I was browsing the recent stories flagged by the group, Investigative Reporters & Editors, and noted one involving alleged fraud in a project in Vermont funded via the EB-5 visa program (“Red flags preceded fraud allegations at Jay Peak Resort“).
It reminded me of a column I wrote for Civil Beat back in late 2012, which looked inside how the visa program, which allows foreign citizens to get a “green card” and permanent U.S. residency in exchange for large investments in job-producing projects.
It might be time to take another look at how Hawaii projects tied to the visa program are doing.
In the meantime, here’s my column that first appeared in 2012. Still a good read, I think.
It’s always good to know someone when you want a job.
October 23, 2012
One of the benefits of being a reporter is that you get to exercise your curiosity.
And so when I saw the news last month that UH West Oahu was facing a cash flow crunch because an $18 million loan had been unexpectedly delayed for several months, I decided to take a closer look at the deal.
My routine check into that tardy $18 million loan turned up an unexpected bit of apparent political patronage involving a personal friend and spiritual mentor to former Gov. Linda Lingle.
Here’s the story.
The EB-5 immigrant investor program
Construction of the new UH West Oahu campus was initially planned to be paid for with revenue bonds issued by the university, but a series of change orders drove up construction costs and forced the campus to line up additional financing. When the $18 million loan didn’t close on time, there wasn’t enough money on hand to pay all the bills. The Board of Regents was forced to draw on other funds to temporarily cover the gap at West Oahu.
The West Oahu loan was put together by New York-based CanAm Enterprises using the federal EB-5 Visa program, which offers foreign investors a path to a “green card” and permanent U.S. residency for themselves and their families in exchange for an investment of $500,000 in a qualified local company or project.
This loan is being funded by 36 foreign investors recruited by CanAm and organized into a limited partnership. The investors’ money is in an escrow account while the proposed deal is being scrutinized by the U.S. Citizenship and Immigration Service to see if it meets program requirements.
USCIS must confirm individual investors have documented the source of their funds to prove the money was legally obtained, and the project has to show the planned investment will create at least 10 fulltime permanent jobs for each participant. In this case, that would be 360 permanent jobs created that would not otherwise exist without the loan.
Felicia Imperator, a spokesperson for CanAm’s New York office, said the company “has no reason to believe the project will not be approved.”
Inside the CanAm contract
CanAm administers the Hawaii Regional Center, the state’s EB-5 program, under the terms of an exclusive 5-year contract awarded in 2008 by the Department of Business, Economic Development and Tourism. The contract was approved and signed by then-director Ted Liu, a Lingle appointee.
CanAm was selected to rescue a program that had been floundering and was in danger of losing federal authorization.
Although the contract didn’t require the state to pay for CanAm’s services, it authorized the company to collect several types of fees, some on an ongoing basis, from both the immigrant investors and the businesses receiving financing.
CanAm initially said the company expected to place between $50 million and $100 million in investments annually, making its percentage fees potentially quite lucrative.
Making the connection
A year after the contract was signed, CanAm was ramping up its Hawaii program when Liu suggested the company hire Rabbi Itchel Krasnjansky as its local representative.
Krasnjansky, along with his wife, Pearl, are primarily known as leaders of the Orthodox Jewish organization, Chabad Lubavitch of Hawaii, for over two decades. The group now offers religious services, as well as a Hebrew school, a Kosher deli, and a community center in a side room on the main floor of the Ala Moana Hotel formerly occupied by a nightclub.
Perhaps more relevant were his strong ties with Liu’s boss, then-Gov. Lingle, who he describes as a personal friend and who met with the Rabbi weekly to study the Torah during her two terms as governor. Krasnjansky’s Chabad Lubavitch was invited to host a kosher Seder at Washington Place each year on the Jewish Passover holiday, another indicator of their close ties to the governor.
Krasnjansky also had the governor’s ear on the issue of civil unions, which he strongly opposed and was later described as a key advisor behind her decision to veto HB444 during the 2010 legislative session.
Liu’s recommendation, noted later in a company report, likely carried considerable weight. Following several conference calls and a meeting in New York, Krasnjansky was hired.
It is difficult to determine, from the public record, what relevant business experience Krasnjansky brought to his new assignment, which required at least some familiarity with the arcane federal rules governing EB-5 program eligibility.
The responsibilities of CanAm’s local representative, according to documents filed with DBEDT, included promoting the investment program as an alternative source of financing for local businesses, responding to inquiries, and “facilitating CanAm’s due diligence investigations — including reviewing business plans, budgets, financial statements, and other pertinent information.”
In addition, the local representative “should have experience abroad working with immigration programs such as the EB-5 Program,” Liu wrote in a June 23, 2008, letter to the head of the foreign investor program at the USCIS.
Liu’s letter concluded: “To have the requisite skills and background to perform the above duties, the liaison will likely be an already established attorney, business leader or entrepreneur in Hawaii who is seeking to expand his or her existing activities within Hawaii through the Hawaii Regional Center.”
CanAm President Tom Rosenfeld, in a written response this week to questions about Krasnjansky’s selection, said only that he “came highly recommended by reputable members of the business community.” Rosenfeld did not mention Liu’s role in bringing the Rabbi and the company together.
“Mr. Krasnjansky played an important role in introducing the EB-5 Program to prominent business leaders in Hawaii,” Rosenfeld wrote, “and we continue to have a high regard for him.”
Rabbi Krasnjansky did not respond to a request for comment about his work for CanAm.
State business registration records show Krasnjansky was an officer or agent for four Hawaii businesses in addition to several nonprofit groups related to Chabad Lubavitch. Two of the companies were administratively terminated by state regulators after they failed to file required annual reports, and the other two are currently listed as “delinquent.”
The patronage game
It was, by all appearances, a classic example of the power of patronage, the ability of the governor to put friends and supporters into the way of financial opportunities. Classic politics, rewarding your friends, and unusual only in that this time it became a matter of public record.
It’s also the kind of wheeling and dealing that isn’t restricted to one party or the other.
Just weeks after Maui attorney and former state Rep. Tony Takitani served as emcee for Gov. Neil Abercrombie’s inauguration ceremonies in December 2010, he was selected by CanAm to replace Krasnjansky as the company’s exclusive local representative.
CanAm’s Rosenfeld said, in a written statement: “In addition to a law degree and practice expertise in real estate and land use law, Mr. Takitani is well positioned to identify qualifying investments and facilitate due diligence investigations in connection with prospective projects.”
Takitani, in a subsequent email, clarified that while his firm has expertise in real estate and land use law, he does not personally have practice expertise in those areas.
In any case, Takitani certainly has the professional skills and experience to do this job well, but his political credentials are just as strong.
Takitani, a veteran campaigner, was part of Abercrombie’s campaign team and kitchen cabinet, and is currently the governor’s official representative on the East-West Center’s Board of Governors.
According to his law firm’s website: “He previously served on the Hawaii Health Systems Corporation, the Maui United Way and served as Maui United Way Distribution Chairman, the Motor Vehicle Insurance Task Force, the Maui Memorial Medical Center Foundation and the Maui Memorial Medical Center CEO Selection Committee.” He was also appointed by Senate President Shan Tsutsui to the 2011 State Reapportionment Commission.
In a telephone interview, Takitani said he didn’t know how he had been selected.
“They called me one day and said that I was somebody that paid attention to things,” Takitani said. “They asked me to assist. It’s as simple as that.”
When asked if his name had been suggested by someone in the Abercrombie administration, Takitani demurred.
“I’m not exactly sure, but it wasn’t the administration,” he said.