GAO Uses Tired Approach to EB-5 Fraud, Misses Real Chance for Change

By David North on September 19, 2016

The extent of fraud in the immigrant investor (EB-5) program is a subject of importance, one we at CIS have reported on frequently, and have mapped, and one that deserves a more spirited approach.

So it was with some anticipation that I read the recent Government Accountability Office (GAO) report on fighting fraud within the program. Sadly, the GAO document suggests a metaphor from medieval warfare:

The bad prince (symbol of the EB-5 fraudsters) is holed up in the big castle, and the good guys, on the outside, want to capture it.

The GAO approach would be to check their textbook, maybe in Latin, make sure that their procedures were in place, and then plan a series of time-tested practices — such as getting siege equipment to toss big rocks and flaming torches at the castle, checking on the possibility of digging a tunnel under the walls, and, of course, making sure that no food or supplies were delivered to the place.

It would all be very well organized and within all the traditions. No one could fault the plan. And, over time, it might work.

On the other hand, one of the observant good guys might notice that one of the smaller doors to the castle is sometimes left ajar on Thursday nights; he tells his chief, the good guys charge through the door on a Thursday night and soon they have control of the castle and the bad prince.

The GAO report, "Immigrant Investor Program: Progress Made to Detect and Prevent Fraud, but Additional Actions Could Further Agency Efforts", with its totally predictable title and tone, is largely focused on its version of my imaginary Latin siege textbook. It is the all-purpose, I am sure praiseworthy, "fraud risk framework". Some version of it presumably could be used to prevent pilferage in post offices and in multi-million-dollar scams in war-time procurement. And yes, an agency should have a plan like that.

The GAO approach in this case, as it is in many others, is to use its own inside staff to look at a problem within another organization and then use standard, time-tested techniques to evaluate problems and their solutions. There is nothing in this report to suggest that the anonymous GAO staff talked to anyone in the EB-5 industry, to anyone in any other federal agency, or to any of the program's critics.

Let me suggest another approach — like watching that castle door on Thursday nights.

One of the ways that an agency can secure information on fraud is through whistle-blowers — people in the know who, at some risk to themselves and often, but not always, hoping for a reward — provide information that is not readily available through (or gets suppressed in) regular channels. Such programs are operated in many parts of the government — such as in the Medicare Program, as well as in IRS and Securities and Exchange Commission, often with dramatic results. There is nothing like this in USCIS to supplement in-house fraud fighting activities.

GAO could have made such a suggestion without any EB-5 -specific information; it is a good idea, and a particularly apt one, currently, given the recent (and totally appropriate) increases in EB-5 fees that DHS has mandated. This gives the agency more money to try such things.

GAO also could have made a few phone calls, totally within the government, and found (as I have known for the last 12 months) that there is a large flow of mixed information — some very high quality, and some not, about the very specific failings within the EB-5 program in the United States, and particularly about its fringes in China, the source of about 90 percent of the EB-5 investments. I see it all the time.

I know, first-hand, that there are several people in the whistleblower office and in the FOIA operation of SEC who have detailed knowledge of such information flows. I guess GAO does not know that.

I have seen hundreds of pages of such information, some in English and some in Mandarin with multiple leads to various forms of chicanery. Much of it appears both rock-solid and pertinent to the EB-5 program.

Much of the information is designed for the SEC (and I see copies of it); other interesting material comes from a dozen other sources, perhaps from people with scores to settle. It is all out there, and USCIS should set up a rewards program to use this material, which is now largely going to waste.

Let me elaborate on this. For an excellent, one-scam example of such information, see my earlier blog post in which I passed along quite specific information, including the name and the phone number of the U.S. promoter concerned, in which EB-5-like benefits were offered for the (illegally low) rate of $380,000 when $500,000 is the minimum legal price.

Here's another example of the kind of tip that would appear to be useful to USCIS: A different source suggests that if an EB-5 promoter is advertising in the China market, and is not making it clear that there is a multi-year wait for EB-5 visas, then there is a strong likelihood that some of those advertisers are engaged in other illegal behaviors. That source, I think an EB-5 insider who wants to preserve the program by cleaning it up, provided a list of links to some 30 internet sites that push EB-5 in English and in Mandarin, but do not mention the waiting time. (If someone in the government wants to see this, just let me know.)

As to the rewards in this program, bear in mind that this is a perfectly legitimate transfer of non-taxpayer funds (more specifically fees paid by the foreign investors) being used to protect those investors as well as our government, generally. My sense — again we are working with the aliens' money — is that in addition to the big rewards provided when a criminal conviction or a civil settlement is reached ultimately there should also be a scattering of smaller rewards in the $10,000 - $20,000 range for solid information such as described in the prior paragraphs.

All of this is like the night-time scrutiny of the small outer door in the castle.

And why was that mythical door ajar on moonless Thursday nights? It was so the castle's wine steward could sneak out to visit his lady love, and lacking the key, he had to leave it slightly open so that he could return through it before dawn.

GAO — or at least this report's author — does not think in those terms.