EB5 Investors Magazine "Top 25 Awards Edition" Volume 8 Issue 1 | Page 77

“ inde b te dness” unde r 8 C F R 20 4.6 (e). 3 T his p olicy eventually made its way into the USCIS Policy Manual, where it currently resides today. 4 THE ORIGINAL ERROR The AAO case referenced above claimed that because the AAO had previously 5 precluded cash obtained from a loan taken out in the name of the new commercial enterprise on the basis of the definition of “capital” at 8 CFR 204.6(e), 6 that all cash proceeds derived from a loan must be evaluated as indebtedness. This was an extraordinary leap from the facts of the precedent decision Matter of Soffici, where the cash proceeds of the loan obtained by the investor in that case were actually the proceeds of a loan obtained by the new commercial enterprise, not the investor. 7 T h u s , b e c a u s e M a t te r of S of f i c i t r e a te d t h e c as h investment of a loan obtained by the new commercial enterprise as “indebtedness 8 ” and not “cash,” therefore all cash proceeds of a loan invested in an new commercial enterprise, regardless of who actually took out the loan, must be evaluated as “indebtedness.” An investment of “indebtedness” is subject to additional regulatory scrutiny in accordance with 8 CFR 204.6(e), which was further interpreted by the precedent decisions Matter of Izummi and Matter of Hsuing. 9 (a) collateralized by assets of the investor and (b) such collateral was equal to or greater than the cash investment (i.e. the collateral had a value of $500,000 or more). Likely one of the first publicly available decisions applying this policy was issued by the Administrative Appeals Office (AAO) on May 29, 2014, wherein the AAO upheld the denial of an I-526 petition based on this policy. 1 While this decision initially esc ap e d wid es p read notic e , the issue bubbled into the open o n a F e b r u a r y 2 0 15 U S C I S stakeholder engagement 2 wherein four separate attorneys, including this author, challenged USCIS’ assertion that an investor who obtains a loan using a third par ty ’s collateral and invests that loan has not met the definition of “capital” under 8 CFR 204.6(e). This stakeholder engagement was followed by the first written announcement of USCIS ’ policy on April 22, 2015, which, at that point, only existed through adjudications. This announcement laid out that proceeds of a loan used for EB-5 i nve s tm e n ts a re c o nsi d e re d THE AAO CONFUSES THE REGULATIONS The AAO’s decision dated May 29, 2014, and the USCIS policy which flowed from it, was badly flawed. For starters, “indebtedness” is another way of describing an amount of money owed. 10 As Matter of Izummi characterized it, being indebted is the same as owing a promissory note. 11 A promissory note is a promise to pay in the future, not a present investment of cash. Thus, equating an investment of cash in a new commercial enterprise to a promise to pay in the future does not comport. "In 2014 USCIS began issuing denials of certain I-526 petitions based on the claim that cash investments in new commercial enterprises were not actually cash investments, but rather were investments of indebtedness" This plain language review of 8 C.F.R. § 204.6(e) makes clear t h e e r r o r of U S C I S . 12 U n d e r the Last Antecedent Rule of statutor y and regulator y i n t e r p r e t a t i o n , “A l i m i t i n g clause or phrase ... should ordinarily be read as modifying only the noun or phrase that it immediately follows.” 13 Applying this rule to the text of 8 C.F.R. § 2 0 4 . 6 (e) , t h e r e q u i r e m e n t that a capital contribution to a new commercial enterprise be secured is only applicable to contributions of indebtedness (e .g . a p r o m i s s o r y n o te). I n o t h e r wo r d s , i n c r af ti n g t h e EB5INVESTORS.COM 77