Why the
Definition of Capital
For the Purposes of the
EB-5 Program Should Be Broad
by Dillon Colucci
The purpose of the EB-5 program is to foster foreign
investment in the United States that will create jobs in underdeveloped areas.1 Indeed, one of the recent bi-partisan proposals
to amend the law which enables the EB-5 program to function
explicitly states, with respect to the regional center aspect of the
EB-5 program, that such program “…has been designated by
the Secretary of Homeland Security on the basis of a proposal
for the promotion of economic growth, including prospective
job creation and increased domestic capital investment.”
Despite this, beginning in the middle of 2014 and culminating
in written guidance issued on April 27, 2015, USCIS has made a
policy decision to disallow investments of cash when such cash is
not fully secured by the alien entrepreneur’s assets.2 It is believed
this policy decision stemmed from a non-binding Administrative
Appeals Office (AAO) decision from May 2014.3 In that case,
the AAO determined that Matter of Soffici, a precedent decision
from the AAO, precluded cash proceeds obtained via a loan from
being evaluated as if they were “cash,” as that term is used at 8
C.F.R. 204.6(e).4 Thus, the AAO found cash proceeds obtained
via loan must be analyzed as if such cash were “indebtedness.”
Accordingly, the AAO evaluated the “cash” in question as
if it was a contribution of a promissory note, which is how
“indebtedness” is defined under Matter of Izummi and Matter
of Hsiung.5 Izummi and Hsiung laid out strict guidelines of how
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a promissory note can be valid under the EB-5 program, which
include the requirement that the promissory note be fully secured
by assets of the alien entrepreneur.
Unfortunately, this analysis is very flawed. By definition, a
promissory note is a promise to pay in the future, not a present
investment. Practically speaking, a promise to pay is the antithesis
of a cash investment. Thus, equating an investment of cash
to a promise to pay in the future does not make logical sense.
Furthermore, it appears contrary to the goal of promoting
economic growth to constrain the ways and means for alien
entrepreneurs to invest lawfully obtained capital into private
enterprises in furtherance of the creation of jobs for U.S. workers.
The definition of “capital” under the regulations is as follows:
“cash, equipment, inventory, other tangible property, cash
equivalents, and indebtedness secured by assets owned by the
alien entrepreneur, provided that the alien entrepreneur is
personally and primarily liable and that the assets of the new
commercial enterprise upon which the petition is based are
not used to secure any of the indebtedness. All capital should
be valued