GAO Report on EB-5 Is a Mixed Bag: Some Zingers, Some Major Gaps

By David North on August 13, 2015

Wednesday's GAO report on the EB-5 program, "Immigrant Investor Program: Additional Actions Needed to Better Assess Fraud Risks and Economic Benefits", contained some useful elements — such as the finding that USCIS is not trying hard enough to identify fraud and threats to national security — but there were major gaps in what it should have, and could have, covered.

The EB-5 (immigrant investor) program provides a set of green cards to investors (and their families) in exchange for (usually) a half-million-dollar investment in the U.S. economy through USCIS-approved channels. These are normally real estate deals.

Sen. Chuck Grassley (R-Iowa), chair of the Senate Judiciary Committee, who had asked that a GAO investigation be conducted on the subject, immediately praised the report stating in a press release that the report:

Highlights the lack of rigorous oversight of the EB-5 regional center program, specifically how the agency [USCIS] fails to analyze risks, continuously assess fraud and accurately measure economic benefits.

Some of the other problems that GAO found were these:

  • It has difficulty figuring out the source of some of the invested funds, which are supposed to come from lawful sources;

  • The agency's reliance on "paper-based documentation" undercuts its ability to weed out fraud and abuse; and

  • The agency does not appropriately track the economic impacts of the EB-5 program.

While the report is written in the ultra-cautious, understated style of such documents, it pointed out some details of USCIS's failings that were both glaring and unknown to me.

For example, the agency does not record basic information such as the name, address, and date of birth of the petitioners for regional centers — the middleman agencies that deal with the alien investors, on one hand, and the users of the capital, on the other. Nor does it get these details about the investors into the electronic data system. (This hampers anti-fraud efforts.)

Similarly the agency rarely conducts site visits (to see if the claimed economic activity is actually under way) and never interviews investors before the green cards are issued.

The report gently suggests at one point that USCIS is really not very well versed in evaluating the economic and business matters before it.

What I found new and appalling in the report is that USCIS arranged for the U.S. Department of Commerce, presumably at USCIS expense, to conduct an economic study of the EB-5 program that was solely focused on the benefits of the program and would not even mention, must less evaluate, the costs. That kind of behavior is more or less to be expected from USCIS these days, but that Commerce would go along with such a study design is troubling.

GAO, in my eyes, failed to even mention a series of variables that should have been covered, program elements that should have been discussed, no matter how embarrassing to the administration.

At the macro level, there is the question of the program's impact on the American economy generally; others have noticed that the additional foreign investment in the U.S. economy represents a drop in the proverbial bucket (though useful to some EB-5 middlemen). This is the elephant in the room.

There was no attempt to lay out with any specificity the threat scenarios that need to be addressed, from the hoodwinking of alien investors by some of the middlemen to the attempts by other alien investors to use the program to buy into such sensitive areas as the construction of a field office for the FBI.

Further, there was no effort made to discuss the obvious disconnect of a program that is supposed to bring foreign capital to depressed rural and urban areas, and does not do so. In that context, I remember a conversation with a skilled business reporter from the Los Angeles area who asked me: "If the EB-5 program is supposed to be for depressed areas, how come all the projects are in the glitziest parts of town?"

The answer — which is not mentioned by GAO — is that USCIS has allowed a definition of "targeted employment area" that is so loose that just about any location in the United States would qualify. In an earlier blog I showed how a TEA could be constructed in Washington, D.C., that included the affluent neighborhood of the White House. It would be qualified under USCIS rules as a depressed area.

Finally the numerous scandals within the program, such as political interference in the decision-making process, are skimmed over lightly while the enormous EB-5 problems in South Dakota are not even mentioned. You can just about hear the sighs of relief from USCIS headquarters.

This report was, incidentally, based on an almost completely inward-looking process. The GAO's feds talked to other feds, looked at federal procedures, and examined federal government records, all useful parts of such a study. It would have been helpful if the massive GAO study team (the acknowledgments mention 14 names) would have done a literature search, or talked to more outsiders, such as aliens who lost their investments and their green cards, as a result of program operations. It would have been helpful to name some names, too, other than those that are already in the court system. (Deputy Secretary of DHS Alejandro Mayorkas, who as USCIS director was charged with political interference in the program by the department's then acting inspector general, is not named, and is identified only as a "former director" of USCIS.)

While the report has many useful elements in it, the work product also represents a lost opportunity to really examine the EB-5 program, warts and all.