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Time to abolish EB-5: Thoughts on the DHS IG Report on Deputy Secretary Mayorkas

Yesterday the DHS Office of Inspector General released a lengthy report examining the allegations that then-USCIS Director Alejandro Mayorkas, who now serves as Deputy Secretary at DHS, provided favorable treatment to several companies that were involved in the EB-5 Immigrant Investor Program, an issue that arose during his confirmation process to be Deputy Secretary in 2013. You can read the full IG report at this link; at the end of the report is a lengthy rebuttal by Mayorkas of the allegations made in the report. Both Secretary Jeh Johnson and Mayorkas released press statements yesterday in response to the release of the report.

I have a lot of respect for the work of the DHS Office of Inspector General, but after reading the full report and Mayorkas’s rebuttal, I’m inclined to agree with Sec. Johnson’s primary interpretation of Mayorkas’s actions with respect to the cases discussed in the IG report:

Like me, he is often impatient with our sluggish government bureaucracy, can at times be very hands-on in resolving issues and problems that are brought to his personal attention, and is always mindful that we are public servants. Ali works hard to do the right thing, and never acts, in my observation, for reasons of personal advancement or aggrandizement. These personal attributes are reflected in the Inspector General’s report.

My main takeaway after reading the full report is that the EB-5 program – a creation of Congress – should be abolished. At the very least, it should be significantly narrowed to allow visas only for direct investors in real businesses, not the shell companies – the so-called “regional centers” – that seem to dominate this program.

The fundamental economic premise of this program is highly questionable. Any new or growing company that has a good business plan and solid economic prospects should be able to raise capital by securing commercial loans, finding private investors, and utilizing government programs such as the Small Business Administration’s loan programs. Any business that is unable to raise funds through such traditional means, and instead turns to a program such as EB-5, is either (a) one that has a flawed business plan or (b) doesn’t need EB-5 but is using it to lower their cost of capital and engage in rent-seeking behavior. Both of these are distortions of the free market, to the disadvantage of companies’ competitors and at an intangible cost in terms of using our immigration system as a “means” in support of other policy objectives.

The questionable economic basis for the EB-5 program – and the possibility of undeserved economic gains from rent-seeking – are an invitation to cronyism. USCIS (and formerly INS) have responded to these conditions by trying over the years to tightly administer and regulate the program – something that the IG report makes very clear in its description of the highly bureaucratic processes with respect to the cases in question. Ironically, these same bureaucratic processes within the EB-5 program make it even more of an insider’s game, with only a handful of companies able to have sufficient scale to invest in the expertise needed to navigate the program.

Congress will likely express outrage and dismay over this IG report, but it needs to consider its own role in creating and then expanding such a program in the first place. The IG report and Mayorkas’s response make clear that many members of Congress have tried to use this program throughout its history as a pseudo-earmark, pushing USCIS to approve EB-5 proposals that would provide economic benefits in their states or districts, without regard to the fundamental soundness of such investments. By contrast, Congress has a sparse record of oversight and scrutiny of the program’s efficacy in the past decade.

Hopefully this episode will lead to a reexamination by Congress of the value of the EB-5 program, and ultimately to either a termination of the program or changes to it that eliminate the opportunities for rent-seeking behavior and cronyism.