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Legal aid groups say the fraud is a longstanding issue, as confusion around the immigration legal system creates opportunities for exploitation.
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The restrictions would be triggered when unauthorized crossings reach or exceed an average of 2,500 per day in a seven day period.
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Shonda Okonda denies the allegation that he misrepresented himself as a legal expert.
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Around 250 asylum seekers, mostly from Angola, the Democratic Republic of the Congo, and Haiti, have arrived in the city over the last year.
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The state revoked the lodging license for all but five of the motel's 128 rooms, finding they were being used for long-term stays. A follow-up inspection by the city found code violations including a cockroach infestation and improperly registered rooms.
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While some new immigrants are able to get on their feet fairly quickly, others can face headwinds based on language barriers and access to training opportunities.
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Part of the money will help support asylum seekers, which is likely to encounter opposition from Republican lawmakers.
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GOP lawmakers are increasingly critical of the tens of millions spent to house asylum seekers but have yet to offer concrete alternative solutions.
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Immigration officials said only Congress has the authority to adjust the statute.
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Earlier this year, several groups scrambled to set up a transitional housing program in the Frances Warde house as the city grappled with a growing crisis for pregnant and new mother asylum seekers.