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.