What are “At Risk” Investments?

In order for an investment to qualify as eligible for an EB-5 visa, the foreign investor’s capital must be placed “at risk” for the purpose of generating a return. Evidence of such risk must accompany an EB-5 petition. The mere intent to invest is insufficient to meeting this condition, and while statute does not specify the degree of risk required, the entire amount of capital must be at risk to some degree.

Given that this concept is arguably difficult for non-financial experts and non-immigration attorneys to understand, it’s important to delve into “at risk” investments in order to ensure that intending immigrant investors understand exactly what is needed to fulfill this component of the EB-5 visa. (Of course, you’re not on your own. Our seasoned EB-5 attorneys are here at all times to help you on your EB-5 petition.)

*For a promissory note to qualify as evidence of an “at-risk” investment, it must be backed by assets for which the investor is liable and enforceable in court in the event of a demand or judgment.

Statutory Provisions

According to 8 C.F.R. § 204.6(j), an EB-5 applicant must have invested, or otherwise must be in the process of investing, the requisite, lawfully acquired qualifying amount of capital. Petitioners use various strategies, especially submitting promissory notes*, to demonstrate that they’re in the process of actively investing capital. But merely showing that their capital is committed to a commercial enterprise is insufficient, as Form I-526 must include evidence establishing that an investor alien’s capital has been placed at risk.

Despite the specific terminology of “at risk,” which the statute uses twice, no definition is provided. Instead, petitioners, their attorneys, and adjudicating officers at U.S. Citizenship and Immigration Services (USCIS) alike have to rely on a precedent-setting case decided in 1998, Matter of Izummi.

Matter of Izummi Precedent

The case, Matter of Izummi, to which we must look for guidance on what constitutes an “at-risk” investment, featured an EB-5 petitioner appealing an unfavorable decision on his Immigrant Investor Program visa application. Among the reasons the petitioner’s application was denied was its failure “to establish that he had placed the requisite capital at risk.” Notably, the decision did not take the opportunity to clearly define “at risk,” or otherwise indicate to legislators that they ought to do so. Instead, the decision defined the concept in terms of what “at risk” is not.

Background

The general understanding of an “at-risk” investment stems from the determination made in Izummi that a portion of the petitioner’s money could never have been at risk because the petitioner had been assured a return. The investor had entered into a partnership agreement that allowed him to demand a return of capital or redeem some of his initial investment. As a result, the petitioner was in effect insulated from the risk of losing his capital, and therefore failed to satisfy the “at risk” requirement. Ultimately, the agreement included a level of risk no different from that of any business creditor. “For the alien’s money truly to be at risk,” the decision stated, continuing:

...the alien cannot enter into a partnership knowing that he already has a willing buyer in a certain number of years, nor can he be assured that he will receive a certain price. Otherwise, the arrangement is nothing more than a loan, albeit an unsecured one.”

The Upshot

More plainly stated, for any investment to be “at risk,” the investment funds must be committed without guarantee of return or redemption. The evidence attesting to this requirement must ultimately show that an EB-5 petitioner faces both a risk of loss and a chance of gain with respect to his or her investment.

Post-Izummi

In a May 2013 memorandum, USCIS elaborated on the process of adjudicating EB-5 petitions, keeping the Izummi precedent at the center of its policy guidance. Among the “at risk”-related citations of this memo were three reminders:

  • If an agreement between the new commercial enterprise (NCE) and the immigrant investor, such as a limited partnership agreement or an operating agreement, states that the investor may demand a return on or redeem some portion of capital after obtaining conditional permanent residence status, that portion of capital is not at risk.
  • Likewise, if the investor is individually guaranteed the right to eventual ownership or use of a particular asset in consideration of the investor’s NCE capital contribution—such as a home or other real estate interest, or an item of personal property—the expected present value of the guaranteed ownership or use of such asset does not count toward the total amount of the investor’s capital contribution in deciding how much money was placed at risk.

    -However, during or after the conditional status period, an investor is not prohibited from receiving a return on his or her capital, as long as, prior to or during this period and before the requisite jobs have been created, the return is not a portion of the investor’s principal investment and was not guaranteed to the investor.

    • An investor’s money can be held in escrow until the investor has obtained conditional lawful permanent residence status, if the immediate and irrevocable release of the escrowed funds is contingent only upon approval of the investor’s Form I-526, and subsequent visa issuance and admission to the U.S. as a conditional permanent resident; or, in the case of adjustment of status, approval of the investor’s Form I-485. Funds may be held in escrow within the U.S. or in foreign escrow accounts as long as the petition establishes that it is more likely than not that the minimum qualifying capital investment will be transferred to the NCE in the U.S. upon the investor obtaining lawful conditional status.

    For more detailed information about the EB-5 visa, refer to the following links:

    Updated 06/09/2017