by Mona Shah , Esq and Yi Song , Esq .

Proof of an investment being “ at risk ” is an important element of the EB-5 Immigrant Investor Program . A certain element of risk is what demonstrates the immigrant ’ s commitment to the investment and job creation that are central to the EB-5 program . How to present an EB-5 project as one in which an investment is “ at risk ,” and yet is not a “ risky ” project is a challenge that EB-5 practitioners have been grappling with for years . Unfortunately , although the regulations address the “ at risk ” element , neither the statute nor the existing body of EB-5 case precedents specifies precisely what the degree of risk must be . Because guidance on the matter is incomplete , developers have tested the limits of “ at risk ”. This article looks at regulations , agency interpretations and two separate cases to analyze what “ at risk ” means in practice .

Statutory provisions , regulatory requirements , and agency interpretations

The regulations clearly state that an EB-5 visa applicant must have invested or be in the process of investing the requisite amount of lawfully obtained capital at the time of filing their I-526 petition . 1 It is not enough , however , just to demonstrate that the investment is fully committed ; additionally , the I-526 investor petition must be accompanied by evidence establishing that the capital has been placed at risk . 2 This regulatory requirement has been in place since the inception of the EB-5 program , however , nowhere in the regulations does it state the exact definition of “ at risk ,” or what degree of risk is required .

1

See generally 8 U . S . C . 1153 ( b )( 5 )( A ).

2

8 CFR 204.6 ( j )( 2 ) states that , “ To show that the petitioner has invested or is actively in the process of investing . . . the petition must be accompanied by evidence that the petitioner has placed the required amount of capital at risk for the purpose of generating a return on the capital placed at risk .” ( emphasis added ).

There is no precise definition of “ at risk ” in the statute ; the term is mentioned but not defined in the regulations . In the absence of any express , affirmative definition of the term , there is no authoritative guidance as to what the degree of risk must be to satisfy the “ at risk ” requirement . The general understanding of what is meant by “ at risk ” is that the funds must be committed with no guarantee of a return or redemption . When the evidence demonstrates that the investor faces both a risk of loss and a chance of gain , the investment is considered to be at risk .

The Matter of Izummi is the source of the general definition of the “ at risk ” element , but notably discusses what “ at risk ” is not , rather than what it is . According to Matter of Izummi , if the immigrant investor is guaranteed the return of the capital investment or a portion thereof , or is guaranteed a rate of return on a portion of his or her investment , then that portion of the capital is not at risk . In Izummi , a partnership agreement permitted the investor to demand a return of capital or redeem some portion of the investment . Here , the EB-5 capital was not considered to be at risk because the investment was governed by a redemption agreement that protected against the risk of loss , and therefore , constituted an impermissible debt arrangement under 8 C . F . R . § 204.6 ( e ). From this decision it is taken that the investor must face a risk of loss in order for their investment to qualify under the EB-5 program .

Using bonds to test the “ at risk ” waters

All investors are in search of secure and safe projects , but how much security is too much to comply with the investment “ at risk ” requirement ? Some adventurous practitioners are not afraid to test the legal boundaries of the “ at risk ” requirement .

Although it may at first appear that the use of bonds violates the “ at risk ” rule because bonds are often associated with

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