-5 funding is GTA’s chief source of funding and its long-term plan for continuing capital.”

GreenTech wanted to pretend that it had all sorts of capital from investors — the business plans quickly scaled up into a multi-billion-dollar operation — but the latest lawsuit states that Chinese investment “was actually 100 percent of GreenTech’s financing.” If that’s true, then the only people who put money into the company were folks who thought they were also buying visas.

That had a lot to do with why the state of Virginia had refused to get involved with the project, despite McAuliffe’s pull there. In 2009, the state’s veteran economic development director told colleagues, “(I) still can’t get my head around this being anything other than a visa-for-sale scheme with potential national security implications.”

When an economic development official, whose business is crony capitalism, finds your model suspect, I think you’re due some congratulations. That’s like making Louis C.K. blush.

Eventually, McAuliffe set up shop in Mississippi, thanks to $8 million in land, grants, and other incentives. The state is now in litigation to claw back $6.4 million from the company.

Now, it’s the Chinese investors’ turn to make allegations. They say GreenTech’s assurances that the company had plenty of capital from diverse sources amounted to fraud. They also say the company guaranteed a return on their investment in violation of EB-5 program requirements.

“They told investors they had received more orders than they could keep up with,” a claim that’s always problematic in fraud cases, although this one might be defensible. As one visitor to GreenTech’s plant said, “They talk of a big assembly line. They had six cars.”

The investors said GreenTech even told them the company had won its lawsuit against Watchdog.

One thing investors weren’t deceived about was the mount of pull McAuliffe and Rodham had with the U.S. Citizenship and Immigration Services. A 2015 Department of Homeland Security audit found that McAuliffe and Rodham applied enough pressure on USCIS Director Alejandro Mayorkas, who in turn forced staff to reverse decisions that were unfavorable to GreenTech.

During one meeting about a decision on approving GreenTech’s plans, Mayorkas allegedly told stubborn staffers, “Just give it to me. I’ll write the f—-g thing myself.”

The staff there found the project not “credible” and “pie in the sky,” according to the lawsuit.

For folks who believe in government and regulation, that’s the important thing — staff would have made a good call if it weren’t for political pressure from Clinton cronies. But debacles like Solyndra show that you can’t make that generalization.

The real problem, the more general problem, is that the government is in any position to be assessing the viability of a commercial venture, one that’s bent out of shape from the start thanks to political dictates.

If we’re going to do investor visas, they ought to be straightforward, and useful for any type of legitimate investment in American business. Allowing unapproved start-ups, of course, could open the door to different sorts of scams — a fake business goes belly-up and slips the cash back to its “investors.”

I think you could work around it, though. Require investors to maintain a stake in a taxpaying business for five years or so before they get a green card. Require them to take out a new investment if the first goes under. But if folks want to pour money into the economy for the simple privilege of hanging out here, we ought to profit off it.

As it is, the system itself is the racket, whatever the motives of people like McAuliffe.

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